One of the major points made in the article is how bringing more disclosure into the trading operations would reduce both the amount of trading activity and the losses from trading.
As previously discussed, it would have been a lot harder for Wall Street to short sub-prime securities if their clients saw what they were doing.
UBS AG apparently is the latest bank to suffer at the hands of a “rogue.” British police arrested a man on suspicion of fraud Thursday after UBS’ exchange-traded fund desk said a trader had racked up $2 billion in losses.
Trading on Wall Street, of course, is a thinly controlled game of dice. Traders put their firm’s capital at risk, but must do so with authorization. As this latest scandal shows, authorization is either easy to come by or circumvent. And as nearly every “rogue” has said in their defense, there were winners making unauthorized trades, too. The difference: they were winners....
So, why is trading beyond internal limits allowed? Because of the winners.
Enter Philipp Meyer, a former UBS derivatives trader who left the business a few years ago and wrote about the excess of the business for The Independent. To be clear, Meyer never said he made unauthorized trades, but he did offer this observation about trading. ” It was pretty clear what The Market didn’t like. It didn’t like being closely watched. It didn’t like rules that governed its behavior.”
... Ultimately, the difference between trading floor rogues and royalty is how their bets pay off, not whether they take extreme risks. As Leeson said, there’s no excuse for not catching rogue trading today or even 18 years ago: “a very simple check would have exposed it.”