Rouge Trader 2.0

Reuters and others are reporting on a rouge trader at Societe General who lost more than $7.8B in fradulent direavative trades. According to various reports, somehow he was able to cover his tracks through his in-depth knowledge of trading and reporting systems.

I've been around banking IT long enough to know that we're probably not getting the full story. The event took place last weekend, and was only reported yesterday, so there would have been time for SocGen to perform initial investigations before going public. The sacking of at least 6 other people is evidence of as much. However, a detailed forensic investigation of just what went wrong would probably take even seasoned investigators more time.

I can only speculate, but a few things that might have allowed this to happen.
1) The trader may still have had access to systems allowed in his former jobs in the bank, that he should not have as a trader. De-permissioning system access for an active employee who changes departments is notoriously difficult for large banks to get right.
2) There may have in fact been collusion (2 or more people involved) that isn't being reported.

Other than that, it is hard to see how this could have happened. There should be daily reconciliations of trading and settlement records, and large positions stand out all over the place. It seems the derivatives themselves were simple index futures, and thus quite liquid, easy to price, and easy to calculate market exposure. Even if fake trades were entered into the internal system, it is hard to see how they would not have been easily reconciled against the actual trade information that back-office gets each and every day, unless those systems were compromised as well. If that was the case, then there are significant IT access, operational and trading control issues.

I would love to find out more about what actually happened. I am sure there is more to the story.