Speaking at Finextra's 'Holistic surveillance and the fight to prevent rogue traders' webcast, industry veterans David Clark and Simon Wheatley, along with Shaun Mathieson, senior consultant, global banking & markets, SAS debate whether the ongoing saga of JP Morgan's so-called London Whale trader constituted a rogue trader incident.
According to Clark, chairman of the Wholesale Market Brokers' Association, the London Whale case "doesn't jump out" as a rogue trader incident.
Clark goes on to say that, although more needs to be known about the London Whale case, it is his "understanding" that JP Morgan's head office saw the London Whale as "banking book position rather than a trading book position" that combined with the complexity of the products being traded may have resulted in an "easy propensity to recalculate the revaluation."
Mathieson agrees with Clark that the London Whale does not meet his definition of a 'rogue trader' saying that it looks to him like a trader who's made a mistake "as they [went] about their job." Although he does say that the trader involved "probably did break certain risk limits" and took on "more risk than they were meant to."
The panel argued that the line between an error, even a costly error, on the trading floor and a rogue trader incident, such as have been recently reported at Société Générale and UBS, is the element of fraud and a deliberate effort to conceal the mistake.
Clark and Mathieson discuss the London Whale in a clip from the webcast here.
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