UBS raises rogue trading loss estimate to US$2.3 billion
Fictitious trades used to conceal unauthorized trading
By Langton James |
UBS AG says its preliminary investigation into an alleged rogue trader has uncovered a US$2.3 billion loss, up from the US$2 billion it initially estimated.
The Swiss bank said Monday that the unauthorized trading was conducted by a trader in its global synthetic equity business in London. UBS reports that it has now covered the risk resulting from the unauthorized trading, and the equities business is again operating within its previously defined risk limits. The bank also revised the size of the loss to $2.3 billion, and reiterated that no client positions were affected.
“The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months,” it explained.
The bank also explained how the loss went undetected. “The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits,” it said.
UBS says that it uncovered the problem after inquiries from UBS control functions that were reviewing his positions caused the trader to admit his unauthorized activity. The trader in question has been charged by UK authorities with fraud by abuse of position.
The bank’s board of directors has set up a special committee to conduct an independent investigation of the unauthorized trading activities and their relation to the control environment.
IE
The Swiss bank said Monday that the unauthorized trading was conducted by a trader in its global synthetic equity business in London. UBS reports that it has now covered the risk resulting from the unauthorized trading, and the equities business is again operating within its previously defined risk limits. The bank also revised the size of the loss to $2.3 billion, and reiterated that no client positions were affected.
“The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months,” it explained.
The bank also explained how the loss went undetected. “The positions taken were within the normal business flow of a large global equity trading house as part of a properly hedged portfolio. However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits,” it said.
UBS says that it uncovered the problem after inquiries from UBS control functions that were reviewing his positions caused the trader to admit his unauthorized activity. The trader in question has been charged by UK authorities with fraud by abuse of position.
The bank’s board of directors has set up a special committee to conduct an independent investigation of the unauthorized trading activities and their relation to the control environment.
IE