In September 2011, UBS was hit with a crisis and announced a loss of $2.3bn. This resulted from unauthorized trades made by Kweku Adoboli, a director of the bank’s team at the Delta One derivatives desk in London. Delta One’s products are a class of financial derivatives which have an option delta of (or approximately) one. The option’s delta is the measure of sensitivity of the derivative’s value towards movements in the price of the underlying asset, where a change in value of the underlying asset would mean a change in the price of the derivative. Having an option delta of approximately one implies that Delta One’s products are extremely volatile in the market.
The losses resulted from unhedged speculative trades on various S&P 500, DAX, and EuroStoxx index futures. These losses were masked by falsified transactions that showed bets on the opposite direction of his actual trades. Mr. Adoboli reportedly created fictitious trades using ETFs with his intimate knowledge of settlement. He also exploited the possibility of a firm to receive payment before a seller has confirmed delivery to the buyer, allowing the seller to show the cash has been received in their books.
Mr. Adoboli is facing four charges: two accounts of false accounting dating back to 2008 and two accounts of fraud.
Sources:
http://finance.fortune.cnn.com/2011/09/27/the-fine-line-between-bad-luck-and-rogue-trades/
http://www.guardian.co.uk/business/2011/sep/22/kweku-adoboli-faces-fourth-charge
http://online.wsj.com/article/SB10001424053111904106704576578591624722276.html
No comments:
Post a Comment