Delta one, this is control tower two calling
Delta one, this is control tower two calling, please respond…Over
One of the first and most crucial instructions novice pilots are given in how to communicate with the aircraft control tower is to keep communication brief, clear and relevant. “Think about what you are going to say before saying it. Mentally go over exactly what you will say before touching the radio and keep it in mind.” At Delta one desk in UBS, the currency trader Kweku Adoboli’s Facebook profile had a brief, clear and relevant plea to his friends: “Need a miracle.” Having become trapped, due to the instantaneous depreciation of the Swiss franc after the SNB’s ‘peg’ decision, he was now in a big hole and knew he had no escape ladder or tunnel. A sobering thought for any traders who profited from the sharp fall in the CHF franc last week; there can often be someone else on the other side of the trade, literary banking on the franc’s continual appreciation being a one way bet.
On Delta one desk Adoboli handled proprietary dealing clients trades, trading in a variety of securities assisting clients to speculate and hedge baskets of securities. If clients wished to short Swiss equities, (expecting the franc to rise), the desk would design a trade and use a combination of; equity swaps, futures and ETFs to hopefully achieve it. Derivatives should (in theory) mirror the securities they track, in effect insure against market moves and as such shouldn’t carry any extra risk for the bank.
This episode serves to remind us just what a tightrope the line between success and failure is at the highest trading levels. With all the quants, algorithms, theories, the finest technology and minds at your disposal our industry still comes down to the phrase credited to the brilliant and infamous trader Jesse Livermore; “you never know ’till you bet!”
There’ll be many amongst us who feel empathy with the trader, some of us may have wiped out our own trading accounts, (hopefully small accounts whilst learning our craft), and whilst the phrase “it’s all relative” hardly compares to wiping out Ђ2billion we’ll recognise the feelings of pain, humiliation and hopelessness. Kweku Adoboli’s father is reported to be heartbroken after the news broke, his words bring home the human element of the loss, and before we all rush to condemn perhaps there is a simple explanation that UBS would rather not be broadcast, his huge losing trade was their losing trade, and the blame and accusation of systemic failure is ultimately theirs and not singularly his.
In an interview with Reuters, John Adoboli, a retired United Nations employee from Ghana, said he knew the financial sector was a high risk area, but he had no doubts about his son’s competence and integrity…. Read the full Story
Source: FX Central Clearing Ltd. (FXCC BLOG)
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