去年，世界证券交易所联合会（the World Federation of Exchanges）根据国别进行了一项针对同日确认（SDA）的调查。交易确认是一只毛茸茸的老鼠，蜗居在华尔街一个毫不起眼的角落，也就是运营与后台部门（Operations and Back Office）阴暗的墙角。人们现在才发现，这个部门时至今日还在靠回形针和橡皮筋工作，而高频交易员们使用的电脑则排成了行，足以使《太空堡垒卡拉狄加》（Battlestar Galactica）里的首席武器官垂涎三尺。
这个行业盈利的部门，即销售与交易，霸占了所有的荣耀、所有风头和所有的资产。而交易处理部门几乎总是跟在后面望尘莫及。瑞银集团的这起丑闻却使负责交易后事务的部门进入了公众的视线。根据《金融时报》（the Financial Times）的报道，这位被指违规操作的瑞银交易员非常熟悉确认程序，了解“已经完成交易的确认程序……可以在交割完成后再进行”。公司可能在卖家向买家确认某笔交易之前就获得该交易的支付款项。尽管在卖家的证券交付之前取出买家的现金并非易事，但卖家仍可以在自己的账簿上把这笔现金记录为已经收到的款项，甚至可以将其用于进一步交易。
瑞银违规交易丑闻曝光前不久，《金融时报》曾报道过被业内人士称为“交割违约”（fails to deliver）的现象。最近几个月来，交割违约现象大增，也就是交割日到了，买家却没有交付现金，或者卖家没有交付证券。《金融时报》数据显示，目前仅在美国市场，这种违约的规模就达到每天2,000亿美元。在美国，我们至少还知道这个数字呢，而欧洲根本就没有相应的数据。
让我们回到流氓交易员一事上来。阿多博利在瑞银集团的证券部门工作，根据《华尔街日报》（the Wall Street Journal）的说法，他的职责是进行相当“安静的交易”。据报道，其亏损源于他使用未经对冲的指数期货，一边倒地对市场走势下注；。据报道，阿多博利还通过虚构的相抵消的交易来掩盖亏损。据称，他利用ETF创造了虚构的交易，因为ETF的交割周期比实际造成他亏损的金融工具更长，这些所谓交易的对手方是欧洲公司，后者所在市场的规则并不要求确认ETF交易。
What exactly makes a person a "rogue"? We checked at thefreedictionary.com and found the first definition as "an unprincipled, deceitful, and unreliable person." Using this definition, we are not sure that Kweku Adoboli, the UBS employee alleged to have fumbled some $2.3 billion of the bank's money, would be the only employee on his desk to merit the characterization. Clearly, what makes Adoboli's actions "rogue" activity is not the fact that he allegedly lost over $2 billion, but that he lost the bank's own money.
Lest you think us unnecessarily cynical, we offer the following:
Last year the World Federation of Exchanges did a study of same-day affirmation (SDA) by country. Trade affirmation is a small furry rodent that inhabits the musty shadows of an un-sexy corner of Wall Street known as Operations and Back Office. This is the part that, as people are only now finding out, is held together by paper clips and rubber bands, while the high frequency traders run computer arrays that would make the chief weapons officer of Battlestar Galactica drool.
The revenue generating part of the business – sales and trading – has glommed all the glamour, all the publicity, and all the assets. The transaction processing piece, meanwhile, has almost always had to play catch-up. The UBS scandal has brought the post-trade piece of the business to public attention. According to the Financial Times, the accused UBS (UBS) trader had intimate knowledge "of how confirmation that trades have been done… can happen after settlement." It is possible for a firm to receive payment for a trade before the seller has confirmed the transaction to the buyer. And while it is not so simple to take the buyer's cash out before seller's the securities have been delivered, the seller can show the cash on their own books as having been received, and can even spend it in further transactions.
The FT explains that this risk is particularly prevalent in over the counter markets, where ETFs, foreign exchange options and a number of commodity derivatives trade. It is also where money market instruments trade, and we do not fancy the notion of a failure to deliver on a few hundred billion dollars' worth of short term commercial paper in what our brokerage statement misleadingly calls our "cash" balance.
One way to mitigate this risk is to require both sides to affirm a trade same day, even if the formal trade confirm document – paper or electronic – is not issued until a day or two later. The industry group review found the highest rates of SDA were in Japan, India and Hong Kong, all well above 90%. A second tier – in the 80%-plus range – includes Germany, France, the UK and China. Among leading global markets, the U.S. ranked dead last, with only 46.9% of trades being same day affirmed. One could argue that this is still a larger number of actual trades than the other markets process, but the fact remains that we rank dead last among the ten leading markets in the world – fifteen percentage points behind Brazil, fans of President Rousseff will note. There is an initiative afoot to harmonize settlement practices among some thirty different nations, each with different regulatory regimes, bank and market conventions, and different current back-office practices. We wish them luck.
Shortly before the UBS scandal broke the FT reported on a phenomenon known in the industry as fails to deliver. Fails – when the buyer does not deliver cash on settlement date, or the seller does not deliver the securities – have spiked in recent months and now average $200 billion a day in the U.S. market alone, according to the FT. At least in the U.S. the number is known. There is no equivalent data available for Europe.
Failing for survival
Some observers are convinced that banks are deliberately failing "as a way of dealing with financial stress." For a period of time – say the time between accounting cycles, or between departmental audits – fails permit a trader, a trading desk, or even an entire institution to carry on its books both the value of the securities it has sold, but not delivered, and the value of the cash it has booked, but not received. Margin rules and trading system conventions generally allow the proceeds of a sale to be used for new purchases before the cash is actually delivered, so a fail on a cash payment may go unnoticed if it is resolved before too many downstream transactions settle. Or it can set off a cascade where successive trades have to be broken, with the firm eating both its own losses, and those of its counterparties on the trades in question. This appears to be roughly the case facing UBS.
In the U.S., there is a further Never-Never-Land called "ex clearing," where aged fails go into permanent limbo. They become an off-book contract between the counterparty brokers, who agree not to pursue the matter. There is no way of knowing the dollar value of fails that have been thus dispatched, and consequently it is impossible to know what amounts of money on bank balance sheets are actually phantom capital that will never be recovered.
The FT reports that only in May 2009, after the Lehman collapse, was a fail penalty introduced in the US Treasurys market. In that month alone daily Treasury fails reached $569 billion. The U.S. now plans to introduce fails charges for mortgage backed securities, which traders say will force fails into other segments of the market. The FT reports that ETFs are now more likely to fail than are normal equity trades.
This brings us back to our rogue trader. Adoboli worked in UBS's equities division, where he was charged with running a rather "sedate trading book," according to the Wall Street Journal. The losses reportedly stemmed from one-way bets on the direction of the market, using unhedged index futures. The losses were reportedly masked with falsified entries showing offsetting trades. Adoboli reportedly created fictitious trades using ETFs, which settle over a longer cycle than the instruments on which he was actually losing money, recording them with European counterparties who were not obligated by market rules to confirm ETF trades.
In a revealing comment, the Journal article said UBS's internal risk monitoring focuses on proprietary trading in fixed income – because that is where the bank took a $50 billion write-down in 2008-2009, partly because of heavy concentration in one class of securities. "The overhaul of its risk-control system didn't address the danger of a back-office employee finding a way to fake trades." Fair enough. If an employee is determined to break the law, he will figure out a way to do it. But the equities business is in general not closely monitored "because it had typically been a client business that carried less risk." Losing a client $2 billion is called a streak of bad luck. Losing the bank $2 billion is called fraud.
UBS chief Oswald Grubel has resigned as head of UBS. Adobli sits in a British jail as he waits for his fate to be decided. Unlike SocGen's Jerome Kerviel, he does not yet appear to have taken the position that his superiors knew of his activities. We doubt there is another major shoe to drop in this matter. The bank did not have adequate controls. In retrospect everyone will clamor that it was idiotic not to anticipate employee fraud. On the UBS trading desk, a trading book was handed over to an idiot who got in well over his head, and who was apparently overseen by idiots whose risk management process consisted of initialing reams of printouts every day, rather than getting to know the trading style of their employees. The best advice we can give to UBS: don't hire any more idiots.