Trading Risk Compliance
- Is my trading floor compliant with internal policies, and legal and regulatory standards?
- Would my current controls prevent or detect violations of policies and standards?
- What changes must be made to protect the integrity of my trading operation?
The willful violation of internal or external policies represents one of the foremost existential risks for a trading organization. Unfortunately, traditional risk management systems and controls are generally incapable of detecting or preventing many such breaches, especially when they are accompanied by sophisticated efforts to cover them up. The clearest evidence of this is the regularity and severity of reported cases.
In the US, over a period of less than seven years (2002-2008), the Department of Justice Corporate Fraud Task Force issued 165 criminal indictments and 275 civil enforcement actions against companies and individuals engaging in commodities fraud and market manipulation. These resulted in fines and restitution orders exceeding $2.3 billion and prison terms ranging from 5 to 21 years. AEP, Dynegy, El Paso, Reliant and Williams were among the companies affected.
Other examples drawn from the headlines include:
- Merrill Lynch’s head energy trader is sentenced to 42 months in prison for embezzling $43 million through a false transaction scheme.
- Société Générale loses €4.9 billion (or $6.3 billion) after a trader exceeds limits and hides losses from stock index futures trades;
- Sumitomo Corporation loses $2.6 billion as a result of one trader’s rogue trading and fraud in the copper market;
- Barings Bank, one of the most venerable names in British banking, is brought down by £827m (or $1.4 billion) in hidden losses from stock index futures trades by a single trader.
Detection and Prevention
When it comes to safeguarding the integrity of your trading operations, we believe that adopting a proactive stance provides a very attractive return on investment, and we are ready to serve as your partner in achieving this important objective. We leverage our extensive experience and knowledge of best practices in all aspects of trading risk management to perform all or a subset of the following worksteps aimed at detecting, anticipating and preventing threats:
- Conduct a thorough review of trading operations to identify issues, anomalies or suspect activity requiring immediate attention.
- Identify control gaps and vulnerabilities that expose the organization to unauthorized activity.
- Define targeted technology, process and design solutions to remediate any weaknesses in the controls environment.
Forensic Analysis and Support
In the unfortunate event that a serious violation has potentially occurred or is alleged by external parties, our highly capable and experienced team can provide vital support in defense of your interests.
This will often involve detailed forensic analysis in support of the following objectives:
- Verify or disprove the occurrence of a violation;
- Assess the root causes underlying the event so as to determine an equitable allocation of responsibility;
- Provide an assessment of the magnitude of damages incurred by the company and, potentially, third parties in the marketplace.