Trading tactics: Soc Gen's Jérôme Kerviel and UBS's Kweku Adoboli

Like the Société Générale rogue trader, Adoboli worked on a trading desk known as delta-one

Comparisons are being made between Jérôme Kerviel, the rogue trader at the French bank Société Générale, who caused £7bn of losses in 2008, and the latest trader to face allegations of racking up losses, Kweku Adoboli.

They were both 31 when they faced the allegations for the first time and they both worked on trading desks known as delta-one, supposedly a low-risk area where tiny differences in prices are exploited to try to make big profits.

But there are also some obvious differences between the two. Kerviel was found guilty, despite his protestations, and ordered to pay €4.9bn to the bank. Adoboli has not been charged with any offences.

The function of delta-one trading desks is that they buy shares, for example, then cover their exposure, through hedging, by selling the same amount of shares. There is though usually a difference in price between the two (known as delta) from which the traders make their profit.

City sources say that they deal frequently, and in large amounts, to keep the profits coming, and that the desk at the City bank UBS had been having a particularly profitable year.

Adoboli's trading had an extra layer of complexity as he was an expert in exchange traded funds (ETFs). These are a relatively new innovation – complex packages of financial instruments intended to mimic market movements. So, for instance, while an investor might buy a FTSE 100 fund that tracked the index, since it contained all the shares in the index, a FTSE 100 ETF might not hold all the shares to copy the movements; it might comprise derivatives and other financial instruments that would allow the ETF to replicate the index's price.

As their name suggests, these ETFs are traded on exchanges and they are not all as simply structured as the FTSE 100 index example above. They can be based on commodity prices or any other type of financial product the investor wants.

There were suggestions that Adoboli had been involved in complex trading strategies involving the Swiss franc, which had been exposed after the Swiss National Bank announced last week that it was not going to allow the franc to be worth more than €0.83 (€1 equating to SFr1.20) after the two currencies had raced toward parity during the euro zone crisis.

The action by the Swiss bank was unexpected and caused the franc to move by 8% – a huge move for a currency – shortly afterwards.


Jill Treanor

The GuardianTramp

Related Content

Article image
UBS faces formal FSA investigation after Kweku Adoboli charges
Financial Services Authority has launched a formal enforcement investigation in relation to the events that led to trader Kweku Adoboli being charged with fraud

Jill Treanor

03, Feb, 2012 @11:04 AM

Article image
UBS guilty of almighty failure of control over rogue trader Kweku Adoboli | Nils Pratley
While the FSA cannot speculate on motives we don't have to be so pure – UBS was too busy counting profits

Nils Pratley

26, Nov, 2012 @3:21 PM

Article image
Banks under new pressure as 'rogue trader' loses $2bn
Kweku Adoboli, a UBS investment bank trader remains in police custody amid allegations that he cost the Swiss bank £1.2bn

Jill Treanor

15, Sep, 2011 @8:20 PM

Article image
UBS rogue trader Kweku Adoboli jailed over 'UK's biggest fraud'
Junior City player, 32, sentenced to seven years after dispensing with hedging safety nets and racking up losses of over £1.5bn

Peter Walker

20, Nov, 2012 @7:05 PM

Article image
UBS faces large fine from Swiss and UK regulators after trial
Swiss bank braced for reprimand over jailing of Kweku Adoboli for fraud

Jill Treanor

22, Nov, 2012 @8:19 PM

Article image
UBS fined £30m over rogue trader
FSA fines Swiss bank for 'serious weaknesses' in systems and controls which allowed Kweku Adoboli to rack up £1.5bn losses

Josephine Moulds

26, Nov, 2012 @5:04 PM

Article image
UBS rogue trading: man arrested in London

Kweku Adoboli has been arrested by City of London police on suspicion of fraud in connection with an alleged rogue trading incident that has cost Swiss bank UBS about $2bn (£1.3bn)

Jill Treanor and Graeme Wearden

15, Sep, 2011 @3:15 PM

Article image
Kweku Adoboli faces fourth charge
UBS trader charged with fraud relating to activities between 2008 and 2010, in addition to two allegations of false accounting and one of fraud in 2011

Sam Jones and Jill Treanor

22, Sep, 2011 @5:02 PM

Article image
UBS raises trading losses to $2.3bn

UBS chief Oswald Grübel tells Swiss weekly Der Sonntag that he has no intention of resigning

Jill Treanor

18, Sep, 2011 @5:33 PM

Article image
UBS shake-up could lead to up to 10,000 job losses
Investment banking likely to be restructured in wake of Kweku Adoboli case with loss of around a sixth of workforce

Jill Treanor

27, Oct, 2012 @12:58 AM