Trading Losses: A Little Perspective on a Large Problem
Oct 24, 2012
Publisher: Milken Institute

Big losses by traders are back in the news. In September the trial of a former Union Bank of Switzerland (UBS) derivatives trader opened in London, and before that was the trial of JPMorgan Chase's credit derivatives traders -- including the one known as the "London Whale" -- who lost an estimated $7.5 billion on credit default swap trades.

Since 1990, there have been 15 instances when traders lost at least $1 billion (in 2011 dollars). You may be surprised to learn that almost half the loss-making trades were not at financial services firms but at the types of institutions that typically use financial products for hedging purposes as opposed to speculation. You may also be surprised to hear that the popular perception that rogue traders piled up secret losses behind the bossesaEUR(TM) backs isnaEUR(TM)t the whole story. Just six of the 15 losses involved unauthorized trading.

Read about the nature, scope and consequences of recent trading losses and the unintended effect of banking regulation that's making the situation worse -- for shareholders and for economic recovery.