SocGen rogue shows traders have lost animal factor
What happens in a market where you can no longer smell the fear or see the greed? Jerome Kerviel happens, say some seasoned stock market traders.
Banks eye star staff at stricken SocGenStock markets have been a hazardous arena since at least the mid 17th century, but some say the junior trader blamed for a $7 billion (3.6 billion pounds) loss at Societe Generale was a predictable accident, since a shift to electronic trading.
They say the anonymity of electronic markets, combined with the more cerebral skills needed to negotiate increasingly complex risks, are adding to the perils of a job risking multiple millions of dollars daily.
"If you are a computer hacker, and if you are computer literate with knowledge of the back office, the system is there to be broken," said David Buik, a market commentator at Cantor Index in London, who set out as a trader 44 years ago.
Many dealers are sceptical that 31-year-old Kerviel, who has achieved notoriety on a scale eclipsing Barings trader Nick Leeson, is solely to blame. But they say he has served to highlight an advantage modern systems have lost: the animal factor.
"I love the PC and the rest of it, but get a life! It's about people looking people in the face, seeing body language, seeing whether they're lying to you, seeing if they're being truthful," said Buik. "I prefer to see the whites of their eyes. I want to see the fear, I want to see the joy."
The global conversion to electronic trading - largely triggered by London's 'Big Bang' financial deregulation in the 1980s - has cut costs and massively boosted the number of trades that can be executed.
The total value of shares traded worldwide in 2006 was $69.8 trillion, compared with $840 billion in 1980 - an increase of about 800 times over a quarter of a century, according to the World Federation of Exchanges.
The market in derivatives - not for the stock, but for the right to trade it - is even bigger. About 1.2 trillion stock index futures contracts were traded globally in 2006 - the total risk was worth about $73 trillion.
A rogue can potentially execute astronomical deals, silently, while abusing the anonymity and complexity of super-fast trading systems, which have opened the door to unscrupulous traders hiding losses in a labyrinth of data.
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