Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Drunk Trader was Thirsty for Oil

|Includes: iPath S&P Crude Oil Total Return Index ETN (OIL), USO

An interesting story came in from England this week.  Apparently a trader, whose job was only to execute client orders and whose firm did no proprietary trading, took it upon himself to make some big trades in the very early morning on Brent Crude Futures.

This occurred June 30, 2009 and the trader moved over 7000 futures contracts representing 7 million barrels of oil.  These trades on the ICE Futures Europe Exchange (different exchange than the ISE) apparently caused chaos in the oil markets and sent global prices higher (oil subsequently went sharply lower in the following days).  He made no money on his actions, but did try to cover up and lie about his actions when questioned.

While to some degree this is a bit of a comical, "shake your head" type of story -- it also shows the risk of "rogue traders" to individual firms, markets, and public investors.  One would expect that companies would put strict limits and systems in place to prevent internal risk parameters from being violated.  And we can assume that more and more internal regulations are in place at companies since the massive financial mishaps of recent years.  Also, government regulations can be expected to strengthen in the wake of recent events (if they aren't watered down too much and also if government can actually get something right, which isn't certain at this point).

However, these types of events have been going on for years.  Remember Nick Leeson, the famed Rogue Trader of the 1990s, who basically broke a bank?  I was a partner in an option trading firm in London in 2000 and 2001 and I can tell you that at that time, the internal financial accounting at our clearing firm was shoddy, at best -- this was just my personal experience, but the level of professionalism and accuracy there was bush league when compared to the Chicago firms I had previously dealt with.    Hopefully things have improved since that time.  There would seem to be simple ways for these firms to place limits on employee trades, sophisticated real-time risk management, etc, so that these types of things do not continue to happen in the future.

Disclosure: No positions.