Five questions the UBS investigations must answer

19 September 2011 By Peter Thal Larsen Follow @Peter_TL

The $2.3 bln rogue trading scandal raises questions about the Swiss bank’s cash management, internal controls, and supervision of its traders. It also points to structural flaws in the market for exchange-traded funds. Here’s what investigators and regulators should focus on.

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UBS said on Sept. 18 the final bill arising from rogue trading at its investment bank was $2.3 billion, $300 million higher than the Swiss lender had originally estimated.

In its first explanation of the fraud, UBS said the rogue trader had engaged in unauthorised speculative trading in futures contracts based on the S&P500, DAX and EuroStoxx indices.

This activity was hidden by fictitious positions in exchange-traded funds, allegedly entered into by the trader, which offset the unauthorised contracts. UBS said its control functions had questioned the trader’s positions, prompting him to reveal the unauthorised activity on Sept. 14.

Kweku Adoboli, a 31-year old trader, was charged with fraud on Sept. 16.

UBS said its board of directors has set up a special committee to conduct an independent investigation. The committee will be chaired by David Sidwell, former finance director of Morgan Stanley.

The UK’s Financial Services Authority and Swiss regulator FINMA said on Sept. 16 that they had launched an investigation into the scandal, which would be conducted by a third party firm independent of UBS.

Context News

UBS said on Sept. 18 the final bill arising from rogue trading at its investment bank was $2.3 billion, $300 million higher than the Swiss lender had originally estimated.

In its first explanation of the fraud, UBS said the rogue trader had engaged in unauthorised speculative trading in futures contracts based on the S&P500, DAX and EuroStoxx indices.

Kweku Adoboli, a 31-year old trader, was charged with fraud on Sept. 16.

UBS said its board of directors has set up a special committee to conduct an independent investigation. The committee will be chaired by David Sidwell, former finance director of Morgan Stanley.

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