Whale Watching on the Trading Floor: Unravelling Collusive Rogue Trading in Banks

51 Pages Posted: 19 Jul 2017 Last revised: 25 Jul 2018

See all articles by Hagen Rafeld

Hagen Rafeld

Technical University of Dortmund

Sebastian Fritz-Morgenthal

Frankfurt School of Finance & Management gemeinnützige GmbH; Bain & Company

Peter N. Posch

TU Dortmund University

Date Written: July 13, 2018

Abstract

Recent history reveals a series of rogue traders, jeopardizing their employer’s assets and reputation. There have been instances of unauthorized acting in concert between traders, their supervisors, and/or firm’s decision makers and executives, resulting in collusive rogue trading. We explore organizational misbehaviour theory and explain three major collusive rogue trading events at National Australia Bank, JPMorgan with its London Whale, and the interest reference rate manipulation/LIBOR scandal through a descriptive model of organizational/structural, individual, and group forces. Our model draws conclusions on how banks can set up behavioural risk management and internal control frame-works to mitigate potential collusive rogue trading.

Keywords: behavioural risk, collusion, corporate culture, misconduct, organizational misbehaviour theory, rogue trading

JEL Classification: K42, M14, P37

Suggested Citation

Rafeld, Hagen and Fritz-Morgenthal, Sebastian and Posch, Peter N., Whale Watching on the Trading Floor: Unravelling Collusive Rogue Trading in Banks (July 13, 2018). Available at SSRN: https://ssrn.com/abstract=3002050 or http://dx.doi.org/10.2139/ssrn.3002050

Hagen Rafeld (Contact Author)

Technical University of Dortmund ( email )

Emil-Figge-Straße 50
Dortmund
Germany

Sebastian Fritz-Morgenthal

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstr. 9 -11
Frankfurt, G02, G11,
Germany

Bain & Company ( email )

Neue Mainzer Strasse 80
Frankfurt, MA 60311
Germany

Peter N. Posch

TU Dortmund University ( email )

Otto Hahn Str. 6
Dortmund, 44227
Germany

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