Trading & Options · Profile from Trading and Options Research Companion
UBS and Kweku Adoboli
The Swiss bank whose London Exchange Traded Funds desk — part of the newly formed Global Synthetic Equities (GSE) division — lost $2.3bn on unauthorised trading by one trader, Kweku Adoboli, discovered on 14 September 2011 (FSA Final Notice to UBS AG, 25 Nov 2012; FINMA, 26 Nov 2012). The losses came "primarily on exchange traded index future positions" — S&P 500, DAX and Euro Stoxx futures over the preceding three months, according to UBS (UBS statement of 18 Sep 2011, as reported) — hidden by "late bookings of real trades, booking unmatched (i.e. fictitious) trades to internal accounts and the use of deferred settlement trades for which there was no external counterparty" (FSA). The desk's limits were $100m net delta intraday and $50m overnight; it breached them four times in June–July 2011 without discipline, and its reported revenue rose from $9m for all of 2010 to $52m in Q2 2011 alone without anyone asking why (FSA). Adoboli was convicted on 20 November 2012 of two counts of fraud by abuse of position, acquitted of four counts of false accounting, and sentenced to seven years. The UK Financial Services Authority fined UBS £29.7m (£42.4m before a 30% settlement discount); the Swiss regulator FINMA capped the investment bank's risk-weighted assets, barred it from acquisitions and required its approval for new businesses that added operational complexity. Three and a half years after Société Générale, which the FSA's notice cites as the reason UBS had reviewed its rogue-trader controls in 2008, the same concealment worked again. The edge-equation factor is survival through discipline: controls that existed on paper and in software, routed to the wrong people and overridden by a culture of trust.
At a glance
- Entity
- UBS AG, London Branch (1 Finsbury Avenue); Investment Bank → Global Equities → Global Synthetic Equities (GSE) → Exchange Traded Funds desk (FSA Final Notice)
- Type
- Bank trading desk; rogue-trade and control-failure case
- The trader
- Kweku Adoboli, a trader on the ETF desk (FSA); born 1980; University of Nottingham graduate, 2003 (Wikipedia — reported); joined UBS in 2006 and moved from back-office roles to trading by 2008 (from memory, verify)
- Headquarters
- Zurich and Basel (group); London branch regulated by the UK FSA for conduct
- Ownership / structure
- Listed (SIX Swiss Exchange, NYSE); supervised in Switzerland by FINMA
- The event
- $2.3bn loss on index futures, discovered 14 Sep 2011 (FSA; FINMA); UBS's first estimate (15 Sep) was ~$2bn (press — reported)
- Desk limits
- $50m net delta overnight, $100m net delta intraday, set shortly after the desk moved into GSE in Apr 2011 (FSA)
- Regulators and courts
- UK FSA (Final Notice, 25 Nov 2012, published 26 Nov: £29.7m); FINMA (ruling 21 Nov 2012, published 26 Nov); City of London Police; Southwark Crown Court (verdict 20 Nov 2012)
- Moves in this profile
- Six. This is a single-event entity (rule 6): one desk, one trader, one loss, and the bank's and regulators' responses. UBS as a bank has no profile in the Finance KB
- Signature moves (incl. failures)
- The ETF desk's transfer to GSE and its limits (Apr 2011); the hidden index-futures positions and fictitious ETF trades (Jun–Sep 2011); disclosure and the $2.3bn loss (14–18 Sep 2011); Grübel's resignation and the retreat of the investment bank (2011–12); the FSA Final Notice and FINMA measures (Nov 2012); the trial and conviction (Sep–Nov 2012)
6 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
2011
Disclosure and the USD 2 3bn Loss
Loss and blow-up response — discovery, close-out and disclosure
2011
ETF Desk Transfer to GSE and Limits
Restructuring / risk-limit change
2011
Gruebel Resignation and Investment Bank Retreat
Leadership change / strategy pivot (retreat from capital-intensive trading)
2011
Hidden Index Futures and Fictitious ETF Trades
Rogue trade or control failure
2012
Adoboli Trial and Conviction
Regulatory, enforcement or legal action (criminal prosecution)
2012
FSA Final Notice and FINMA Measures
Regulatory, enforcement or legal action