It seems incredible that unauthorized trading continues to occur. And the media only hears about those that are so significant they impact earnings. There are more than enough trading errors that never make the news because they are too small - anything below a few million can easily be brushed under the rug. So what are the banks doing about it?
Rumours are that UBS will be scaling back on its trading, but scaling back cannot prevent another fraudulent occurrence. In the end, greater resources are required to monitor risk on the trading side - not just market risk, but operational risk. Reports can be generated reconciling trading account holdings externally with internal system generated holdings. Simple monitoring of irregular looking trades can prevent "fat-finger" errors. And in the end, reports can be generated but they are useless if nobody ever looks at them. The key is to find a format which can summarize all irregularities in a single report so that it is accessed by management on a daily basis.
