15/09/2011 09:49 BST | Updated 15/11/2011 05:12 GMT

Most Famous Rogue Trades - And How They Happen

'Rogue trading' incidents, where a single employee can apparently lose billions without the knowledge of his bosses - can seem unbelievable if you don't have first-hand experience of investment banking.

In fact, the secretive - and complicated - nature of the banking sector often leaves such massive losses, and what caused them, fairly mystifying to lay people even if the details come out in court.

But a quick look at the history of trading scandals in recent years shows that what happened at Swiss banking group UBS on Thursday is far from an isolated incident.

What they show is that while the means of rogue traders is complicated, the motivations - usually some combination of fear, greed and panic - are all too simple and explicable.

And despite moves towards greater and more stringent outside regulation, many analysts argue that it is only by senior bankers themselves putting responsibility above profits that rogue trading will finally be consigned to history.

In the past two decades there have been at least 15 high-profile cases of traders losing often catastrophic amounts of money, creating havoc on the markets and within organisations in the process.

Most recently - and most dramatically in terms of scale - the former Societe Generale trader Jerome Kerviel was sentenced in October 2010 to three years in prison by a court in Paris after losing around €4.9 billion in a series of unauthorised trades.

Found guilty of breach of trust, forgery and unauthorised use of computers, Kerviel has since written a memoir ('Downward spiral: Memories of a Trader') in which he claims the practices he engaged in were very common - and went unreported as long as they made a profit.

In April 2010 an MF Global employee, Evan Dooley, was indicted on fraud after posting losses of $141 million speculating on wheat futures, and in 2009 a Morgan Stanley trader, David Redmond, was banned after making unauthorised deals on oil futures and then hiding them from his bosses.

On an even larger scale to those two incidents, in February 2009 a Merrill Lynch trader in London, Alexis Stenfors, was banned for five years after hiding his losses to a scale of $456 million, which had to be written down by the bank.

In the UK one of the most famous cases of recent years is that of Nick Leeson, a trader for the historic Barings bank, who lost $1.4 billion in derivatives trades. His actions ultimately brought down the entire bank, but it was only very recently that Leeson apologised for his actions.

His losses were, however, dwarfed by those of "Mr Five Per cent" Yasuo Hamanaka, so-called because he was believed to control that per cent of global copper, who shocked investors around the world after he inflicted a $2.6 billion loss on Sumitomo Corp following 10 years of unauthorised trades. He was jailed for eight years.

So how do such giant losses still go under the radar until it's too late - or too difficult to ignore?

For the visiting professor at the Cass Business School Chris Roebuck, the cause is a lack of leadership at the top. Temptation to push the boundaries will always exist in the banking sector, but it is up to the bankers to keep them under control.

"The news that a trader at UBS has been able to blow $2 billion is a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to," he said in a statement.

“What it also emphasises is that stopping this sort of event is not about only the control systems, it’s about the leaders of the bank setting out a moral compass to staff about what is right and what is wrong so that everyone knows which is which. This ensures that bad behaviour is stopped before it starts, not just caught by control systems when it is happening.

Another element of the problem stems from the fact that discovering rogue trades before they cause too much damage is incredibly difficult. Monitoring trades for suspicious behaviour in real time is a complex and difficult, especially with such high amounts of money flying in an out of institutions all the time.

Despite the difficulty, however, Dr Richard Bentley, who is an industry vice president at Progress Software, said in a statement that banks must invest more time and money into doing just that:

"The good news is that technology does exist in the form of real-time transaction monitoring and surveillance solutions that analyse data transactions in flight.

"Financial institutions such as UBS AG need to start looking inward to improve standards, over and above the demands of current regulation. Otherwise the incessant drive for profit will only serve to encourage more losses on the scale of those suffered by UBS today."