2011 UBS Adoboli Case Study

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2011 UBS Adoboli loss of over £2 billion

Background

Adoboli joined UBS as a graduate trainee in 2003. He then worked for delta one trading desk in 2007 which mainly traded Exchange traded fund. Due to the dissatisfaction with his annual salary and bonus of £360,000 and the desire to become a star trader with huge bonus, he started his illicit trading in late 2008 which imposed a huge financial loss on UBS in Sep 2011. In the following passages, We would like to discuss the details of his unauthorized tradings, risks involved and make comments about how risk management cycle can help.

1. Chronological order

Year | Event | 2007 to 2011 (Career) | In 2007, Adoboli started his career in UBS and he earned £360,000 annually. | Oct 2008 | Becasue of the financial crisis in 2008, Adoboli lost $400,000 in an account. However, instead of showing a loss, he used a fake hedging trade in FTSE100 Index (UKX) to show a profit of $400,000 instead of a loss. Because he was familiar with the back office, he can hide this loss by fake entries into UBS’s computer system, so called fictitious hedge. | Mar 2010 | Adoboli opened an account at IG Index. IG Index was a spread betting firm and it allowed customers to make bets on financial instruments. | Dec 2010 | Adoboli’s colleague, Hughes, discovered that Adoboli had exceeded the limit of his authorized trading. And Hughes reported this event to a senior trader, John Bennie. | Jan 2011 | Adoboli told Hughes about his umbrella account in an electronic chat. | Summer 2011 | The European Market became unstable. Also, Adoboli’s trade began to suffer a loss. In order to earn the money back, he tried to use more of money to invest and earn it back. Unfortunately, he failed to earn the money back and made even a bigger loss. On 8th August 2011, it was estimated that his risk exposure had peaked at $12 billion. | 14 Sept 2011 | Adoboli was pressed by a back office accountant, William Steward, questioning about his

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