Whale Watching on the Trading Floor: Organizational Misbehaviour, Collusive Rogue Trading, and Corporate Culture Deficits in the Investment Banking Industry
By Hagen Rafeld & Peter N. Posch (TU Dortmund University); Sebastian G Fritz-Morgenthal (Frankfurt School of Finance and Management)
Recent history reveals a series of rogue traders, jeopardizing their employer’s assets and reputation. There have been a number of instances of unauthorized acting in concert between traders, their supervisors, and/or firm’s senior management, resulting in collusive rogue trading (CRT). In the likes of the Libor manipulation by jointly several traders from major investment banks, CRT cannot be seen only in relation to particular single financial institutions but meanwhile as reoccurring phenomenon in the financial sector, leading to thoroughly questioning conduct, ethical standards and obligations, as well as corporate values and culture in the investment banking industry. In this article, we outline what has contributed to the development of CRT in investment banks. We explore organizational misbehaviour (OMB) theory, explain CRT through a conceptual model by exemplifying JPMorgan’s London Whale event with OMB paradigms, and draw conclusions how organizations can set up behavioural risk management and control to prevent CRT.
Full Content: SSRN
