In the news: rogue trader loses bank £60 million

6/23/2008 – A rogue trader is an authorised employee making unauthorised trades on behalf of their employer. The most famous rogue trader is Nick Leeson, who lost Barings Bank £827 million in 1995 and received a 6½-year jail sentence. The latest case of a £60 million loss for a London bank is smaller fry, but made it to all the broadsheets last week. Find out why we are telling you all this.

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Wikipedia defines a rogue trader as an authorised employee making unauthorised trades on behalf of their employer. This activity is in the grey area between civil and criminal illegality for the reason that the perpetrator is a legitimate employee of a company or institution, yet enters into transactions on behalf of their employer without permission.

The most famous rogue trader is Nick Leeson, whose losses were sufficient to bankrupt Barings Bank in 1995, but there have been others preceding him, and others who lost more money.

Trader
Year
Loss Institution Sentence
Nick Leeson
1995
GB £827 million Barings Bank 6.5 years jail
Toshihide Iguchi
1995
GB £557 million Resona Holdings 4 years jail
Yasuo Hamanaka
1996
US $2.6 billion Sumitomo Corporation 8 years jail
John Rusnak
2002
GB £350 million Allied Irish Banks 7.5 years jail
Luke Duffy
2003/04
AU $360 million National Australia Bank 16 months jail
Jérôme Kerviel
2006/08
US $7.2 billion Société Générale investigation

If we look at the staggering figures above we can see that the latest case of a rogue trader losing one of London's biggest banks around £60 million is small fry. The perpetrator was identified in The Telegraph, The Mail and other London broadsheets as 36-year-old mid-ranking executive Matthew Piper, who was suspended by Morgan Stanley when his bosses realised he was over-estimating the profits he had earned from his investments at the end of each trading session.

Piper joined Morgan Stanley from a rival investment bank four years ago, and was part of a dozen-strong team which made complex bets on the financial markets. Such traders earn around £150,000 and are known as the 'geeks' of investment handling because they are highly skilled mathematicians working in specialised areas.

Morgan Stanley has refused to confirm the identity of the trader. Michael Fowke, who writes a financial blog, said of Mr Piper: "People in the know say this London-based credit derivatives trader is Matt Piper. Let's not be too hard on Matt. He probably made a few mistakes, but not everyone who screws up is a rogue trader. I know Matt. I met him a few years ago, and he's a good sort. He doesn't have an evil bone in his body. Let's cut the man some slack."

So why are we telling you all of this?

Well, one of our contributors, Steve Giddins, when reading about this in the morning newspaper, and learning that Piper had gone to school in Truro, Cornwall, thought to himself: don't I know the man? Haven't I played in tournaments with him?

A quick check in Mega 2008 shows us that indeed, Matthew Piper is a chess player, with a peak rating of 2305 (in 1989 at the age of 18). Amongst his best tournaments were Oakham 1998, where he finished 19th, tied with the 14-year-old Peter Svidler, 18th in the British Championship 1994 in Norwich, and 67th in the 1994 Lloyds Bank tournament. In all three he scored +1. We find games he has played against the likes of Murray Chandler, Glen Flear, Stuart Conquest, Sergey Tiviakov, Dimitri Reinderman, Paul van der Sterren, Paul Motwani, Ali Mortazavi, Colin McNab, John Emms, Peter Wells, Josh Waitzkin, Ketevan Arakhamia Grant, Svetlana Matveeva and Joe Gallagher. He dutifully lost to all the GMs, except Peter Wells, whom he held to a draw in 1989, and Joe Gallagher, whom he actually defeated in the same year.

Piper,Matthew - Gallagher,Joseph G (2405) [B80]
Barnsdale YM Barnsdale, 1989
1.e4 c5 2.Nf3 d6 3.d4 cxd4 4.Nxd4 Nf6 5.Nc3 a6 6.Be3 e6 7.Qd2 Be7 8.f3 Nc6 9.g4 0-0 10.0-0-0 Nxd4 11.Bxd4 b5 12.Kb1 b4 13.Ne2 e5 14.Be3 Be6 15.g5 Nh5 16.Ng3 Nf4 17.h4 f6 18.g6 hxg6 19.h5 gxh5 20.Bxf4 exf4 21.Qxf4 Qa5 22.b3 Qe5

23.Nxh5 a5 24.Qh4 Qg5 25.Qh2 Qh6 26.Bd3 Kf7 27.Rdg1 Rh8 28.Qf2 g6 29.Ng3 Qf4 30.Ne2 Qe5 31.f4 Qc5 32.Qg2 g5 33.f5 Bd7 34.Bc4+ Kg7 35.Ng3 a4 36.Nh5+ Kf8 37.Nf4 Kg7 38.Ng6 Qd4

Now 39.Nxh8 wins by force, since after 39...Rxh8 40.Rxh8 Kxh8 41.Qh2+ Kg7 42.Rh1 Black gets mated. But Piper misses the chance: 39.c3 bxc3 40.Rxh8 c2+? (why not simply 40...Rxh8?) 41.Kxc2 Bc6 42.Re1 Rxh8 43.Nxh8 a3 44.Qe2 Bd8 45.Qe3 Qxe3 46.Rxe3 Kxh8. White has an exchange for two bishops. He has no further problems converting this to victory. 47.Bd5 Bd7 48.b4 Ba4+ 49.Kd2 Bb6 50.Rxa3 Bd7 51.Ra8+ Kg7 52.Rb8 1-0.

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