How was an alleged rogue trader hired by Morgan Stanley?
The allegation that a rogue trader might have been at work at Goldman Sachs was nothing short of stunning.
The notion that a single trader could hide an $8.3 billion e-mini position, one that eventually led to a $118 million loss for the firm boggles the mind. Most assume that Goldman Sachs has a stringent compliance and risk management controls associated with traders, such that this sort of gaming could not occur. Matthew Marshall Taylor stands accused by the CFTC of fabricating trades and obstructing the firm's discovery of his position, risk and profits and losses in 2007.
Taylor "concealed the position by bypassing the firm's internal system for routing trades to the Chicago Mercantile Exchange and manually entering fabricated futures trades in a different internal system."
As noted by Bloomberg, Taylor denies the charges. His lawyers released a statement saying that, "Matt never intentionally entered 'fabricated trades' to conceal any trading activity and Goldman never alleged he did so at the time of his termination or thereafter. Matt, himself, brought the trading losses to the attention of senior managers at Goldman on the day they occurred."
One issue here is why Morgan Stanley would hire Taylor after Goldman Sachs said in a filing that he had let go for these reasons. He has since left Morgan Stanley for reasons unclear. The bank isn't talking about the case, but it appears that it might have been some sort of risk management lapse. Most banks would disallow anyone involved in a high-profile regulatory proceeding.