After all the rogue traders we've seen at the likes of Societe General, Barings and even Morgan Stanley (on a smaller scale), it still shocks me that banks allow this stuff to happen. This is one of the compliance challenges that never seems to be adequately addressed, even in the wake of the Jerome Kerviel scandal, which supposedly prompted banks to institute better checks and processes. UBS has just announced that a rogue trader---most likely on the equities desk in London---has gamed the system to run up $2 billion in losses. The bank was quick to point out that no client money was squandered, which of course is good news. But the size of the scam trades is massive enough that the bank says it might report a loss for the third quarter, which sent the stock down sharply. London police said they have arrested a 31-year-old employee of the bank in connection with the incident on "suspicion of fraud by abuse of position." The man is in custody, pending an investigation.

It's never a good time for this sort of scandal. But in the case of UBS, the timing was especially bad. The company has struggled mightily in the wake of the financial crisis and it recently said it will again cut costs. Earning and reputational gains have been hard to come by. This is a huge setback on both fronts. The subsequent losses may not prove fatal, but they certainly raise questions about management. U.S. banks have generally been spared loss of this magnitude from rogue traders. Most have been diligent about imposing system restraints. On a smaller scale, some sort of gaming is likely still possible, however, depending on how tricky the rogue is. 

For more:
- here's an article from The Independent