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The news that Steven Perkins, (former) oil futures broker in the
London office of PVM Oil Futures, has been fined 72,000 pounds ($108,400) by
the FSA and banned from working in the industry is no surprise, see article
It could have been worse given that the broker, after a few days of
heavy drinking, took on a 7.0 million barrel long position on crude oil in the
middle of the night. The fine seems miniscule since it cost PVM somewhere in
the vicinity of $10 million - after unwinding the $500+ million position.
The surprising thing about this incident is that it happened at all.
Perkins was a broker, not a trader. He acted on behalf of traders, placing
orders on the Intercontinental Exchange among other places. That he could go
into the trading system and sneak through 7.0 million barrels without a
customer on the other side is unbelievable.
Heavy drinking is practically a job requirement in the oil industry,
my sources tell me, so this kind of thing could be a real issue going forward.
As algorithmic trading takes hold in the energy markets, trading may approach
the ultra high speeds seen in equities markets. This is a recipe for
super high speed disaster, unless there are proper controls in place - especially
if there were a way for the broker or trader in question to enrich himself in
One powerful way to prevent this kind of accident or fraud is
through the use of stringent pre-trade risk controls. The benefits of being
able to pro-actively monitor trades include catching "fat fingered"
errors, preventing trading limits from being breached, and even warning brokers
and regulators of potential fraud - all of which cost brokers, traders and
regulators money. PVM is a good example of this.
Ultra-low-latency pre-trade risk management can be achieved by
brokers without compromising speed of access. One solution is a low
latency "risk firewall" utilizing complex event processing as its
core, which can be benchmarked in the low microseconds. Errors can be
caught in real-time, before they can reach the exchange. Heaving that drunken
trader right overboard, and his trades into the bin.
View all posts from John Bates on the Progress blog. Connect with us about all things application development and deployment, data integration and digital business.
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