Thursday, October 4, 2012

What Shall We Do with a Drunken Trader?

In the year of our Lord 2009, a fellow in Britain affected world oil prices during a drunken blackout. In an attempt to not say things like "I told you so" or "No shit, Sherlock", it is my duty to take severe notice of the, shall we say, flexibility of our commodities trading systems around the world.

The timeline, as I understand it, is this:

Steve Perkins, a trader at PVM Oil Futures left work after the end of a long, hard day.

(everything between now and 1:22 am is sheer speculation)

He went to his local, the Bung & Beaver, for five or six pints of the best bitter (or, to be exotic, five or six pint cans of Budweiser). He also stopped at a chip shop to get some delightful takeaway fish to go with the other few cans of beer sitting in his fridge at home. He also stopped at the offy to get a bottle of Scotch (unless he was upper class, in which case it was either Vodka or Gin).

After he arrived home, and haphazardly jammed the key into the lock, he opened the door to find his pet hamster waiting patiently for noms.

So he sits down at the telly, opens up his very hygenically-wrapped fish & chips (no more newspaper, folks!), cracked another can of beer (this time, some kind of shitty ale), and drank with his fish. More beer. More British Idol. More beer.

As we reach the late hour of ten o'clock, Steve is off beer and on to Scotch or one of the clear ones. On the rocks. Until getting up to get more rocks becomes too much trouble. He is sitting in front of his computer, surfing porn. Unfortunately, after ten pints of beer and half a pint of hard alcohol, he is no longer able to get it up, so he turns to the other manly thing he knows how to do: buy oil futures.

So, at 1:22 am (where we rejoin reality), he goes buck wild. And between 1:22 and 3:41 am, he buys up 69% of the world market in oil futures, equaling 7 million barrels of crude oil, valued at $9,763,252. Thanks to the volume and the fact that he kept raising his bids every single time he bid (being a drunken idiot), he raised the price on crude by $1.50 per barrel in a little over two hours. He calls in sick the next day, after an admin clerk calls to ask him why he went and bought 7 million barrels of crude, to which he probably replied, "bollocks."

Subsequently, an official investigation determined that he had a drinking problem.


They took away his traders' license, fined him around $116,000, and told him to go to AA or something like it. They say he will get his license back in five years if he can prove he is no longer a danger to the oil futures commodities market, or at least drinking a little less.

This is up there with the trader who wanted to get his firm in the Guinness book for first-time trading of oil at over $100 per barrel, or the computer-aided high-speed transaction systems sending the market into a tailspin after accidentally dumping stocks so fast the whole market lost a lot of value in a single afternoon. When do we start recognizing that human error and computer error should not have the power to affect the markets that much? It's up there with a mouse being chased by a cat being chased by a dog, etc., causing the fiery destruction of New York City.

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