1.

Why are rogue traders a symptom of weak organisations?

Because the rogue trader has been able to act undetected, which suggests weak monitoring, no checks and a working environment that has isolated employees

Because it suggests that senior management were afraid to challenge the rogue trader

Because it suggests that employees were operating without sufficient ethics training

Because the organisation must be on weak financial footing for a single trader to affect its future

2.

An investment management firm has been hired by ETV Corporation to work on an initial public offering for the company.

The firms brokerage unit now has a sell recommendation on ETV, but the head of the investment banking department has asked the head of the brokerage unit to change the recommendation from sell to buy.

The head of the brokerage unit would be permitted to:

Place the company on a restricted list and give only factual information about the company

Increase the recommendation by no more than one increment (in this case, to a hold recommendation)

Reassign responsibility for rating the stock to the head of the investment banking unit

Assign a new analyst to decide if the stock deserves a higher rating

3.

Meredith Rasmussen works on a buy-side trading desk of an investment management firm and concentrates on in-house trades for a hedge fund subsidiary managed by a team at the investment management firm.

The hedge fund has been very successful and is marketed globally by the firm. From her experience as the trader for much of the activity of the fund, Rasmussen has become quite knowledgeable about the hedge funds strategy, tactics, and performance.

When a distinct break in the market occurs, however, and many of the securities involved in the hedge funds strategy decline markedly in value, Rasmussen observes that the reported performance of the hedge fund does not reflect this decline. In her experience, the lack of effect is a very unlikely occurrence. She approaches the head of trading about her concern and is told that she should not ask any questions, that the fund is big and successful and is not her concern. She is fairly sure something is not right, so she contacts the compliance officer, who also tells her to stay away from the issue of the hedge funds reporting.

What should Rasmussen do?

Rasmussen should gather proof of her reason for doubt and take these to the appropriate internal, and if necessary external, channels

Rasmussen should make an official complaint about the head of trading and the compliance officer

Rasmussen should gather proof of her reason for doubt and go immediately to the appropriate regulator

Rasmussen should ask the head of trading, in writing, for an explanation of how the reported performance was calculated