Quit your job as a derivatives trader

Societe Generale’s US$7.16 billion loss can be your gain.

If you are a wiz-bang derivatives trader, you may not want to bail on your great job right now, given all of the volatility that must make for decent spreads on your prop book. But there has to be more money to be made in the world of advising global banks on how not to get laid out by their own staff.

Barings Bank, BMO (BMO:TSX), Amaranth, SocGen (SCGLY:OTC) have all had their run-ins with this problem, or offshoots thereof. Whether it is fraud or stupidity or poor risk management, can you imagine what a Board of Directors would pay to have you and your SWAT team show up, unannounced, and do an audit of their trading desk? These institutuions all had their own audit teams, charged with the job of checking the books; and then there were the risk management programs that are obstensibly designed to limit anyone’s ability to put the bank or hedge fund too far into the red.

But no one can catch a trader on the wrong side of a bet like another trader.

There’s a reason why a bank teller or loan officer can’t steal $7 billion before getting caught. Centuries of trial and error have gone into protecting the cash in the bank’s safe, electronic or otherwise. Why is it that banks and hedge funds can’t do the same thing on their trading desks?

Budding consultants might want to first build an alliance with McKinsey, BCG, Oliver Wyman, etc. It’ll be easier to build your pipeline that way. And the fact that many of these advisory firms have all built or acquired forensic audit teams speaks to the business opportunity. Just look what Rudy Giuliani did in the security business following his retirement as Mayor of New York.

You’ll get to stay in the best hotels in the financial capitals of the world, and since the trading desks are closed on the weekends, you can get out skiing, golfing or clubbing — after all, it’ll be too far to fly home for a weekend of changing diapers / doing house chores / cutting the lawn and be able to get back again for the following Monday morning.

Think about it.

MRM