Are Middle Office Escapees Dangerous?

15 February 2008

2 minute read

Should a person ever be allowed to advance from the middle office to a trading role within the same bank?

On the day the rogue trader scandal at Societe Generale broke, we asked, "Is a bank playing with fire if it lets someone advance from back-office processing and monitoring, into a direct trading role?" We concluded it would be "understandable, albeit unfortunate," if bank leaders adopted the view that middle-office experience - like SocGen's Jerome Kerviel had - disqualifies an individual from being allowed to trade within the same bank.

Managements do seem to be moving in this direction, though. On Feb. 13, Bloomberg ran a story quoting several headhunters and government officials in Paris and London, concluding that Kerviel's unauthorized trading "ruined the chances of French bank clerks getting promoted to the trading floor."

Of course, it's always been extremely tough to go from trade processing, auditing or another support role to an actual trader's position (or any other front-office job, for that matter). So a natural response to this aspect of the SocGen affair might be: "That door was already closed anyway. So what's the big deal?" There's also the prospect the SocGen scandal might accelerate the trend toward increased stature and compensation for back-office and middle-office functions related to risk management.

What do you think? Are support and compliance staffers chasing windmills when they dream about getting promoted to the front office? Does the example of Jerome Kerviel - and Barings rogue trader Nick Leeson before him - make it bad risk-management practice to ever consider such promotions? Or are banks systematically denying their middle-office and back-office teams the respect and compensation they deserve - and only making matters worse by blocking any remaining opportunity for these professionals to demonstrate their value as "producers"?

Post your thoughts below.

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3 comments

Do
Doug
5 March 2008
The way I see it is fairly simple and that there is a distinct wall between the front office and the middle/back offices. From what I have seen the people at the analyst level are doing mid-office type work but reports to and works with the front office and these are the people that move up the ranks. People who are "stationed" away from desks are often not considered for the front office mostly based on pedigree, which fair or not is the way it is. These "rogue traders" just give an excuse to reinforce the stratification of areas at the big I-banks which is unfortunate, because some people could rise meet the demands but will not be considered. Integrity and character are attributes that are difficult to access and would be overlooked for a moderate level of success. If these "rogue traders" had made large sums of money as opposed to losing it they woul dhave been applauded for thier bravado.
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MS
MSherwin
26 February 2008
Every banker from New York to Shanghai knows that progression to the Front Office normally goes through the Back / Middle Office. This is because in a profession where people are under tremendous pressure, and there is so much at stake stake, it only makes sense that Financial firms advance their best Analyst who are acclimated to the culture into Front Office roles.
I believe the heart of the issue is really whether character is a criteria when advancing individuals. As we have witnessed, talent and integrity do not often go hand in hand.
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Da
David
25 February 2008
This issue is just reinforcement to the fact that glass ceilings do exist. The individual at SoCGen is atypical of qualified associates with a high respect for regulations. In addition if we look back over past year some of the most touted individuals in some of the highest profile jobs committed insider trading in firms such as Morgan Stanley in the past year. Therefore, if investment banks really want to address the root of the problem they should not focus on one's pedigree.
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