Mentoring

Background

Jake is a member of the trading desk of a commodities derivatives trading firm, where he has worked for several years and is an experienced derivatives trader. The firm has recently recruited Ravi, as their first trainee trader, previously having recruited only traders with several years experience. Because it has only recruited established traders, the firm does not have any formal training procedures to provide guidance in how Ravi should be treated.

Jake has been appointed Ravi’s mentor, to work with him, share his knowledge of the firm’s products and procedures and befriend him. However, Jake is unhappy with this role because he is under time and stress pressures in his own job, having been given a new project with a tight deadline. He has protested to his head of desk, who told him that even so, there is nobody else to take on the role and he’s got to do it.

Grudgingly Jake accepts the role but is given no guidance in what is actually expected of him and having given Ravi a brief overview of what goes on in the office, particularly the location of the coffee machine, he tells him that he should observe what the traders do suggesting that he will soon pick things up.

After a period of this informal and unstructured “training”, Jake is asked whether Ravi is ready to begin trading and replies that “doing it is the only way to learn and he will soon pick it up”. Jake is relieved that his mentoring role, whatever it meant, appeared to be over as he had not found much time to spend with Ravi, and anyway, he had not really felt that it was a priority, either for him, or even the firm, since no one had actually told him what the role required.

The problem

Ravi is told that he can begin to trade and that if he has any problems he should refer to Jake, who is asked simply to keep an eye on him. One day Jake overhears Ravi starting to place an order on the market in an exotic derivative. Ravi has not been trained in the derivative and although Jake had discussed it briefly with him, Jake realises that Ravi has misunderstood its nature, and that the credit and position risk of the trade is much larger than the desk is allowed to execute under the firm’s procedures. Jake quietly and deliberately leaves the desk for a break.

Within an hour the head of the desk is called urgently by the risk department with questions about the outsize trade, which had been blocked by the firm’s risk control system. He summons Jake and Ravi and angrily asks how it happened. A visibly upset Ravi explains his misunderstanding of the credit consequences of the trade and said that the trade was 100 times bigger than he intended. He is told that he is in very serious trouble and is sent home for the day.

The desk head then asks Jake what he knows about it, and why he failed to keep an eye (or listening ear) on Ravi. Jake responds aggressively that he knows nothing about the trade since he was away from the desk, that he’s not responsible for any mistakes that Ravi makes and anyway he was employed as a trader not a nursemaid.. No-one knows whether Jake was at the desk at the critical time, although they suspect he knew about it..

The dilemma

Whilst the firm has been spared an embarrassing situation on this occasion, thanks to its control systems, the event does raise a number of questions which the Chief Operating Officer is asked to address.

Her first consideration might be whether this situation is actually one where the primary responsibility rests with the firm’s policies, or lack of them, or if it is simply a case of poor performance and a failure by one or more of the three individuals directly involved. If so, what should she do?

Options

If we consider first of all the position of the firm, they appear to be the authors of their own misfortune because they have no formal training program for Ravi and seem to have relied on a process of osmosis to educate him in what he needs to know. So a failure of corporate responsibility appears to be at the root of the situation. This has then been amplified by a continuing failure of responsibility by the head of the trading desk in assigning to Jake the role of mentor.

Despite being alerted to the fact that Jake was unenthusiastic about his additional role, citing pressure of work, the head of the trading desk appears not to have made any effort to oversee what support Jake was providing to Ravi in his role of mentor. Neither does he appear to have shown any ongoing interest in how Ravi was progressing. Consequently the head of desk and Jake were both individually and equally at fault at that level.. But there is Jake’s additional complicity in the “fat-finger incident” in which he was aware that Ravi was in difficulty but chose to walk away, an action completely lacking in integrity.

As for Ravi, how might his role be regarded?

Ravi appears to carry the least blame of all in this incident, in which he was assumed to be competent, without having been provided with the proper means of gaining such competence. As a result the firm had unreasonable expectations of him. But what about the trading error, which was his fault?

Verdict

Although this should not be overlooked, it would be unreasonable of the firm to point to that as being the sole problem, and place all of the blame on Ravi. Although clearly he undertook the trade in a type of derivative with which he was not familiar, it is apparent also that the salesman in the firm gave Ravi instructions in a cryptic form, which only an experienced trader would understand, expecting him to do something for which he had not been properly trained and which he should not have been asked to do, without proper supervision.

• The firm needs to put in place a remedial training programme, to ensure that Ravi receives proper training, if he is to be permitted to continue and it would be extremely unfair to assign all the blame to him.
• It would be appropriate at least to reprimand the head of desk and Jake for their combined failure to oversee Ravi.
• Whilst Jake’s actions are deserving of a more serious sanction, the fact that he was not seen leaving his desk rather than supervising Ravi, allows him to avoid a more severe penalty, which he undoubtedly deserves.
• And what of the COO making the decisions? Should she be willing to accept blame for inadequate mentoring procedures which were her responsibility? It will be hard for her to accept that she, rather than only the trader or Jake was at fault, but she should do so.