Breathtaking example of why reading your exchange brokerage statements is important - fine was really big
The CME issued a disciplinary notice today for a $1.25 Million fine for an individual. The individual was a broker at a firm who entered trades for customer accounts without a power of attorney. As the notice indicates, the customers may have made verbal authorizations for small orders but the individual blew through the risk limits and, in some cases, the financial capabilities of the customers. The total losses exceeded $10 Million, which the brokerage firm repaid (but imagine the mess of sorting that out with your brokerage firm). If any of those customers was confirming their trading on a daily basis, this would not have happened. This is the epitome of the classic "buy and forget" trading strategy - that is how many entities implement "buy and hold".
The trader was fined $1.25 million and barred for life from the exchange or from entering orders on behalf of a customer. The notice is here .
This happens - believe me. DCM staff have been in a situation where a client entered trades after discussions with DCM but did not check their broker statement. DCM was in transit overseas that day and the next. When the statement came in, the order had been doubled. Neither the client or the IB (or so they said) had tapes. The client believed the IB and billed DCM for the loss. We paid rather than go through the costs.
The simple fact is every account should be verified EVERY day before the next day opening of the market. Larger firms should confirm trades in near real time - just because you think that what you asked for is going on doesn't mean it is. Every phone order should be read back in confirmation of the trade. If your traders are not requiring read backs of fills on phone orders - make them. Any phoned in order that is not read back by the broker should be subject to cancellation. Simple risk measures can avoid a major amount of pain.