UK market regulator The Financial Services Authority (FSA) and US counterpart the US Securities and Exchange Commission announced a joint 'Code of Conduct for Rogue Traders' Thursday.

The introduction of the Code, which will come into force with immediate effect, was prompted by the actions of Societe Generale's Paris-based $7.1bn rogue trader Jerome Kerviel, and in the wake of the recent mispricing and valuation issues which came to light at Credit Suisse and Lehman Brothers in London.

From now on, traders will need to raise a red flag (to be kept by the side of each trading desk at all times) on each occasion they breach their limits, make a fictitious trade or write up a fake trade confirmation. Once classified as a 'rogue', a trader will be required to wear a black beret (there appears to be some significance in this) whilst on the trading floor.

Furthermore, traders will now be required to accurately value their trading book at least once a month. And rogue traders will also no longer be allowed to carry trading losses (or profits) over a year-end, but will be required to close-out rogue trading positions at least annually to comply with best-accounting rules.

Although it will still be permissible for all traders to be rude (or at least extremely unpleasant) to compliance types and generally ignore the advice of risk professionals, any trader classified as a 'rogue' will in future be required to take the odd day off in order to partly curtail his or her activities. Firms, too, will be in the spotlight as never before under the terms of the new Code of Conduct. From now on, investment banks and other financial institutions will only be allowed to have one 'rogue' trading at any one time, with no more than a maximum of five rogue traders permitted per calender year.

The regulators are also pushing for the introduction of compulsory rehabilitation courses for rogue traders, insisting that every trader should be allowed a second chance. 'Why should these traders be forced to work hard on the 'after-dinner circuit', and have to employ ghost writers to write books about their activities just to earn a decent living ?', said Cellie Foole, Director of Enforcement at the FSA. 'They should be rehabilitated and quickly sent back on the trading floor. They shouldn't be penalised just because they fiddled a few trades to get a bigger bonus. In most cases, it's only the firm shareholders who take the hit anyway'.

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