When drinking and oil trading don't mix

(breakingviews.com) -- Let's call it the Bubbling Crude: a potent and pricey cocktail of drinking and trading. It has cost one former Morgan Stanley freight and oil trader dearly. A three-hour lunch turned into a two-year regulatory ban from the industry for David Redmond, after he took out a big alcohol-induced short position.

Redmond wasn't "visibly drunk" when he got back to his desk around 5 p.m. on a Wednesday afternoon in February 2008, according to the Financial Services Authority notice. The U.K. regulator recounts that for the next two-and-a-half hours he proceeded to place an order every eight seconds.

Redmond must have been sufficiently alert to know something was wrong. The $10 million loss exposure was over his risk limit. He moved the bet overnight onto the trading book of one of his colleagues. But it didn't take long for his bosses to catch on, and Redmond was dismissed a month later.

Before he was discovered, though, Redmond managed to buy back enough of the futures to close out his short position at a small profit. The FSA doesn't mention his blood-alcohol level during these later transactions.

Trader bravado could draw a cynical moral from this tale: a smart player can make money even after a boozy lunch. But before they reach for a fortifying quick one - or five - they should accept the real lesson looks far more sobering. If money can be made by a tipsy trader, meticulous analysis and spreadsheets may not be all they're cracked up to be.