Posts Tagged ‘rogue trader’

Don’t drink and trade!

Friday, July 10th, 2009

A popular watering hole adjacent to the Chicago Board of Trade called the Cactus Club that was populated by young bond futures traders and trading clerks used to  sell a t-shirt cautioning, “Don’t drink and trade.”

 

It was put out in jest and probably not always adhered to but the underlying theme made a lot of sense. Trading is an emotional exercise—especially for those in the heat of the action inside the now antiquated trading pits—where judgment is extremely important. It is easy to let those emotions overcome you in the heat of the action as it is, let alone if your judgment is impaired by alcohol or drugs.

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Did Kerviel have an accomplice?

Tuesday, February 12th, 2008

It seems Jerome Kerviel, the Societe Generale trader who lost $7.2 billion, had been IMing a broker with Fimat, SocGen’s brokerage arm. Below are transcriptions of those IMs, reported by the Nouvel Observteur , a French magazine. (blog by Irene Frat in Paris)

Written in the sort of short hand used to quickly convey a message (over the Reuters instant messaging system), Jérôme Kerviel seemed to have an on going dialogue with a broker at Fimat, recently renamed Newedge, called Moussa Bakir. Here are some excerpts, translated and put in understandable English :

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French view of the rogue trader

Friday, February 8th, 2008

Here is a view on the Societe General rogue trader debacle from our French correspondent Irene Frat.

Many questions – and a few answers

Why did he do it?
You would think it was for the money that Jérôme Kerviel took highly risky positions at Société Générale. Though he was eager to get a big bonus –he was hoping for 300 000 euros, not a paltry sum for a trader who made less than 100,000 euros a year in fixed salary, he did not siphon the money he could have made on the markets at one point.
Why ? The explanation lies in his personal psychology. Kerviel seems more addicted to the trading game than to making money. Explanations concerning his behavior also can be found in France’s general attitude towards social classes. “I was aware, starting from my first meeting in 2005, that I was less well-considered than the others [regarding] my university degree and my professional and personal background. I had not come directly to the front office, but had passed through the middle office, and I was the only [trader] to have done that,” Kerviel reportedly told investigators.

Coming from a provincial, lower middle class background, Kerviel did manage to get a university degree. But not the “right” one.

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SocGen Rat Still Stinks

Monday, January 28th, 2008

Société Générale bosses now say they know how accused rogue trader Jérôme Kerviel managed to hide what they now say was a position with a notional value of more than $70 billion: he simply balanced his futures positions against fake forward positions, they say. It worked, they claim, because forwards don’t require margin money be posted to an exchange. This meant that Kerviel (who surrendered himself to police on Saturday and remains in custody Monday morning) could incur margin calls on Eurex and Euronext, and the bank would pay them, because his books showed the positions balanced in forwards… which don’t require margin calls?

Huh???

SocGen is a leading provider of retail-oriented forward products, such as certificates and contracts for difference, and the implication is that Kerviel balanced his myriad long futures positions with hundreds of small fake forward positions — possibly listed as belonging to retail clients. But such forwards ARE subject to margin, albeit from the customer, who should have put it on deposit at SocGen itself.

That means that even before the positions turned against Kerviel, the bank would have had a mismatch between margin paid out to hold the futures positions and margin taken in to cover the forward positions — or at least margin on deposit to cover futures and margin on deposit to cover short forwards.

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