Traders astonished by SocGen’s explanation
January 30, 2008
Incredulous derivative and equity traders still want answers after Societe Generale (SocGen) explained how a rogue trader built up a $73 billion (R525 billion) position and caused the French bank to lose $7 billion.
SocGen said Jerome Kerviel had created fictitious accounts to make it look as though his unhedged positions had been covered, and falsified documents to cloak his actions.
“I think most people are just astonished that someone could get away with that kind of trade for so long without being noticed,” said Matt McKeith, the head of equity dealing at First State Investments in Hong Kong.
“I'd always be slightly suspicious of the company line in these circumstances.”
Derivative and equity traders were foxed by the explanation, especially since Kerviel appeared to have made no personal profit from his gamble.
“It doesn’t quite seem to hang together,” said a London derivatives trader with several years’ experience processing trades in a bank’s back office, like Kerviel. “People are still retaining a healthy sense of scepticism.”
Traders speculated whether the relatively lowly Kerviel had a grudge against the bank, or was frustrated that he could not deal in bigger volumes, or was a fall guy for systemic failure at SocGen. Many still questioned whether he could have acted alone.
“Even a very small deal cannot go undetected for more than two days if it was not reconciled,” said an equity trader in Seoul. “It’s not a matter of one trader’s methods.”
A London derivatives trader agreed, while acknowledging that some derivative trades were sometimes confirmed weeks after an actual deal took place.
“Until it’s signed, it doesn’t appear within the bank as a closed trade, although it’s in your book. Still, that’s always flagged out to people internally. So it’s all pretty weird.”
SocGen said Kerviel had set up fictitious trades that cancelled the risk from his bets on European stock market futures, thus covering up his exposure. - REUTERS |
