Neil Wilson, Editor, Futures and Options Week, might not have thought how prophetic his words would turn out to be when he, reacting to England's oldest and the most respected Barings Bank's declaration of bankruptcy in 1995—on account of the losses inflicted by the unauthorized trading in derivatives by Nick Leeson, the General Manager of Barings Futures in Singapore—said: "It could happen again because the incentives are the same, if not greater. The rewards are very great and that's a temptation for people."
At least, that's what one felt when the news of a €4.9 bn trading loss suffered by Société Générale, France's second largest and most elite bank, broke. As the news slowly trickles down, it is becoming clearer how a junior trader, Jerome Kerviel, caused the largest single trading hit in the banking industry. As the top brass at Société Générale was busy in nurturing `quants'—traders, who, backed by advanced education in mathematics or astrophysics, are busy in developing complex mathematical models to make money for the bank in the equity derivatives trading business, for which Société Générale is envied in the banking circles of Europe—Kerviel, the least watched junior trader, driven by an ambition to prove himself booked numerous fictitious transactions to mask a heap of real and highly risky deals that inflicted heavy losses on an otherwise successful bank in equity derivatives trading. |
