Curriculum·Graduate·G504
The Rogue Trader and the Control Failure
Societe Generale and Jerome Kerviel, 2008. Kerviel, a trader at the French bank Societe Generale, built enormous unauthorized directional positions, tens of billions of euros in notional, and hid them by entering fictitious offsetting trades that made his book appear balanced and within limits.
Lesson 1 opens on
Societe Generale and Jerome Kerviel, 2008
Jerome Kerviel, a trader at the French bank Societe Generale, built enormous unauthorized directional positions, tens of billions of euros in notional, far beyond anything he was permitted to hold, and he hid them by entering fictitious offsetting trades into the bank's systems that made his book appear balanced and within its limits. The bank's General Inspection found the fraud began in 2005 and grew from March 2007: short index-futures positions of 28 billion euros by June 2007 and 30 billion by October, then a long position of 49 billion euros built between January 2 and 18, 2008.2 billion dollars, one of the largest trading losses in history.
The lessons
- G504-01The rogue trader is a control failure firstExplain that a large rogue-trading loss is a failure of controls before it is a story about one personabout 34 min · opens on Societe Generale and Jerome Kerviel, 2008
- G504-02Segregation of duties, and why it existsExplain that segregation of duties keeps the people who trade separate from those who confirm and recordabout 34 min · opens on UBS and Kweku Adoboli, 2011
- G504-03Reconciliation catches the trade that is not thereExplain that reconciliation confirms every recorded trade is a real trade with a real counterpartyabout 33 min · opens on Allied Irish Banks and John Rusnak, 2002
- G504-04The hidden loss always growsExplain that a hidden loss or a fake profit is not static; sustaining the concealment makes it growabout 34 min · opens on Kidder Peabody and Joseph Jett, 1994