Rogue Trader Soc Gen Case Study
Kerviel - New King of the Rogue traders
How Why and Implications surrounding his actions
Word Count – 2,439
SOC GEN Case Study
Leeson, Iguchi, Rusnak….and now Kerviel has been unearthed as the new king of the rogue traders. His losses dwarfed that of Nick Leeson (Barings), John Rusnack (AIB) and Toshihide Igichu (Daiwa) combined, with his losses amounting to €4.9bn. Worldwide financial institutions do not seem to have captured the risk surrounding rogue trading and implemented efficient controls to eradicate or minimise this risk but at the same time are aware of the enormity of the potential problems that arise from this activity. The revelation of the scandal is the biggest of its kind in history and unfortunately for Kerviel and Soc Gen, was at a time when the European stock markets were at there lowest since the catastrophic terror attacks on September 11th 2001.
Mr Kerviel was working within the arbitrage Equity derivatives group at the time he was taking unauthorised positions. As the markets fell, losses soon increased which encouraged further bets in which the value of the bet was insignificantly immaterial in the eyes of Kerviel, creating a snowball effect.
This case study we will identify the underlying reasons as to why Mr Kerviel found it necessary to carry out this fraudulent activity and how he accomplished this. We will also analyse Soc Gen’s reaction and response to his activities and did they take the appropriate steps to overcome these? And finally, what would have been the outcome if this was uncovered as a rogue trading scandal resulting in a profitable position rather than a €4.9bn loss? Jerome Kerviel started work in 2000, working in a number of roles where he learnt about the banks processing and control procedures. Mr Kerviel had an ambition to work within a trading role which was fulfilled in 2005. Mr Kerviel was promoted to an arbitrage trading role perceived as a very low ranking position within the trading
How Why and Implications surrounding his actions
Word Count – 2,439
SOC GEN Case Study
Leeson, Iguchi, Rusnak….and now Kerviel has been unearthed as the new king of the rogue traders. His losses dwarfed that of Nick Leeson (Barings), John Rusnack (AIB) and Toshihide Igichu (Daiwa) combined, with his losses amounting to €4.9bn. Worldwide financial institutions do not seem to have captured the risk surrounding rogue trading and implemented efficient controls to eradicate or minimise this risk but at the same time are aware of the enormity of the potential problems that arise from this activity. The revelation of the scandal is the biggest of its kind in history and unfortunately for Kerviel and Soc Gen, was at a time when the European stock markets were at there lowest since the catastrophic terror attacks on September 11th 2001.
Mr Kerviel was working within the arbitrage Equity derivatives group at the time he was taking unauthorised positions. As the markets fell, losses soon increased which encouraged further bets in which the value of the bet was insignificantly immaterial in the eyes of Kerviel, creating a snowball effect.
This case study we will identify the underlying reasons as to why Mr Kerviel found it necessary to carry out this fraudulent activity and how he accomplished this. We will also analyse Soc Gen’s reaction and response to his activities and did they take the appropriate steps to overcome these? And finally, what would have been the outcome if this was uncovered as a rogue trading scandal resulting in a profitable position rather than a €4.9bn loss? Jerome Kerviel started work in 2000, working in a number of roles where he learnt about the banks processing and control procedures. Mr Kerviel had an ambition to work within a trading role which was fulfilled in 2005. Mr Kerviel was promoted to an arbitrage trading role perceived as a very low ranking position within the trading
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