A Rogue Trader at Societe Generale Roils the World Financial System
Most Important Facts Surrounding the Case
Societe Generale alias SocGen is one of the oldest and recognized financial firms in France and worldwide. SocGen employs more than 130,000 workers and has 22.5 million customers all over the world. The company is a leader in Corporate and investment banking, retail banking and financial services, and global investment management services. In the beginning of the year 2008 company faced a crisis by losing around 5 billion euro’s because of a 31 year old trader Jerome Kervial who made unauthorized trade over the preceding year for around 73# billion which is above the market capitalization of 53# billion. Kervial worked in the risk management office of SocGen which helped him gaining knowledge about security procedures and back office systems and later was promoted as a lower-level trading desk known as Delta one. His duty was to purchase one portfolio of European stock index futures and sell a similar combination of index futures of different value as a hedge in order to get a low risk profit outcome out of large transactions over time. Kervial outsmarted company’s security and information systems by investing in unauthorized port folios which could result in gaining or losing billions based on the market activity on that day. He achieved it by making legal transactions on one way, but entered fake portfolios in the company’s data base which had no effect on cash positions, so that the real and fake trades would compensate one another leaving kervial’s investment limit within the acceptable risk creating no doubt for the supervisors when the balanced book is checked. Being familiar with the internal check schedules, kervial was able to delete the fake trades just minutes before the scheduled check and re-enter it soon after the check. The temporary imbalance was not alerted by the system and using this...
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