CAEA 3231 Integrated Case Study Faculty of Business and Accountancy Nicholas Leesonand Barings Bank Group Members: KOK KEAN TEONG CEA070059 MOH JIA WEI CEA070084 NEO CHING HUP CEA070109 ONG KAH HOEY CEA070157 TEO SILK KEONG CEA070197
What is derivative trading? An agreement between two different parties which the value of the instrument is determined by contingent future outcome of particular underlying factors.
Copies of internal audit report were distributed to: Norris, Chief Executive Office of Barings Investment Bank (BIB) Broadhurst, Group Finance Director of Barings Investment Bank (BIB) Hopkins, Director of Group Treasury and Risk of Barings Investment Bank (BIB) Barnett, Chief Operating Officer of Barings Investment Bank (BIB) Ron Baker, Head of Financial Product Group (FPG)
Recommended solution : Top management and internal auditors should ensure proper segregation of duties in an organization through frequently review of internal control process
Recommended solution : Senior executives should be sent to training or attend courses to enhance their knowledge about derivative
Nick Leesson personally claimed a severall statement Anybody who was supposed to have some control over his activities was going elsewhere. The people who were looking after the traders were based in London. The people in charge of the compliance function were in London. The risk management areas were in Tokyo He was both the senior trader and settlements person in Singapore
Simon Jones – The Finance Director of Barings Future Singapore (BFS) SIMEX’s senior vice president for audit and compliance, Yu Chuan Soo, complained: i. A margin shortfall about US$116 million in account “88888” had been incurred and this had showed the SIMEX rule 882 was violated (by previously financing the margin requirements of this account which was appeared in SIMEX’s system as a customer account). ii. Initial margin requirement of account “88888” was in excess of US$342 million. The letter on 11 January, 1995
Related to the assurance of BFS’s ability to fund its margin calls
Coopers & Lybrand
Due from Spear, Leeds & Kellogg (a US investment group)
SocieteGenerale 3rd largest Corporate and Investment bank in the Eurozone Futures trader– JérômeKerviel Engage in unauthorized trades totaling dealt with $73.3 billion (more than the bank's market capitalization of $52.6 billion)
Daiwa Bank 12th largest bank in Japan Daiwa Bank's bond traders– Toshihide Iguchi Toshihide Iguchi had concealed more than 30 000 trades over 11 years starting in 1984 Consequently, Daiwa Bank shuts down global operations.
Metallgesellschaft Largest industrial conglomerates based in Frankfurt. Lost over 1.4 billion dollars after speculating increase in oil price in oil futures market. Mismatch between its derivates hedges and long-term oil contracts with customers.
What regulation has been imposed in response to the collapse of Barings Bank? Windsor Declaration Hosted by: United Kingdom Securities and Investments Board and United States Commodity Futures Trading Commission Attended by: Regulatory Authorities from 16 countries
What regulation has been imposed in response to the collapse of Barings Bank? Windsor Declaration Purposes: To discuss the key issues resulting from the failure of Barings Bank and The ways to strengthen supervision The ways to minimize systematic risk and disruptions.
What regulation has been imposed in response to the collapse of Barings Bank? Windsor Declaration Outcomes: Cooperation between market authorities Protection of customer positions, funds and assets Default procedures Regulatory cooperation in emergencies.