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Baring Bank-Rogue Trader

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Group Members: …

Group Members:
KOK KEAN TEONG
MOH JIA WEI
NEO CHING HUP
ONG KAH HOEY
TEO SILK KEONG

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  • 1. 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
  • 2. 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.
  • 3. Over-The-Counter derivative market (OTC)
  • 4. Exchange-Traded derivative market (ETD)
  • 5. Types of Common Derivative Contracts
  • 6. Purposes of Investing In Derivative Market
  • 7. What is the role of investment bank in derivative trading
  • 8. Barings Bank
  • 9. Nick Leeson
  • 10. Brief Story- Barings Bank
  • 11. Brief Story- Barings Bank
  • 12. What was the strategy being implemented by Nick Leeson as required by Baring Bank management ?
  • 13. What was the strategy being implemented by Nick Leeson to gain more profit ?
  • 14. “Straddle” strategy
  • 15. Brief Story- Barings Bank
  • 16. Is the Nikkei 225 Index is a stable financial instrument?
  • 17. Performance of Nikkei 225 after Kobe earthquake
  • 18. Brief Story- Barings Bank
  • 19. Why Barings Bank collapsed?
  • 20. 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)
  • 21. Recommended solution :
    Top management and internal auditors should ensure proper segregation of duties in an organization through frequently review of internal control process
  • 22.
  • 23.
  • 24.
  • 25.
  • 26.
  • 27. Leeson entered into a significant quantity
    of cross transactions
    Account “88888”
    (Losses)
    account “92000” (Baring Securities Japan – Nikkei and JGB Arbitrage)
    (Profit)
    account “98007” (Barings London-JGB Arbitrage)
    (Profit)
    account “98008” (Barings London-Euroyen Arbitrage)
    (Profit)
  • 28.
  • 29.
  • 30. Recommended solution :
    Senior executives should be sent to training or attend courses to enhance their knowledge about derivative
  • 31. 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
  • 32. 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
  • 33. Related to the assurance of BFS’s ability to fund its margin calls
    • Coopers & Lybrand
    January 1995
    • US$83million
    • 34. Due from Spear, Leeds & Kellogg (a US investment group)
    • 35. Had not been received
    The letter on 27 January, 1995
  • 36. Version 1: Related on the 27 January 1995’s letter
    • BFS (through Leeson), had traded (or broken) an over-the-counter deal
    • 37. Spear, Leeds & Kellogg and BNP, Tokyo
    • 38. Involved 200 of 50,000 call options
    Should be warned
  • 39. Version 2: Related on the 27 January 1995’s letter
    • The second version is, an ‘operational error’ had occurred
    • 40. A payment had been made to a wrong third-party in December 1994
    Had to strengthen its
    back-office procedures
  • 41. Fernando Gueler –
    The Head of Financial Product Group (FPG)
    in Barings Securities Japan (BSJ)
    • Based in Tokyo and experienced in the operation of Japanese markets
    • 42. Analyzing the risks on Leeson’s intra-day trading activities
    • 43. Did not have a clear understanding of his duties in supervision
    over BFS’s trading activities
    • Argued that he was responsible for supervising Leeson’s switching activities
  • Recommended solution :
    Top management should have proper supervision and monitoring over subordinates’ activities
  • 44. Additional perspectives
  • 45. Lack of Corporate
    Governance Practices
    Management
    B.O.D
    Oversee
    Govern & Monitor
    Consequence
  • 46.
  • 47. Negligence of External Auditors
  • 48. Ethical point of views
  • 49. What is different?
  • 50.
  • 51. 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)
  • 52. SocieteGenerale
  • 53. 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.
  • 54. Daiwa Bank
  • 55. 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.
  • 56. Metallgesellschaft
  • 57. 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
  • 58. 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.
  • 59. 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.
  • 60. Conclusion