What is the Role of Investment Bank in Derivatives Trading?
Investment bank is a financial institution that acts as an agent for individual investor
or institutional investor in providing services like information facilitate transaction
and operates investment activities for clients. Unlike commercial bank, investment
does not provide deposit service.
Investment bank basically involve in trading securities for cash or security, facilitating
transaction, market making, and promoting securities (underlying or research) for the
“sell side”. It also deal with mutual fund, hedge fund, pension fund and investing
public who consumed the securities and services offered by the “sell-side” in order to
maximize their return on investment constitutes the “buyer side”.
In the derivative trading, investment bank is holding a significant role in helping
individual or institution investors. They usually act as agent for their client to involve
in derivative trading in the exchanges. They buy and sell the derivative contracts on
behalf of clients to fulfill the clients’ objective either earning arbitrage profit,
speculating or hedging. Besides that, investment banks are also helping their clients in
creating derivative contracts to raise fund or hedging either traded at OTC market or
ETD market. In order to do so, investment banks have developed their research team
to analyze the derivative market. In order word, investment banks also provide
advisory services for their derivative trader. The information provided is necessary for
traders to analyze the derivative market and making right decision. This is related
with the front office’s responsibilities.
Besides that, investment banks also performing risk management services for their
clients. They are responsible to make sure the credit risk and operational risk are
reasonable and acceptable for every trader either buyer or seller. Sometime, they also
act as a clearing house to eliminate the counter-party risk in the OTC market on
behalf of their client. Moreover, investment banks will help their clients in
compliance with the exchanges’ rule and regulation. This is their responsibilities to
make sure every transaction is following the regulation to protect themselves and their
clients. These types of services are usually performed by middle office unit.
Furthermore, investment banks also accountable for every single transaction. They
usually perform trade confirmation to make sure the accuracy of each transaction and
reduce the default risk either caused by their workers or trader himself. Investment
also provide software and technology platform to assist the front office in trading and
providing information to the clients. For example, investment bank will link their
website with the exchanges’ database to show the performance of certain derivative
contracts for their clients. This increase the efficiency and effectiveness of the whole
investment banks’ operation. Investment bank is an important party in the derivative
What is Derivatives?
Definition of Derivatives
Derivative is one of the financial instruments which are actively traded in the
derivative market around the world. This financial instrument is an agreement
between two different parties which the value of the instrument is determined by
contingent future outcome of particular underlying factors. Those factors can be
changed due to commodities’ price, share price, index, interest rate, value of currency,
foreign exchange rate, and credits and so on. There are several types of derivatives,
commonly such as futures, forwards, options, and swaps. However, since the
derivative can be positioned on any kind of securities, thus, the scope of the type of
derivative is boundless. When study a derivative instrument, basically we have to look
for the relationship between the underlying and the derivative, type of underlying,
which market being involved, and the purpose of investing in such market. The
following table show that the increasing of size of derivative market since 1990 to
Types of Derivatives Market
The derivative market is the financial trading market for derivatives. In broad terms,
there are two different derivative markets which are Over-The-Counter derivative
market (OTC) and Exchange-Traded derivative market (ETD).
Over-The-Counter derivative market (OTC) is designed to serve contracts traded
directly between the seller and buyer which privately negotiated without going
through any intermediary or exchange body. OTC is the largest market for derivative
trading compare to the ETD market. The traded derivatives are normally tailor-made
derivatives which fulfill the need of both side traders because it is privately negotiated
by both parties and without going through any intermediary. This is the benefit of
trading in the OTC market. However, due to this freedom in trading, OTC derivative
market is also the largely unregulated market with respect to the disclosure of
information between both parties. Reporting of OTC amount is difficult to be
noticeable since the trades are taking place privately, without activity being
observable on any exchange. Therefore, OTC derivatives are subject to higher
counter-party risk compare to the ETD derivatives. Examples of OTC derivatives are
swaps, forward rate agreements, credit derivatives and so on.
Exchange-Traded derivative market (ETD) is created to serve derivatives that are
standardized contracts through specialized derivative exchanges. A derivative
exchange acts as an intermediary to all related derivative trading. They will incur an
initial margin for the traded derivatives from both parties as a guarantee. Since the
trading is under the control of the derivative exchanges, the counter-party risk is much
lower compare to the OTC derivative market. The derivative exchange provides
investor access to information of the trading and guarantees the performance of the
contract. The world’s largest derivative exchanges are the Chicago Board of Trade,
Chicago Mercantile Exchange, Korea Exchange and so on. Examples of ETD
derivatives are options and futures contracts.
Types of Common Derivative Contracts
As mention before in the definition of derivative, there are three common classers of
derivative which are future/forward, option, and swaps.
In derivative, futures contract is a standardized contract between both buyer and seller
on a specified asset with standardized quantity and quality at a particular future date
with a price agreed today (future price). Futures contracts are normally traded through
future exchange. A futures contract is different from forward contract because it is a
standardized contract written by clearing house while forward contract is a non-
standardized written by the parties themselves. The responsibilities of clearing house
are to minimize the counter-party risk and monitor the exchange of future contract.
They act as the buyer for the each seller and the seller for the each buyer. Thus,
function of clearing house will eliminate the need of performing due diligence by both
parties. Besides that, in order to reduce the credit risk, traders are also been required
to post a margin or a performance bond which normally around 5% to 15% of the
contract’s value. The futures contract can be settle with two ways. First is physical
delivery. The seller will deliver the underlying asset with the specified quantity and
quality to the exchange and then, to the buyer of the contract. It usually involves
commodities and bond delivery. Second is cash settlement. A cash payment is made
based on the underlying reference rate such as index and interest rate. Both parties
settle the contract by receiving/paying the gain/loss related to the futures contract in
cash when it is expires.
An option is different from futures. Option giving the owner the right but not the
obligation to buy or sell a particular asset. An option to buy something is called as
call option while option to sell something is called as put option. An option usually
sold by the creator to another buyer. It can be standardized form of contract traded in
exchanges like commodities option or contract customized to the desires of the buyer
traded in OTC market. The option contract usually contain certain specification such
as quantity and class of the underlying asset, strike price, expiration date, settlement
terms and so on. Besides that, option contract can also be categorized into two
different types due to the exercising period of the option. First is European option
which the owner has right to exercise the option only at maturity date. Second is
American option which owner has right to exercise the option at any time up to the
maturity date. If the owner exercises the option, counter-party has the obligation to
carry out the transaction. The following will be the basic trades of option. Premium is
the option price the pay by the trader to obtain the option.
Long call option will be traded when
the trader believes that price of the
underlying asset will increase. Trader
will only exercise the option to buy
the underlying asset if the price of the
underlying asset higher than the strike price. Profit will be earned if exercise price
greater than premium plus strike price.
Long put will be traded when trader
believes that the underlying asset’s price
will decrease. Trader will only buy the
underlying asset if the price of
underlying asset is lower than the strike
price. Profit will be earned if exercise
price lower than the strike price plus premium.
Short call option will be traded when the
trader believes that the price of
underlying price will decrease. The trader
selling the call have obligation to sell the
underlying asset to the option buyer. If
the price of underlying asset is lowers
than the strike price, the trader will earn a profit in the amount of premium.
Short put option will be traded when trader
believe that the price of underlying asset
will increase. The trader selling the option
will has obligation to buy the underlying
asset from the owner of option. If price of
the underlying asset is higher than strike price, the trader will earn a profit in the
amount of premium.
Swaps is an financial tool which counter-parties exchange certain benefits of one
party’s financial instrument for those other party’s financial instrument. The benefit
will be defined by both parties so that it will fulfill their needs. Swaps contract is due
with the exchange of cash flow on or before a specified future date based on the
underlying value of assets. For instance, two counterparties agree to exchange one
stream of cash flow against another stream. This contract can be used to hedge certain
risks or to speculate on changes in the expected direction of underlying prices.
Basically, swaps contracts are traded at OTC market, thus, it can be tailor-made for
Purposes of Investing In Derivative Market
Since the derivative market is growth rapidly, it will be necessary for us to understand
the reasons of invest in the derivative market. Basically, there are four reasons of
investing in the derivative market as follow:
• To speculate and make profit due to the changes of the value of the underlying
• To hedge or mitigate risk incurred in the underlying asset by entering into a
derivative contract which the value of the derivative contract is opposite
direction compare to the underlying position as whole or part of it.
• To exposure to underlying asset which it is not possible to trade in the
underlying asset market.
• To create optionability where the value of the derivative is linked to a specific
condition or event.
In finance, hedging is a strategic to mitigate or eliminate risk exposure to the price
fluctuation of the assets or the availability of the assets. In this respect, derivative
market can be considers as a important financial instrument in hedging. Normally,
hedging strategic will trade with the ETD market because of the involvement of third
party, named clearing house which helping in mitigate the counter-party risk and
To reduce the risk of price fluctuation, derivatives such as future or forward contract
is work with it. For example, an individual investor or institution who involve in stock
trading can exercise hedging strategic by buy stock at the underlying market and sell
the futures contract which the value of the derivative is linked to the performance of
same stock but in the opposite direction. The risk of price fluctuation is eliminated in
such situation because when stock’s price fall in the underlying market, the value of
the futures contract will increase in the same manner and vice versa. This hedging
strategic is useful especially when the volatility of underlying market is high.
Besides that, risk of availability of asset can also be mitigated by using derivatives.
For instance, a logistic company can create a futures contract or option contract with
the fuel producer like Shell to secure the availability of fuel in the future. The
derivatives will reduce future risk for both parties. Logistic company will sure to
obtaining the fuel and fuel producer will reduce price fluctuation risk.
Speculative and Arbitrage
Besides hedge against risk, derivatives contract can also be used to acquire risk in
order to earn profit. Some institution or individual enter into the derivative contract to
speculate on the value of underlying assets. Those speculators will forecast the future
price movement of certain underlying asset and create derivative contract to gain
profit from it. Speculator will want to buy as asset in the future at a low price
according to a derivative contract when future market price is high, or to sell an asset
in the future at a high price according to a derivative contract when the future market
price is low.
Besides that, some individual or institution is also looking for arbitrage opportunities
in the derivative market. Arbitrage profit is derived from the changes of price of
underlying asset between the time of sell and buy. They will gain the arbitrage profit
if the purchase price is lower than the future exercise price of the particular
Not matter speculative or arbitrage, it normally involves high risk. Huge loss maybe
incur to the individual or institution. Since the speculative and arbitrage strategic is
wholly depend on their forecasting ability. Such uncertainty of the underlying asset
will increase the probability of loss. The Barings Bank case is the best example in
explaining this condition. The fall of Baring Bank was due to the wrong estimation of
Nikkel 225’s performance by Nick leesons and the volatility of the changes of Nikkel
225 in the market. So, massive loss may suffered by speculator and arbitrager.
Introduction of Barings Bank and Nick Leeson
Barings Bank was founded in London in 1763 which rose to become the Britain’s
oldest Merchant Bank as well as becoming the leading Merchant Bank. As such, it
provided traditional banking services to the public while performing investment
activities in stocks, bonds, commodities and real estate. The bank focused in
investment sector activities which could lead to success in trading on the future. By
1989, Barings had established trading operations at most of the world’s exchanges
operating began in British Commonwealth countries and former British colonies. By
being creative and flexible in crafting the financial solutions for organizations,
Barings Bank enjoying grew up steadily over time across the globe. In February 1995,
the bank was discovered in involving a huge fraud scheme, perpetrated by one of its
traders in Singapore-Nick Leeson. He had wiped out the bank’s capital and destroyed
the 220 year old institution.
Previously, Nick Leeson had graduated from college and spent two years at Morgan
Stanley as a settlement clerk and in duties on clearing the huge futures and options
deals. In 1989, this young commodities trader joined Baring Securities Ltd (BSL) and
working primarily in the settlements department. In the mean time, he had applied to
become a dealer with the Securities and Futures Authority (SFA) in London early
1992. After the first quarter of 1992, Leeson was posted to Baring Futures Singapore
Ltd (BFS) to perform the settlement operations as well as the floor manager at the
Singapore International Monetary Exchange (SIMEX). This is the beginning
opportunity for Nick Leeson to bring down the Barings Bank due to the inconsistency
of the risk management fundamental. Leeson was selected to open, run and manage
the new operation in Singapore, managing all aspects of trading on SIMEX and he
had been with the Barings Bank approximately three years and possessed a total of
five years experience in banking.
What was the strategy being implemented by Nick Leeson which caused Barings
Bank to face huge losses?
Around 1990’s, derivative market is rapid growth financial instrument around the
American and European markets even the Asia-Pacific region. The Barings Bank
board was decided to actively participate in the Asia-Pacific’s derivative market in
order to become one of the first active bankers in the derivative market. That is the
reason for Barings Bank employed and sent Nick Leeson, a young trader as general
manager of the Barings Bank Futures subsidiary in Singapore to manage the
Nick Leeson was given a lot of freedom by Barings Bank in the derivative trading
since he was the one who deem to know very well of the derivative market operation.
He was appointed to in charge of both client and proprietary account on behalf of
Barings Bank trading in Asia-Pacific region. He was traded in several main financial
futures and option exchanges as following:
Nikkei 225 contract traded on SIMEX in Singapore and OSE (Osaka Stock
Exchange) in Japan
10 –year JGB (Japanese government bonds) contract dealt in SIMEX and
3-month Euroyen contract dealt in SIMEX and TIFFE (Tokyo Financial
Futures Exchange) in the Japan.
In the early state, Barings Bank‘s management was planned to operate an inter-
exchange arbitrate strategy. This strategy required Nick Leeson to buy and sell Nikkei
225 futures contracts simultaneously on both SIMEX and OSE market in order to gain
the arbitrate profit from the different in price of the Nikkei 225 futures contracts.
( Buying at lower price and selling at higher price). This strategy would consider as a
risk-free investment and provide good opportunity for profit in the high volatile
market. However, due to the contracts’ price is slightly different, the profit earn is
small. Because of this, Nick Leeson was decided to change the strategy.
The strategy implemented by Nick Leeson named as “straddle” with the objective of
making a profit by short put and call options on the same underlying assets – Nikkei
This graph explains how the “straddle” strategy works. A short call option will gain
profit only when the price of underlying asset is lower than the strike price. The profit
earned is the premium from selling the option. For a short of put option, profit will be
gained when the price of the underlying asset is higher than the strike price so that the
owner will not exercise the option. The profit amount is same with the premium from
selling the option. With the combination of short call and put option, Nick Leeson will
be able to develop the above graph. From the graph, we can see that the profit portion
is small and only happen if the price of underlying asset is close to the strike price
(maximum profit when exercise price same with strike price). When the price of
underlying asset is higher or lower than the break-even point, Nick Leeson will suffer
huge loss as shown by the graph. The loss volume will increase with the raising of
volatility of the price of underlying asset. In short, we understand that “straddle”
strategy will only provide positive earning when the market is stable.
Is the Nikkei 225 Index is a stable financial instrument?
Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). It represents
a price-weighted average of the Japanese stock market. In year 1986, Nikkei 225
futures contracts had been created and introduced at SIMEX, OSE and Chicago
Mercantile Exchange (CME). It is now an internationally recognized futures index.
The graph is showing the performance of Nikkei 225 Index during1970 until 2010. It
clearly shows that the Nikkei 225 Index was fluctuated throughout the whole year.
This caused the loss suffered by Nick Leeson keep on increasing. The situation went
worse when the Kobe earthquake happened in Japan during year 1995. The Nikkei
225 Index dropped 1000 points approximately which deteriorate the Barings Bank’s
loss. The following graph is showing that the loss of Barings’ futures position and the
drop of Nikkei 225 Index during January and February of year 1995.
On 27 January 1995, the account “88888” showed a long position of 27,158 March
1995 contracts. In order to cover the loss, Nick Leeson decided to double up the long
position to 55,206 March 1995 and 5,640 June 1995 contracts. This decision was
based on the forecasting make by Nick Leeson who believes that the Japanese market
to recover very soon and the Nikkei 225 Index increase and become more stable. In
fact, Nick Lesson estimation was wrong. The Japanese market was not recovered in
the short time and cause the loss suffered by Nick Leeson keep on increasing.
Because of the terrible forecasting and “straddle” strategy, Nick Leeson sent Barings
Bank to the collapse due to high loss suffered. It is also Nick Leeson’s crime which he
changed the investment strategy from inter-exchange arbitrage to “straddle” strategy
and cover the loss using other accounts.
What are the Reasons that led to the Fall of Barings Bank?
Lack of internal checks and balances
In July 1994 until August 1994, the internal auditor of Barings Bank, James Baker has
spent two weeks in Singapore to investigate the suspicious profits being made by
Nick Leeson. James Baker identified the weaknesses in the internal controls in
Barings Bank and recommended that the General Manager should not responsible for
the back office in order to avoid the conflict of interest deficiency by holding two
position at the same time in the organization. In response to the suggestion given by
Baker, Barings Bank had taken their action by simply appointed the part time separate
financial manager in Hong Kong to watch over the back office activities. This action
taken by management was insufficient in monitoring Leeson’s activities, indeed.
Leeson’s activities could not be effectively supervised due to the incompetency of
No Segregation of duties
Barings Future Singapore (BFS) was facing difficulties when Leeson was permitted to
remain the responsible for both front office and back office. Although the
management of Barings did not noticed about the existence of the unauthorized
activities being made by Nick Leeson, but, the internal auditor did suggested the
recommendations to improve the separation of roles in the Barings Bank. In fact,
these recommendations were never been implemented.
The internal report was introduced widely among management in London and was
generally acknowledged as crucial. Copies of internal audit report were distributed to
i. Norris, Chief Executive Office of Barings Investment Bank (BIB)
ii. Broadhurst, Group Finance Director of Barings Investment Bank (BIB)
iii. Hopkins, Director of Group Treasury and Risk of Barings Investment Bank
iv. Barnett, Chief Operating Officer of Barings Investment Bank (BIB)
v. Ron Baker, Head of Financial Product Group (FPG)
As we can see above, the top level management had been acknowledged about the
matter happened in Barings Bank. Yet, by February 1995, nothing had been taken in
order to implement the recommendations of the reports as to segregate the duties of
Nick Leeson. Most of those who had received the internal audit report claimed that, it
is the responsibility of others (mainly in Singapore) to implement the
recommendations. The discrepancies happened between the management allowed
Nick Leeson to freely perform his unauthorized trading during his period in BFS.
At Singapore itself, Simon Jones, the Director of Barings Future Singapore (BFS)
(who had also responsibility for Barings’ operations in Singapore) seems like have not
taken any significant steps to give effect to the recommended segregate of duties
toward the Nick Leeson position. He should immediately restrained Leeson to
perform certain functions in settlement and recording processes after being
acknowledged by the internal audit report.
Unauthorized trading activities
The unauthorized trading was concealed by differences of devices including the error
account “88888”, the submission of falsified reports to London, the misrepresentation
of the profitability of Barings Future Singapore‘s (BFS) trading, a number of false
trading transaction in cross trade and false accounting entries. All this activities was
done by a single person-Nick Leeson who was claimed as “rogue trader”.
The creation of “88888” account
Even the segregation of duties was suggested by the internal auditor, but Barings
Bank diluted the concentration toward the Nick Leeson’s power. Nick Leeson was
being able to possess his authority to make decision in managing cheque, signing
authority, authority to sign off on trading reconciliations and responsible for
inspection in bank reconciliations. According to Nick Leeson, he was asked by the
London office of Barings to create another error account in order to handle only trivial
items arising in Singapore. Since that, the error account namely “88888” was created
by Leeson and he used this opportunity to manipulate any premiums or losses that he
made in the derivative’s transactions. Because of the lack of internal checks and
balances and the birth of the error account (“88888”), Nick Leeson was able to make
his “gambles” activities in the derivatives market and cover for his shortfalls by
reporting losses as gains to Barings in London. Leeson had took his tricky action in
altering the error account in order to prevent the London office from receiving the
standard daily reports on trading, price and status.
By using the hidden “five eight account”, Leeson began to actively trade in futures
and options on SIMEX. The money entrusted to the bank by subsidiaries was being
used by Leeson within his own “88888”account. He made a false statement in trading
records in the bank’s computer systems and used money intended for margin
payments on other trading.
Leeson's Positions as at End February 1995.
Number of contracts1
nominal value in US$
Actual position in terms of open interest of
49% of March 1995 contract and 24% of
June 1995 contract.
85% of March 1995 contract and 88% of
June 1995 contract.
5% of June 1995 contract, 1% of September
1995 contract and 1% of December 1995
Nikkei 225 Nil
1. Expressed in terms of SIMEX contract sizes which are half the size of those of the
OSE and the TSE. For Euro yen, SIMEX and TIFFE contracts are of similar size.
2. Open interest figures for each contract month of each listed contract. For the Nikkei
225, JGB and Euroyen contracts, the contract months are March, June, September and
3. Leeson's reported futures positions were supposedly matched because they were part
of Barings' switching activity, i.e. the number of contracts on either the Osaka Stock
Exchange, or the Singapore International Monetary Exchange or the Tokyo Stock
4. The actual positions refer to those unauthorized trades held in error account '88888'.
Source: The Report of the Board of Banking Supervision Inquiry into the
Circumstances of the Collapse of Barings, Ordered by the House of Commons, Her
Majesty's Stationery Office, 1995
The Cross Trade
A cross trade is a transition executed on the floor of an exchange by just one Member
who is both buyer and seller. He is allowed to cross the transaction (execute the deal)
only if he can matching buy and sell orders from two different customer’s accounts
for the same contract and at the same price. However, he can only apply this method
after he had declared the bid and offer price in the pit (trading) and no other Members
has taken it up. Under SIMEX rules, the Member must declare the prices for three
times and the cross trade must be executed at market price. Leeson entered into a
significant quantity of cross transactions between account “88888” and account
“92000” (Baring Securities Japan – Nikkei and JGB Arbitrage, account “98007”
(Barings London-JGB Arbitrage) and account “98008” (Barings London-Euroyen
After executing these cross trades, Leeson would instruct the settlements staff to split
down the total number of contracts into several different trades and changing the trade
price in order to affect the profits to be credited to “switching” accounts (“92000”,
“98007”, and “98008”) and the losses to be charged into account “88888”. Thus, these
transactions and manipulations activities taken by Leeson caused the cross trade on
the Exchange appeared on a genuine and within the rules of the Exchange.
6984 18950 19019 66173 66413 240
3000 17810 18815 26715 28223 1508
8082 17810 18147 (71970) (73332) (1362)
10047 18220 18318 91528 92020 492
16276 18210 18378 148193 149560 1367
1. This table is related to the Report of the Board of Banking Supervision Inquiry
into the Circumstances of the Collapse of Barings, Ordered by the House of
Common, Her Majesty's Stationery Office, 1995.
2. This column represents the size of Nikkei 225 cross-trades traded on the floor of
SIMEX for the dates shown, with the other side being in account “92000”.
Table 10.3 below is an example of how Leeson manipulated his books to show a
profit on Barings's switching activity.
We notice that lack of internal checks and balance in an organization could lead to
disaster just like Barings Bank did. Leeson could simply cover his action within his
capabilities and authority through using loophole in the Barings Bank’s internal
Lack of understanding in the derivative markets
The Bank of England summarized that Barings Bank’s senior management team did
not understand the risks incur represented by the instruments that Lesson could
potentially trade. Leeson engaged in the certain options trading strategies that created
downside risk (potential loss if price decline) for the company under some market
conditions even he was not authorized to do so. Leeson sold options and using the
“straddles” strategy, the former, in order to cover up his activities each month and he
try to manage his losses(not manage the loss). Straddles are a potentially highly
profitable trading strategy which involving both put and call options and it is suitable
for the person who expects a neutral and low volatility market in the underlying
If the Barings Bank’s auditors and top management had understood the derivative
trading business, they will had realized that it is not possible for Leeson to be making
the profits as reported without taking the risk into considerations. Furthermore, they
might have a lot of questions to ask where and how the money was coming from to
cover the losses(no include cover loss). After the several months, Leeson’s activities
was only started to be tracked and revealed after the Kobe earthquake in Japan
happened on January 17, 1995. Leeson initially took his action to transact the put and
call options within a massive volume in hoping that the Nikkei market will goes up
quickly to obtain the profit and cover his losses that he has made. But, in contrast, the
Japan’s market keep on dropping to loss and Leeson could not afford the pressure for
being keep on conceal the loss. At the end, the entire activities that Leeson had made
were completely pulled down the Barings Bank. At that point of time, every party in
the management realized that everything was too late to be recovered
Poor supervision of employees and lack of senior management involvement
There was an oversight on Leeson’s activities and no individual was directed to
monitor his trading strategies although Leeson had never held a trading license prior
to his arrival in Singapore. Even each department was being fragmented, no one or no
department had a clear overview of what was going into the bank? Nick Leesson
personally claimed a severall statement that:
i. Anybody who was supposed to have some control over his activities
was going elsewhere.
ii. The people who were looking after the traders were based in London.
iii. The people in charge of the compliance function were in London.
iv. The risk management areas were in Tokyo
v. He was both the senior trader and settlements person in Singapore
This clearly showed a very serious and obvious implication to the Baring Bank itself.
Besides, Nick Leeson was exposed to the fraud activities. Although the above matter
has been pointed out regularly in audits (internal and external), but no action had to be
taken to overcome the weaknesses.
1.0 Simon Jones - The Finance Director of Barings Future Singapore
Going into more details, Leeson’s back office functions were never effectively
monitored. The staffs in the back office in Singapore were relatively junior and they
simply obey Leeson’s instructions. The Finance Director of BFS, Simon Jones, was
concerning himself primarily with the affairs of Barings Securities Singapore (BSS)
and devoted little attention to Barings Future Singapore (BFS). While, no appropriate
degree of supervision and internal controls was being implemented to overcome these
weaknesses. Thus, BFS was operated almost entirely by Nick Leeson alone. This lack
of supervision was reflected in the failure on the part where Jones was dealing with
satisfactorily with the letters of SIMEX to BFS on 11 January 1995 and 27 January
1995. Both of these letters was very crucial to reveal the Leeson’s activities regarding
on poor management.
1.1 The letter on 11 January, 1995
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
Barings Future Singapore (BFS) was being asked to provide a written explanation of
the margin difference on account “88888” and also explain about its inability to
account for the problem in the absence of Leeson. In fact, no warning or caution went
into the BFS and no one investigated who was the real customer. Furthermore,
nobody investigated why Leeson was having difficulties in meeting margin payment,
and why he had such a huge position for margin requirement in account “88888”.
Unfortunately, Simon Jones, (who was legitimately responsible to inspect the
condition happened) was not sent a copy of the letter above to the Operational Heads
in London and he also did not asked Leeson to give detail explanations about the
above matters. Indeed, Jones dealt with the matter by just allowing Leeson to draft the
response to SIMEX and this affected the London received the wrong (or edited)
1.2 The letter on 27 January, 1995
Second, the letter of 27 January 1995 related to the assurance of BFS’s ability to fund
its margin calls. Although a copy of this letter was sent to Barings in London, but
Jones did not investigate why such letter had been sent.
This second letter was related to the incident which is come to the attention of
London. But, it again, was dealt with unsatisfactorily by the management. At the
initial period of February 1995, Coopers & Lybrand brought to the attention of
London and Simon Jones the fact that, US$83million apparently due from Spear,
Leeds & Kellogg (a US investment group) that had not been received. Again, no one
was sure on how this multi-million dollar receivable arose. There have two version
explaining the above matter. One is, in BFS (through Leeson), had traded (or broken)
an over-the-counter deal between Spear, Leeds & Kellogg and BNP, Tokyo. The
transaction involved 200 of 50,000 call options and resulting in a premium of
US$83million. The second version is, an ‘operational error’ had occurred (a payment
had been made to a wrong third-party in December 1994)
No matter what version it was, these had serious control implications from Barings
Bank. If Leeson had sold (or broken) the deal in an OTC option, then he obviously
had engaged in an unauthorized activity. Yet, he should be warned for doing the
activities. In fact, there is no any record of Barings Bank’s management to take any
actions or steps to ensure that the matter above did not happen again. If the Spear,
Leeds & Kellogg receivable was facing an operational error, Barings Bank had to
strengthen its back-office procedures in order to avoid the same mistake occur again
2.0 Fernando Gueler - The Head of Financial Product Group (FPG) in
Barings Securities Japan (BSJ)
The lack of supervision of BFS was extended elsewhere. Fernando Gueler, the Head
of Financial Product Group (FPG) in Barings Securities Japan (BSJ) was based in
Tokyo and experienced in the operation of Japanese markets, and he also responsible
in analyzing the risks on Leeson’s intra-day trading activities from 1992 until the last
quarter of 1994. The matter is, he did not have a clear understanding of his duties in
supervision over BFS’s trading activities and he argued that he was responsible for
supervising Leeson’s switching activities. He should knowingly that BFS’s trading
activities were not properly supervised and he should not have allowed this lack of
proper supervision to continue.
Ethical point of views
Person who was attracted to unethical means for self interest which refer to the
advancing their careers and strengthen their financial position was often driven by the
intention to defense their own poor self image. The person will act themselves
favorably while, try to avoid from being detected. From the case of Barings Bank,
Nick Leeson who was above his capability in trading and managing at BFS
intentionally created a dummy account in order to absorb his substantial trading losses
(according from Leeson, 1996) for two years. Finally, this unethical behavior
performed by Leeson collectively lead to the collapse of Barings Bank on 1995. The
case of Barings Bank leads to the awareness of ethical behavior in banking
organization as well as corporate world in order to prevent and avoid the same
situation to be happened again.
It is therefore easy to conclude that:
• The losses were incurred by reason of unauthorised and concealed trading activities;
• The true position was not noticed earlier by reason of a serious failure of controls
and managerial confusion within Barings; and that
• The true position had not been detected prior to the collapse by the external auditors,
supervisors, or regulators of Barings.
What are the roles of internal audit, external audit, corporate governance and
risk management in mitigating risk arise since the collapse of Barings Bank?
In the Baring case, lack of proper supervision from the top management and
deficiencies in internal control and risk management of the organization had led to the
arisen of operational risk, which led to the collapse of financial giant, Barings. The
Basel Committee defines operational risk as “the risk of loss resulting from
inadequate or failed internal processes, people and systems or from external events.”
Risk management is crucial in a company where it can identify the risk areas of an
organization. Once the risks have been identified, management would take further
actions to reduce the risks to a tolerable level. Obviously, there was deficiency in
Barings Bank’s risk management. Basically, the risk in Barings was arising from the
incident as follow:-
(i) No proper supervision from the management over the activities done by
(ii) Senior executives had no understanding about the business of derivative
(iii) There was no segregation of duties
Those incidents as above had created operational risk to Barings. In order to mitigate
the operational risk, the management has to play its role before pointing fingers to
others when the problems happen. The management has to implement enterprise risk
management where it could identify potential events that may affect the bank and
manage risks to be within its risk appetite. The bank should always establish the risk
culture and have a proper policy that help to ensure the risk response is carried out,
considers risk strategy in the setting of objectives, determine the risk appetite;
differentiate the events whether they are an opportunity or threat, assess the risk with
qualitative and quantitative risk assessment methodologies and response to risk with
proper actions. If these would have implemented by the Barings Bank’s management,
they could have identify the risk and take appropriate action when they were informed
by the internal auditors that there was a problem in the control system in Barings
Future Singapore. Hence, Barings Bank might still exist now.
Without proper supervision from the management
Corporate governance defined by Gabrielle O’ Donovan as “an internal system
encompassing policies, processes and people, which serves the needs of shareholders
and other stakeholders, by directing and controlling management activities with good
business savvy, objectivity, accountability and integrity. ” In Barings case, the board
and top management were considered as failed to implement their fiduciary duties for
the benefits of shareholders and company. It is because the top management was said
to have little oversight over the activities done by Nick Leeson even though he was
just got his trading license during that time. Hence, it provided amble of opportunities
to Nick Leeson to perform unauthorized trading and hide losses from the sight of
management. Due to huge losses made by Nick Leeson, Barings Bank collapsed
eventually in 1995. After this incident, the management of each organization should
take this as a lesson by having proper supervision and monitoring over their
subordinates’ activities. It is crucial to ensure that activities done by subordinates or
employees are mainly for the benefits of the organization.
Lack of understanding about derivative trading
After the incident happened, the top management claimed that they did not understand
the business of derivative and how the transactions were operated. Due to this
problem, they can only provide guidance to Nick Leeson based on quantitative
elements such as profit figure rather than strategy in nature. Senior executive would
rather to encourage Nick Leeson to obtain higher profit rather than investigate how
Nick Leeson would be able to get such a high profit from trading in arbitrage between
future contracts, which were low risk in nature. Based on the risk management
principles, low risk would have low return and vice versa. Arbitrage profit is usually
much lower than the speculation profit. The management of Barings seems like ignore
about the basic principles and that is why they failed to detect the fraud done by Nick
Leeson in the derivative trading. Due to such problem, the top management should be
sent to training or attend courses to enhance their knowledge about derivative market
and to be able to become the all rounder in the banking industry deal with derivative
trading. This could increase the competencies of the top management to supervised
their subordinates and understand what they are doing in the operations. By attending
the courses, the top management would have better understanding about the nature of
derivative business which in turn could provide proper recommendations and
guidance to subordinates. Thus, it helps to mitigate the operational risk.
Without segregation of duties
Nick Leeson was given two responsibilities, which were appointed as floor manager
of Barings Future Singapore to deal in Singapore Money Exchange (SIMEX) and also
in charge for the operation at back office to record the daily trading transactions.
Normally, Nick Leeson would stay at SIMEX until trading closed at 2PM. After that,
he would back to the office and record all the trading transactions for that particular
day. Thus, he was the only one who knew about whether the recorded trading
transactions were matched to the actual trading transactions. Besides, he was also the
one who had given authority in cheque signing and sign off on trading reconciliation
as well as responsible for vetting bank reconciliations. Obviously, there was conflict
of interest between the two responsibilities, which would give rose to the operating
risk. These two jobs supposed to be done by different people in order to mitigate or
reduce the risks of fraudulent activities happen. In order to mitigate risk, organization
especially those involve in financial industry should review organization’s internal
control. Top management and internal auditors in an organization play an important
role to ensure that segregation of duties is in place. No single employee can handle
more than one crucial position in an organization especially those who dealing with
financial and accounting information. This could help to safeguard company asset and
produce more accurate information through reduce or mitigate the fraudulent risk.
Indeed, management should understand that they have fiduciary duties towards the
benefits for shareholders and company. Therefore, it is crucial for the management to
know about the risks that might be faced in an organization. In short, in order to
mitigate the risks, management cannot run away from giving proper supervision to the
subordinates, understand the business nature and tighten up the internal control in an
organization. Barings Bank’s case should be a great lesson to other organization
especially financial industry entity.
Negligence of external auditor
The fall of Barings Bank was partly due to the negligence of the external auditor in
performing their professional skills in auditing the Baring Future Singapore as well as
the consolidated financial report in London Barings Bank. The reason could be the
auditors themselves have lack of knowledge in derivatives trading and hence were
incompetent to audit the financial performance of Barings Bank.
To improve or avoid the similar case from happening, the audit firms should always
send their auditors to attend the professional courses to enhance their knowledge in
order to increase their competencies in auditing companies that fall in different
industries. Besides, the audit firms should have specialized skills auditors so they
could be the expert in the particular industry to perform and oversee the audit work
with due diligence care. By improving the auditors’ competencies, they will reduce
the risk of negligent in performing audit work and finally may have avoided the fraud
In recent development of the corporate organizations, corporate governance is one
terminology that has continued to reflect in the internet, media, newspaper etc. The
weak corporate management was exhibited by numerous well known organizations
and has drawn so much attention. The issue of corporate governance was considered a
global matter and the effect of inefficient corporate governance could lead to disaster
since it affects the socio-economic and political lives. Basically, corporate governance
could be defined as a set of processes, customs, policies, laws and institutions which
can affect the direction of a corporation (way of being administered and being
controlled). Corporate governance also covers the relationships among and between
many stakeholders involved in operating a corporate organization and the
establishment of goal.
The failures of Barings Bank have created awareness and sensitivity among people
related to the issue of corporate misdeeds. In fact, the collapse of Barings Bank
(Britain’s oldest merchant, Queen’s bank and it had financed the Napoleonic Wars,
the Louisiana Purchase and the Erie Canal) was caused by the actions of a rogue
trader at a small office in Singapore, Nick Leeson. Due to the lack of segregation of
duties only, Nick Leeson could exploit the Barings Banks derivatives activities and
totally wiped out the Barings Bank’s capital (around $1.4 billion) within almost four
years of his working durations. The absence of the effective and efficient structure
and objectives in the top management revealed the corporate governance failure of
Baring Bank’s management. Consequently, the shareholders and stakeholders of
Baring Bank were being affected deemed to the failure of the corporate governance’s
As a result of the failures and lack of regulatory measures from authorities, the
Committee of Sponsoring Organizations (COSO) was created. COSO is recognized
the world over and providing guidance on critical aspects of organizational
governance, business ethics, enterprise risk management, internal control, financial
reporting and fraud. Beside, developments in the US arose debate in the UK and the
scandals and collapses in UK in the late 1980s and early 1990s, led the shareholders
and banks to worry about their investment
Due to the events that led to the enhancement of corporate governance, it is crucial for
an organization and being a fundamental requirement to well-conducted companies
that could ensure they operate at optimum efficiency. The important attributes of
corporate governance including:
i. Ensure appropriateness and adequacy in the system of controls and hence
asset may be safeguarded.
ii. Prevents any single individual having too powerful on influencing people.
iii. Improve the relationship between a company’s management, the board of
directors, shareholders and stakeholders.
iv. Ensure the company is being managed in the best interests of shareholders
v. Encourage transparency and accountability
Another important objective of corporate governance in an organization is the
operational risk control. Operational risk was defined as the risk of loss through:
i. Failure of systems
ii. Deliberate conduct of staff
iii. Negligent conduct of subordinates
Holding massive of operational risk in a company may have systematic implications
when the firms involve large investment with global operations. This was clearly
proven by the Barings Bank’s collapse, in which resulted from senior management’s
failure to implement internal control producers for staff. Furthermore, the top
management in Barings Bank also failed to broader the issues of ensuring that the
adequacy of complying the stated regulatory standards in all of its subsidiaries. What
is clear from Barings Bank is that, home and host country regulators must
communicate frequently and coordinate their investigations along the lines of
international standards in order to supervising the multinational conglomerates.
What are the cases similar to Barings Bank?
• Société Générale is the 3rd largest Corporate and Investment bank in the
Eurozone by net banking income and the 6th largest French company by
• It employs 120,000 people, of which 75,000 in Europe, and maintains a
presence in 80 countries.
• Located at west of Paris
• Main divisions are Retail Banking & Specialized Financial Services
(particularly in France and Eastern Europe), Corporate and Investment
Banking (Derivatives, Structured Finance and Euro Capital Markets) and
Global Investment Management & Services.
• A single futures trader (Jérôme Kerviel, a relatively junior futures trader) at
the bank had fraudulently lost the bank €4.9billion (an equivalent of
• A series of bogus transactions that spiraled out of control amid turbulent
markets in 2007 and early 2008.
• Two credit rating agencies reduced the bank's long term debt ratings: from AA
to AA- by Fitch; and from Aa1/B to Aa2/B- by Moody's (B and B- indicate the
bank's financial strength ratings).
• Kerviel is exceeding his authority to engage in unauthorized trades totaling
dealt with $73.3 billion (more than the bank's market capitalization of $52.6
billion) although bank officials claim that throughout 2007, Kerviel had been
trading profitably in anticipation of falling market prices.
• According to the BBC, Kerviel generated €1.4 billion in hidden profits by the
end of 2007.
• His employers say they uncovered unauthorized trading traced to Kerviel on
January 19, 2008.
• The bank then closed out these positions over three days of trading beginning
January 21, 2008, a period in which the market was experiencing a large drop
in equity indices, and losses attributed are estimated at €4.9 billion.
• His trial began on June 8, 2010. He faces up to five years in prison and a
Similarity with Barings
• Oldest banks in France
• Single rogue trader
• Trader exceeded his authority
• Fraudulent trade that exist market
• Greedy and desired of making
profit for the bank.
• Fraud happened to cover losses.
Differences with Barings
• Société Générale does not collapse
with US bailout.
• Société Générale has well
established internal audit and risk
• Société Générale operated in a
well establish regulatory system
requirement because it happened
on at later date (2007 & 2008).
• Undiscovered fraudulent trade
method until the discovery of
fraud perpetrated by Bernard
Bank of credit and commercial International (BCCI)
• BCCI was a major international bank founded in 1972 by Agha Hasan Abedi,
a Pakistani financier.
• Registered in Luxembourg
• It operated in 78 countries, had over 400 branches, and had assets in excess of
US$20 billion, making it the 7th largest private bank in the world by assets.
• In the late 1980's BCCI became the target of a two-year undercover
operation conducted by the US Customs Service.
• This operation concluded with a fake wedding that was attended by BCCI
officers and drug dealers from around the world who had established a
personal friendship and working relationship with undercover Special
Agent Robert Mazur.
• After a six month trial in Tampa, key bank officers were convicted and
received lengthy prison sentences. Bank officers began cooperating with
law enforcement authorities and that cooperation caused BCCI’s many
crimes to be revealed.
• BCCI became the focus of a massive regulatory battle in 1991 and was
described as a "$20-billion-plus heist".
• Investigators in the U.S. and the UK revealed that BCCI had been "set up
deliberately to avoid centralized regulatory review, and operated
extensively in bank secrecy jurisdictions.
• Its affairs were extraordinarily complex. Its officers were sophisticated
international bankers whose apparent objective was to keep their affairs
secret, to commit fraud on a massive scale, and to avoid detection."
• Upon the shutdown of BCCI, £760 million loss incurred (£100 million lost
by UK local authorities).
• As a summary, monies laundered out of BCCI HQ bank in London
through subsidiaries in fifteen countries by eight senior executives; BCCI
shut down by Bank of England.
Similarity with Barings
• Collapse on fraudulent activities
Differences with Barings
• Do not expose to derivates trading.
• Escaped detection for longer
period (20 years)
• BCCI adopt an opaque
international structure to fragment
oversight and conceal activities
from the regulators.
• More than single rogue trader
• Happened before Barings
• 12th largest bank in Japan
• One of the country's top city banks
• Upon withdraw from all overseas banking operations; the bank now aims to
concentrate on retail banking for small firms and individuals mainly in the
• On December 12, 2001 consolidation of Daiwa Bank, Kinki Osaka Bank, and
Nara Bank as Daiwa Bank Holdings, Inc.
• After acquiring Asahi Bank on March 1, 2002, the company was renamed
Resona Holdings, Inc. on October 1, 2002.
• In 1995, one of Daiwa Bank's bond traders, Toshihide Iguchi, in New York
lost $1.1 billion speculating in the bond market.
• The company was later indicted for not reporting crimes by Iguchi including
selling unauthorized sale of client's securities to cover losses.
• Toshihide Iguchi had concealed more than 30 000 trades over 11 years starting
in 1984, in U.S. Treasury bonds.
• Consequently, Daiwa Bank shuts down global operations.
Similarity with Barings
• A trader had - as Leeson - control
of both the front and back offices.
• Happened in the same year
• Lack of internal control and risk
management over global (far
Differences with Barings
• Escaped detection for longer
period (11 years).
• Do not involve derivates but bond
• Holding company does not
collapse after the incidents.
• Metallgesellschaft AG was formerly one of Germany's largest industrial
conglomerates based in Frankfurt.
• It had over 20,000 employees and revenues in excess of 10 billion US dollars.
• It had over 250 subsidiaries specializing in mining, specialty chemicals
(Chemetall), commodity trading, financial services, and engineering (Lurgi).
• In 1993, the company lost over 1.4 billion dollars after speculating increase in
oil price in oil futures market.
• A subsequent drop in oil price left the company buying the oil at a higher price
than the market price.
• It is a mismatch between its derivates hedges and long-term oil contracts with
• The company is now part of GEA Group Aktiengesellschaft (from 2000 to
2005: mg technologies AG, before 2000: Metallgesellschaft).
Similarity with Barings
• Loss incurred deal to derivates
Differences with Barings
• No rogue trader and fraudulent
• Happened before Barings.
• Not a financial institution involved
(An industrial company under the
National Westminster Bank Plc (NatWest)
• A retail bank in the United Kingdom that has been part of The Royal Bank of
Scotland Group Plc since 2000.
• Established in 1968 by the merger of National Provincial Bank (established
1833 as National Provincial Bank of England) and Westminster Bank
(established 1834 as London County and Westminster Bank).
• Traditionally considered one of the Big Four clearing banks, NatWest has a
large network of 1,600 branches and 3,400 cash machines across Great Britain
and offers 24-hour Actionline telephone and online banking services.
• Today it has more than 7.5 million personal customers and 850,000 small
• In 1997, NatWest Markets, the corporate and investment banking arm formed
in 1992, revealed a £50m loss had been discovered in its interest rate options
and swaps trading books, escalating to £90.5m after further investigations.
• NatWest Markets troubles started with a systematic mispricing of various
options and swaps by traders in its rate risk management group. As losses
mounted, Kyriacos Papouis, who traded Deutschemark (DEM) interest rate
options and swaps, began to mismark options positions in the bank’s books in
a concerted attempt to cover up the losses. His supervisor, Neil Dodgson, who
traded Sterling (GBP) interest rate options and swaps, also mismarked
• Investor and shareholder confidence was so badly shaken that the Bank of
England had to instruct the board of directors to resist calls for the resignation
of its most senior executives in an effort to draw a line under the affair.
• By the end of 1997 parts of NatWest Markets had been sold, others becoming
Greenwich NatWest in 1998.
Similarity with Barings
• Internal controls and risk
management were severely
• Poor management by looking at
bank's move into complicated
derivative products that it did not
• Fraud happened to cover losses.
Differences with Barings
• More than one trader involved.
• Does not collapse after the
• Happened after Barings.
• Longer detection period than
What regulation has been imposed in response to the collapse of Barings Bank?
The sudden collapse of the Barings Bank brought to the sharp focus the need of
regulators to examine the problems and take concrete actions to deal with the
problems to safeguard the same case from happening again in the future.
Following the collapse of Barings Bank, regulatory authorities from sixteen countries,
who have oversight the world’s major futures and options market, met at Windsor, to
attend the meeting hosted by the United Kingdom Securities and Investments Board
and the United States Commodity Futures Trading Commission to discuss the key
issues resulting from the failure of Barings Bank and the ways to strengthen
supervision, minimized systematic risk and disruptions.
In the Windsor Declaration, the regulatory authorities addressed the issues related
• Cooperation between market authorities
• Protection of customer positions, funds and assets
• Default procedures
• Regulatory cooperation in emergencies.
Cooperation between market authorities
The regular authorities agreed to improve cooperation and communications of
information relevant to material exposures and other regulatory concerns between
regulators and market authorities. The reason is an individual regulator or market
authority alone may not have information on all material exposures of market
members and consequently communications could help to minimize the effect of
market disruption caused by failures and bankruptcy.
If there is a communication between the regulators in United Kingdom, Japan and
Singapore which if they have sufficient regulatory oversight on the derivatives trading
by Nick Leeson, the oldest bank in England would have been survived.
Protection of customer positions, funds and assets
The regulator authorities will review the adequacy of existing arrangements and
enhance the arrangements appropriately to minimize the risk of loss through
insolvency and misappropriate use of assets.
The regulator authorities will promote and facilitate the liquidation or transfer of
positions, funds, and assets from the failing members of future exchanges to mitigate
the risk of losses due to the inability of the solvent participants in managing the
exposures to a failing market member.
Regulatory cooperation in emergencies
The regulator authorities will enhance the emergency procedures and improve the
effectiveness of international co-ordination and timely communication of reliable
information which is needed in supervisory purpose when the market is in difficulties.
In addition, the Windsor Declaration requires the authorities to promote
the following issues: (retrieved from U.S. Commodity Futures Trading
• Development of mechanisms to ensure that customer positions, funds and
assets can be separately identified and held safe to the maximum extent
possible and in accordance with national law.
• Enhanced disclosure by the markets of the different types and levels of
protection of customer funds and assets which may prevail, particularly when
they are transferred to different jurisdictions, including through omnibus
• Record-keeping systems at exchanges and clearing houses and/or market
members which ensure that positions, funds and assets to be treated as
belonging to customers can be satisfactorily distinguished from other
positions, funds and assets.
• Enhanced disclosure by markets to participants of the rules and procedures
governing what constitutes a default and the treatment of positions, funds and
assets of member firms and their clients in the event of such a default.
• The immediate designation by each regulator of a contact point for receiving
information or providing other assistance to other regulators and/or market
authorities and the means to assure twenty-four hour availability of contact
personnel in the event of disruption occurring at a financial intermediary,
market member or market.
In short, sufficient regulatory oversight and communication as well as cooperation
between the market authorities are essential to avoid the similar case like Barings
Bank from happening. This could be done more effectively through the enforcement
of regulations or the enforcement of resolutions by an international body.
The collapse of Barings Bank may have not greatly impacted the regulators and the
banks to form a new regulation but it would be a great lesson for the companies and
banks all over the world to understand the importance of proper supervision and
control systems and pay more attention on the issues of corporate governance and risk