Wednesday, January 30, 2008

Societe Generale & Jerome Kerviel

Societe Generale (SocGen) revealed a shocking news last week that they had lost 4.9billion Euros due to illicit positions.

I worked for financial services industry for quite some time. I, myself was a stock trader taking care of proprietory trading (taking stock market positions on behalf of company). This episode puzzled me a lot and I started reading materials relating to this episode. My friends also suggested some links.

The accused trader's name is Jerome Kerviel and he is police / judicial custody and enquiry being carried out.

I personally believe that managers to whom Keriviel reported should be sacked first and the entire system of audit should come second in sacking. Third should be finance department who kept on releasing money as margin.

Bcoz, every manager should know what is the trading position and where it is heading.... trading strategy should be discussed with full team periodically and the same to be implemented. Audit team should know the trading entries which are entered in computer syste and afterall every trade should have got reflected in some account and back to back settlement should have also got tallied with exchanges for exchange trades and third party brokers for off-market trades.

Finance team should have atleast escalated the money requirements as apparantly Keriviel's trading positions ran above 50billion euros.

I feel, Jerome Keriviels would be created due to system failures rather than his fantasy to make money. Nick Leeson also exploited the system failures some 12 years back for Bearings Bank.

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