If SocGen on ly found out about their trading loss over the weekend....

...why were they looking for a Delta one trader (Monsieur Kerviel's role) last week?

Perhaps the conspiracy theorists are onto something, after all!
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January 25, 2008 at 4:08 PM ×

Ooopps, I don't like coincidence...
new turnaround in Europe, see Fortis, Ing.. what's rumour now?
Hf collapse and bank's profit warning!! or blackstone??

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Macro Man
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January 25, 2008 at 4:11 PM ×

Well, like I said, gamma is priceless!

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Michael
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January 25, 2008 at 4:14 PM ×

Monsieur Kerviel probably hadn't had a two week holiday in years so they realised he needed some help.

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Macro Man
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January 25, 2008 at 4:18 PM ×

This is a rather amusing take on the whole affair.

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t
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January 25, 2008 at 4:50 PM ×

Very good spot.

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Quarrel
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January 25, 2008 at 5:07 PM ×

MM, you beat me to posting the horrible work hours note - first thing I thought of on seeing this job ad. I laughed.

Meanwhile, for those of us that don't actually live on the inside of an investment bank, what's a delta 1 trading desk?

Would seem a little contrived to have a desk limited to trading derivatives with delta 1, so I assume there is another meaning?

This SocGen story is going to be fun as it unravels. FT is just reporting that the hunt is on for those that profited during the unwinding (cause taking action over derivative trading is always oh so easy..).

The Deal & FT also posted Kerviel's resume:

---

KERVIEL Jerome
Jeromekerviel@hotmail.com

OBJECTIVE Reach a position as a retail listed derivative products trader, managing a volatility and Delta One book

EDUCATION
MASTERS in Finance (Organisation and Control of financial makets)
University of Lyon, September 2000

Bachelor Degree in Finance
University of Nantes, 1996 1999

WORK EXPERIENCE

Societe Generale S.A., Paris, France
Trader and Market Maker for Delta One Products
March 2004 - Today
Trading : Market making of Listed Delta One products
Including open end and closed end Turbos (Single Stocks, Index, Forex and Rate Futures), ETFs and secondary market for Certificates
ETFs structuration - Management of the collateral with Lyxor Asset Management
Development of managing tools (Excel VBA macro)
New Underlyings Study to develop the product range
Participation to the specification for the implementation of turbos to the Clickoptions platform

Societe Generale S.A., Paris, France
Trader Assistant - Basket Trading and Delta One Products
August 2002 - February 2004
Valuation and Risk Analysis explanation for Basket Trading (Single
Arbitrage book) and Delta One Products
Strategies Backtestings
Short positions hedge
Process automation and managing tools development

Societe Generale S.A., Paris, France
Middle Office - Referential Team
August 2000 - July 2002
Products modeling
Process automation
Excel macro Development for the exotic Desk
Participation to the single referential project

ACTIVITIES
Judo - 8 years practice - Trainer for children
Sailing

SKILLS
English : working language
Microsoft Office Packge - Visual Basic
Licensed for EUREX, XETRA, EURONEXT

---

I bet his email address is getting a bit of a work out..

--Q

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Josh
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January 25, 2008 at 5:53 PM ×

macro,

what's the hf rumor?

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Josh
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January 25, 2008 at 6:52 PM ×

p.s. macro

i went to Carolina

feb 6 baby

king rat gets caught in the rat trap...

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OldVet
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January 25, 2008 at 7:19 PM ×

Effusive thanks for advert, I sent it to my lackadaisical 21-yr old daughter in Paris with a note that it paid VERY well. If she can scam money out of me, she can do it at SocGen.

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Hermann the German
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January 25, 2008 at 7:56 PM ×

Unbelievable that such a thing can happen again after what "Nick" has done to Baring's.

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Macro Man
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January 25, 2008 at 8:09 PM ×

Quarrel, I'm no expert on that line of business. My understanding of what Kerviel was supposed to be doing was simply passive hedging of exposure raised from client flow- using futures (i.e, products with a delta of 100%). ANy reader with a more actue familiarity of the product line, feel free to chip in.

Josh, I am sufficiently old that when I went to Durham, the Evil Empire was headquartered in Chapel Hill.

Hermann, I gather that Mr. Leeson is being exhumed from obscurity to hold forth on how one perpetuates this particular type of fraud. Perhaps a lucrative career as a pundit awaits!

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Josh
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January 25, 2008 at 8:49 PM ×

mm,

i am aware of the deficiencies in your education sir

the evil empire in chapel hill always had a much better supply of coeds in my experience

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Macro Man
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January 25, 2008 at 9:04 PM ×

Yes, the same was true in my day, alas.

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druckenmiller
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January 26, 2008 at 2:58 PM ×

joke going around

Subject: Sócíété Générálé TRADER WAS FORCED TO WORK 30 HOURS A WEEK

FRIENDS of rogue trader Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

One colleague said: "He was, how you say, une workaholique. I have a family and a mistress so I would leave the office at around 2pm at the latest, if I wasn't on strike.

"But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat and there he was, fast asleep on the photocopier.

"I remembered he had been working for almost six hours."

As the losses mounted, Kerviel tried to conceal his bad trades by covering them with an intense red wine sauce, later switching to delicate pastry horns.

At one point he managed to dispose of dozens of transactions by hiding them inside vol-au-vent cases and staging a fake reception.

Last night a spokesman for Sócíété Générálé denied that Kerviel was over worked, insisting he lost the money after betting that the French were about to stop being rude, lazy, arrogant

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Nil
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January 26, 2008 at 7:14 PM ×

I can't believe all the bullshit I'm reading about how it was so impossible to do what he did, and that buying futures required you to post margin, etc, so the SG should have know...

First off, in his normal line of work, he gets a call from a large customer who goes like "Hey Jerome, I want to buy 1bn worth of CAC 40 futures", and Jerome buys those futures in the market, then tells his customer that he was filled, and gives him the fill price. Those futures flow through electronically to the firms systems (since he traded them electronically), so he has nothing to book on the futures side. The only thing left for him is to book, in SG's accounting system, the swap he wrote to the customer.

So all he was doing was booking fictitious swaps, so he wasn't hedging his futures position. There's one info I read somewhere which said they discovered what was going on when they called the counterparty (of the swap, but they don't mention this) and found out he never had entered into that swap.

Technically that's very easy to do (booking a fake swap). What usually happens is that your back office then goes and talks to their back office, and that's where he must have intervened.

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vlade
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January 27, 2008 at 10:37 AM ×

Nil:
Sorry, but swap is OTC and future is exchange traded. Unless you mean he was doing client TRSes and not hedged them.

The fact is the loss was in ET futures, and these you have to margin every day. That's how exchanges get rid of counterparty risk, ok? It's called the variation margin, and don't confuse it with margin ala stock trading. It's not posting the collateral, it's posting the pnl variation (in cash, moreover).
(the existence of this margin is the reason for existence of futures convexity, because effectively mantaining futures position can cost you money as opposed to doing a straight forward).

Regardless, my point was and is - it's not impossible to hide the risk. In fact, it's quite easy at most places if you know a bit about how their systems works.
Sometimes, using various mis-timings between EOD processing etc. it's even possible to get it to the accounting system.

On the other hamd, it's very, very hard to hide a large real cash movements unless you have (as Nick Leesom had) access to the accounting and payments systems or the reconcilation systems between them.
Of course, in that case you can do just about anything, including paying the money to your own account in Switzerland.

I'm not saying that it's totaly impossible, but if that's indeed what happened, SocGen is running the bank on a bunch of Excel spreadsheets - or something that has about the same security and reliability.
In that case I think the FSA with the NR debacle could be seen as an extremely harsh regulator compared to whoever regulates French banks.

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Nil
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January 28, 2008 at 12:22 AM ×

Vlade:

1. I agree of course that swaps are OTC and futures are ET.

2. I agree that the futures account had to be margined. I don't know what the exchange imposed margins are in equity index futures, my primary trading experience is commodity futures, but the margin is usually chosen by the exchange as a function of 1 day standard deviation (or a function of the limit range for commodities with a limit). The reason they look at 1-day moves is that margin recalculation, etc. are done at the end of the day. Anyway, that's not important.

3. You're right, it would have been very hard to fake the accounting system into not realizing that he was posting margins on those futures. And what I'm saying is that he never manipulated the accounting system into thinking that. The accounting system KNEW he had a massive futures position, and was posting margins accordingly. However, the accounting system also has a fake swap booked, which meant that his total PnL exposure was theoretically flat. The futures position he had one was on behalf of a customer who didn't want to trade futures themselves and who instead went through SocGen.

Now, I don't claim I know what the maturity of that swap was (after how long would he swap the returns on his futures position with his counterparty). For example, I trade commodity indices, and if I have a pension fund who wants to enter into a one year swap on the returns of the GSCI, I try to push 12 bullet swaps of one month-maturities, instead of that one year maturity, specifically because I don't want to carry the counterparty risk for one year (if commodities tank over a year, and the swap was very large, I don't want to have to settle 1 billion with my counterparty...)

So what I think he did is book a fake long dated swap in the accounting system, then cancel it before maturity and take the profits....

Does this make sense ?

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vlade
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January 28, 2008 at 8:41 AM ×

Nil:
Yes, this scenario (combination of OTC and futures) would make sense. I wasn't aware he was able to do TRSes (which is effectively what you describe).

The method you describe wouldn't work straing off the bat, as trade cancellation more than one day after the trade has been done generaly raise questions.

There are ways around that - ala what NAB FX option dealers did. That is you know timing of the systems and enter/cancel deals in those periods (on the same day), every day. That means you don't get spurious confos or cancel long-running trades, and, with a bit of luck, at the same time it can also mess up the risk system.


Interestingly enough, SocGen said e did “very specific operations with no cash movements or margin call and which did not require immediate confirmation”.

Hmm...

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