Derivatives & Risk Control The Collapse of Barings: The Events and The Aftermath clear Write-up January 26th 2011 Group 1: Carlo Caimi Dana Kismetova Francois Le Boulch Question 1: Explain in detail the Leesons trading system. notch Leeson was an employee of Barings Bank in the capital of Singapore office in the period 1992-1995. After parcel as a shop assistant and obtaining the license of trade in Singapore at the cobblers last of 1992, his first trading ruminate at BFS (Barings Futures Singapore) was nigh implementing an arbitrage (or switching) strategy developed by a colleague (Gueler, who use it in Tokyo only when then he halt trading due to an change magnitude exposure to insecurity and loss for a lack of matching contracts). Such strategy would profit from impairment differences on the OSE (Osaka course Exchange) for the Nikkei-225 stock market average and the the lower price listed for the Nikkei-225 on the Singapore transnation al Monetary Exchange. Such strategy was affirmable thanks to the data advantage that Barings had from its large customer tooth root and to the size of the Simex and OSE, the epoch zone difference and the available groovy to acquire in one exchange and sell in the other.
Over succession, Leeson go from the arbitrage strategy to a scheme strategy, and this was possible to the lack of examine from the London headquarters, a results of: * The prestigiousness that Leeson gained over time with outstanding profits, which led the Bank to contribute a permissive behavior and a lax control over Leeson activit ies * The ability of Leeson to hide lo! sses that were cumulating due to the doubtful (and not authorized) activities the caput was carrying forward. * Lack of understanding from the management about the change in strategy on the derivatives traded in Singapore by Barings The prestige of Leeson was a result of the young trader malpractices: he was merchandising futures contracts to clients at relatively cheap price by taking risky bets. Losses were then...If you want to loll around a full essay, order it on our website: BestEssayCheap.com
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