Rogue Traders by Skyrm Scott

Author:Skyrm, Scott [Skyrm, Scott]
Language: eng
Format: epub
ISBN: 111-1-11-111111-1
Publisher: Brick Tower Press
Published: 2014-04-28T16:00:00+00:00

The mood at Baring’s Singapore office was equally jovial. This new client was helping Leeson dig himself out of the financial quagmire he’d created with the 88888 account. Other traders on the trading floor were in awe of the size of Leeson’s trades. At one point in July of 1993, Leeson actually managed to erase all of the losses in the 88888 account. He was once again on top of the world. As one trader put it, “He began to believe his own press clippings.” But just as Icarus flew too close to the sun and the wax on his wings began to melt, Leeson fell back to Earth; Nick Leeson was destined for collapse.

As Bonnefoy was pushing larger and larger trades Leeson’s way, the execution errors magnified. Given the young and inexperienced staff at Baring’s Singapore office, the chances of an error on any transaction were better than average. Most firms would have looked at the situation and realized there could be problems, then incorporated changes to limit the risks. But Leeson was young and wanted to prove himself. Rather than admit he needed additional help, he just continued to hide the losses the same way he’d done in the past.

The losses, however, began to pile up again. In the late summer of 1993, a loss totaling £70,000 ended up in the 88888 error account. Then, in September, a computer shutdown on the Osaka exchange sent orders scrambling into the SIMEX. On the first day, Leeson finished with a £75,000 loss and obviously expected to make it back the next day. Once again, the financial gods weren’t smiling down on him, and when the market turned against him, he found himself down a staggering £1.7 million.

Had these losses been discovered when they were still small, something could have been done to prevent them, or at least minimize them. Just having the error account located in London would have made all the difference. By now Leeson was convinced that he could trade his way out of anything, much like a gambler who doubles down after losing. Casinos stay in business for a reason: the gamblers keep coming back.

Losses aside, within Barings Leeson appeared to have all the markings of a major success, and in October 1993 he was promoted; with the title of assistant director, he was officially given charge of both trading and settlements. At the same time as his promotion, his losses added up to £32 million, all of them sitting in the 88888 account. At the end of the calendar year, he was able to scrape together £6.5 million from the customer margin account at Citibank, plus a last-minute £25 million from selling options. He was safe for the moment, but he was clearly at the end of his rope. He must have known, on some level, that neither of his cash sources was going to hold out forever. But he was able to close out 1993 on a positive note, taking home a £135,000 bonus from Barings.

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