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January 25, 2008

L'Affaire Kerviel: More Details on the SocGen Rogue

More details are coming out on the trades of SocGen rogue Jerome Kerviel (whose CV is here). It's becoming increasingly difficult to believe he acted alone, and only marginally less difficult to believe that his trades didn't have an impact on markets, as was originally alleged by SocGen management yesterday.

As Société Générale sought to unwind the [German DAX index] positions that Mr. Kerviel had built up, volume on the futures contracts soared. On Tuesday, the volume on the DAX and Euro Stoxx 50 contracts was twice that of open interest — the number of futures contracts not closed or delivered — suggesting that the bank was having to sell and then buy back contracts to cover the leveraged positions.

On a typical day, the total open interest on the DAX futures market is roughly $50 billion, according to Hélyette Geman, a professor of mathematical finance at ESSEC business school in Paris. Although the exact positions are not known at this moment, she said, it was quite likely Société Générale’s trades would have accounted for a major portion of DAX futures activity in recent weeks. She added that settling those positions might have created some downward pressure in the market.

... The DAX was the hardest hit among the major European major indexes, falling 7.2 percent on Monday alone, compared with 5.5 percent for the FTSE in Britain and 6.8 percent for the CAC 40 in Paris.

[via NYT]

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