Le simple fait de ne pas prendre de jours de congés en 2007 (4 jours en 2007) aurait dû alerter ma direction. C’est une des règles primaires du contrôle interne. Un trader qui ne prend pas de vacances est un trader qui ne veut pas laisser son book à un autre.

(from Le Monde today)

You should have slapped around 3:18 harder. He can’t even read the stuff you quoted correctly, he is more interested in flaming you.

Fictitious operations cannot create losses in the real world. What they can do is hide risks induced by real operations, which can create real losses. On the one hand we have a position of x Eurostoxx futures, counterbalanced by a position of fictitious operations. The position of x Eurostoxx futures – real not fictitious operations – created the 5 billion euro loss. Ask yourself why this real position was not discovered and how it could have been discovered.

I frankly don’t know what you are taking about when you mention “fees” for futures. SocGen almost certainly has seats on all the relevant exchanges. They have direct access to the order system, so there is no broker involved.

As for your other comments, I turn the mike over to FT Alphaville:

firstly, he ensured that the characteristics of the fictitious operations limited the chances of a control; for example he chose very specific operations with no cash movements or margin call and which did not require immediate confirmation;

he ensured that the fictitious operations involved a different financial instrument to the one he had just cancelled, in order to increase his chances of not being controlled.

“Were more senior people asleep at the switch?” Sure, you don’t lose that much money without something not being checked which should have been checked.

“The article never said that the four days Kerviel took in August were consecutive days off. It could just as well have been four Fridays off.” You’re the one who got high and mighty about Trading 101. The burden of proof is on you.

“Kerviel was supposed to have a small NET position.” Duh, yes.

“His fraud, at least as reported, did not trigger any warning signals via a failed reconciliation with the cash system.” What are you talking about? The guy was long thousands of futures, matched by fictitious deals. He was not supposed to have this position size (of real futures). SocGen’s failure was not matching the fees for buying the futures and the margins that the positions created to the trader. Instead the Back looked at the fees and the margins and thought, “Oh that’s still normal for us,” without every breaking it down to the trader level, where management could have seen that the fees and margins were being created by a trader who shouldn’t have been doing this.

SocGen under attack from multiple fronts: did Kerviel really do this much damage, or is management trying to attribute a whole heap of bad positions to him? Were more senior people asleep at the switch? The one way to clear matters up with the world at large is to bring someone in.

And FWI, Luwdig makes his real dough from principal investing. He is in the consulting business more to burnish his reputation (but yes, it more than pays for itself).

Anon of 6:45 PM,

The article never said that the four days Kerviel took in August were consecutive days off. It could just as well have been four Fridays off.

Kerviel was supposed to have a small NET position because he was doing arbitrage. You can rack up very large gross positions and have a small net.

His fraud, at least as reported, did not trigger any warning signals via a failed reconciliation with the cash system because (at least as reported) his moves did not involve any trades that led to cash payments. There may have been other failures to cross check, but that wasn’t one of them.

He took 4 days off in August (1 day less than the “full week”) and since a “full year” goes back to January 2007, it’s not clear to me that he didn’t take off the time you say is required, since he probably took off time between Jan 2007 and April 2007 (April 2007 because that meets the 8 months, if I recall correctly, of “no vacation” which Mianne mentioned in his speech to staff).

On the other hand, this is France, and SocGen traders are entitled to 50 days per year. So it is true he was on the short end of the stick in terms of vacation leave.

As to gross versus net trading limits, c’mon. The first limits put in by SocGen for basket trading were nominal (gross) limits, like 15 years ago. There are limits on the number of front-month futures, etc. The trader was in a different sub-activity, I believe Delta One listed products, and he probably was supposed to have such a small position that it was inconceivable that he would have anything like the position he actually got.

But there was and is a problem with systems. Management never figured out how to close the circle between the real world (cash flows, margin calls, and fees) and positions shown in the front-office system. They just weren’t systems guys, and worse, they didn’t realize they weren’t.

Oh bring on the consultants, by all means. They need to be fed.