Conspiracy theory of the day

Friday, January 25, 2008 | 03:27 PM

Here's a job listed on Bloomberg for Delta 1 Traders -- the exact same position Jérôme Kerviel held at SG.

It was posted in Paris on January 15 -- a week before the public disclosure. And, I just verified that this was really on Bloomberg -- I had my my trader pull it off of his terminal. Its still there as of 3:30pm 1.25.08.

Was this an advert for a Soc-Gen position?  Did they know about the mess earlier than they let on? Were they looking to replace Jérôme Kerviel 10 days ago? 

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Oh, and one last thing:  those of you who may need a new trader, Jérôme Kerviel's resume is here

>

Hat tip: Macroman

Friday, January 25, 2008 | 03:27 PM | Permalink | Comments (30) | TrackBack (0)
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There are two central questions in the case of Jérôme Kerviel and Société Générale. What was the precise nature of his position? And does it explain the sharp decline in European equities between January 21 and 23? The best assessment is as follows.

Mr Kerviel’s supposed job was to arbitrage small discrepancies between equity derivatives and cash equity prices. However, starting on January 7, Mr Kerviel made a series of bets that Germany’s Dax index, the French Cac40, and the Euro Stoxx 50 would rise. He bought futures contracts, as normal, but did not hedge against market falls. (Hedging would usually involve selling the underlying shares, or over-the-counter derivative contracts with clients.)

Eleven days later, internal controls finally identified suspicious activity. By then the Euro Stoxx 50 had fallen by a cumulative 7 per cent, and the position had generated, SocGen has indicated, a loss of between €1.5bn and €2bn. This implies Mr Kerviel had taken a notional long exposure of €21-€29bn. The margin payments on this position might have been more than €1bn. This sounds too big to avoid detection, but may have seemed normal given the desk’s legitimate activity of very high volume and low- risk trades.

On Monday, a shaken SocGen began to liquidate the position over three days, bringing its total loss to €4.9bn. Did it move the market? Over the period the total value of trading in index futures and the cash market for the Euro Stoxx 50 was €544bn. That suggests the unwinding of Mr Kerviel’s rogue position accounted for 5 per cent or less of activity. Clearly a determined seller does not go unnoticed by traders in a jittery market. But it seems likely that the main explanation for the market rout in Europe was earlier sharp declines in Asia, general concerns over the US economy and specific worries about the monoline insurance crisis. One man damaged SocGen severely but it seems unlikely that he moved global equity markets significantly.

Posted by: FT | Jan 25, 2008 3:31:54 PM

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