We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sat 9 Feb 2008 04:00 AM

Font Size

- Aa +

Necessary safeguards

As Gulf markets mature, a home-grown rogue trader is one milestone that we should be pleased to have missed.

As news continues to break of crashing stock exchanges, record trading losses and market suspensions throughout the world, few thought that the financial headlines could be dominated for any period of time by one individual action.

And then, at the end of January, the banking world was shaken by revelations of France's second biggest bank, Societe Generale's, very own "Rogue Trader" - Jerome Kerviel. The formerly unheard of junior trader on the bank's futures desk had allegedly managed to accumulate losses of over US$7.2bn, or over five times more than Nick Leeson lost Baring's, causing its collapse.

Theoretically responsible for "vanilla" futures hedging; the most basic, low-risk type of trade, the 31-year-old is said to have created his own shell company through which he used the bank's funds to gamble on whether the European markets would go up or down.

The question that remains to be asked is this: With the safeguards now in place in London, the US, Tokyo and other markets across the world, how was this allowed to happen in a supposedly safe, mature and stable market such as operates in France? And, if this can happen in Paris, despite all the legislation in place to supposedly prevent it, what does this mean for financial companies in the Middle East? Especially as most of them are still operating under the steep growth and learning curve propelled by the oil-boom-fuelled economic miracle currently underway.

The rapid expansion that regional groups have undergone; whether ten-man private start up companies or billion-dollar public organisations, means that it is the responsibility of the top executives to ensure that no safeguards have been forgotten along the way. After all, the buck stops at the top - and not many institutions can afford the kind of financial blow received by SocGen.

There is no ready-made solution to ensuring that events cannot be repeated. Where someone is set on committing fraud, only the most stringent of regulations removing all personal choice will be enough to prevent them - the Big Brother society. But with a lack of leeway in the decision-making process, opportunities can be lost, and no company can profit from think-by-number traders or expertise.

The only thing that companies can actively work to prevent is accidental fraud. To ensure this, regional businesses should already be looking at their training initiatives, mentoring programmes and developmental workshops - to make sure that if anything does happen that they and their investors are protected to the full extent that they can be. As the Gulf markets continue to grow and mature, a home-grown rogue trader is one milestone that we should all be pleased to have bypassed.

Arabian Business: why we're going behind a paywall

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.