Page 270 - A Banker Down the Rabbit Hole

become quite successful since joining Barings three years ago, making
big but ostensibly safe investments that sought to profit on the tiny
differences between what identical financial instruments sold for in Japan
and Singapore. When his computer detected such a price difference, he
would buy heavily in the lower-priced market and sell instantaneously in
the other, generating small but steady earnings for the firm and
substantial bonuses for himself. He was an extremely able trader.

Mr. Leeson inexplicably, and without authorization, changed tactics.
Instead of matching buy and sell orders, he in effect became purely a
buyer. His purchases accelerated over the next several weeks, notably so
last week. Throughout the period Japanese stock prices were falling,
creating losses that Mr. Leeson apparently tried to cover by increasing
the size of his bet.

Mystery Account 88888

He maintained initially that he was covering up for a junior colleague who
lost £20,000 on the trading floor one day. Leeson set up the error account
88888 to hide the bad trade, but then he started using it himself. Any
bad trade he could hide in this account, which bizarrely was never
checked by a compliance officer or senior management mostly because
Leeson also supervised the back office which processes and monitors all
trading positions where his wife worked. That over lap may have helped
him hide his trading gamble from Baring's senior managers.

He was mostly trading futures on the Nikkei 250, the main Tokyo index,
on behalf of clients. In theory most his business should have been "cash
neutral"; if money was made or lost it would have been client money -
Barings was just meant to be taking a commission. Only a small amount
of the trades were meant to be proprietary - on behalf of the bank itself.
But Leeson was using the bank's money to bet on the market, hoping
that he would eventually claw back the losses in the 88888 account and
no one would be any the wiser.

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