Reply #11: Société Générale fraud: A layman's guide [View All]

[muriel_volestrangler]

"vanilla futures" just means his job was to work out what all the other purchases, bets etc. the bank had made would do if the market as a whole went up or down - and then to make a trade on the market index to decrease the risk. Instead, he decided he knew better, and started to increase the risk.

These were not complex derivatives, but straightforward calls on whether the CAC in Paris or the DAX in Frankfurt would go up or down on any given day.

The trader was not employed to make educated guesses on which markets would go up or down. He was supposed to look at the bank's portfolio and bet in the opposite direction, to minimise risks for the trading book.

So if SocGen's other traders had bought into the equity markets, expecting a rally, he was responsible to hedge some of this risk through trading index futures. His job was to neutralise risk.

Based on the limited details in SocGen's statement, he appears to have gone beyond this remit and was taking "directional positions" instead. This seems to have been going on for some time.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/24/bcnguide.xml