Once a behemoth in the banking industry, Barings was brought to its knees by a rogue trader in a Singapore office. Nick Leeson enhanced his reputation within Barings when he successfully rectified the situation in 10 months Risk Glossary. Inafter his initial success, Nick Leeson was transferred to Barings Securities in Singapore and was promoted to general manager, with the authority to hire traders and back office staff. According to Risk Glossary:
Lesson attempted to recoup losses by buying long positions in the Nikkei futures contracts and short positions in Japanese government bond futures.
|Case Studies - Bearings International||Leeson was dealing in risky financial derivatives in the Singapore office of Barings.|
|Smiechewicz The numerous investigations into the current sensational corporate failures will expose many of the same operations control weaknesses that led to the collapse of the Barings Bank of London.|
|Barings Bank | Case Study Solution | Case Study Analysis||How to Write a Summary of an Article?|
|Barings Bank - Wikipedia||Leeson was dealing in risky financial derivatives in the Singapore office of Barings. They established a Tokyo office to begin trading on the Tokyo Exchange.|
|Case Study: Bearing Materials - BEARING NEWS||The company began in offices off Cheapside in London, and within a few years moved to larger quarters in Mincing Lane. Inthe increased business necessitated a move to larger quarters in Devonshire Square.|
Furthermore, senior management failed to facilitate transparency in his transactions and day to day reporting, as they allowed Lesson to manage both back and front house responsibilities and functions, Inch specifically allowed him to manipulate his operations as long as he did. Lesson used the accounts to cover the reality that he was speculating and not arbitraging, by assigning the extra trades and thee losing transactions to the account.
In addition, he used the account to conceal the fact that he was long in amounts that were times larger than regulations allowed, and that he did not eave short positions to offset these enormous exposures. If he would have combined long call options on the Nikkei Index with short forward contracts, he would have created a long straddle hybrid.
The problem with the account came when there was no clear separation of authority over both front trading and back reconciliation, recording, reporting house operations, to which Lesson was responsible for at BBS. This eliminated transparency in his operations and allowed Lesson to manipulate the account to overstep his boundaries and limitation, implemented and supervised by Barings regulations.
The account was used by Lesson to take direct trading positions and exceed his trade limits and concealing his overall net exposures.BearingNEWS is an industry sector magazine and online platform; created out of the need and demand for finding specific answers and solutions in today's industrial environment where qualitative sources are not easy to find in 'the ocean' of information.
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