Princess Nourah Bint Abdulrahman University Discussion Guidelines The following are some general guidelines for case discussions and preparing case write-ups: a) Identify the objective and the main issues of the case. b) The write up should contain the answers and detailed analysis/steps corresponding to the questions outlined in the question sheet. c) The main body of your analysis should be self-explanatory and reasonably selfcontained. That is, the reader should be able to replicate your results by tracing through the write-ups. d) State clearly the inputs to your analysis and the chosen methodology. If you feel that certain assumptions need to be made to justify a solution technique or a parameter choice, please make the assumption explicit. Using the information presented in in your report, evaluate the Baring's Bank case to determine where the flaws were in the risk controls. a) What controls were lacking in the Singapore office? b) What were Nick Gleeson's biggest mistakes? c) What should London have done to prevent this? d) What controls/guidelines do you think should have been in place? e) Using the "Recommendations" presented in the lesson, which of these would you recommend in this instance? Princess Nourah Bint Abdulrahman University FIN371 FINANCIAL DERIVATIVES CASE STUDY (20\%) "THE BARINGS COLLAPSE 27 YEARS ON: WHAT THE INDUSTRY LEARNED?" The Case "In February 1995, Nick Leeson, a "rogue" trader for Barings Bank, UK, single-handedly caused the financial collapse of a bank that had been in existence for hundreds of years. In fact, Barings had financed the Louisiana Purchase between the US and France in 1803. Leeson was dealing in risky financial derivatives in the Singapore office of Barings. He was the lone trader there and was betting heavily on options for both the Singapore (SIPEX) and Nikkei exchange indexes. These are similar to the Dow Jones Industrial Average (DJIA) and the S\&P500 indexes here in the US. In the early 90 s, Barings decided to get into the expanding futures/options business in Asia. They established a Tokyo office to begin trading on the Tokyo Exchange. Later, they would look to open a Singapore office for trading on the SIMEX. Leeson requested to set-up the accounting and settlement functions there and direct trading floor operations (different from trading). The London office granted his request and he went to Singapore in April 1992. Initially, he could only execute trades on behalf of clients and the Tokyo office for "arbitrage" (Lesson 10) purposes. After a good deal of success in this area, he was allowed to pursue an official trading license on the SIMEX. He was then given some "discretion" in his executions meaning; he could place orders on his own (speculative, or "proprietary" trading)
