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| Losing your grip | Losing your grip |
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| How do you value money when millions of pounds are passing through your hands every day? Here, ex-share dealer Alexander Davidson says it's a high-octane, vacuum-sealed world that can divorce you from reality. | How do you value money when millions of pounds are passing through your hands every day? Here, ex-share dealer Alexander Davidson says it's a high-octane, vacuum-sealed world that can divorce you from reality. |
| Jerome Kerviel has been blamed by his employer Societe Generale for the loss of billions of dollars, but he says he had lost all sense of how big the figures were. | Jerome Kerviel has been blamed by his employer Societe Generale for the loss of billions of dollars, but he says he had lost all sense of how big the figures were. |
| Although we cannot condone fraud, he should not be made a scapegoat for a system that is spectacularly wrong. | Although we cannot condone fraud, he should not be made a scapegoat for a system that is spectacularly wrong. |
| As a former City share dealer, I know that the desks of traders and salespeople in the City have their own peculiar pressures, and what seems a massive fraud to the outside world seems far less within the enclosed environment. | As a former City share dealer, I know that the desks of traders and salespeople in the City have their own peculiar pressures, and what seems a massive fraud to the outside world seems far less within the enclosed environment. |
| You lose any notion of the sums when you are involved in this sort of job - it's dematerialised - you get a bit carried away Alleged rogue trader Jerome Kerviel Kerviel: I'm no scapegoat The world of professional stock market trading and selling is vacuum-sealed. In my share-dealing days, as now, it was almost a cult. | You lose any notion of the sums when you are involved in this sort of job - it's dematerialised - you get a bit carried away Alleged rogue trader Jerome Kerviel Kerviel: I'm no scapegoat The world of professional stock market trading and selling is vacuum-sealed. In my share-dealing days, as now, it was almost a cult. |
| We were dealing silly sums of money all day, which seemed just Monopoly money, and a large loss could be countered by a large gain. | We were dealing silly sums of money all day, which seemed just Monopoly money, and a large loss could be countered by a large gain. |
| Another unreal feature of the job is that we were trading on hopes and dreams around companies listed on the stock markets. The business of securities is the business of dreams and these are, by definition, outside reality. | Another unreal feature of the job is that we were trading on hopes and dreams around companies listed on the stock markets. The business of securities is the business of dreams and these are, by definition, outside reality. |
| There are different types of securities, but when it is shares in the stock market that are traded, it is small pieces of a company, and the share price goes up or down based on market supply or demand. | There are different types of securities, but when it is shares in the stock market that are traded, it is small pieces of a company, and the share price goes up or down based on market supply or demand. |
| In Kerviel's case, he made bets on the performance of an index of shares, using what are known as futures. In either case, value is lost or gained based on how the market perceives the company's prospects. | In Kerviel's case, he made bets on the performance of an index of shares, using what are known as futures. In either case, value is lost or gained based on how the market perceives the company's prospects. |
| Notice I say prospects. The market tries to look ahead, and it plays a complicated guessing game, marshalling what facts there are and ultimately betting that this beneficial takeover is either unlikely to happen, which sends the share price down in advance, or that the new management team is going to massively improve the company's fortunes, which sends the share price up early. | Notice I say prospects. The market tries to look ahead, and it plays a complicated guessing game, marshalling what facts there are and ultimately betting that this beneficial takeover is either unlikely to happen, which sends the share price down in advance, or that the new management team is going to massively improve the company's fortunes, which sends the share price up early. |
| Lose reality grip | Lose reality grip |
| Traders and salespeople play with such hopes and dreams. When something happens in the market, it can be unexpected, such as a sudden rise in interest rates on a macroeconomic level, or an event affecting the company, such as a director resigning, or the sector. Unexpected significant events have an exaggerated impact on share prices. | Traders and salespeople play with such hopes and dreams. When something happens in the market, it can be unexpected, such as a sudden rise in interest rates on a macroeconomic level, or an event affecting the company, such as a director resigning, or the sector. Unexpected significant events have an exaggerated impact on share prices. |
| Dealers would lose a sense of the value of things, buying huge properties they couldn't afford Alexander Davidson When you work in such an environment in a front-line job, day in, day out, you lose your grip on reality. | Dealers would lose a sense of the value of things, buying huge properties they couldn't afford Alexander Davidson When you work in such an environment in a front-line job, day in, day out, you lose your grip on reality. |
| Dealers would lose a sense of the value of things because they dealt with large sums of money. They would buy huge properties that they couldn't afford. | Dealers would lose a sense of the value of things because they dealt with large sums of money. They would buy huge properties that they couldn't afford. |
| At parties held at five-star hotels in London, dealers would give the waiters and staff a hard time. At a hotel in Piccadilly they stole a flower pot, passing it from one dealer to another, and annoying the staff who wanted it back. Dealers tried to recruit waiters and waitresses they liked as dealers. | At parties held at five-star hotels in London, dealers would give the waiters and staff a hard time. At a hotel in Piccadilly they stole a flower pot, passing it from one dealer to another, and annoying the staff who wanted it back. Dealers tried to recruit waiters and waitresses they liked as dealers. |
| Regulators were seen as simply PR, not having a clue about what is being talked about. They were really removed from what was going on. | Regulators were seen as simply PR, not having a clue about what is being talked about. They were really removed from what was going on. |
| Long hours, an atmosphere of unreality and telephone number trading can lower resistance to indoctrination from management which, in some firms in the City at least, is "get in the money now, and we don't care much how you do it. We will turn a blind eye so long as you are successful and you don't get caught out." | Long hours, an atmosphere of unreality and telephone number trading can lower resistance to indoctrination from management which, in some firms in the City at least, is "get in the money now, and we don't care much how you do it. We will turn a blind eye so long as you are successful and you don't get caught out." |
| Ingenious ruses | Ingenious ruses |
| Profit is everything, although the right image must be maintained for the firm's survival. All kinds of dubious activity goes on, which would count as fraud in any environment outside financial services. | Profit is everything, although the right image must be maintained for the firm's survival. All kinds of dubious activity goes on, which would count as fraud in any environment outside financial services. |
| Big decisions about big sums in very little timeThere was no pretence of loyalty to one's employer in a business where success was measured only by remuneration, which led to attempts to steal, for instance, confidential information from within the firm - particularly client details. This was seen as fair game. | Big decisions about big sums in very little timeThere was no pretence of loyalty to one's employer in a business where success was measured only by remuneration, which led to attempts to steal, for instance, confidential information from within the firm - particularly client details. This was seen as fair game. |
| Some think it is surprising that Jerome Kerviel is alleged to have committed frauds without gaining financially from it on a personal level, except perhaps hoping that it would lead to a higher bonus. But there are many City workers who risk their all for modest gain this way. | Some think it is surprising that Jerome Kerviel is alleged to have committed frauds without gaining financially from it on a personal level, except perhaps hoping that it would lead to a higher bonus. But there are many City workers who risk their all for modest gain this way. |
| They find ingenious ways to risk making more money for their firms, and, if it gets discovered, they must take the rap personally. In all too many cases, the firm does not technically know what the traders have done, but will have knowingly created an atmosphere that encourages it. | They find ingenious ways to risk making more money for their firms, and, if it gets discovered, they must take the rap personally. In all too many cases, the firm does not technically know what the traders have done, but will have knowingly created an atmosphere that encourages it. |
| There is a common belief that the compliance culture of a firm, and today's increasingly strict regulatory environment, keep a grip on things. But the scandals show they cannot. It is, after all, the activity of the front-line sales people and traders, as well as corporate finance folk - that pays the salaries of compliance. He who pays the piper calls the tune. | There is a common belief that the compliance culture of a firm, and today's increasingly strict regulatory environment, keep a grip on things. But the scandals show they cannot. It is, after all, the activity of the front-line sales people and traders, as well as corporate finance folk - that pays the salaries of compliance. He who pays the piper calls the tune. |
| Clients are no less greedy than the traders. Everybody wants to buy shares on secret knowledge of their prospects, to make money on a likely future price rise, but inside knowledge cannot be legally disseminated. | Clients are no less greedy than the traders. Everybody wants to buy shares on secret knowledge of their prospects, to make money on a likely future price rise, but inside knowledge cannot be legally disseminated. |
| Traders find ways to beat the system - for themselves, their firms and occasionally clients. If we want to combat individual fraud, we need to change the culture. As the Financial Services Authority, the UK regulator, has found, it is not easy. | Traders find ways to beat the system - for themselves, their firms and occasionally clients. If we want to combat individual fraud, we need to change the culture. As the Financial Services Authority, the UK regulator, has found, it is not easy. |
| Alexander Davidson is a senior editor of Complinet and the author of How the City Really Works published by Kogan Page. | Alexander Davidson is a senior editor of Complinet and the author of How the City Really Works published by Kogan Page. |
Add your comments on this story, using the form below. | Add your comments on this story, using the form below. |
| The traders are only doing what anyone else in their position would do. The problem with all the investment banks is that the traders are encouraged to make as much as possible by "hook or by crook". The more money made the more management will take home so it's all about getting as much cash for yourself as possible. The traders and bosses know that if they make money then they'll get a hefty bonus but if they don't well they still get paid and an average bonus. Sounds like a win-win to me. Luckily we have that wonderful authority the FSA to watch over proceedings - oh dear we are in trouble.MonkeyMan Patel, Stanmore, UK | |
| Is it perhaps easier for the financial house to yell "Fraud!" than to admit that one of their staff made some duff investments?Megan, Cheshire UK | |
| The government has announced that a super casino will not now be built in Manchester. Perhaps this is because there are already several in the City of London? When companies first floated themselves on the market, it was with the aim of raising money to develop their businesses. The rewards, if any, for a shareholders were not really expected to be more than reasonably modest dividends. This laudable approach has been overtaken by greed on a colossal scale. Such speculation is not the prudent financial management that city pundits would have us believe, it is gambling, pure and simple. What makes it so attractive to the kind of traders described in this article, is that it is all done with other people's money. At least in a casino you are gambling only with your own.Stephen Morris, Bristol, UK | |
| Alexander's report simply reinforces the belief that the City is set up to make people (mostly young men) lots of money as quickly as possible. The financial markets should be seen as a utility, there to service the economy. Teachers and Doctors don't get million pound bonuses on exam and operation results for very good reasons. Why should traders? This is especially true when traders' success is simply a result of the bull market they're operating within, not their skill. Trading futures is gambling dressed up as something more sophisticated, so why should we all suffer when this habit creates such a huge mess?Jonathan Garside, Manchester | |
| Alexander's report simply reinforces the belief that the City is set up to make people (mostly young men) lots of money as quickly as possible.The financial markets should be seen as a utility, there to service the economy. Teachers and Doctors don't get million pound bonuses on exam and operation results for very good reasons. Why should traders? This is especially true when traders' success is simply a result of the bull market they're operating within, not their skill.Trading futures is gambling dressed up as something more sophisticated, so why should we all suffer when this habit creates such a huge mess?Jonathan Garside, Manchester | |
| It's easy: it's someone else's money. And if it goes up they get a big bonus and nobody looks. If it goes down (as long as it's not obviously wrong) they get a smaller bonus and it doesn't get looked at. While fund managers get paid whether your stake goes up or down, this will always happen.Mark, Exeter, UK | |
| With the exception of securities trading and straight FX deals, everything else is just gambling and should be treated as such. Many of these traders are like addicted gamblers, always seeking the next big win and laying ever-more complex bets. I spent a few days with a company a few years ago (on the IT side) which was about to begin trading in Credit Derivatives. I'm no real expert, but I could immediately see the flaws in trading bags of goods where no one knew what the contents were. The traders didn't care - they were just thinking of the bonuses.James Rigby, Wickford, Essex | |