Barings Bank Collapse

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Barings bank, London’s oldest merchant bank formed in 1762 was made bankrupt in 1995 by one man, a rogue trader who goes by the name of Nick Leeson who accrued losses of over $800 million dollars. Nick Leeson was the head of derivatives trading in Singapore his job involved transacting futures and options orders for clients, and riskless arbitraging of price differences between Nikkei futures traded on the SIMEX and Japan's Osaka exchange. In what seemed like a riskless way to make a profit Leeson found ways of speculating and gambling with the banks funds. The profits made from using arbitrage are generally quite small, as price differences across two markets are never so different; it’s for this reason larger sums of money are needed in order to make larger profits. Leeson created a fake client account called 88888 to trade from, he pretended that this was an anonymous client when really it was himself using the banks own funds to fuel his speculative gambles on market movements. The way he went about losing all this money was arbitrage trading in Nikkei futures contracts between SIMEX and the OSE, he looked for large price differences between these two similar contracts. He then bought on one market held onto the contract, gambling on the future movements of the Japanese market and then sold when the market price was high enough. Leeson accrued losses of 70,892 Nikkei 225 options which is worth over $8 billion all without anyone knowing. He blamed technical glitches and margin calls whenever suspicion was aroused. In 1994 the position in Nikkei options increased significantly as Leeson set up a large series of short straddle positions. Selling both put and call options with the same strikes and maturities in hope that the Nikkei 225 is trading at the option’s strike price in order to generate profit, as well as from the premiums he would have collected from

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