"SG’s losses were due to fraud, committed by a single person"
How do you know?
You are singing the SocGen party line. Their story is sufficently incoherent that reasonable people have the right to ask a few questions. Either their risk-management is beyond inept or they are lying. Time will tell...
Meanwhile, here my claim: It is impossible for one single person to trade ten of thousands of futures contracts for a year, pay margin and variation margin [amounting to hundreds of millions euros] every day for a year, yep that's impossible...and you should know that.

It's still very early in the story to be sure, but it looks as though this trader spent several months making profitable trades last year before it all went wrong this month - maybe that answers your claim?

Alexander:
His boss [Luc Francois] got promoted one month ago !...Guess things were going well...
We all know how it works, if you make money, no questions asked [nick leeson can confirm that], it's only when the losses pile up that "something" has to be done and a fall guy has to get the boot.
I just don't buy the idea that you can carry 10s of thousands of futures contracts for that long and nobody notices.

I have some rough estimates on the size of some of the positions:
50 to 60000 dax futures and
300 to 400000 eurostoxx50
You would have to slosh around hundreds of millions of euros every day in mtm to keep this going.

It's not about 'blaming the entire equity derivatives team', inevitably there will be some traders who might have been oblivious to the game being played, although I suggest there were others who knew.

Its about governance. And clearly this bank have a hole in their governance big enough to drive a 5bn euro ram-raider through.

I doubt their shareholders will be appeased by your defence of the award. Nor will they accept that the blame rests solely with a fraudulent rogue trader.

Alexander,

I still don't follow your reasoning.

Do you have any subjective probabilities for estimating the likelihood of $7b fraud by a single individual conditioned on an allegation of fraud?

Further, do you have any subjective probabilities for the likelihood of a $7b fraud being isolated, conditioned on the existence of fraud.

Multiply the two conjunctive conditional probs together and you will arrive at a very very very low number.

You're defending the indefensible. You made a mistake in assessing the SG operation That's not a tragedy. You'd impress your readership more and harm your franchise less by admitting the new information and revising your judgement.

If there's *no* information that would make you change your mind about the decision, then its unlikely the decision was arrived at through reason. Which is interesting.

Honest mistakes are ok. Learn from them and modify your process to make a better award in 2008.

From what I heard he was trading the bank's account and didn't enrich himself. I would be careful to call this fraud, seems more like greed gone wrong.

Chuck, I think everyone's still pretty unclear about his motives... it's fraud in the sense that he appears to have deceived his employers, albeit not for personal gain. Fraud is also what SG called it.

Galler, I don't think taking your own (necessarily subjective and unfounded) estimates of the probability of extremely rare events and then multiplying them together is a very good way to go about things. And Richard Feynman didn't think so either (see his report on the Challenger disaster; it's a classic of the type, beautifully written, and one that everyone in the risk business should read).

More seriously, SG won the award on the basis of a series of extremely innovative products which they launched last year, and on customer reports of their quality of service. If one of their innovative products had blown up in their faces, you would have a good point. But an outbreak of fraud is an operational risk issue and doesn't impugn the quality of their products and service.

And about the clearinghouse´s controls? Bank positions limits?