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Conclusions

How were the Massive Losses Incurred?

The unauthorised and concealed trading

13.5 Leeson had no authority to maintain open positions overnight. He was given certain specific limits on intra-day trading. He had no authority to trade in options (save as execution broker on behalf of clients). In all these respects Leeson persistently acted beyond his authority.
13.6 Account '88888' was opened in July 1992, shortly after Leeson was posted to Singapore. It was opened in BFSs records as a "client" account. Thereafter Leeson engaged, latterly on a rapidly increasing scale, in unauthorised trading in futures and options through this account. By 31 December 1994 he had accumulated losses on this account of some 208 million. Throughout he represented that he was in fact making profits. Indeed, he was perceived within Barings to be a 'star performer'. Barings understood that the profits from the trading activities within BFS were principally made from inter-exchange arbitrage activities involving 'switching' between SIMEX and Japanese exchanges, with (as they believed) fully matched trades at no real risk to Barings. In the event, by 27 February 1995 the accumulated losses on account '88888' amounted to some 830 million.

13.7 This unauthorised trading was funded: (a) by the use of money advanced to BFS by BSJ and Barings Securities (London) Ltd. understood to be their own account trading through BFS;

(b) by the use of money advanced by BSL to BFS on BFS's requests for the payment of margin to the exchanges; requests which were met without any effective query and without any adequate steps being taken by Barings in London to verify them or to reconcile the advances to the trading records of clients;

c) in January and February 1995 - when the funding problems of BFS were becoming acute - by the use of artificial trades created with a view to reducing the level of margin calls from SIMEX.

13.8 The unauthorised trading was concealed by a number of devices. These included the suppression of account '88888' from Barings in London (which account was mentioned only in the margin files and did not attract the attention of Barings in London); the submission of falsified reports to London; the misrepresentation of the profitability of BFS's trading; and a number of false trading transactions and accounting entries.
13.9 The unauthorised trading activities within BFS, which intensified in January and February 1995, built up such massive losses that (when discovered on the 23 February 1995) they led to the failure of Barings.

See also: Futures and Options Funds (FOFs)

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