One of the most spectacular blow-ups in trading history, courtesy of a massive derivatives position on the Nikkei 225 index, occurred this week on February 26th 1995… sinking the City’s oldest merchant bank, the 233 years old Barings Bank.

Self-dubbed a “rogue trader” the SIMEX based Nicholas Leeson, a British 28 year old, was largely responsible for the options’ bets gone bad. Remarkably, Leeson was able to hide his financial losses because of his intimate knowledge of Baring’s settlement process. But after a series of unfortunate events including the great Hanshin earthquake in Japan (January 17th, 1995) that resulted in over 5000 lives loss and a huge drop in the Nikkei 225…Leeson’s futures position for Account 88888 had insurmountable losses requiring huge injections of money (375m pounds) from Baring’s London head office to meet margin calls.

Leeson’s subsequent life as a man on the run ended in Frankfurt, Germany. Tried and convicted in Singapore, he served half of a six-year prison sentence. Meanwhile, The Dutch bank ING had bought what was left of the once stately financial institution that had funded the Louisiana Purchase- for £1.

news@doubledownmedia.com

2/25/08