The losses resulted from trades on the Australian dollar and New Zealand dollar options markets. It wasn’t clear whether the options involved Australian dollar/New Zealand dollar cross-currency pairs or the cross-currency rates between the two currencies and other currencies.
The dealers sought to cover the initial losses with unauthorised trades on NAB’s account, said one source familiar with the NAB investigation. "It appears that there was a large number of small trades," the source said.
"NAB internal controls caught the unauthorised trading quickly but didn’t prevent it," said a Singapore-based analyst. He added that the underlying issue was related to operational risk within a large organisation that has grown rapidly through mergers and acquisitions in recent years.
Four members of the bank’s currency options trading team were involved in unauthorised options trades from October to mid-January, said NAB spokesman Robert Hadler. NAB’s board subsequently suspended the four employees and closed all outstanding trades to stop further losses.
Hadler said the next step is to complete an internal review and work with policing authorities to decide on further action.
NAB has also reviewed its risk management procedures, although no changes are planned. One on-going change that may help is NAB’s current introduction of an electronic forex options system to replace the existing manual system, Hadler said.