Merrill Lynch suspends equity derivatives trader

Merrill Lynch has initiated a probe into suspicious activity detected on one of its equity derivatives trading desks, suspending one of the traders at the desk.

The unnamed trader, who worked at a proprietary trading desk in London, is being investigated on suspicion of inflating mark prices on some of the single stock derivatives he traded.

Confirming the matter in an emailed statement, Jezz Farr, a London-based spokesman for the bank, said: “Our preliminary review determined that one desk used marks that appear to be outside of our accepted policy. We have suspended a trader and we continue to review this matter.”

The irregular valuations, which are said to have taken place in April, were flagged by the bank’s risk management system that routinely reviews the marks set by the traders. “This case shows our oversight system works,” said Farr.

This activity brings the bank's risk management system under further scrutiny, as it battles to regain shareholder confidence after racking up losses of about $37 billion in subprime debt-related asset writedowns and credit losses.

Merrill Lynch now joins the ranks of Credit Suisse and Société Générale, which have also been battling problems of rogue trader activity.

Credit Suisse on February 19 revealed a $2.85 billion writedown due to trader mis-markings and pricing errors in structured credit products, just a month after Société Générale stunned the financial markets with a €4.9 billion trading loss due to rogue activity by one of its traders.

See also : €4.9 billion fraud at Société Générale
Credit Suisse reveals $2.85bn subprime credit writedown