French finance ministry releases SG post mortem

The ministry said the SG rogue trader, Jérôme Kerviel, covered up the trades by using "shares or warrants with a deferred date, which are not normally confirmed until a few days before coming into force", as well as futures transactions with no counterparty marked, forwards transactions with other SG counterparties – which did not require margin payments – or forwards with external counterparties accompanied by fake confirmation documents.

Although SG informed regulators - the Bank of France and the stock market regulator, the AMF - on Sunday, January 20, the ministry was not informed until the morning of Wednesday, January 23. The two regulators decided there was too much risk of a leak from the finance ministry to the public, the report says, adding "it would without doubt have been desirable for the government to be informed earlier".

In a list of possible changes, the ministry said SG should have monitored nominal positions as well as net positions, kept a closer eye on margin calls and payments, investigated more fully after the first warning from the Eurex exchange in November 2007 and confirmed trades more rapidly.

Given the cost of making these improvements, the ministry also said it needed the power to impose much heavier fines for non-compliance - at present it is limited to a maximum of €5 million, which is too small compared with the cost of compliance to give banks an incentive to improve.

The full report is available online from the finance ministry at www.minefe.gouv.fr.

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