I read the statement from SocGen, “Explanatory note about the exceptional fraud,” closely and with interest. It’s not badly written, but reads at times like it was directly translated from French. I recommend that SocGen hire a native English proofreader tout suite, assuming they can still afford one.

“The unwinding of the fraudulent position

The equivalent nominal amount of the fraudulent position uncovered on Sunday January 20th was approximately 50 billion euros.

The priority was to unwind the fraudulent position as quickly as practicable, given the risk generated by its size.

The unwinding could only start on Monday, January 21st and in a measured fashion so as [to] keep volume levels under 10% [ed. They mean keeping SocGen’s share of trading volume under 10% of total trading volume], in order to respect the market’s integrity.

Conditions in the market were very unfavourable. In the afternoon of Friday January 18th, there had been a sharp downturn in the European markets. In the night of January 20th to January 21st, there was a significant drop in the Asian markets (Hang Seng -5.4%) before the European markets opened.

The position was unwound over three days in a controlled fashion, thus ensuring that Societe Generale did not exceed around 8% of volumes traded on the relevant futures indices (EUROSTOXX, the DAX and the FTSE).

The position was finally fully closed or hedged on the evening of January 23rd. Overall, movements in the market triggered by the sharp fall in the Asian markets during the night of January 20th to 21st resulted in a final total loss of 4.9 billion euros.”

It’s good that they’re trying to explain things clearly, but I’m not so sure about the “unwound in a controlled fashion” bit. The market had to smell something wrong to plunge like it did, and I’m not sure how the SocGen traders kept from tipping their hand on Monday morning. I’ll post the intraday charts of the EuroStoxx 50 and DAX futures when I get a chance.

Interesting details from the IHT article, emphasis mine:

“… a review of Kerviel’s trading records showed that he first began creating the fictitious trades in late 2006 and early 2007, but that these transactions were relatively small. The fake trading increased in frequency, and in size, during the course of the year, he said, but the largest fictitious trades - involving futures contracts on the Dow Jones Euro Stoxx 50, the DAX in Germany and the FTSE index in Britain - were entered in early January.

Mustier said that that volume [around 8% during the unwinding from Jan. 21 through 23] compared with Société Générale’s normal share of daily trading volume in those futures of 2 percent to 4 percent, though in the cash market, the bank’s trading frequently represented up to 10 percent of the daily volume.”

So if they were doing 7-8% of the volume in the Eurostoxx 50 and DAX on Monday and they normally did 2-4%, people would notice and take advantage, particularly if SocGen were just sellers — it would be nightmare to try to mask your intentions when you’ve got that much to sell, and sell quickly. I’m sure that the bald young traders at SocGen grew a little balder that day.