Nick Leeson and Barings Brothers & Co. Ltd, which was the prime target of Nick’s fraudulent financial trading activities, together procured a loss of £830mn over a span of two and a half years, ending February 26, 1995. After Mrs. Thatcher deregulated the London financial market in FY1986, the strong line dividing the English banks and stock traders was dissolved. FY1987 saw the oldest British merchant bank ‘Barings’ diversify into the securities market. Nick, with an ambition of becoming an established stock trader, joined the bank as a clerk in FY1989, and soon became one of the good performers in the field of book-keeping. He was soon recognized and deported to Jakarta, to regulate Barings’ financial operations in the city. Nick had very well realized that Barings’ was thriving on its strong brand identity, of being a ‘discrete and safe bank’ and also of being the coveted banker for the ‘crème’ of the British society. The operations, both front and back office’ were extremely poorly maintained, and Barings used outdated methods and software for running its operations. On reaching Jakarta, he sensed one of the main weaknesses of Barings. It had a very poor system of tracking down and appropriating its accounts receivables.
Recognizing Nick’s commendable performance in Jakarta, Barings, in March 1992, posted him as ‘trader-cum-head of securities operations’ at Barings Securities Ltd., Singapore. Moreover, there was no one officially responsible to monitor his activities in Singapore.
[Note: He was empowered to control both sides of his trading operations at Singapore]
Nick went to work at SIMEx, where his main task was to trade in futures, which functioned mainly on speculations. Futures, being a very new market component, nick hired new traders and linemen to assist him in managing Barings’ financial endeavor. With high market fluctuations in summer’92, Nick’s men made a few mistakes, which lead to a lumpsum operational loss at BSL. To cover it all up, nick opened a secret a/c (named five-eights, 88888), with a different software, than those used at Barings. He then approached Barings’ HQ at London, and asked for capital, to fund his futures trading with BSL clients, that did not really exist. Hence, funds required for margin payments were easily procured from the HQ, based on stories of fake clients. In the meantime, Barings Securities Ltd. was taken over by Barings Brothers and Co., followed by a culture transformation at BSL from low to high control by the upper level executives. By July’93, Nick had wiped out all the losses at a/c88888, but he chose to continue his secret operations to earn more money. He started roping in more clients with the aid of cut-price deals that showed handsome profits on paper, while stacking up the losses of Barings, via ‘88888’. Ron Baker, the newly appointed Head of Financial Products Group at Barings, noticed but ignored Nick’s growing profit records. In FY1993, Nick’s losses had climbed up to £94mn. The discrepancy between Nick’s demand figures and the clients’ repayment ones were noticed by both Ron and Barings’ treasurer.
Internal auditors were set to investigate the situation at Singapore, but they, without checking the official sources for the transaction tracks of Nick, returned with praises for his performances. However, they were worried about his dual role as performer and reviewer of the same set of operations running at Singapore; but they chose to keep mum.
By end of FY’94, an equivalent of 3/4th (£300mn) of Barings’ capital, had been used for funding Nick’s operations, and Nick had successfully weaned in Barings’ executives into believing that he had cooked up £28mn as profits from one year operations of a low risk trading zone, viz. futures.
To make up for his surmounting losses, Nick, observing the politically and economically stable Japanese market, chose to trade in its Nikkei Index. Unfortunately for him and Barings, January 1995 saw the devastating Kobe earthquake, on the following day of which, the Nikkei Index crashed by 1000 points. In an attempt to hold the market up alone, Nick bought 1000s of Nikkei’s stakes, which pushed Barings into a final debt of more than £1bn. The markets kept crashing and Nick kept showing his fake profits to the HQ. However, in January 1995, the Bank observed a figure of £50mn as losses from Nick’s operations. On enquiry, Nick provided a fake (but easily detectable) proof that the money had been forwarded to another bank. As usual, the officials looked through the faults and Nick was saved for some more time. On February 17, 1995, a clerk at Barings noticed the discrepancies at Nick’s account, and finally Nick was chased and arrested in March 1995. However, Barings collapsed due to its huge obligations, mainly in the plummeting Nikkei stocks, and it was sold out to the Dutch bank ING for £1.
*The italicized fragments in the summary are the highlighted faults in Barings’ operational system, which finally lead it to its downfall.
----------------------------------------------------------------------------------------------------------------
a) How did Leeson get the necessary cash to fund the margin calls on account 88888? Nick, during his tenure at Jakarta, had been the amused observer of the perforations in Barings’ operational systems. Barings’ was very poor in tracking down and appropriating its accounts receivables, from its clients. Nick used this loophole in the system, and asked for money from Barings HQ, London, to fund his forged a/c ‘88888’ operations of covering losses and showing fake profits from non-existing clientele.
Moreover, at Barings, the senior management was not involved in sanctioning funds (however phenomenal) to its operators. This was another loophole in the system, which Nick had harped on. b) What internal control failures contributed to the collapse? The main problems in the internal control system at Barings, in spite of its cultural transformation into a hierarchically controlled organization, were as follows:
1. Nick Leeson had been posted as the ‘prime trader-cum-head of securities operations’ at Barings Securities Ltd., Singapore. Moreover, there was no one officially responsible to monitor his activities, and Nick scythed down the advantages of controlling both sides of his operations, viz. trading and respective evaluations. Being practically answerable to no one for his activities, Nick effectively manipulated his forged deals.
2. Moreover, Barings had a very outdated operational system, which further eased Nick’s endeavors. His ‘88888’ account remained a well guarded secret, although it contained visible and obvious evidences of his secrecies.
3. The internal performance tracking system, viz. the audit committee, failed to pry into the operational conditions at BSL, in spite of everything being clear and evident. They skipped the act of studying the records, one of the most important tasks of auditing. They also ignored the observation that Nick was practically answerable to no one for his activities, and he was his own performance evaluator.
4. Finally, one of the prime reasons of Barings’ failure was that, the management at the central level was inapt, as far as the securities business was concerned. The prime fault was perhaps the practice that the top management level was held by family members, irrespective of the extents of their business understandings. This perhaps explains how in spite of the management at Barings being controlled by ‘highly experienced bankers’, everyone failed to understand the basics of the business.
c) What information was available to senior executives, prior to collapse that indicated problems at BFS? Why it was not acted upon?
The senior executives at Barings had knowledge of the following details at BSL, Singapore:
1. Nick had possessions of a huge part of the company’s capital, and his demands were rising with every passing day. Even after surpassing their overdrafts limit at Citibank, mostly due to Nick’s activities, the top management chose to let Nick have his way, expecting more profits from his end.
2. The profit figure recorded under Nick’s operations was considered by a majority of the other traders as ‘impossible’ with respect to his operational zone of low risk trades.
3. Ron Baker, the Head of the Financial Products’ Group, and Terry Halls, Chief Treasurer, were aware of the fact that the most of the clients reported by Nick were not paying their dues.
In spite of being aware of most of the discrepancies in the Singaporean records, the management chose not to act mainly because they had started trusting Nick’s capabilities as a clever and highly skilled securities tradesman. They themselves were unaware of the basics of the business apparently run by Nick, and hence chose not to interfere in his operations. They were highly enticed by the dreams that Nick’s operations were potent for earning enormous profits for Barings and hence consequential bonuses for its personnel, especially, the management. Finally and most importantly, no one was officially entrusted with the responsibility of monitoring Nick’s activities, and hence, no one bothered to probe further into enquiring into Nick’s fishy dealings.
d) What information was available to lower level executives? Why it was not acted upon? The treasurers at Barings, who primarily dealt with Nick, were aware that Nick was using the same alibi to extract money by hundreds and thousands of pounds everyday, from the company. There was a reported clientele maintained by Nick, but most of them never paid their dues. The auditors, were aware of the ambiguity in the definition of Nick’s dual roles, as ‘chief trader’ and complementary ‘book-keeper’ at BSL, Singapore; but they were enthralled and probably enticed by the bonus prospects due to Nick’s activities, and hence, chose to hail Nick rather than report the observations to the authorities. The other traders at Barings had raised the issue that an annual profit figure of £28mn was impossible to be achieved from such a low risk transaction activity, as the futures market. However, their objections were overruled by the management, probably due to the latter’s blind faith in Nick as a highly skilled trader and resultant bonus earner for them. e) Could the various regulatory agencies (internal and external) have uncovered the Leeson's unauthorized activities prior to collapse? If so, why did they fail? Nick’s activities were not well-guarded and could have easily been traced, had the regulatory agencies been a little more careful in their operations. The first problem lay in the definition of Nick’s roles; a clear segregation of complementary roles is extremely necessary for unambiguous and fool-proof organizational functioning. Secondly, the performance tracking mechanism was extremely deregulated, although the company held tall claims of being centrally controlled. Nick was practically not answerable for his activities to any of his immediate authorities.Thirdly, had there been a practice at Barings, of tracking down discrepancies in records, like the reasons behind piling client-dues, Nick would not have been successful in his eventful ‘88888’ account’s operations.Fourthly, the auditing mechanism has to be fool-proof to keep the financial records intact and accountable upto meticulous details. This was not the case at Barings, and hence, Nick had his way. Finally, unlike at Barings, there should be a risk-management department or official, to take care that the concerned company does not surpass the safety limits of operation.
Sunday, January 21, 2007
Semiotics: The Book that I loved reading
Book: Semiotics, Marketing, and Communication: Beneath the Signs, the Strategies
Semiotics, as christened by Pierce, appeals to marketeers in areas involving more ‘more intelligibility’, ‘more pertinence’, and ‘more differentiation’. The author designates ‘languages’ as the primary field of investigation for ‘semiotics’ as a subject. The thrust of semiotics lies in outlining the definition of conditions concerning the ‘production’ and ‘apprehension’ of ‘meaning’. As per the ‘Immanence Principle’, semiotics can be designated as a discipline pertaining to ‘form’.
‘Signs’, as described by the author, is a concoction of various ‘dimensions’ and ‘substances’. Signs are relatively interchangeable and derive value through the context of their occurrence. In semiotics, signs are but a set of superficial entities, which play in underlying significations. Marketeers are more interested in the generative approach of semiotics vis-à-vis the corresponding trajectory of signification. By ‘trajectory’, the author interprets the time, over which the meaning of an ‘expression’, after being manifested gains the stature of ‘signification’.
The author also probes into the role of semiotics in the exploration and exploitation of the concept of ‘clarity’. Clarity, characterized by spatial, temporal, intellectual, or all of these three dimensions, is continuous with significant and strategically allocated discontinuities. The author suggests a contour or delimitation of ‘clarity’ vis-à-vis its articulated design. The concept can take up the form of a narrative schema, with the inherent parameter of interpretation difficulties with respect to: 1) the production and apprehension of the intended meaning, 2) acceptance by the desired subject(s), and 3) success in establishing contractual relations between two subjects.
The elaboration on the ‘Classicisms of Clarity’ differentiates communication in terms of ‘Classical’ versus ‘Baroque’ modes of expression. The dimensions of expressiveness are compared as being:
1) Linear vs. Pictorial
2) Planar vs. defined over Depth
3) In a Closed vs. Open form
4) Multiplicity vs. Unity oriented
5) Clear vs. Obscure
The ‘Classical’ mode takes up the entire depth and space in a single breath, as if it were ‘a unique reality’, leaving very little scope for the ‘third dimension’ of the imagination of the beholder. It outlines clearly and exactly the elements which the communicator intends to attach to the formal totality of the ‘expression’.
Symbolic systems are defined as bi-planar languages, whose two planes, viz. expression and content, are in total conformity with each other. The author defines ‘semi-symbolic systems’ as the ones where there exist other relations between the two aforesaid planes, i.e. where one-to-one correspondence is missing. From this emanate the concerning dimensions of ‘euphoria’/ ‘dysphoria’, as well as ‘Thymia’. The author also elaborates on the twelve dimensions forming the framework for the analysis of advertisements.
The author further develops the structure of the ‘semiotic square’, a schematic representation of the interactive entities constituting any given semantic category. Developing from Hjelmslev’s thesis, semiotics is defined as the study of ‘a system of relations’, and not one of signs. Taking into consideration all the existent differences among relations, the semiotics square has the dimensions of ‘differences or ‘contradictory terms’ defined by an ‘operation of negotiations’, vis-à-vis an operation of ‘assertions’, inherent in the same set of relations. The square is laid out on an edifice of logico-semantic relations, over which all the inherent themes, images, concepts, and expressions are ‘positioned’, to provide ‘meaning’ to the ‘conceptual universe’ being depicted.
Hence, in the book, the author integrates all the dimensions of language and the related styles of expression, and formats the role of semiotics in understanding the implications of the different structures so formed. Semiotics, as a field of study, has immense implication, especially for marketeers and communication personnel, as it paves the understanding pathway to expressions and their deliverable intensions.
Semiotics, as christened by Pierce, appeals to marketeers in areas involving more ‘more intelligibility’, ‘more pertinence’, and ‘more differentiation’. The author designates ‘languages’ as the primary field of investigation for ‘semiotics’ as a subject. The thrust of semiotics lies in outlining the definition of conditions concerning the ‘production’ and ‘apprehension’ of ‘meaning’. As per the ‘Immanence Principle’, semiotics can be designated as a discipline pertaining to ‘form’.
‘Signs’, as described by the author, is a concoction of various ‘dimensions’ and ‘substances’. Signs are relatively interchangeable and derive value through the context of their occurrence. In semiotics, signs are but a set of superficial entities, which play in underlying significations. Marketeers are more interested in the generative approach of semiotics vis-à-vis the corresponding trajectory of signification. By ‘trajectory’, the author interprets the time, over which the meaning of an ‘expression’, after being manifested gains the stature of ‘signification’.
The author also probes into the role of semiotics in the exploration and exploitation of the concept of ‘clarity’. Clarity, characterized by spatial, temporal, intellectual, or all of these three dimensions, is continuous with significant and strategically allocated discontinuities. The author suggests a contour or delimitation of ‘clarity’ vis-à-vis its articulated design. The concept can take up the form of a narrative schema, with the inherent parameter of interpretation difficulties with respect to: 1) the production and apprehension of the intended meaning, 2) acceptance by the desired subject(s), and 3) success in establishing contractual relations between two subjects.
The elaboration on the ‘Classicisms of Clarity’ differentiates communication in terms of ‘Classical’ versus ‘Baroque’ modes of expression. The dimensions of expressiveness are compared as being:
1) Linear vs. Pictorial
2) Planar vs. defined over Depth
3) In a Closed vs. Open form
4) Multiplicity vs. Unity oriented
5) Clear vs. Obscure
The ‘Classical’ mode takes up the entire depth and space in a single breath, as if it were ‘a unique reality’, leaving very little scope for the ‘third dimension’ of the imagination of the beholder. It outlines clearly and exactly the elements which the communicator intends to attach to the formal totality of the ‘expression’.
Symbolic systems are defined as bi-planar languages, whose two planes, viz. expression and content, are in total conformity with each other. The author defines ‘semi-symbolic systems’ as the ones where there exist other relations between the two aforesaid planes, i.e. where one-to-one correspondence is missing. From this emanate the concerning dimensions of ‘euphoria’/ ‘dysphoria’, as well as ‘Thymia’. The author also elaborates on the twelve dimensions forming the framework for the analysis of advertisements.
The author further develops the structure of the ‘semiotic square’, a schematic representation of the interactive entities constituting any given semantic category. Developing from Hjelmslev’s thesis, semiotics is defined as the study of ‘a system of relations’, and not one of signs. Taking into consideration all the existent differences among relations, the semiotics square has the dimensions of ‘differences or ‘contradictory terms’ defined by an ‘operation of negotiations’, vis-à-vis an operation of ‘assertions’, inherent in the same set of relations. The square is laid out on an edifice of logico-semantic relations, over which all the inherent themes, images, concepts, and expressions are ‘positioned’, to provide ‘meaning’ to the ‘conceptual universe’ being depicted.
Hence, in the book, the author integrates all the dimensions of language and the related styles of expression, and formats the role of semiotics in understanding the implications of the different structures so formed. Semiotics, as a field of study, has immense implication, especially for marketeers and communication personnel, as it paves the understanding pathway to expressions and their deliverable intensions.
To WHOM it may concern
Why do I have to hear.. the wails n the cries?
Why do I have to read..those headlines in piles?
Why do I have to choke at the bombed smoky skies?
Don't you feel, you should have an answer, to all of my whys?
Yeah! I feel that'll suffice, 'coz you'll have nothing to say;
There can be no alibi to the killings of this day!
Some order and a shot..is not how gr8 leaders fought!
Step out on the field;
Feel your spine getting chilled;
n that fear of getting 'rself killed
will stop you 'fore your next order spilled.
Feel for the dying, wail o'er the loss!
Can you ever Make a life?
Think! Before you snatch one: with a Trigger n a Toss!
Why do I have to read..those headlines in piles?
Why do I have to choke at the bombed smoky skies?
Don't you feel, you should have an answer, to all of my whys?
Yeah! I feel that'll suffice, 'coz you'll have nothing to say;
There can be no alibi to the killings of this day!
Some order and a shot..is not how gr8 leaders fought!
Step out on the field;
Feel your spine getting chilled;
n that fear of getting 'rself killed
will stop you 'fore your next order spilled.
Feel for the dying, wail o'er the loss!
Can you ever Make a life?
Think! Before you snatch one: with a Trigger n a Toss!
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