Improper Activities in Principal Trading Books

As announced on 12 Jan 2015, SFC banned Mr Jagjit Singh Dhillon, a former trader at Credit Suisse Securities (Hong Kong) Limited and Credit Suisse (Hong Kong) Limited (collectively Credit Suisse), from re-entering the industry for life over improper activities in two principal trading books for which he had responsibility.

SFC referred the matter to the police in June 2012. Dhillon was arrested by the police and holding charges were laid against him. The holding charges were withdrawn in May 2013 due to lack of co-operation from key witnesses and Dhillon left Hong Kong immediately!

Dhillon, who was responsible for trading equity derivatives, took various steps to cover up the losses and the real level of risk exposure in his trading books between 8 and 17 May 2012, including booking fictitious trades and entering incorrect market data in the trading books.

The SDA of this case disclosed the following details:

Failure to update market prices or entering incorrect market prices

• In several instances, Dhillon did not enter or update market prices, or entered incorrect market prices, in the System for his trading books. As a result, outdated or incorrect market prices were used to calculate the P&L position of his trading books, causing a misstatement in the P&L position of such trading books.

Booking of fictitious trades and subsequent cancellations

• Dhillon entered a number of fictitious trades for listed futures and options in his trading books which he subsequently cancelled before the settlement day in order to disguise the level of equity market risk exposure and mask daily losses for his trading books.

Transferring profits from other traders' books into Dhillon's trading books

• Dhillon booked a number of transactions in his trading books and in trading books managed by other traders in an attempt to transfer profits from those trading books to his own.

Dhillon's conduct led to an overstatement in the level of profits and an understatement in the level of risk exposure in his trading books, resulting in Credit Suisse having to make negative adjustments of USD5.4 million to the cumulative monthly profit and loss figures for its trading books on 18 May 2012, and recalculate the level of risk exposure recorded in its risk management systems.

Dhillon also provided his supervisors with false information when they first became suspicious of the activities in his trading books.

Whenever a rogue trader has incurred a big boss for his employer, the regulator would no doubt question how robust the firm's risk control mechanism is.