SocGen Traders in Asia Exited After Options Bets Went Undetected

• Delta One traders in Hong Kong left the French lender
• Risk systems had failed to register complex stock trades

A pair of traders in Hong Kong have left Societe Generale SA after the French bank discovered a batch of risky bets that went undetected by the firm’s risk-management systems, according to people familiar with the matter.

Kavish Kataria, a trader on the bank’s Delta One desk, departed last year along with team head Ken Ng after an internal review of the transactions, said the people, asking not to be identified as the details are not public.

While SocGen didn’t lose any money from the transactions, the trades could have cost the Paris-based lender hundreds of millions of dollars had an intense market downturn occurred, the people said. The lapse raised questions about risk management at one of Europe’s biggest banks.

A spokesperson for SocGen in Paris declined to comment. Kataria and Ng also didn’t comment.

Kataria had bet on volatility staying low across Indian stock-market indices, the people said, a strategy that involves dealing in derivatives known as options. SocGen’s risk managers failed to pick up on the trades because of a glitch related to their timing, the people said.

Wall Street banks spend billions of dollars every year on their risk and control systems to try to curb losses. SocGen remains haunted by memories of Jerome Kerviel, a rogue trader on a Delta One team in Paris who cost the bank €4.9 billion ($5.2 billion) in 2008.

Read More: Kerviel Loses Last Appeal in SocGen Unfair Dismissal Case

Chief Executive Officer Slawomir Krupa has focused on improving risk controls at SocGen. Prior to taking the reins of the second-biggest French bank last year, he oversaw a turnaround of the firm’s business in the Americas that included overhauling those systems.

“Strength is best-in-class risk management and on these strong foundations, high-performance businesses can thrive,” Krupa told investors in September.

Delta One traders sit within banks’ broader stock-trading divisions and they deal in baskets of stocks and related derivatives. Kataria, who joined SocGen in Hong Kong in 2021, focused on trading Indian shares and had helped the desk to make tens of millions of dollars last year, the people said.

Some of Kataria’s transactions failed to register properly on SocGen’s systems because he executed the options contracts during the day — rather than holding them overnight — and tended to arrange them for the date when they expired, the people said.

When SocGen discovered Kataria’s trades, the lender carried out stress tests to examine how they would have performed during a market downturn, the people said. Those tests found that in the most extreme case they could have potentially lost the bank hundreds of millions of dollars, the people said.

Ng, the head of the desk who joined SocGen in early 2023, was unaware of the transactions, the people said.

Wall Street banks have struggled with risk management in Hong Kong before. The Securities and Futures Commission in Hong Kong fined Citigroup Inc. $45 million in 2022, accusing the New York-based bank of “pervasive dishonest behaviour” over the course of a decade there.

A spokesperson for SFC declined to comment on SocGen’s recent moves.