Analysis: 1. Reasons 1. Dereliction of duty by the management of Bahrain Group When considering whether Singapore International Financial Exchange is competent, one thing must be made clear first. Singapore International Financial Exchange has no responsibility for managing the affairs of Singapore Bahrain Futures Company or any clearing member. The Singapore International Financial Exchange is only a trading venue for clearing members to conduct transactions. However, even so, SGX still has the opportunity to identify and report signs of improper behavior by its members. This opportunity presented itself in late 1994 and early 1995. At that time, the Singapore International Financial Exchange discovered several anomalies in the trading of Singapore Bahrain Futures Company and made some inquiries to the Bahrain Group about Singapore Bahrain Futures Company. These might have contributed to the earlier discovery of Lisson's activities. According to the official liquidator, the collapse could have been saved if Bahrain Group's management properly reviewed and understood the concerns expressed by SGX in its letter to the group. The official liquidator found that the attitude of the Bahrain Asset and Liability Management Committee in responding to the second letter from the Singapore International Financial Exchange was particularly severe. The reply provided many baseless and false assurances to the Singapore International Financial Exchange. Likewise, Jones's attitude towards the two letters to SGX reflects an unacceptable level of complacency on his part. We cannot understand why Qiongqi, as the financial director of Singapore Bahrain Futures Company, signed the reply letter drafted by Leeson in response to Singapore International Financial Exchange's inquiry into Leeson's trading activities without having an independent and detailed understanding of the entire incident. 2. Loose internal controls. Looking at the entire process of Bahrain’s bankruptcy, both financial regulatory agencies in various countries and international financial markets generally believe that the internal management of financial institutions is the core issue of risk control, but Bahrain’s internal controls are very loose. According to reports, before the tragedy on February 26, Barings Bank's securities investments had been exposed to great risks, but this did not arouse the vigilance of the bank's senior managers. In the first week of January, Leeson held 3,024 contracts, and 20 days later, he held 16,852 contracts (in just 20 days, the number of contract holdings increased fourfold). By mid-February, Leeson's holdings exceeded 20,000 contracts, eight times more than the position held by the second largest trader operating in the same market. This signal, for reasons unknown to us, was not noticed by Barings' top management and the appropriate response was not made. In short, Bahrain's internal control system failed and the early warning system failed, which ultimately led to the tragedy. Shortly after the Bahrain collapse, senior executives at the bank claimed they knew nothing about what Nick Leeson was doing in Singapore because transactions were still appearing in the company's risk reports as late as Thursday, February 23, the day he left. balance. However, according to relevant authorities in Singapore, Bahrain remitted US$128 million to the International Monetary Exchange of Singapore in the first 18 days of February 1995 to advance maintenance payments; according to the Financial Times, Bank of England Governor Eddie Eddie George told members of the British Treasury and Home Affairs Committee on April 5 that Bahrain sent 760 million pounds in cash to its Singapore branch without notifying the Bank of England. Before the bankruptcy of the Bahrain operating organization, Leeson mainly traded with the London headquarters, Tokyo branch and Hong Kong branch of Bahrain companies. There are only a few customers for futures trading in Singapore, three of which are Bahrain branches and the other is the National Bank of Paris. Every transaction will go through a Bahrain branch. Therefore, it is impossible for the Bahrain supervisor to be completely unaware of what Leeson did. of. Leeson later lamented in prison: "I find it unbelievable that no one came to stop me. People in London should know that my numbers are all fake... These people should know that I ask the London headquarters every day Cash is wrong, but they still pay the money." It can be said that the collapse of Barings Bank was not caused by one person, but by an institution with a flawed organizational structure and out-of-control internal management. 3. The responsibilities of the business transaction department and the administrative and financial management department are unclear. In the Bahrain Singapore branch, Nick Leeson himself is the system. He is in charge of trading and settlement, which is no different from asking a primary school student to correct and grade his homework. This approach gave Leeson many opportunities to make his own decisions. As general manager, in addition to being responsible for trading, he also combines the following four powers: supervises administrative and financial management personnel; issues checks; is responsible for reconciliation of trading activities with the Singapore International Currency Exchange; and is responsible for reconciliation with banks. Account reconciliation. The administrative financial management department keeps records of various transactions and is responsible for payments. Although the company headquarters is very clear about his responsibilities, it has not taken any action. They are afraid of losing this "star trader" by offending him. He is responsible for both front-office transactions and administrative financial management, just like a person who looks after a warehouse and is responsible for collecting payments. Due to the convenience of work, Nick Leeson's error account code-named "88888" was used for more than a year. It was not discovered until he resigned on February 23, 1995. The London headquarters also thought of determining whether the profits from the Singapore branch could be sustained in the long term, and sent an audit team to the Singapore branch. The audit team compiled a four-page report mainly relying on information provided by Leeson.

They had some understanding of the company's general risks and wrote in the report: "The control may be replaced by a general manager", "He is responsible for front-office transactions and financial management", "may conduct transactions in the name of a collective and ensure Deliver and record according to your own intentions." However, the report went on to say, “In view of the lack of experienced senior backbones in administrative and financial management, the general manager must actively assume both trading and logistics management duties.” The report also pointed out that “in the Bahrain-Singapore Futures Department, there are practices that deviate from the normal track of trading. possible violation of the Singapore International Currency Exchange's rules and regulations." The audit team is also very familiar with Leeson's trading strategies - many transactions are not low-risk arbitrage, but one-way high-risk bets on the Nikkei Index. "Although the risk is high, there may be higher returns." 4. There is no clear distinction between the client trading department and the proprietary trading department. Trading with a company's capital is called company proprietary trading. In addition, the company can also trade on behalf of customers. Of course, in the second case, the company will ask customers to charge a certain commission or transaction fee. For example, in the stock trading that we are all familiar with, the company usually conducts transactions according to the requirements of customers, and of course sometimes provides some suggestions. Since the company only exercises its rights on behalf of customers in accordance with their requirements, the customers themselves are responsible for any losses. Since the profit earned belongs to the client, if the maintenance fund is insufficient, the client should advance it himself. Nick Leeson's transactions have also been questioned by colleagues in Bahrain's Singapore Futures Department, but he always said that he was trading on behalf of his clients. It was also suggested that Nick Leeson was lying to Bahrain because it was very rare to advance maintenance on futures contracts on behalf of clients. The confusion between client trading and proprietary trading in many companies also brings about management difficulties. Only by clearly distinguishing the two can effective risk management be carried out. 5. Improper proportion of bonus structure and risk parameters. In order to encourage employees to work hard, many companies adopt the method of issuing bonuses. It is generally determined based on the employee's position, work experience, work performance and many other factors, and each company has different regulations. Of course, it's one thing to recognize performance, but another to pay large bonuses based on trading profits without regard to the company's risk parameters or the company's long-term strategy. Bahrain has been paying 50% of the company's gross profits to employees as bonuses. This percentage is higher than that of most companies. Bahrain's 1994 bonus of ￡100 million ($161 million) was distributed just days before the company collapsed. Several key CEOs are expected to receive more than ￡1 million. Bonuses are often based on the profits a group or individual made in the previous year. The biggest problem with this reward system, which links a trader's income to his trading profits, is that it stimulates profit-seeking speculation on the part of traders. High bonuses make employees eager to make money and rarely consider the risks taken by the company.