Ex-Credit Suisse trader gets life ban in HK

An ex-Credit Suisse trader has been banned for life from Hong Kong’s financial industry after conducting “improper activities” while working at the Swiss firm, including covering up losses and providing false information to his supervisors.

The Securities and Futures Commission (SFC) slapped the ban on Jagjit Singh Dhillon after an investigation into his conduct in two principal trading books for which he had responsibility.

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

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. This resulted in Credit Suisse having to make negative adjustments of $5.4 million to the cumulative monthly profit-and-loss (P&L) figures for its trading books on May 18, 2012, and recalculate the level of risk exposure recorded in its risk management systems.

Dhillon was an equity index trader for the firm between May 30, 2007 and June 9, 2012 responsible for trading equity derivatives, including listed futures and both listed and OTC options, relating to three indices in two principal trading books held in Credit Suisse International.

Between May and June 2012, Credit Suisse reported to the SFC that, apparently in response to losses resulting from falls in the Hang Seng Index, the Hang Seng China Enterprises Index, and Korea's Kospi, Dhillon took steps to avoid showing losses attributed to his trading books and the real level of equity market risk exposure. The SFC said he engaged in several types of improper activities with a view to achieving that purpose.

After updating prices in Credit Suisse’s system, traders are expected to run a process that downloads data from the system into the firm’s back-office risk and P&L management systems.

In several instances between May 8 and May 17, 2012, Dhillon did not enter or update market prices or entered incorrect market prices in Credit Suisse’s 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 As a result, outdated or incorrect market prices were used to calculate the P&L position of his trading books.

During the relevant period in May 2012, Dhillon entered a number of fictitious trades for listed futures and options in his books that he subsequently cancelled before the settlement day to disguise the level of equity market risk exposure and mask daily losses.

In addition, during the relevant period, Dhillon booked a number of transactions in his trading books and in books managed by other traders in an attempt to transfer profits from those trading books to his own.

The SFC said that Dhillon’s conduct resulted in profits being overstated and the level of equity market risk exposure being understated in his trading books. To correct such misstatements, Credit Suisse had to make adjustments to reverse out the P&L that was incorrectly reported in his trading books. negative adjustments of $5.4 million to the cumulative monthly P&L figures for Dhillon’s trading books was made on May 18, 2012.

In addition, Credit Suisse had to re-calculate the equity market risk exposure recorded in its risk management systems to correct an understatement of around $40 million of equity market risk in Dhillon’s trading books from May 11 to 17, 2012, with the exception of May 15, 2012 when the understatement rose to around $77 million.

The regulator found that Dhillon’s conduct was intentional and dishonest, saying that his action prevented Credit Suisse from having a full knowledge of the losses in his trading books and from effectively monitoring his books.

The SFC said Dhillon’s dishonesty was further exemplified by the fact that when his supervisors first became suspicious of the level of equity market risk exposure in his trading books, he gave them false indications of the level of exposure.

The regulator concluded by saying that Dhillon’s conduct showed a lack of integrity on his part, and the dishonest nature of his conduct also demonstrated that he presented a serious risk to confidence in the financial market.

In deciding the disciplinary sanction, the SFC said it had taken into account all relevant circumstances, including that Dhillon’s conduct was deliberate, serious, and showed a lack of honesty it expected from licensed persons, and that he had no personal monetary gain from his conduct.

Credit Suisse told AsianInvestor that it had fully cooperated with the authorities in Hong Kong since identifying the incident in May 2012 and promptly reporting it to the relevant regulatory authorities.