NAB OPTIONS SCANDAL - NAB crisis deepens with latest departure

Cunningham has not been linked to the options trading scandal that lost NAB A$360 million (US$280 million), but his is only the latest departure following the discovery of the forex losses on January 13, which has emptied desks in Melbourne and London.

Cunningham joins his co-head of global FX, Gary Dillon; head of markets, Ron Erdos; head of corporate and institutional banking Ian Scholes; manager of risk management Chris Lewis; chief executive Frank Cicutto and chairman Charles Allen, who have all left NAB in Melbourne following the incident.

But in London, a number of senior staff, unconnected with the losses, have also quit the bank as bank sources report low morale on the trading floor in the wake of the scandal.

These include head of European FX, Steve Walker; head of FX forwards in Europe, Andrew Brodie; head of interbank FX sales for Europe and Asia, Adam Gazzoli; head of risk management Bart Thomson; senior FX option structurer Walter Colebatch; another FX options structurer Andrew Hardman; senior prop trader Michael Frankis and senior FX market strategist Greg McKenna.

They add to the four traders sacked for covering up mounting FX options losses with fake reval rates and trades -- Luke Duffy, David Bullen and Vince Ficarra in Melbourne and Gianni Gray in London.

"Business as usual"

A NAB spokesperson in Melbourne said the London departures (bar Gray) merely represent staff turnover in the normal course of business. The bank is in the course of filling these roles, she added. "The FX desk is fully operational and it is business as usual."

But the only replacement the bank has named for any of the departed staff, is Shaun Dooley, who took over Erdos's role in Melbourne as head of markets.

The spokesperson added that NAB intends to continue its policy to expand its markets division in Europe. It recently installed 18 new desks on the dealing floor in London and plans to add 20 new staff as part of its growth strategy for the markets division in Europe, she said.

NAB alters options platform

National Australia Bank (NAB) has made changes to its currency options trading platform to address what it termed "shortcomings", raised by the bank's US$280 million FX options losses.

The PricewaterhouseCoopers (PwC) report into the scandal, published on March 12, described how four options traders had hidden huge losses by revaluing trades using the wrong rates; entering and deleting false trades on the banks' system and entering internal trades at off-market rates to massage their profit and loss.

"Issues about valuation; being able to enter and remove orders from the system; and internal deals…have been addressed with some changes in the [trading] system…and some [changes in] manual processes," said an NAB spokesperson in Melbourne. For example, internal orders are now matched on the options trading system, he said.

More changes are planned. "Over time, some of the things we are doing manually to address the issues raised by PwC will be automated as well," he said. "There are a range of things to do with how exception reports are produced so that cancellation of orders are properly reviewed and how errors are reported."

However, he added that the bank would not replace the system as a whole, and was "satisfied with its function" overall.

NAB's options trading platform, Horizon, was developed by outside vendor Triaxia, which declined to comment last week.

Other Australian banks were reluctant to reveal information about their currency options trading systems. A spokesperson for ANZ Bank in Melbourne said she could not reveal technology information for "competitive reasons". A Commonwealth Bank Australia spokesperson in Sydney said it uses an in-house system developed in 1996, which has since been enhanced. Westpac uses a proprietary system.

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