Three ways 'rogue' could have beaten system

FOREIGN exchange experts believe there are only three ways in which rogue trader John Rusnak could have carried out his fraud. None of them casts Rusnak's employer Allied Irish Banks in a good light.

Key to the situation is the fact that the yen-dollar rate, in which Rusnak specialised, has moved 10% in the past year, implying that he would have needed $7.5bn at his disposal to rack up losses of $750m. That is an extraordinary amount of money for a middleranking dealer in a small treasury department in Baltimore, where ABI subsidiary Allfirst is based.

AIB says Rusnak pretended to cover his foreign exchange trading exposure with options but that these were fictitious. Market insiders say every time an option is written, there has to be a counterparty. Under normal circumstances, Rusnak's controllers would be expected to receive confirmation of the option from the counterparty.

Currency traders say therefore that the fraud gives rise to three obvious suspicions.

First, there is the implication that one or more of Rusnak's controllers were involved in his deception and were prepared to 'overlook' the lack of counterparty confirmations. Even so, supervisors should have noticed something unusual was going on.

Second, there is the possibility that a counterparty was playing Rusnak's game, pretending to be on the other side of his option trades. The problem with this scenario is that foreign exchange traders typically deal with hundreds of counterparties, so Rusnak's supervisors should have been alerted if he was consistently operating with only one outside firm.

The third possibility is that Rusnak told his controllers that his options were long-term, in which case he would not be expected to have instant confirmation of the counterparties. Even here, however, suspicions should have been aroused.