Scandal Shines Light on Exchange : To a wary world, Singapore defends Simex's integrity and vows to enact strict new rules to prevent abuses on its floor


For a market where billions of dollars pour down the information superhighway daily, the Singapore International Monetary Exchange, or Simex, keeps a decidedly low profile. The entrance to the exchange is nearly concealed behind a pile of stuffed panda dolls on sale outside a discount pharmacy.

Inside, the third-floor trading room is a picture of pandemonium to the untrained eye. Wildly gesticulating men in brightly colored sports jackets stare at television monitors and bellow bids, producing a roar much like the crowd at a professional prizefight.

It was in this frenzied atmosphere that Nicholas W. Leeson, a 28-year-old trader for Barings, ran up $1 billion in losses, causing the collapse of Britain's most aristocratic bank and renewing worldwide concern about the dangers of derivative securities trading.

Leeson has since disappeared, bringing the market into the harsh glare of media interest that it normally disdains.

Simex has prided itself on being clean, and on Wednesday the Singapore government defended the integrity of the markets amid rising worldwide concerns about its regulatory controls. The government also announced a sweeping review of the exchange and promised to enact strict new rules to prevent trading abuses.

Finance Minister Richard Hu said Simex is not at risk, but he said the exchange had borrowed $300 million to cover any shortfall in meeting the remaining open futures contracts of Barings.

Traders such as Leeson and other "corporate types are under a huge amount of pressure to produce results, phenomenal results," said Liow Shiong Tat, a local Singapore trader. "Mediocre results are not accepted by the home office." While the corporate traders fear being away from the market floor even for a moment, Liow said, he frequently closes out his positions and goes for a walk just to "unstress."

Perhaps not coincidentally, the corporate traders tend to be uniformly young, male and primarily American or British.

"There are very few guys over 40," said Phil McCarthy, a 26-year-old New Yorker. "Nobody has plans to stay on the floor until they are 40. There is a real burnout factor."

The traders are dealing in a variety of financial instruments that essentially allow investors to make substantial bets on trends in key markets--whether it be the price of oil or the value of stocks on the Tokyo Stock Exchange--for relatively little money down.

Trading in such futures, options and other derivatives has exploded worldwide over the past decade as institutional investors have learned to use derivatives to quickly make new market bets or to "hedge" risk in their securities portfolios.

The 10-year-old Simex is in a modern skyscraper, but just across the street, old Chinese men with long, white beards sit in tiny wooden booths flipping expertly through piles of currency, one of the oldest foreign exchange markets in the world.

Daniel R. Hasset, an American working for a Swiss bank, said he arrives at work at 6 a.m. and often remains until 8 p.m.

"It's the only thing I've done since college," said the 28-year-old, a six-year veteran of futures trading. "So the pressure doesn't seem all that great. I think there are no 40-year-old traders because 15 years ago, these kinds of sophisticated options and futures weren't around to trade. The business attracts hungry, young guys out of college who are looking for an opportunity."

Hasset, who deals in Nikkei futures, said he no longer even thinks about the huge sums of money that are being spent each time he touches his finger to his chin or makes the other arcane hand signs that traders use to communicate with each other. "Each time I buy a lot of something, it's worth more than a $200,000 house. You get used to dealing with that," he said.

A lot of young men are obviously attracted by the large rewards offered to successful traders. Leeson was reported to have earned between $1 million and $2 million last year in performance bonuses alone.

Liow, the Singapore trader, said most people who survive two or three years as traders on the exchange become millionaires.

Most expatriate traders are given a rent-free apartment, which in Singapore would cost upward of $5,000 a month, and membership in a health club; their taxes are also paid by their employers, making them financially far better off than colleagues in the United States.

The financial district is just steps from Boat Quay, a huge collection of restaurants where it is possible to buy a drink at breakfast time and order a pizza at 5 a.m. because the traders often work such odd hours. Not surprisingly, considering the job stress, a lot of serious drinking goes on in the area's bars.

While some British tabloids portrayed Leeson's lifestyle as that of a tycoon, traders who knew him scoffed at that notion. He drove a British sedan, and the yacht he was said to own actually belonged to his company.

In fact, most of the young traders have no car at all, because Singapore imposes huge taxes--often more than $100,000--on new car buyers to keep traffic at a minimum. The many Jaguar, Mercedes-Benz and Lexus models on the narrow streets of Singapore's financial district belong mostly to local businessmen, who regard them as long-term investments, like a house.

One refinement most traders said they appreciated was that the Singapore exchange actually closes down for lunch, unlike exchanges in New York, so traders don't have to wolf down food at their desks.

The Simex market is directly linked with the Chicago Mercantile Exchange, the principle futures market in the United States (though the Chicago Board of Trade trades more derivative contracts overall). Because of the linkage of such markets worldwide, derivatives trading has become virtually a 24-hour-a-day profession.

"It's absolutely a lot of fun," said Hasset. "There are a lot of smart people in there who don't want to sit behind a desk all day and do lunch. You come in on a Monday morning feeling great and yell your head off."


Times staff writer Tom Petruno contributed to this report.


Evidence builds that Barings knew of crisis. D12


Bankers under siege. D12


Top 'Derivatives' Exchanges

The Singapore International Monetary Exchange (SIMEX), home base for the rogue trader who brought down Britain's Barings bank with unauthorized futures bets, is a relatively small player among world futures and options exchanges. Top 10 exchanges and Singapore's, which ranks 15th, based on millions of contracts traded in 1994: Chicago Board of Trade: 219.5 Chicago Mercantile Exchange: 205.2 LIFFE, Britain: 148.7 Chicago Board Options Exchange: 114.9 BM&F;, Brazil: 102.9 MATIF, France: 93.4 New York Mercantile Exchange: 78.7 DTB, Germany: 49.3 London Metal Exchange: 47.7 TIFFE, Japan: 38.0 SIMEX, Singapore: 24.1

Source: Futures Industry Assn.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World