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When a famous bank ( Société Générale ) is plunged into the world’s largest financial fraud ever known by a simple junior trader

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  1. Irregular and high risk trading activity.
  2. Trading beyond acceptable limit.
  3. Misuse of IT access codes and / or user credentials for privileged access.
  4. Created fictitious trading operations within financial portfolios.
  5. Breaking into middle and back office computer systems.
  6. Trader activity monitoring.
  7. Management systems.
  8. Transformation processes for real time system's implementation.
  9. References.

In January 2008, the financial world was disrupted by the world's largest financial fraud case known to date. The famous French bank, Société Générale, recorded a loss of 5 billion euros due to false positions taken by a junior trader, Jérôme Kerviel. To fully appreciate how he did this, it's important to know a bit about his background. Kerviel spend several years in the bank's middle office in the area of equity trading compliance. In that time, he gained an intimate knowledge of the systems used to log and reconcile trading activity. In 2005, Kerviel moved out of the middle office role to become a junior arbitrage trader. One of his tasks was to leverage derivatives to exploit small price discrepancies in the value of stocks across various markets. During this period, the markets became more and more efficient, this task has become a real challenge, making equity arbitrage a low margin and high volume trading practice .

[...] Yes No Compliance officer Consolidated security report Reinstate trading ability Update incident Stability Unstable Stable Simple Complex ORGANIC CENTRALIZED ORGANIC DECENTRALIZED MECHANISTIC CENTRALIZED MECHANISTIC DECENTRALIZED SOCIETE GENERALE BEFORE THE FRAUD SOCIETE GENERALE WITH A REAL TIME SYSTEM Complexity Business, Customers, Users Service Desk Incident Management Release management Customer Relationship Management Security Management Network, Systems, DB and Operations Management Problem Management Change Management Configuration management Service-Level Management Availability Management Capacity Management Financial Management IT Service Continuity Management Service Support Service Delivery Director of IS security for the Group Société Générale Director of IS security inside a division Correspondent about security of information Envision A permanent analysis of risk Correlation of events Frequent change of passwords / biometric authentification Create an internal audit team Initiate Inform the different stakeholders: counterparties, funds investors Diagnose Today: no real standardized controls connection between accounting figures and these given by the middle office expected internal controls no continuous risk control no specific software for the different entities Redesign To refer to the rich picture of the real time monitoring process Reorganize Reorganize the sensitive entities : traders have to be aware of the project scope, [...]

[...] The trading activity is a core business for a bank because it earns a lot of money. A trader is autonomous even if he has to inform about his activity to his managers. He takes direction bets while following his feelings. He has some directives from his managers, but most of the time he is his own manager. There are daily feedbacks: the managers do rapprochement between data entered by the traders and the real daily accounting. If the bank decides the implementation of the real time system, the processes must to be standardized, the manually feedback will be reinforce by automated computer processes. [...]

[...] It is a first step, but this will not solve the fundamental problem: the fraudulent activity is occurring in real-time whereas analysis and detection in happening after the fact. Hence, how the companies can detect and prevented fraud? The solution can be in building a real-time fraud and risk monitoring based on Security Information and Even Management (SIEM) technology. This kind of technology provides a platform for analysis and response to business transactions and event log data from a wide variety of information systems. [...]

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