Published On: Fri, Sep 10th, 2010

Former Merrill MD Banned For Life by HK SFC For Manipulating Options

Merill LynchThe Hong Kong Securities and Futures Commission (HKSFC) banned Jugurtha Harchaoui for life from the financial industry for his role in manipulating an exotic options book Merril Lynch carried in Asia.

During a one year period from December 2007 to December 2008 he changed the volatility values in the firms pricing model to inflate the books value by USD25,000,000.

His crime was discovered when he instructed a junior trader on his desk to use a compromised software program to mark daily the options book during a two month sick leave he had taken. The program was intended to slowly reduce the inflated value during his sick leave.

Earlier this year the HKSFC fined Merrill Lynch HKD3.5 million for a lack of systems and controls that could have prevented this violation citing, among other reasons, “there were inadequate checks and balances over the Book to mitigate operation risks including risks associated with fraud and dishonest activities”

Mr Mark Steward, the SFC’s Executive Director of Enforcement said upon handing out the fine “Licensed corporations must have effective procedures in place to manage risks of trading books. For books that deal in illiquid assets which have low price transparency, more robust measures must be in place. The proper implementation of an effective risk management framework could have enabled Merrill Lynch to detect the mis-marking earlier”

Merrill Lynch has since taken steps to address their oversight policies.

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