SocGen Scandal Changes Mindset at Banks -IT Exec

LONDON (Reuters) - The rogue-trading scandal at Societe Generale (SOGN.PA) has galvanised bank executives to push for central control of risk management and trading systems, said an executive at software firm Calypso Technology Inc.

France's second-biggest listed bank revealed last month a net loss of 4.9 billion euro ($7.2 billion) after unwinding unauthorized positions in equity derivatives by 31-year-old trader Jerome Kerviel.

"SocGen is changing the mindset of boards of directors or of the upper management layer of banks," said Gerard Rafie, vice president of San Francisco-based Calypso, which provides integrated trading and risk management software to banks and investors.

"It opened their eyes that they need better controls, better limits -- limits across different assets, limits on each trader, limits on everything and not just counterparty risk," he added in an interview.

SocGen, which uses a risk management and trading system developed in-house, said Kerviel had created fictitious accounts and falsified documents. Kerviel is currently being detained pending an investigation by two magistrates.

Prosecutors said derivatives exchange Eurex had alerted the bank in November to large positions taken by Kerviel but he had produced a fake document to justify the risk cover.

"Trading on an exchange was not perceived as a risk, because it did not involve counterparty risk," Rafie said. "Every crisis adds a new variable."

Kerviel also escaped detection partly by trading through different routes, not just the exchange.

A central system that had brought together information from all these channels and had set limits on each trader might have alerted management sooner, Rafie said.

Another issue is that many banks have set real-time limits only in foreign exchange trading, where volumes are huge and the market moves fast, he said. For other markets such as credit derivatives, trading limits are set daily.

"When a limit is breached overnight, it may already be too late," he said.

Since the scandal broke, Calypso said it has seen demand increase from banks for software designed to provide centralised control and risk management and trade processing across a variety of assets, Rafie said. "People are coming to me and asking about it."

For example, Calypso said it is working with one big bank to develop a central system by the end of the year that would incorporate its loan business along with its trading business to show overall risk exposure, he said.

But no risk control system can prevent every problem if traders have access to passwords and can change the configuration of the system itself, he added.

Reuters RTR.L is a competitor to Calypso with a product called Kondor Global Risk.

($1=.6794 Euro)

(Reporting by Jane Baird; Editing by Richard Hubbard)