re : uk gas late deal input and deal booking errors - ol . 1 m hit sorry to hear about this one .
i have some observations to make from my reading ( and re - reading ) of the
account :
1 it looks like the old " undue influence " problem again . it seems some
attempts were made by operations to follow up , but nothing happened .
we tell our operations staff they have an obligation to dissent but we don ' t
have any way to protect them if they do - there is still the fear that if
they upset a trader they can get fired or held back in their career . and that
is because twice a year , at the prc , that can happen . this incident shows
some of these attributes .
for the operations process to be effective there has to be ( and be seen to
be ) little significant influence from commercial groups over the ranking of
the operations staff .
2 whoever signed off the new deal lists in the dpr should be asked to confirm
the basis on which they signed it .
3 why wait for the traders to approve payments to brokers ? brokerage is in
the p & l and if operations are satisfied the trades are accurate and brokerage
is at the agreed rate , they should simply pay the brokerage .
4 two weeks to check telephone tapes is unacceptable - it should be done same
day . i would not have waited for the traders to do it , but i would want to
know why it took them so long .
5 given that these ( short ) trades were absent from the portfolio during a
highly volatile period of rising prices , i would wonder about motivation in
addressing the position during this time . essentially , if it had been correct
we would have been reporting losses bigger than the ones we did .
i would pursue explanations to points 2 , 4 and 5 .
dp
fernley dyson @ ect
06 / 12 / 2000 02 : 41 am
to : james new / lon / ect @ ect
cc : richard lewis / lon / ect @ ect , mike jordan / lon / ect @ ect , robert
yeo / lon / ect @ ect , gail hill / lon / ect @ ect , ian sloman / lon / ect @ ect , steve w
young / lon / ect @ ect , david port / market risk / corp / enron @ enron , brent a
price / hou / ect @ ect
subject : re : uk gas late deal input and deal booking errors - ol . 1 m hit
james ,
thanks for the note . as described , this is an intolerable situation . i agree
your action points , but we need timelines and quantitative measures of
compliance / improvement - please could you provide a weekly update on this
area specifically and until we are satisfied that things are as they should
be .
on a more general note - let ' s ensure that the ' global standards ' address the
lapses in timely action / follow - up identified here so that we can monitor
performance across the business .
fernley
james new
09 / 06 / 2000 10 : 03
to : richard lewis / lon / ect @ ect , fernley dyson / lon / ect @ ect , mike
jordan / lon / ect @ ect
cc : robert yeo / lon / ect @ ect , gail hill / lon / ect @ ect , ian sloman / lon / ect @ ect
subject : uk gas late deal input and deal booking errors - ol . 1 m hit
on the 7 th of june gas risk management became aware that two ' late ' trades had
been entered into the gas trader ' s ' blue book ' which were both being booked
significantly late and had a material negative p & l impact ( negative ol . 1 m ) .
the ' late ' deals were done on the 3 rd of february ( marcello romano ) and the
30 th of march ( haakon olafson ) and were both forward starting sells for
periods in 2003 - 2004 .
background
1 ) input errors
for some considerable time we have been concerned with the number of deal
input errors that have been occurring in the gas area with the most
significant number coming form the uk gas traders . numerous errors have been
found by documentation and risk management over the accuracy and timeliness
of entering deals into the ' blue book ' ( the gas traders are currently the
only traders in europe who do not enter their own trades into the valuation
system - there is currently a big push to change this which has the support
of john sherriff with a deadline date of 31 july ) .
in the past documentation and gas risk management have repeatedly highlighted
booking errors to the gas traders but the error rate has not fallen . a log of
all deal input errors has been formally maintained since the beginning of may
which highlights an error rate of 12 % - 15 % of non eol trades . this has been
discussed with richard lewis and corrective action is expected .
2 ) deal booking and reconciliation process ( non eol trades )
deals are initially written into the ' blue book ' by the gas traders when the
deal is done . this book is photocopied several times a day and the deals are
the manually input into gasdesk by documentation on the same day .
faxed broker statements are received ( usually ) by documentation the next day
and these are reconciled to gasdesk with errors and amendments made by
documentation liasing with the traders as necessary . at this time brokers
were faxing one statement per trade ( relevant later ) .
3 ) new deal sign off
as part of the daily dpr process a separate new deal sheet is prepared and is
signed off by the traders to formally agree the new deals done on the day and
the implied origination p invoice received before 15 march as settlements
started checking it . ( keren perrott - settlements started on 13 march )
discrepancies sent to documentation on 23 may ( chris ware to emma thomson )
traders contacted on 24 may after copy of broker confirm was sent on 22 may
as requested by documentation to prove deal .
deal entered 6 june after traders checked the tapes .
ieb broker - np trade on 30 mar 2000
trader haakon
ieb invoice date 6 april ; invoice received before 27 april as settlements
started checking it . ( keren perrott )
discrepancies sent to documentation on 23 may ( chris ware to robert vaughn )
traders contacted on 24 may after copy of broker confirm was requested .
deal entered 6 june after traders checked the tapes .
who was at fault and where did the control break down ?
i do not feel it is constructive to try to attach blame for what happened but
there are lessons to be learned and general observations and conclusions that
can be made and drawn .
firstly there are major concerns over the gas trader ' s accuracy and
prioritisation of booking trades . despite numerous conversations on the
subject very little improvement has been seen . it has now got to the stage
where documentation are formally recording all errors including what the
error was and who made it . this is now being communicated to richard lewis
every two weeks with the aim being not only to reduce the amount of time
trade support spend correcting errors and re running dprs but also to try to
avoid the incidence of errors such as this . the current error rate is 12 % -
15 % of non eol trades . documentation currently estimate that in 9 times out
of 10 the broker or counterparty are correct .
secondly around a month ago we contacted brokers and asked for them to
provide us with one statement per day rather than one per deal which will
eliminate any lost statements or missed deals as it will be immediately
obvious when a statement from a broker has not arrived . most brokers have now
changed but one or two still send one statement per trade . reconciliation ' s
of these daily statements to gasdesk are evidenced .
thirdly it has been impressed on both documentation and settlements to follow
up more vigorously ( and by mail ) errors and omissions on a more timely basis .
there is however a backlog or broker invoices which have have been checked by
settlements but have nto been checked or approved by the traders . this is
causing concern at the brokers who are chasing payment .
action points
trading
traders to input their own deals directly into gasdesk
traders to improve their accuracy of deal booking
traders to approve invoices on a more timely basis
trade support
settlements to clear backlog of broker invoices
documentation to chase brokers to send daily deal statements not individual
deal statements
all follow ups to be evidenced with mails used as appropriate
documentation to check all trades since the beginning of the year versus the
broker records
documentation to perform a reconciliation with all counterparties to agree
our forward position from july 2000 to september 2006 ( the traded part of the
curve )
re : uk gas late deal input and deal booking errors - ol . 1 m hit
sorry to hear about this one .
i have some observations to make from my reading ( and re - reading ) of the
account :
1 it looks like the old " undue influence " problem again . it seems some
attempts were made by operations to follow up , but nothing happened .
we tell our operations staff they have an obligation to dissent but we don ' t
have any way to protect them if they do - there is still the fear that if
they upset a trader they can get fired or held back in their career . and that
is because twice a year , at the prc , that can happen . this incident shows
some of these attributes .
for the operations process to be effective there has to be ( and be seen to
be ) little significant influence from commercial groups over the ranking of
the operations staff .
2 whoever signed off the new deal lists in the dpr should be asked to confirm
the basis on which they signed it .
3 why wait for the traders to approve payments to brokers ? brokerage is in
the p & l and if operations are satisfied the trades are accurate and brokerage
is at the agreed rate , they should simply pay the brokerage .
4 two weeks to check telephone tapes is unacceptable - it should be done same
day . i would not have waited for the traders to do it , but i would want to
know why it took them so long .
5 given that these ( short ) trades were absent from the portfolio during a
highly volatile period of rising prices , i would wonder about motivation in
addressing the position during this time . essentially , if it had been correct
we would have been reporting losses bigger than the ones we did .
i would pursue explanations to points 2 , 4 and 5 .
dp
fernley dyson @ ect
06 / 12 / 2000 02 : 41 am
to : james new / lon / ect @ ect
cc : richard lewis / lon / ect @ ect , mike jordan / lon / ect @ ect , robert
yeo / lon / ect @ ect , gail hill / lon / ect @ ect , ian sloman / lon / ect @ ect , steve w
young / lon / ect @ ect , david port / market risk / corp / enron @ enron , brent a
price / hou / ect @ ect
subject : re : uk gas late deal input and deal booking errors - ol . 1 m hit
james ,
thanks for the note . as described , this is an intolerable situation . i agree
your action points , but we need timelines and quantitative measures of
compliance / improvement - please could you provide a weekly update on this
area specifically and until we are satisfied that things are as they should
be .
on a more general note - let ' s ensure that the ' global standards ' address the
lapses in timely action / follow - up identified here so that we can monitor
performance across the business .
fernley
james new
09 / 06 / 2000 10 : 03
to : richard lewis / lon / ect @ ect , fernley dyson / lon / ect @ ect , mike
jordan / lon / ect @ ect
cc : robert yeo / lon / ect @ ect , gail hill / lon / ect @ ect , ian sloman / lon / ect @ ect
subject : uk gas late deal input and deal booking errors - ol . 1 m hit
on the 7 th of june gas risk management became aware that two ' late ' trades had
been entered into the gas trader ' s ' blue book ' which were both being booked
significantly late and had a material negative p & l impact ( negative ol . 1 m ) .
the ' late ' deals were done on the 3 rd of february ( marcello romano ) and the
30 th of march ( haakon olafson ) and were both forward starting sells for
periods in 2003 - 2004 .
background
1 ) input errors
for some considerable time we have been concerned with the number of deal
input errors that have been occurring in the gas area with the most
significant number coming form the uk gas traders . numerous errors have been
found by documentation and risk management over the accuracy and timeliness
of entering deals into the ' blue book ' ( the gas traders are currently the
only traders in europe who do not enter their own trades into the valuation
system - there is currently a big push to change this which has the support
of john sherriff with a deadline date of 31 july ) .
in the past documentation and gas risk management have repeatedly highlighted
booking errors to the gas traders but the error rate has not fallen . a log of
all deal input errors has been formally maintained since the beginning of may
which highlights an error rate of 12 % - 15 % of non eol trades . this has been
discussed with richard lewis and corrective action is expected .
2 ) deal booking and reconciliation process ( non eol trades )
deals are initially written into the ' blue book ' by the gas traders when the
deal is done . this book is photocopied several times a day and the deals are
the manually input into gasdesk by documentation on the same day .
faxed broker statements are received ( usually ) by documentation the next day
and these are reconciled to gasdesk with errors and amendments made by
documentation liasing with the traders as necessary . at this time brokers
were faxing one statement per trade ( relevant later ) .
3 ) new deal sign off
as part of the daily dpr process a separate new deal sheet is prepared and is
signed off by the traders to formally agree the new deals done on the day and
the implied origination p invoice received before 15 march as settlements
started checking it . ( keren perrott - settlements started on 13 march )
discrepancies sent to documentation on 23 may ( chris ware to emma thomson )
traders contacted on 24 may after copy of broker confirm was sent on 22 may
as requested by documentation to prove deal .
deal entered 6 june after traders checked the tapes .
ieb broker - np trade on 30 mar 2000
trader haakon
ieb invoice date 6 april ; invoice received before 27 april as settlements
started checking it . ( keren perrott )
discrepancies sent to documentation on 23 may ( chris ware to robert vaughn )
traders contacted on 24 may after copy of broker confirm was requested .
deal entered 6 june after traders checked the tapes .
who was at fault and where did the control break down ?
i do not feel it is constructive to try to attach blame for what happened but
there are lessons to be learned and general observations and conclusions that
can be made and drawn .
firstly there are major concerns over the gas trader ' s accuracy and
prioritisation of booking trades . despite numerous conversations on the
subject very little improvement has been seen . it has now got to the stage
where documentation are formally recording all errors including what the
error was and who made it . this is now being communicated to richard lewis
every two weeks with the aim being not only to reduce the amount of time
trade support spend correcting errors and re running dprs but also to try to
avoid the incidence of errors such as this . the current error rate is 12 % -
15 % of non eol trades . documentation currently estimate that in 9 times out
of 10 the broker or counterparty are correct .
secondly around a month ago we contacted brokers and asked for them to
provide us with one statement per day rather than one per deal which will
eliminate any lost statements or missed deals as it will be immediately
obvious when a statement from a broker has not arrived . most brokers have now
changed but one or two still send one statement per trade . reconciliation ' s
of these daily statements to gasdesk are evidenced .
thirdly it has been impressed on both documentation and settlements to follow
up more vigorously ( and by mail ) errors and omissions on a more timely basis .
there is however a backlog or broker invoices which have have been checked by
settlements but have nto been checked or approved by the traders . this is
causing concern at the brokers who are chasing payment .
action points
trading
traders to input their own deals directly into gasdesk
traders to improve their accuracy of deal booking
traders to approve invoices on a more timely basis
trade support
settlements to clear backlog of broker invoices
documentation to chase brokers to send daily deal statements not individual
deal statements
all follow ups to be evidenced with mails used as appropriate
documentation to check all trades since the beginning of the year versus the
broker records
documentation to perform a reconciliation with all counterparties to agree
our forward position from july 2000 to september 2006 ( the traded part of the
curve )