Risky business

20 January 2006 By Taron Wade

Given CDOs are a large, fastgrowing market where instruments are hard to price, this should be worrying to all participants. Deutsche Bank only found an alleged overstatement of Anshul Rustagi’s book after it had lasted for over a month and once he went on holiday.

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The alleged overstatement of a Deutsche Bank trader's collateralised debt obligation position lasted for over a month but less than two months, according to a person familiar with the situation.

Deutsche Bank dismissed Anshul Rustagi for gross misconduct this month after he allegedly overstated his trading position by £30m.

The alleged overstatement was found when Rustagi went on holiday by the trader that took over his responsibilities, according to the person familiar with the situation.

Rustagi traded synthetic CDOs, which are pooled investment vehicles that gain exposure to corporate credit via the derivatives market. The derivatives, called credit default swaps, are a type of insurance contract on companies not making debt payments.

Rustagi traded liquid types of these CDOs based on credit default swap indices, such as CDX and iTraxx. But he also traded less liquid CDOs that are tailored to specific investors.

Deutsche Bank said that all of its trading teams are subject to strict controls and limits, as well as the bank's full management and risk control regime. And, as required by regulators, traders are subject to independent risk management control in addition to regular line management.

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