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National Australia Bank: Wrong revals are not an option

Demands for compensation from two currency option brokers over the rogue trading scandal of January 2004, presents the market with another act in one of the most entertaining financial farces for years.


Much has been written about the events leading up to the currency options debacle that cost National Australia Bank A$360 million ($263 million) in January 2004. It might have been expected that, after the widespread condemnation of NAB following the scandal, the bank would have moved quietly away from the spotlight and got on with rebuilding its reputation and business.

The bank’s decision to seek “exemplary damages” in excess of A$539 million against Icap and another broker it has declined to name, but which is known to be Cantor Fitzgerald, might, in its own mind, be part of that strategy. However, the move has sparked further incredulity in the FX options community.

Option traders

NAB seems to be pinning its hopes of a “rebate” on the discovery that the two broking companies routinely passed on wrong revaluation (reval) rates to the bank. These rates were meant to be independent, but investigations from PricewaterhouseCoopers and the Australian Prudential Regulation Authority highlighted the fact that they frequently originated from NAB’s own four-strong option team. The reports stated that some of the bank’s option traders routinely sent the brokers the rates, which were then e-mailed back unaltered.

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