Mitsubishi to liquidate subsidiary affected by rogue derivatives trading

Maria Nikolova

PDS will be liquidated once it has completed its contracted trade of crude oil and petroleum products and its credits and debts have been settled.

Mitsubishi Corporation has earlier today announced it will liquidate Petro-Diamond Singapore (Pte) Ltd, the business which has been affected by the rogue trading of derivatives.

As Mitsubishi confirmed on September 20, an employee who was hired by PDS engaged in a series of unauthorized crude-oil derivatives transactions over an extended period. PDS has confirmed that after closing the positions concerned, it will realize a loss of approximately 34.2 billion yen before taxes, which could put the subsidiary’s final debt as high as 30.8 billion yen.

Mitsubishi will liquidate PDS once the subsidiary has completed its contracted trade of crude oil and petroleum products and its credits and debts have been settled.

In consultation with all concerned parties, PDS is poised to fulfill its remaining contractual obligations for the trade of crude oil, naphtha and petroleum products. Meanwhile, Mitsubishi Corporation will continue its overseas crude oil / naphtha / petroleum products operations once it has reconfirmed that its risk management systems are both sound and thoroughly enforced, taking all possible measures to prevent similar incidents from occurring in the future.

All Mitsubishi Corporation’s subsidiaries are expected to tighten their risk management and are committed to preventing any recurrences of this incident.

The rogue trader is an employee who was hired locally by PDS to handle its crude oil trade with China. The employee was discovered to have been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions since January 2019. Because the employee was manipulating data in PDS’s risk-management system, the derivatives transactions appeared to be associated with actual transactions with PDS’s customers.

Since July, the price of crude oil has been dropping, leading to heavy losses from derivatives trading. PDS began investigating the employee’s transactions during his absence from work in the middle of August, and that is when the unauthorized transactions were detected.

After finding out that the transactions could result in a loss for PDS, MC and PDS immediately consulted with an outside lawyer and established an investigation team, including local outside experts, to gain an overall picture of the situation and identify the causes. PDS terminated the employment contract of the rogue trader on September 18, 2019.

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