Deal Blotter

OK, you know what a blotter is, right? Those huge 3'x2' foot clunks of white paper that old executives who wore suits used to have on top of their desks to absorb ink quil spills. Those things "blotted" the ink. And they were also there for note-taking while on hurried and harried phone calls. Hence the name.

In 2008, the whole banking system was thrown in crisis because so many banks bet their ranches on subprime mortgage loans, a large portion of which went bust. One bank had very little subprime mortgage exposure: Societe Generale, or SG Bank, headquartered in Paris. They had a completely different problem. SG had a rogue junior trader named Jerome Kerviel who was earning $65,000 a year, yet exposed the bank to over $69 billion in open ended derivatives contracts, which exceeded its net capital, and nearly wiped out the bank completely. Once the open positions were tracked down, SG Bank closed them, assuming a $7.2 billion loss, but taking SG out of the danger zone. Those were deals. They were headlines. Big ones. Note-takers... blotted.

A deal blotter is a record of all opened and closed trades that each trader is required to maintain for compliance purposes, regardless of asset class. Whether it be stocks, bonds, futures, options, swaps...a deal blotter is essential for accounting and risk management purposes. Had someone at SG bothered to check Kerviel’s deal blotter sooner to compare with the bank’s total derivative exposure positions, they would have caught him sooner and saved a few bil or so in losses. Clearly a case where instant computer records won’t help if human laziness and error still prevail.