Until then Mr Leeson could do no wrong. Two weeks ago, while he was allegedly inventing names of bogus clients as part of a plan to cover huge losses on the Tokyo market, he was boasting that a senior Baring Securities executive flew out to give him a slap-up lunch and sign off on a bonus worth around £1m.
On the surface, everything was rosy. Mr Leeson was among the bank's big profit earnings, and sources close to the operation say that the London office had poured million of pounds of capital into Singapore over the past three months.
Mr Leeson's figures had been cleared by routine audits by an independent accountant, Barings' London office and an executive of Singapore International Monetary Exchange (SIMEX) which regulates the market.
Unbeknown to auditors and unreported in the regular bulletins sent to head office in London, Mr Leeson operated a secret account, shown on the backroom computer as the Error Account 8888.
Some of the transactions went through this account. According to colleagues Mr Leeson also invented fictitious customers and transactions to give the impression that the risk had been hedged. This was key to how he hid mounting losses on his dealings. His downfall started with a so-called short straddle - a bet that the Tokyo stock market was in for a period of relative calm.
But on 15 January, the earthquake which rocked Kobe also sent shock waves which are now just being felt in financial markets. The sudden fall in the Tokyo share index caught him out. As the market plummeted he attempted to limit his losses by buying long futures contracts, which essentially bet on shares prices rallying.
But the market continued to fall. As the losses mounted Mr Leeson attempted to salvage the position by buying even more futures in the hope that other market operators would follow his lead as they had in previous market movements.
Rival traders had by this stage become suspicious and began betting heavily against him. By the time Mr Leeson disappeared Barings' exposure to the Tokyo market was a nominal $7bn in equities and $20bn of Japanese bonds and Euroyen.
In London, other City houses had become alarmed as long as three weeks ago by the enormity of the risk Barings was engaging in. The credit risk managers at a major American sercurities firm ordered traders immediately to reduce all exposure to Barings because of what they termed "a big problematic position" in the market.
A rival British house thought Barings must be dealing on behalf of the Japanese government because of the size and nature of its trades.
The Singapore authorities insist that local financial institutions have no exposure to Barings' losses, implying that the burden has been borne overseas.
Although it has not been confirmed, sources say that the Singapore police have issued a warrant for Mr Leeson's arrest and have asked their Malaysian counterparts to detain him if sighted. Other reports say he is now in Thailand. He is likely to have left Singapore by road as his car is missing.
The only evidence of Mr Leeson's departure is at his luxury apartment, Anguilla View where an accumulation of three days of unread newspapers litter the front door.A neighbour described him as "very tall and very proud" saying she had practically no contact with him. He appears to have steered clear of the local social scene although he played for a football team.
Everyone in the futures market knew that Mr Leeson was the premier trader in Nikkei Index futures, but it now appears that he was such a central player that he was making the market. Before the Kobe earthquake he was both buying positions in the Index and financing these purchases by making deals with other brokers in which he was the market maker as they placed contracts with him.
Meanwhile, SIMEX announced yesterday that it was closing all the positions taken by Barings in the futures market, but refused to say at what cost.
Futures traders fear that the exchange will raise a levy in the market to pay for the Barings default. The exchange also announced that it was doubling the size of the initial deposits (or margins) required for trades in the Nikkei Index futures contract which was the cause of Barings' massive losses.
All Barings' operations in Singapore have been suspended. The stock exchange has sent its executive vice-president, Teng Cheong Kwee, to take over the management of Barings Securities. The Singapore authorities insist that local financial institutions have no exposure to Barings' losses. Yet trading on SIMEX and the Osaka Future Exchanges provoked losses rarely seem in other markets. Futures trading is essentially a gamble on the price which commodities, or in this instance, the level which a particular stock market index will reach in a given period - usually a range of one to three months. The potential for considerable gain and loss arises because investors are only required to pay a small deposit (or margin) to secure a contract. In the case of the Nikkei contract, the initial margin payment was no more than 3.25 per cent of the total contract (other, less volatile contracts require an even smaller margin payment). Yesterday, in a classic instance of shutting the stable door after the horse has bolted, SIMEX announced that it was doubling the size of the initial margin.
In Singapore yesterday, brokers were dismayed by the size of Barings' losses, fearful of large scale dumping of shares to raise funds, but above all staggered at how the system of controls broke down to the extent that it did.Reuse content