●

Sumitomo Corporation disclose

The Sumitomo Corporation disclosed
occurred in June 1996.
● Caused by Yasuo Hamanaka, the chief trader
of the Sumitomo Corporation trading
department.
● The company announced a loss of $1.9 billion.
● disaster caused by unauthorized copper
trading.
● Began to get involved in copper trading in 1975 and join Yasuo Hamanaka
the copper trading team of Sumitomo Corporation.
● Once controlled 5% of the copper trading volume of the
London Metal Exchange (LME)
● Has a top position in the international copper market.
● But in the subsequent losses, Yasuo Hamanaka tried to
conceal his losses in copper futures speculation and
adopted a bolder speculative strategy. Cause inflicted
losses of 4 billion U.S. dollars to Sumitomo Corporation.
Price of copper from
1980-2010
 1994-1997
1. The price of copper raised when Yasuo
Hamanaka controlled 5% copper market in
1994.
2. With increasing volume in copper production,
international copper prices fell all the way
from $3,075/ton to $2,600/ton in 1996.
3. Regulator inquiries finally exposed Yasuo
Hamanaka attempts to manipulate the market
and created a large amount of panic selling of
near term.
Trading strategy
1. Yasuo hamanaka is buying a copper put option while
buying 0.3 copper call options.
2. The price and expiration date of the two options are
the same, and their starting price is equal to the
minimum set in the contract price.
3. The higher the minimum price is set, the premium of
put options will increase, while the premium of call
options will decrease.
4. The lower the minimum price is, the premium of put
options will decrease, and the premium of call
options will increase.
Transaction price during the trading
1. if the market price is lower than the lowest transaction price at current price:
transaction price = lowest price
2. If the market price is higher than the lowest price: transaction price = market
price-(market price-lowest price) * 30 %.
3. So if the market price is lower than the minimum price: contract value =
market price-minimum price. The contract value is negative and the result will
be a loss.
4. If the market price is higher than the minimum price: contract value = (market
price-minimum price) * 30%. The contract value is positive and will make a
profit.
 Excel worked example
I. So above is the excel example I created to illustrate how Yasuo Hamanaka
causes the 1.9 billion loses to the company.

a.) The contract period is calculated by months.

b.) The settle price is the closing price at end of each month.
c.) We suppose Yasuo Hamanaka set the contract price with company at 2330
$/ton which is the fair price.
d.)And Yasuo Hamanaka controlled 5% of the copper market which is 12
million tons of copper.
e.)The transaction price can be calculated in slide 6.
f.) the profit =( settle price per ton - transaction price) * contract size

So on the August 1st, 1996. Yasuo Hamanaka loses ( 1821-1973.7) * 12 = -1832

million USD.
1. Imperfect internal risk control mechanism of
Sumitomo Risk management
2. Unauthorized international copper futures problem
speculative transactions
3. The lack of a specialized risk management risk
-market risk, operational risk – supervision and fraud
control function – market manipulation.
4. The London Metal Exchange did not supervise
trading positions of market participants.