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Interbolsa’s Repo Trading: How to Stop an Insolvency Ticking Time Bomb (B)
Gentile, Mary; Lopez-Jimenez, Liliana; Orozco, Luis Antonio Case OB-1357 / Published March 2, 2021 / 3 pages.
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Product Overview

In August 2004, Interbolsa's risk management committee had to decide upon a request to double the authorized quota for repurchase agreements (repos) on Interbolsa's own stock. Two months earlier, Jorge Arabia had joined Interbolsa, the largest stock brokerage firm in Colombia, as CFO. In this role, he had a seat in the risk management committee. Arabia had noticed that these repos carried large and diverse risks, not only for the firm but also for other stakeholders, that would lead to an eventual solvency crisis if they were not contained. And the repo business as conducted at Interbolsa entailed conflicts of interest, violated fiduciary duty to the firm's clients, and relied upon lax reporting practices to make transacted volumes meet limits imposed by regulation. However, this business was an important source of revenue for Interbolsa's majority shareholders, including the firm's CEO. The field-based A case asks students what they could do if they were in Arabia's role and wanted to stop the repo time-bomb. Students must create an action plan, based on information available in the case, aimed at preventing further increases in the repo quota. In this B case, the two faculty case authors reflect upon the problem and discuss what they think Arabia could have done to try to prevent the increase in repo operations.


Learning Objectives

This case should help students do the following: (1) Recognize individual- and organization-level factors that might enable or hinder ethical action in a complex business situation. (2) Identify the stakes, interests, and potential rationalizations of the various actors involved in or affected by a complex fraud scheme in the finance industry. (3) Prepare strong counterarguments against common rationalizations. (4) Practice developing action plans aimed at improving the chances of effectively solving a business value conflict. (5) Practice giving feedback to other people regarding their own ethical action plans.

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  • Overview

    In August 2004, Interbolsa's risk management committee had to decide upon a request to double the authorized quota for repurchase agreements (repos) on Interbolsa's own stock. Two months earlier, Jorge Arabia had joined Interbolsa, the largest stock brokerage firm in Colombia, as CFO. In this role, he had a seat in the risk management committee. Arabia had noticed that these repos carried large and diverse risks, not only for the firm but also for other stakeholders, that would lead to an eventual solvency crisis if they were not contained. And the repo business as conducted at Interbolsa entailed conflicts of interest, violated fiduciary duty to the firm's clients, and relied upon lax reporting practices to make transacted volumes meet limits imposed by regulation. However, this business was an important source of revenue for Interbolsa's majority shareholders, including the firm's CEO. The field-based A case asks students what they could do if they were in Arabia's role and wanted to stop the repo time-bomb. Students must create an action plan, based on information available in the case, aimed at preventing further increases in the repo quota. In this B case, the two faculty case authors reflect upon the problem and discuss what they think Arabia could have done to try to prevent the increase in repo operations.

  • Learning Objectives

    Learning Objectives

    This case should help students do the following: (1) Recognize individual- and organization-level factors that might enable or hinder ethical action in a complex business situation. (2) Identify the stakes, interests, and potential rationalizations of the various actors involved in or affected by a complex fraud scheme in the finance industry. (3) Prepare strong counterarguments against common rationalizations. (4) Practice developing action plans aimed at improving the chances of effectively solving a business value conflict. (5) Practice giving feedback to other people regarding their own ethical action plans.