Regulators in London and Paris have begun an insider-dealing investigation into whether anyone profited improperly from knowledge of Société Générale’s catastrophic rogue-trader problem before the news was made public on Thursday, The Times has learnt.

The Financial Services Authority and its counterpart in France, the Autorité des Marchés Financiers (AMF), are looking at whether anyone placed highly lucrative investment positions in anticipation of SocGen’s desperate need to unwind the huge bets on Monday and Tuesday.

The AMF is also expected to examine trading in the shares of SocGen. The price dived on Wednesday, again before the problem was made public, again giving potential profit opportunities to dishonest traders.

The potential for serious market abuse was high because SocGen took 5½ days after it learnt of Jérôme Kerviel’s activities to go public on the disaster. Its own efforts to unwind the huge bets added to the downward pressure on share prices early this week, giving insiders the opportunity to make virtually guaranteed profits by shorting the relevant securities – European index futures.

There were unconfirmed rumours yesterday that Mr Kerviel may have confided last Sunday in a friend who worked at a rival investment bank. Many other people inside and outside SocGen knew of the problem by Monday morning, including the Banque de France and the AMF. The pool of professionals “in the know” is thought to have mushroomed during the early days of the week as SocGen drafted in JP Morgan and Morgan Stanley to orchestrate the €5.5 billion emergency capital raising, which was also announced formally on Thursday.

One regulatory lawyer in the City told The Times: “Regulators will be keen to see whether anyone was privy to that information and traded improperly on it because that might constitute market abuse.”

Although insider dealing usually refers to trading in an individual company’s shares, the market abuse rules in Britain and the Continent can also apply to index trading so long as the information is not generally available and is precise enough. SocGen had little choice but to keep the rogue trades quiet until after it had closed them all out. If it had gone public, markets could have moved even more aggressively against it, leading to even bigger losses than the eventual £3.7 billion hit.

Bank supervisors are expected to advise banks to redouble their scrutiny of controls governing their traders. The FSA is particularly keen to emphasise the importance of segregating the activities of the front office (the traders) from the middle office and back office (risk management, and clearing and settlement).

It was Mr Kerviel’s former job in the middle office of SocGen that gave him the expertise to circumvent the normal controls.

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