Lehman Brothers has suspended two traders in its London offices

Lehman Brothers has suspended two traders in its London offices amid an inquiry into how trades were handled or priced in its equities unit, according to people familiar with the situation. UK markets regulator, the Financial Services Authority, has been apprised of the situation and the firm is cooperating with its inquiry, these people said.The inquiry is focused on the valuation of securities, likely those tied to equity derivatives, in markets that have seen a significant drop in liquidity, these people said.The two traders were suspended a week ago and the trades were identified by Lehman through internal risk systems, these people said.
The FSA declined comment, and top traders at Lehman's equity derivatives desk weren't immediately available for comment.Equity derivatives in plain vanilla form allow investment banking clients or a bank's in-house trading desk to navigate volatile stock markets by locking in prices using either indexes or specific stocks.
For many banks, the trading and selling of credit and equity derivatives has become a staple of their European-based operations. The rapid growth, though, also has drawn the attention of regulators who have pressed banks to better handle the paperwork behind such trades. Lehman has taken steps to bolster its equity derivatives trading in Europe.The disclosure of problems in equity derivatives could spark a fresh round of regulatory questions about how banks monitor and check complex trading. Those concerns increased this year after French bank Société Générale disclosed that Jérôme Kerviel, a low-level trader on the bank's equity derivatives desk, handled trades that allegedly led to a $7.2bn loss.
But for now, the Lehman matter is not seen as material, said people familiar with the trades. The US investment bank is scheduled to report first-quarter results on March 18.