The contracts concerned are still open, exposing Barings to unquantifiable further losses until the contracts expire or are otherwise closed out."The British banks were committed to supplying all the capital needed to recapitalise Barings, provided it was possible to cap the potential liability on its contracts. In the event, it did not prove possible to meet this essential pre-condition for the injection of new capital into the firm."As a result, Barings cannot continue trading and is applying for administration."These circumstances are unique to Barings and should have no implications for other banks operating in London The London markets will open as normal tomorrow. The Bank of England stands ready to provide liquidity to the banking system to ensure that it continues to function normally," the statement said.After previous bank rescues such as Johnson Matthey, yesterday's action is virtually unprecedented. Today Barings' bankers will be attempting to continue their current activities while being under the control of three outside appointed insolvency experts. As one source said last night, under the new circumstances "it's quite difficult to keep that kind of franchise in one piece".

The news of failed talks is expected to ravage London's stock market today, and the pound fell to a record low against the market in early trading in Sydney. London's FTSE 100 index of leading shares was expected to fall anything up to 100 points following the news."This is a real shock. The bottom of the recent range is around 2,950 points and [the market] should test that now," said Kleinwort Benson strategist Trevor Laugharne. The FT-SE 100 index closed down 11.6 points at 3,037.7 on Friday.. Nick Leeson, believed to be the man responsible for the collapse of Barings, is thought to be on the run from Singapore, having left both his wife in the island state and the company in tatters. Single-handedly, he executed unauthorised trades in the futures market worth billions of dollars, incurring a loss of at least £600m. However, Barings remains unsure as to the extent of the losses because it is not known whether all the trades made by the rogue dealer have been closed out.

In other words more unauthorised trades may come to light which would raise the level of the loss considerably. The uncertainty over the extent of Barings' problems led the Bank of England to dispatch officials to Singapore, Hong Kong and Tokyo over the weekend. In Hong Kong the officials were closeted in long meetings with Barings management, giving rise to suggestions that the fraud emanating from Singapore was unwittingly funded from the colony.Ironically the collapse of the company was triggered in its most successful area of operation - the Far East markets. Barings has enjoyed spectacular growth in this region under the energetic leadership of James Bax in its Singapore regional headquarters.Piecing together the story of the collapse from well-placed sources in Singapore and Hong Kong shows how extraordinarily easy it was for one person to bring the whole edifice crashing down.It appears that the problem only came to light last Thursday evening when the Singapore futures market, known as Simex, first realised that large margin calls on the Nikkei stock average contract were not being met.The Nikkei contract allows financial market players to hedge their investments in the Japanese stock market by buying contracts in the future level of Japan's blue chip stock index.This is usually done as a supplement to activity in the actual stock market. Stock index contracts are very popular in the often casino-like financial markets of South-east Asia. The mixture of low capital investment combined with high risk and high reward appeals to local investors.As the market rises, futures contract holders make money, when it falls they incur losses. Positions in the futures market are calculated daily so if a loss is being made the holder of the contract is required to place more money with the exchange to ensure that there is enough cash in hand each day to honour the contract.Until Thursday the Barings dealer responsible for the crash was managing to meet the margin calls.

Presumably, it was at this time that resources dried up to meet the growing demands to deposit ever larger sums of money with the futures exchanges.The suspicion is now growing that previous margin calls were met by fraudulent manipulation of Barings' banking arm, making the company's banking associate fund the unauthorised activities of its stockbroking side.Although the rogue dealer was a senior employee he must have been trading massively beyond the limits allowed by the company and could only have done so by disguising the source of the trades.The Nikkei contract is traded only in Singapore and Osaka, in Japan. The aggressive Simex management plunged into Japanese market futures trading before such a market was created in Japan itself. Significantly, the Nikkei contract is still not offered in the conservative Tokyo market but was taken up in the leaner and more hungry Osaka futures market.The extent of the unauthorised trading suggests that it must have been conducted in both Singapore and Osaka. Barings was undoubtedly the market- maker in the Nikkei contract.Barings Securities is also the biggest issuer of warrants in Japanese shares, which is essentially another form of futures trading allowing investors to buy a share at a future date for a fixed price.This is a high-risk business for both the issuers of the warrants and investors who can build up large positions in individual stocks by paying just a small percentage of the share price to buy a warrant.There is no direct connection between the warrants market and the market in the Nikkei index. However the prominence of Barings in both markets could do much to influence sentiment in Far East markets, particularly in Japan. "You can never predict the emotional side of things," said one Hong Kong futures trader last night.The financial regulatory authorities in Singapore, Hong Kong and Japan were closeted in meetings for most of yesterday In theory, both the Singapore and Osaka futures markets should have little to worry about in terms of outstanding liabilities because the system of daily settlement means that the contracts were only exposed to default for a couple of days; hitherto all liabilities had been met.It is reliably understood that Barings in Singapore will be making a police report today, naming the rogue trader as the source of a massive fraud..

World financial markets were poised nervously overnight for a possible tailspin in global share prices triggered by the Barings debacle. Market professionals estimated up to 50 points could be wiped off the FT-SE 100 share index, as dealers took fright from expected tumbling share prices in Japan. One senior City figure, who did not want to be identified, suggested the Nikkei index might plummet up to 1,000 points on resumed trading. "This is pretty traumatic stuff for the UK market," said Nick Knight, strategist at Nomura, the Japanese stockbroker. "There will be a lot of uncertainty, and that of course isn't any good. I think we will see a drop of 30 to 50 points in the FT-SE."Many observers think the pound will also be challenged in currency markets in the Barings aftermath.Paul Walton, Goldman Sachs strategist, said similar crises had prompted up to 10 days of stock market uncertainty, as dealers wait to see if the cataclysm unearths widespread vulnerability to volatile derivatives, or whether it is an isolated incident sparked by a maverick Far East trader.Another City figure said Barings was probably the tip of the iceberg. "There are a number of major international financial institutions who have yet to reveal their derivatives' exposure."Mr Walton, who believes that share prices in Britain and Tokyo could slump by up to 7 per cent in the short term, added: "The big question will be, who else has lost money because of all this?"One senior figure at a leading London securities house said: "I think we could be talking of 50 points off when the UK market opens.