JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

104
By March 2012, when the SCP routinely encompassed over 100 different types of credit
derivatives, this daily pricing effort required sustained effort. 630
The resulting CIO prices often
differed from those of the Investment Bank, as explained below.
During the period examined by the Subcommittee, the daily task of marking the SCP
book with the fair value of its credit derivatives fell to a junior CIO trader, Julien Grout, who
performed the task with assistance from the head Synthetic Credit Portfolio manager Bruno
Iksil. 631 Late in the afternoon each business day, Mr. Grout determined the daily marks for each
of the SCP’s holdings and then used a series of computer programs to generate an estimate of the
SCP’s overall daily profit or loss, known as the “P&L Predict.” 632 He also often drafted a short
explanation for the day’s gains or losses and included that explanation in the P&L Predict as
well. 633 At the end of the business day in London, Mr. Grout sent an email with the P&L Predict
to a designated list of CIO personnel in both London and New York. 634
In New York, a CIO colleague, Isi Oaikhiena, consolidated a variety of daily CIO P&L
reports, including the SCP P&L Predict from London, into a single document each day known as
the CIO “EOD” (End of Day) P&L report, and emailed it to the “EOD Credit Estimate” group. 635
That group consisted of about 20 CIO employees, including CIO head Ina Drew, Chief Financial
Officer John Wilmot, the key CIO traders, and various CIO risk managers and VCG analysts. 636
The EOD Credit Estimate Group reviewed and produced a final CIO EOD P&L report for the
day, using a computer database to generate a composite, cumulative daily P&L figure for the
CIO. 637 The final EOD P&L report included an SCP P&L figure that often differed from the
original estimate and sometimes, but not always, included the explanation provided by Mr.
Grout. The final CIO P&L results were also rolled it up into a bankwide, internal, cumulative,
daily P&L statement. 638
Although it seems that the CIO’s practice prior to 2012 had been to value the SCP credit
derivatives at or near the midpoint price in the relevant daily price range, at some point in early
2012, that practice changed. According to notes of an interview of Bruno Iksil as part of the
JPMorgan Chase Task Force review, Mr. Martin-Artajo, told him that he was not there to
provide “mids.” Mr. Martin Artajo thought that the market was irrational. And Mr. Iksil should
630
See, e.g., 4/10/2012 email from Julien Grout to “CIO Credit Positions” email group, “CIO CORE Credit
Positions: 10-Apr12,” JPM-CIO-PSI 0023061 (listing numerous credit derivative positions and their fair values).
631
See 2013 JPMorgan Chase Task Force Report, at 46. According to the JPMorgan Chase Task Force, to
determine the fair value of particular derivatives, the trader considered “recently executed trades,” “price quotes
received from dealers and counterparties,” and his “observations of and judgment regarding market conditions,
including the relationships between and among different instruments.” Id.
632
2013 JPMorgan Chase Task Force Report, at 47.
633
Id.
634
See, e.g., 3/20/2012 email from Julien Grout, CIO, to “CIO ESTIMATED P&L” mail list, “CIO Core Credit
P&L Predict [20 Mar]: -$39,686k (dly) -$275,424k (ytd),” JPM-CIO-PSI 0016487-89.
635
See, e.g., 3/20/2012 email from Isi Oaikhiena, CIO, to “EOD Credit estimate” mail list, copy to “CIO P&L
Team” mail list, “International Credit Consolidated P&L 20-Mar-2012,” JPM-CIO-PSI 0019484.
636
12/12/2012 distribution list document, “Distribution List Membership Around March 2012,” provided to
Subcommittee by JPMorgan Chase legal counsel, JPM-CIO-PSI-H 0002815.
637
Subcommittee briefing by JPMorgan Chase legal counsel (2/4/2013).
638
Id. (explaining that the bank’s internal database, “Monster Truck,” generated P&L data for both the CIO and
firmwide P&L reports).