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

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B. Mismarking the CIO Credit Derivatives
The mismarking of the SCP credit derivatives appears to have begun in late January,
accelerated in February, and peaked in March 2012. Recorded telephone conversations, instant
messaging exchanges, and a five-day spreadsheet indicate that key CIO London traders involved
with the marking process were fully aware and often upset or agitated that they were using
inaccurate marks to hide the portfolio’s growing losses.
(1) Mismarking Begins
On January 31, 2012, CIO trader Bruno Iksil, manager of the Synthetic Credit Portfolio,
made a remark in an email to his supervisor, Javier Martin-Artajo, which constitutes the earliest
evidence uncovered by the Subcommittee that the CIO was no longer consistently using the
midpoint of the bid-ask spread to value its credit derivatives. Mr. Iksil wrote that, with respect to
the IG9 credit index derivatives: “we can show that we are not at mids but on realistic level.” 648
A later data analysis conducted by the bank’s Controller reviewing a sample of SCP valuations
suggests that, by the end of January, the CIO had stopped valuing two sets of credit index
instruments on the SCP’s books, the CDX IG9 7-year and the CDX IG9 10-year, near the
midpoint price and had substituted instead noticeably more favorable prices. 649
This change in the CIO’s pricing practice coincided with a change in the SCP’s profitloss
pattern in which the Synthetic Credit Portfolio began experiencing a sustained series of daily
losses. The SCP book lost money on 17 of 21 business days in January, reporting just four
profitable days. 650 By month-end, not only had the book reported losses totaling $100 million,
but there was not a single day in January when the book was cumulatively in the black. 651 In
addition, the book lost money on nine business days in a row at the end of January, producing
collective losses of $81 million. 652 February was equally bleak, losing money on 15 of 21
business days, including on seven consecutive business days at the end of the month. 653
March
continued the pattern, losing money on 16 of 22 business days, including a string of losses -- 15
In this regard, VCG is responsible for calculating / monitoring these reserves and consulting with the business on
such estimates ….”); Subcommittee interview of Elwyn Wong, OCC (8/20/2012).
648
1/31/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “hello, quick update in core credit…,”
JPM-CIO-PSI 0001229 (Mr. Iksil: “as to IG9, things look much better. Not that we are immune but we can show
that we are not at mids but on realistic level.”).
649
See 5/10/2012 JPMorgan Chase Controllers special assessment of CIO’s marks, January to April 2012, at 17,
JPM-CIO-0003637-654, at 653, excerpted in charts below. The report showed that the two prices used by the CIO
deviated from the midpoint prices by more than one basis point and produced prices more favorable to the CIO. The
IG9 7-year credit index was priced at 102.000, when the midpoint price was 103.500; the IG9 10-year index was
priced at 119.500 when the midpoint price was 120.750. Id. at 653. For more information about credit indices, see
Chapter II.
650
See OCC spreadsheet, OCC-SPI-00000298, reprinted below. Numbers do not reflect restated P&L figures.
651
Id.
652
Id.
653
Id.