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

111
Evidence indicates that the CIO personnel in London responsible for reporting the SCP
marks were fully aware that they were misusing the valuation process to understate the SCP
losses. As the discrepancy in the marks grew, the two key CIO traders recording the marks
became increasingly agitated.
In mid-March, the junior CIO trader charged with reporting the daily value of the SCP
book, Julien Grout, began keeping a spreadsheet tracking the difference between what he was
reporting to the bank using the more favorable values versus what he would have reported using
the midpoint prices. 669
For five days, he tracked the divergence for three of the largest credit
derivative holdings in the SCP book, the “CDX.IG” credit index referencing credit default swaps
for U.S. investment grade companies, the “iTraxx Main” index which is the European equivalent
of the IG index, and the “CDX.HY,” or High Yield credit index, which referenced credit default
swaps for below investment grade companies.
On the spreadsheet, the first column, entitled “Distance,” showed the total difference
between the midpoint prices and the CIO’s booked values for all three indices on each of the five
days. The next six columns broke out the difference for each of the three credit indices, using
both dollars and basis points. 670
Grout Spreadsheet
U.S. Dollars Basis Points
Source: Spreadsheet prepared by Julien Grout, CIO, JPM-CIO-PSI-H 0002812. Losses are indicated by figures in
parentheses.
On March 15, 2012, in a recorded session of instant messaging, Mr. Grout discussed the
spreadsheet results up to that date with Mr. Iksil who asked him to send a copy of the
spreadsheet to their supervisor, Javier Martin-Artajo.
Mr. Iksil: “Can [yo]u drop me here the breakdown of the lag 671 please? …And sen[d] it
to Javier email. … Put me in copy. … I refer to the spreadsheet.” 672
through at least March 30, the traders did not provide good-faith estimates of the exit prices for all the positions in
the Synthetic Credit Portfolio.”).
669
See spreadsheet maintained by Julien Grout, CIO, depicting the divergence from the midpoint of the bid-ask
spread for various credit derivative indexes in dollars and basis points, JPM-CIO-PSI-H 0002812.
670
A basis point is a unit of measure describing a change in value. One basis point is equivalent to one hundredth of
a percent (0.01%).
671
In this context, “lag” refers to the difference between what the CIO was reporting as losses and what those losses
would have been had the CIO used midpoint prices.
672
As requested, Mr. Grout, CIO, sent an email and the spreadsheet to Mr. Martin-Artajo. See 3/15/2012 email and
spreadsheet from Julien Grout, CIO, to Javier Martin-Artajo, CIO, with copy to Mr. Iksil, CIO, JPM-CIO 0003457-