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

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period of time, the CIO’s Global CS01 limit was $12 million. The SCP first breached the CIO
Global CS01 limit on January 18, 2012, breached it again on January 25, and stayed in breach
until May when that risk limit, too, was replaced. 1114
In response to the January breaches, the CIO traders requested an increase in the CS01
risk limits to end the breaches. On January 27, 2012, CIO trader Bruno Iksil, apparently
confused over the level of the limit, emailed Mr. Martin-Artajo with the request:
“I will need an increase in the CS01 limit in order to reduce further the notionals
and set the book for a smoother P&L path. I am currently constrained by this
limit of [$]10M[illion] CS01 that prevents me from having a decent convexity of
spreads tighten mostly.” 1115
According to the JPMorgan Chase Task Force Report, “At various times, beginning in
February, CIO Market risk suggested a temporary increase in the mark-to-market (“MTM”)
CSBPV limit, from $5 million to $20 million, $25 million or $30 million.” 1116 These Global
CS01 limit increases were not granted. However, the CIO traders were also not required to exit
any positions in order to end the breach. Instead, the dual CS01 breaches were allowed to
continue and grew more and more egregious. In fact, despite written guidelines requiring the
CIO to “take immediate steps toward reducing its exposure to be within the limit,” 1117 the CIO
traders pressed on in their trading strategy and continued to purchase additional credit
derivatives. Indeed, on January 30, 2012, Mr. Iksil sent Mr. Martin-Artajo an email with the
subject line, “there is more loss coming in core credit book,” warning of losses due to other
market participant aligning against the CIO to “go for the fight.” Mr. Iksil wrote: “Now I just
grow the exposure and the CS01 moves up.” 1118
On February 13, 2012, Syed Hassan in the bank’s Market Risk Management group sent
an email with the subject line, “CIO Global Credit spread BPV limit breach- COB 02/09/2012,”
to Keith Stephan, the Chief Risk Officer in the CIO’s London office, and others, asking them
about the ongoing CS01 breaches and requesting an explanation. Mr. Hassan wrote:
“The following CIO Global Credit Spread BPV limits have been breaching since
the aforementioned period. Can you please examine and confirm the breaches as
valid? If so, please also provide some commentary surrounding the breaches.
Thanks.” 1119
Needed,” JPM-CIO-PSI-H 0000627, at 636.
1114 Id.
1115 Undated internal document authored by Bruno Iksil with his personal notes and comments on SCP trading
activities from January to March 2012, JPM-CIO-PSI 0021884. See also 2013 JPMorgan Chase Task Force Report,
at 37, footnote 48.
1116 2013 JPMorgan Chase Task Force Report, at 81.
1117 See, e.g., 3/2012 presentation prepared by JPMorgan Chase entitled “Market Risk Limits,” at 13, OCC-SPI-
00117682.
1118 1/30/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “there is more loss coming in core credit
book,” JPM-CIO-PSI 0001225.
1119 2/13/2012 email from Syed Hassan, CIO, to Keith Stephan, CIO, and others, “CIO Global Credit spread BPV
limit breach- COB 02/09/2012,” JPM-CIO-PSI 0001825.