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

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Secondly, Mr. Braunstein’s “long-term” characterization is belied by the sheer volume of
short-term trading in the SCP. For example, on January 27, 2012, the CIO traders engaged in
139 trades involving the SCP book. 1527 On that date, the traders repeatedly bought and sold
positions in the IG9 10-year credit index at a range of prices; the number of those transactions
alone exceeded 26. 1528 Buying and selling the same credit positions on the same day at a variety
of prices is not consistent with making investment decisions on a long-term basis. Altogether in
the first quarter of 2012, traders executed over 4,300 trades. 1529 In addition, in 2011, the CIO
traders engaged in a massive trading strategy that was designed to last only a few months near
the end of the year; as part of that strategy, the CIO traders increased the exposure of the
Synthetic Credit Portfolio by 10,000% to the HY credit index over the span of a single month,
from October to November 2011. 1530 Overall, in the first three months of 2012, the CIO tripled
the size of the SCP book, taking it from $51 billion to $157 billion, in a buying spree that was
not motivated by decision-making on a “very long-term basis.” When asked about these types of
trades, JPMorgan Chase conceded to the Subcommittee that the SCP book was “actively”
traded. 1531
Moreover, as discussed earlier, in the first quarter of 2012, the SCP book was being
managed to meet a number of short-term trading objectives. One was to produce short-term
“carry” to offset some of the losses associated with its high yield credit protection, the value of
1532
which was deteriorating because of the market rally. Another was to enter into trades that
would substantially lower the SCP’s Risk Weighted Assets. 1533 In January 2012, CIO trader
Bruno Iksil noted in an internal presentation that the “trades that made sense” included “turn[ing]
the position[s] over to monetize volatility.” 1534 Turning over a position to “monetize” volatility
meant that the trading strategy was to flip the position, that is, buy low, and sell high. 1535
Each
of these trading strategies is inconsistent with long-term decision-making.
Whether or not Mr. Braunstein was aware of that level of detail in the CIO trading
operations, on the day before the April 13 earnings call, Ina Drew briefed him that the SCP book
1527 Undated spreadsheet of trades from 10/3/2011 to 5/14/2012 produced by JPMorgan Chase in response to a
Subcommittee request, JPM-CIO-PSI 0037501.
1528 Id.
1529 Undated spreadsheet of trades from 10/3/2011 to 5/14/2012 produced by JPMorgan Chase in response to a
Subcommittee request, JPM-CIO-PSI 0037501.
1530 See data analysis by OCC, using DTCC data for the bank. “JPMC-CIO timeline of Significant Events and OCC
Discovery,” OCC-SPI-00038895, at 6. See also 10/26/2012 OCC Confidential Supervisory Report, Appendix 11-B,
“Caveman Trade,” .PSI-OCC-13-000121. For more information on this 2011 trading strategy, see Chapter III.
1531 Subcommittee briefing by JPMorgan Chase (8/15/2012) (Jeanette Boot); Subcommittee interview of Peter
Weiland, CIO (8/29/2012).
1532 See Chapter III, “SCP Trading” section on the strategy implemented by CIO traders.
1533 See 1/19/2012 email from Achilles Macris, CIO, to Ina Drew, CIO, and others, “Credit book Decision Table –
Scenario clarification,” JPM-CIO-PSI 0000152. Ms. Drew told the CIO traders to reduce RWA while still
maintaining profit levels, that is, “review the unwind plan to maximize p l [profit-loss].” See 1/10/2012 email from
Ina Drew, CIO, to Javier Martin-Artajo, CIO, and others, “International Credit Consolidated P&L 09-Jan-2012,”
JPM-CIO-PSI 0000075.
1534 1/26/2012 email from Bruno Iksil, CIO, to Andrew Perryman, CIO, “credit book last version,” conveying “Core
Credit Book Highlights,” (January 2012), prepared by Mr. Iksil, at JPM-CIO-PSI 0000161.
1535 See Subcommittee interview of Michael Sullivan, OCC (8/30/2012).