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

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loss,” both because the long assets had gained value and, due to the premiums being paid by the
short parties, were producing carry. 464
465
Mr. Iksil’s presentation then proposed executing “the trades that make sense.”
Specifically, it proposed:
“The trades that make sense:
• sell the forward spread and buy protection on the tightening move
o Use indices and add to existing position
o Go long risk on some belly tranches especially where defaults may
realize
o Buy protection on HY and Xover in rallies and turn the position
over to monetize volatility” 466
This proposal encompassed multiple, complex credit trading strategies, using jargon that
even the relevant actors and regulators could not understand. Because the traders themselves
declined the Subcommittee’s request for interviews and were outside of the Subcommittee’s
subpoena authority, the Subcommittee asked other current and former CIO personnel to explain
the proposal. Ina Drew, CIO head, told the Subcommittee that the presentation was unclear, and
467
she could not explain exactly what it meant. Irvin Goldman, then the CIO’s Chief Risk
Officer, told the Subcommittee that the presentation did not provide enough information to
clarify its meaning. 468 Peter Weiland, the CIO Market Risk Officer, offered the explanation that
Mr. Iksil was basically describing a strategy of buying low and selling high. 469
No CIO official
offered a more detailed explanation of the specific trading strategies set forth in the January
proposal.
The OCC told the Subcommittee that while it agreed the presentation was confusing,
senior CIO management should have understood exactly what was being proposed before
470
allowing billions of dollars in trades, and should have been able to explain the presentation.
The OCC provided the Subcommittee with its understanding of the proposed trading strategies as
follows.
Selling the forward spread: The presentation proposed buying credit protection in the
471
short term and selling credit protection in the long term.
464
Id. at JPM-CIO-PSI 0000161.
465
Id.
466
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.
467
See, e.g., Subcommittee interview of Ina Drew, CIO (9/7/2012).
468
Subcommittee interview of Irvin Goldman, CIO (9/15/2012).
469
Subcommittee interview of Peter Weiland, CIO (8/29/2012).
470
Subcommittee interview of Michael Sullivan, OCC (8/30/2012).
471 Id.