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

larger and larger drawdown pressure versus the risk due to notional increase.
Please let me know the course of action I should take here.” 490
The Subcommittee was unable to locate any written record of any guidance provided by
Mr. Martin-Artajo in response.
That same day, January 30, 2012, Mr. Macris sent an email to Mr. Martin-Artajo also
expressing concern about the ongoing losses:
78
“We need to discuss the synthetic book. The current strategy doesn’t seem to
work-out. The intention was to be more bullish, but the book doesn’t behave as
intended . . . . The financial [p]erformance is worrisome.” 491
In hindsight, it appears that the CIO essentially took the trading strategy that had worked
during the bear market of the second half of 2011, and applied it to the bull market in the early
492
part of 2012, with disastrous results. Not only did the SCP’s short positions lose value as the
economy improved, but the long credit protection the CIO purchased for investment grade
companies did not increase in value as much as was needed to offset the losses. As Mr. Macris
put it, the investment grade rally “lagged” the high yield rally. 493
That meant that the mark-tomarket
profits the CIO was able to post on the investment grade credit protection it sold was
insufficient to offset the mark-to-market losses it had to post on the high yield protection they
purchased.
Mr. Iksil later told the JPMorgan Chase Task Force investigation that he had not been
able to sell as much credit protection as he would have liked (which would have generated more
carry and profits to keep pace with the high yield rally). He said that two risk metrics – the
“VaR” and “CS01” – prevented him from doing so. He later wrote in an email: “[T]he need to
reduce VAR – RWA and stay within the CS01 limit prevented the book from being long risk
enough.”
494
However, had Mr. Iksil actually acquired even more long positions, it is unclear
that he would have been able to offset the losses then being reported on the books; it is possible
he would have dug the SCP hole even deeper.
(2) February 2012
Despite the concerns expressed by Mr. Iksil and Mr. Macris about the SCP trading
strategy, the CIO traders continued to pursue it throughout February, acquiring even more credit
490
1/30/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “update on core credit book,” JPM-CIO-
PSI 0001223.
491
1/31/2012 email from Achilles Macris, CIO, to Javier Martin-Artajo, CIO, “Core book P&L drawdown and main
exposures,” JPM-CIO-PSI 0000221.
492
See, e.g., 1/31/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “Core book p&l drawdown and
main exposures,” JPM-CIO-PSI 0000222 (forwarded to Achilles Macris and subsequently Ina Drew).
493
JPMorgan Chase Task Force interview of Achilles Macris, CIO (partial readout to Subcommittee on 9/6/2012).
494
3/29/2012 email from Bruno Iksil to Javier Martin-Artajo, “First draft of the presentation,” conveying “CIO
Synthetic Credit Update” (3/2012) at JPM-CIO-PSI 0001256. As discussed below, Mr. Iksil was not able to start
selling protection in earnest until a new VaR model entered into force on January 30, retroactive to January 27. He
similarly was constrained by the CS01 limit which the SCP ultimately breached in February. For more information
on these limits, see Chapter V.