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

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Drew he wanted to wait until the indices were more liquid to add to the portfolio, but by month
end he had to “cover the short.” 514 Mr. Iksil later explained that, in February, he “added to IG9
and S9 forwards in order to contain the P&L loss” and to “cover” the high yield short position. 515
Mr. Iksil said that he had not expected to sell as much protection as he did, but that one hedge
fund was “buying protection outright.” 516
Mr. Macris later said that all of the trades and losses
were “well-communicated” to CIO management, meaning that his supervisors were fully
informed about the status of the SCP book.
When asked about the February trading activity, the OCC told the Subcommittee that the
CIO traders apparently believed that the prices in the markets were wrong, and that the traders
had a strategy to defend their positions and keep the prices from falling by taking on more of
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them.
(3) March 2012
In March, the CIO traders purchased still more long positions, enlarged the SCP further,
and by the end of the month had moved the SCP firmly into a net long posture. Their actions not
only increased the portfolio’s risk, breaching multiple risk limits along the way, but also
escalated the SCP’s losses which, by the end of the month, exceeded half a billion dollars.
On March 1, Mr. Macris expressed concern about having to reduce the SCP book to
comply with management’s direction to reduce the portfolio’s RWA, writing:
“I am worried that the $20b RWA committed b[y] year-end, is too aggressive, if
we need to [a]ctually reduce the book, we will not able to defend our
positions.” 518
Mr. Macris later told the JPMorgan Chase Task Force investigation that, in the first part of
March, the credit market was “unusually bullish,” and as it continued to rally, the SCP book
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continued to “underperform.” In fact, the portfolio was not just underperforming; it was
losing substantial value. In response, throughout the month, the traders continued to increase the
size of the long positions in an apparent attempt to staunch the losses.
By mid-March, according to Mr. Macris, there were meetings every other day to discuss
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the book. According to Mr. Martin-Artajo, the protection the traders bought continued to lose
money relative to the protection the traders sold. 521
Mr. Iksil expressed concern about the size of
514
JPMorgan Chase Task Force interview of Bruno Iksil, CIO (partial readout to Subcommittee on 8/27/2012).
515
3/29/2012 email from Bruno Iksil to Javier Martin-Artajo and others, “First draft of the presentation,” conveying
“CIO Synthetic Credit Update,” (3/2012), JPM-CIO-PSI 0001257.
516
JPMorgan Chase Task Force interview of Bruno Iksil, CIO (partial readout to Subcommittee on 8/27/2012)
(referring to Boaz Weinstein of Saba Capital Management).
517
Subcommittee interview of Scott Waterhouse, OCC (9/17/2012). See also 2013 JPMorgan Chase Task Force
Report, at 39.
518
3/1/2012 email from Achilles Macris, CIO, to Javier Martin-Artajo, CIO, “priorities,” JPM-CIO-PSI 0001219.
519
JPMorgan Chase Task Force interview of Achilles Macris, CIO (partial readout to Subcommittee on 8/28/2012).
520
Id.
521
See undated internal document authored by Bruno Iksil, CIO, with his personal notes and comments on SCP
trading activities from January to March 2012, JPM-CIO-PSI 00021898.