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

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the positions and the traders’ limited options: “We look at what we can do ... while not growing
the positions especially in IG9. The solutions are very limited.” 522
Yet, on March 19, 2012, Mr.
Iksil wrote that perhaps they should increase the book’s long positions even more:
“One solution would be to let the book be really long risk, yet this would not be in
a liquid market and may increase the P&L noise especially in corrections .... The
523
solution proposed amounts to be longer risk.”
The CIO did just that, executing a series of trades over a couple of weeks in March that
were so large that the OCC described them internally and to the Subcommittee as “doubling
524
down” on the SCP’s already losing trading strategy. The first involved the acquisition of an
$8 billion notional long position in the most recent North American Investment Grade index
series – not the IG9, but the IG17. 525 The second involved an even newer IG index series, the
IG18, which was first issued on March 20, 2012, and in which the CIO acquired a $14 billion
notional long position. 526 On top of that, the CIO acquired a massive $18 billion long position in
the corresponding iTraxx series of credit indices. 527
Altogether, in a few weeks, these trades
increased the notional size of the SCP by $40 billion.
Mr. Iksil later explained to the JPMorgan Chase Task Force investigation that he had
switched from the IG9 index to the more recent series to be “less noticeable” to the rest of the
528
market. He explained that he had sold so much protection in the IG9 index that he believed
the other credit traders “knew” his position, and were taking advantage. 529
In fact, on March 19,
522
3/15/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “Update on Core,” JPM-CIO-PSI
0000386.
523
3/19/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “Core Book analysis and proposed
strategy,” JPM-CIO-PSI 0001234-35.
524
6/29/2012 email from Elwyn Wong, OCC, to Scott Waterhouse and others, OCC, “2nd Wilmer Hale Call,” OCC-
SPI-00071386 (“Macris told Braunstein the majority of the positions were taken in Jan and Feb but we now know
the doubling down in March.”); Subcommittee interviews of Scott Waterhouse, OCC (9/17/2012), Michael Sullivan
and Douglas McLaughlin, OCC (8/30/2012); OCC Presentation to the Subcommittee, page entitled, “1Q2012,”
(noting that “CS01 Exposure nearly doubled . . . between March 14 and March 28”), PSI-OCC-06-000028. See also
2013 JPMorgan Chase Task Force Report, at 41 (indicating the CIO traders had reasoned they could “put on a large
position very quickly near the roll date (March 20)” in order to stem the SCP’s losses and reduce the SCP’s VaR and
RWA totals prior to the bank’s quarter-end public filings).
525
See 2013 JPMorgan Chase Task Force Report, at 42; Subcommittee briefing by JPMorgan Chase (8/15/2012)
(Jeanette Boot). See also 3/22/2012 email from Peter Weiland, OCC, to Irvin Goldman, OCC, “I would like to
understand the increase in positions in credit,” JPM-CIO-PSI 0000410-411 (reporting that the SCP’s notional CDX
IG position – which includes a variety of IG on and off-the-run holdings – had increased from $22.4 billion on
March 7, 2012, to $52.1 billion on March 21, 2012, a $30 billion increase in two weeks).
526
See 2013 JPMorgan Chase Task Force Report, at 42; Subcommittee briefing by JPMorgan Chase (8/15/2012)
(Jeanette Boot). See also 3/22/2012 email from Peter Weiland, OCC, to Irvin Goldman, OCC, “I would like to
understand the increase in positions in credit,” JPM-CIO-PSI 0000410-411.
527
See 2013 JPMorgan Chase Task Force Report, at 42. See also 3/22/2012 email from Peter Weiland, OCC, to
Irvin Goldman, OCC, “I would like to understand the increase in positions in credit,” JPM-CIO-PSI 0000410-411
(reporting that the SCP’s notional iTraxx MN position had increased from $38.9 billion on March 7, 2012, to $45.7
billion on March 21, 2012, a $7 billion increase in two weeks); 3/22/2012 email from Julien Grout to the CIO
Estimated P&L mailing list, “CIO Core Credit P&L Predict [22 Mar]: +$82k (dly) -$276,990k (ytd),” JPM-CIO-E
00014689-691, at 691(reporting an additional purchase of iTraxx long positions totaling $5.65 billion).
528
JPMorgan Chase Task Force interview of Bruno Iksil, CIO (partial readout to Subcommittee on 8/27/2012).
529
JPMorgan Chase Task Force interview of Achilles Macris, CIO (partial readout to Subcommittee on 8/28/2012).