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JPMorgan's (JPM) investment bank reportedly took relatively small but opposite positions to the...

JPMorgan's (JPM) investment bank reportedly took relatively small but opposite positions to the CIO's office in the latter's $6.2B trading fiasco. JPM managers spoke about combining the two positions to help offset the losses prior to the CIO  trades becoming public. "London Whale" Bruno Iksil and boss Javier Martin-Artajo complained internally about the investment bank in the spring of 2012 and accused it of intentionally trying to move the market against the CIO's positions.
Comments (2)
  • This is why JPM should never have allowed two sets of traders (CIO and flow desk) to trade the same product in different books. If CIO had been required to execute their trades through the flow desk, then the IG 9 position would never have gotten as big as it did - there would have been a second set of eyes on the whole process. It would also have eliminated the problem of two sets of traders marking the same index and coming up with slightly different numbers. I still can't understand why the IG 9 flow trader didn't sense that CIO was heavily influencing the index (and raise the issue with management) - but hindsight of course is 20/20.

     

    While it's surprising that JPM would have made such elemental mistakes, there is a bright side to all this. My guess is that every other bank has gone back to scrub their CDS trading operations to make sure they don't have similar problems lurking below the surface. Nothing, absolutely nothing, can lose you money faster than a few bad derivatives trades, so to the extent that some of the tail risk has been taken out of the system then perhaps we're all better off.
    30 Jan 2013, 07:26 AM Reply Like
  • Thanks Joe, excellent point.
    30 Jan 2013, 08:26 AM Reply Like
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