J.P. Morgan's situation is complicated by the fact that it controls a big percentage of the outstanding trades on the index. According to data from IntercontinentalExchange Inc., which operates a clearinghouse for credit derivatives, positions on the index amount to about $785 billion. That figure doesn't reflect all trading activity in the index because many derivative trades aren't put through a clearinghouse. Any move by J.P. Morgan to sell positions could further drive down their value, traders say.
The company is holding derivative wagers with a face value of roughly $100 billion in a derivative index tracking the health of corporate debt, according to a person familiar with the bank's trading. These wagers include long and short positions, or bets that index will either rise or fall, from various parts of the firm.
The Office of the Comptroller of the Currency, which oversees the J.P. Morgan unit that made the trades, says it has roughly 70 people monitoring the bank's trading activities. But the outsize bet failed to raise alarms at the regulator as of late April, just weeks before the firm revealed its $2 billion trading loss.
On an April 13 conference call, J.P. Morgan Chief Financial Officer Douglas Braunstein, referring to trades put on by the so-called London whale, said that "all of those positions are fully transparent to the regulators."
Edited by SemiBizz, 19 May 2012 - 01:13 PM.
