JPMorgan Just Cornered The Commodity Derivative Market, And This Time There Is Proof

Tyler Durden's picture

For years there had been speculation, rumor and hearsay that JPM had cornered the US commodities market. Now, finally, we have documented proof.

* * *

Traditionally, we look at the OCC's Quarterly Bank Report on derivatives activities to see which was the largest bank in the US in terms of total notional derivative holdings. The reason being that like on frequent occasions in the past, we find some stunning  results, such as most recently in January when we wrote that, for the first time, Citigroup had eclipsed JPM as the largest US bank in total derivatives, with just over $70 trillion compared to perennial megabank JPM's $65.3 trillion as of the third quarter of 2014, explaining also why Citigroup had drafted the Swaps push out language in the Omnibus Bill.


And while this time there was little exciting to report at the consolidated level (JPM overtook Citi in Q4 only for Citi to once again become the world's largest bank in total derivatives with $56.6 trillion compared to $56.2 trillion for JPM and $52 trillion for Goldman as Bloomberg reported earlier), and in fact total notional derivatives tumbled from $220.4 trillion in Q4 to $203.1 trillion in Q1 the lowest level since 2008... 

... an absolutely shocking blockbuster emerges when looking at the underlying component data.

Presenting Exhibit 12: Notional Amounts of Commodity Contracts by Maturity: even a CFTC regulator would be able to spot the outlier charted below.


What the chart above shows is that after fluctuating around the low to mid $200 billion range for the past 5 years, in Q1 the amount of Commodities with a maturity of under 1 year exploded to a record $3.9 trillion!

Sadly, the OCC provides no actual explanation for why there was such an epic surge in commodity derivatives within the US banking system in the first quarter, so we decided to explore.

What we found is what those who have for years accused JPM of cornering the commodity markets, have known: because it is none other than JPMorgan's Commodity derivative book primarily in the <1 maturity bucket, which exploded from just $131 billion to a gargantuan and never before seen $3.8 trillion!

In fact as the chart below shows, while historically JPM has accounted for just over 50% of total commodity holdings among all US commercial banks, in the Q1 this number soared to a stratospheric 96% which by anybody's standards is the very definition of cornering the market!


We don't know what prompted JPM's derivative book to soar to such a never before seen amount, but the number most certainly looks abnormal on both an absolute and a relative basis, especially considering that no other banks boosted their particular derivative book with the same vigor.

So what is going on here?

We decided to dig down some more when we encountered something even more perplexing. Because whereas in previous quarterly updates, the OCC broke out the FX and Gold categories as separate derivative items as seen in this most recent chart from the Q4 update...

... in Q1, once again quite inexplicably, the OCC decided to lump these two products together, thus making any credible observation about the total notional outstanding of just gold derivatives, impossible! But wait, we thought that according to former Chairman Bernanke, gold anything but currency: is the OCC suddenly disagreeing with that assessment?


Furthermore, while in all previous iterations of the OCC's Table 9, gold derivative notionals by maturity were explicitly broken out as can be seen in this Q4, 2014 table below:


Starting in Q1, 2015 the "gold" section in Table 9 no longer exists (although we can see that while JPM cornered "commodities", it was Citi that had its total derivative notional of "precious metals" undergo a massive jump, also for reasons unknown).

One would almost think the OCC is hiding something as the demand of US commercial banks. So while we no longer know what just total gold derivatives outstanding is, for some unexplained, reason, we do know that the combined total of FX and gold just hit an all time high.

* * *

And while the OCC did all it could to mask the "gold" line item by lumping it with FX, it still kept "Precious Metals" as is, although we assume that this too will be lumped with FX and gold shortly.

It is this chart that shows something is truly odd when it comes to the US commercial bank industry's activity in the precious metals space.


So in summary, this is what we do know:

  • in Q1, JPM cornered the commodity derivative market, with a total derivative exposure of just over of $4 trillion, an increase ot 1,691% from just $226 billion in one quarter!

What we don't know is:

  • why did the OCC decide to effectively eliminate its gold derivative breakdown by lumping it with FX,
  • why there was a 237% increase in the total amount of precious metals (which include gold) contracts in the quarter, from $22.4 billion to $75.6 billion

We have sent an email requesting much needed clarification from the Office of the Currency Comptroller, although we are not holding our breath.

Source: OCC’s Quarterly Report on Bank Trading and Derivatives Activities  First Quarter 2015

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
californiagirl's picture

It looks like some at JPM forgot their quarter end window dressing transactions.  Would love to see what those charts looked like a week before quarter end on a historical basis.

buzzsaw99's picture

the repo info should be out soon. can't wait for the latest fed criminal (tinfoil, in plain sight) conspiracy with tbtf banks to foil regulators info which hopefully will be forthcoming. of course they may just occ-lump-the-whole-mess-together with south american tangerine exports. the doj of course is very concerned about overseas bank fraud. lulz

theundergroundmovement's picture

It appears as though the high levels of "transparancy" set by the administration are catching on! 

Ignorance is bliss's picture

Fuck this...I'm buying a freezer the size of a coffin and putting a cow, a pig, and a bunch of chickens in there...and maybe some Gold at the case I need it.

Latitude25's picture

Animals preserve better when alive, especially if there's no electricity.

Ignorance is bliss's picture

I live few miles from a hydro-electric plant. A good freezer costs $300 with delivery. Annual electric cost should be around $100.

Animals require care and feeding. Big animals require pasture.  I'm considering rabbits and possibly egg laying chickens. Those should be relatively easy to maintain on an acre of woodland. I'll get a couple extra for loss due to disease and critters.

Back to Gold. If JPM chase is saving the Dollar by manipulating Gold with derivatives then the shit is hitting the fan. JPM is like a guy holding his hand to protect his face from an enormous spray of shittle blowing back at American hegemony.

Fukushima Fricassee's picture
Fukushima Fricassee (not verified) Jun 29, 2015 9:26 PM

Fuck your paper FED notes.

10mm's picture

Gold and Siver will figure it out. Brass and Lead will surpass. 

Soul Glow's picture

JPM owns all of the paper gold in the world.  Well when fiat crashes and they are told they are being paid in Zimbabwe dollars it'll suck to be them.

swmnguy's picture

Something like this should be a sign that not only is the whole charade about to collapse, it may already have and we just don't know yet.

But what it probably means is the rules just got changed again.

The problem with a system that uses completely imaginary money is that there really aren't any rules, necessarily. The rules are what the people running the game say they are, and they can chnage their minds anytime they want.

So while this should be a harbinger of imminent doom, and the fact that the price of PM's has done nothing should mean they are about to explode exponentially, this probably actually means nothing.

thecondor's picture

He who has the gold makes the rules. That's the golden rule. I wonderwhat you have when you only have paper gold? A naked Emperor?   

gimli's picture

So you post this article and Jaime sends a message to kill silver 

gimli's picture

I can hear his evil laughter......

gimli's picture

He sees dead people you know .......

gimli's picture

....... they all happen to be bankers

gimli's picture

......ex-bankers that is ........

TheReplacement's picture

He probably shorted them too (life insurance).

fromthinair's picture
fromthinair (not verified) Jun 29, 2015 9:34 PM

Here is the question for you ZeroHedge: Fine! you saw rape or attempted rape ... I don't know.. I have to believe you .... WHAT IS YOUR DUTY?

a. Stop the rape?

b. Argue whether it is flirtation, molestation or rape,

b. Wait for the doctor's report

What is your responsibility?

Latitude25's picture

Well the doctor is the rapist and has a gun to your head as he pokes you in the orifice.  What is your responsibility?

Latitude25's picture

So what does JPM do with $3.9 trillion in commodities contracts?  Inquiring minds want to know.

swmnguy's picture

Uninformed question: Is there some angle, some advantage to be gained, by having 50% short and 50% long on an astronomical number of contracts?  Or is there some unrelated issue that might be addressed by sinking that much fictitious money into such an arrangement?  The numbers don't seem to say what direction the positions are.

If I've missed something really obvious, please forgive and inform me.

Latitude25's picture

The only thing that naively springs to mind is that huge positions effectively control prices and kill any price discovery, like a patient in a coma.

swmnguy's picture

That's kind of what I was thinking.  Or maybe there's an enormous amount of fake money being pulled out of something else, and needs to be stashed somewhere that is never going to be looked at too closely because it's already a nest of ongoing intentional paper fraud anyway?  Like, I don't know, everything worth anything in Europe?  I don't know; I'm just making shit up now.  But when the worth of everything in the world is denominated in fictitious ones and zeroes, it's kind of hard to think cause/effect, or motivation.

Philo Beddoe's picture

Welcome to the JPM casino. 

Mr. Dimon, that is 57 Blackjacks in a row! Good playing. Would you like to play more? 

acetinker's picture

Yeah, and now, We the people introduce the 53rd card.

Ninety percent of this game is half mental.

Yogi said it, and I'll never forget it.

samsara's picture

And with those large numbers they could change it to 45% + 55% one way and the other.   It would be a smallish change to their portfolio but with those numbers, they would swamp everyone else.

besnook's picture

when you do the coin flip stat 101 exercise you will notice it hardly ever comes out perfectly 50/50. the one or two point difference is worth billions.

fiatmasochist's picture

I'm trying to figure that out, too. So far, thinking new algorithm for HFT trading in the carry-trade: is there a way to 'park' your position in GLD on your way from position A to position B and skim a profit?  OTOH, anything to do with a scramble for GLD position in the SDR?

Omega_Man's picture

Maybe they bought all the etf's to the upside like NUGT USLV etc to offset their shorts as they know it's gonna blow soon. Or maybe some other things are in that figure that is miscategorized - like loans to gold mines, gold mining shares.


Can debt financing of mines be considered a derivative if it is repackaged somehow? 

Is silver wheaton a derivative of sorts?

Certainly they want to own all the gold mines - at least in the western world. 

No one ever reports of these fuks scooping  up mining shares for nothing when the gold prices are smashed, or  lending to mines when the price is down

Omega_Man's picture

with a trillion of future contracts or gold in the ground USA can then say they actually have 8000 tons when the next Bretton Woods starts.

Omega_Man's picture

by buying mines they can show no open interest. Akin to nationalizing them

pocomotion's picture

Can someone tell me what the hell is going on in three words or less?

Chipped ham's picture

When they "flip the switch" off will be on and on will be off.

Didn't JPM just pile up a bunch of silver too? Why?

Not My Real Name's picture

Hold on ... that's 14 words -- and 25 if you count your follow-up questions.

(Good thing ZeroHedge dumped the math captcha.)

daedon's picture

That switch has already been flipped.

eddiebe's picture

Pocomotion, here is your answer: You're getting fucked.

loveyajimbo's picture

Great opportunity for China or Russia to blow away the vile maggots at JPM, i.e. the US treasury Dept.

q99x2's picture

Oops thar goes the Chinese retail investor again. Shanghied -1.7%

MollyHacker's picture

I didn't have to dig to long before I found this at the OCC

"NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations increased $147 billion (41%) to $502.9 billion in the first quarter.2 The very large increase in NCCE reflects the introduction of capital requirements for exposures to central counterparties. Until the first quarter of 2015, banks did not hold capital against central counterparty exposures".

Exposure to what???

The risk according to the OCC charts is rising rapidly.


Latitude25's picture

And what are central counterparty exposures?

MollyHacker's picture

Any risk
And future commodity contracts are as good as gold?

It's the leverage to the underling asset that counts on paper.., at 10x

Comex/LBMA sells them (keep thinking Greece this time (ECB lease)) although they can settle in cash as necessary:)

TeethVillage88s's picture

Interesting point of which I know nothing at all. Thanks.

I will paste this tidbit since we know the Strategy is Bail-ins and Bail-Outs in future crisis.

- 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)

Omega_Man's picture

Perhaps they are funding the US governement with this cash

acetinker's picture

Anyone who didn't see this coming, is a certified idiot.

It's not that I wish to harm you- On the other hand, yer still a fkn idiot, there can be no denyin'.