JPMorgan Trader Accused Of "Breaking" CDS Index Market With Massive Prop Position

Tyler Durden's picture


Earlier today we listened with bemused fascination as Blythe Masters explained to CNBC how JPMorgan's trading business is "about assisting clients in executing, managing, their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities." You know - provide liquidity. Like the High Freaks. We were even ready to believe it, especially when Blythe conveniently added that JPM has a "matched book" meaning no net prop exposure, since the opposite would indicate breach of the Volcker Rule. ...And then we read this: "A JPMorgan Chase & Co. trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the multi-trillion dollar market, according to traders outside the firm." Say what? A JPMorgan trader has a prop (not flow, not client, not non-discretionary) position so big it is moving the entire market? And we are talking hundreds of billions of CDS notional. But... that would mean everything Blythe said is one big lie... It would also mean that JPMorgan is blatantly and without any regard for legislation, ignoring the Volcker rule, which arrived in the aftermath of Merrill Lynch doing precisely this with various CDO and credit indexes, and "moving the market" only to blow itself up and cost taxpayers billions when the bets all LTCMed. But wait, it gets better: "In some cases, [the trader] is believed to have “broken” the index -- Wall Street lingo for the market dysfunction that occurs when a price gap opens up between the index and its underlying constituents." So JPMorgan is now privately accused of "breaking" the CDS Index market, courtesy of its second to none economy of scale and fear no reprisal for any and all actions, and in the process causing untold losses to, you guessed it, its clients, but when it comes to allegations of massive manipulation in the precious metals market, why Blythe will tell you it is all about "assisting clients in executing, managing, their risks." Which client would that be - Lehman, or MFGlobal? Perhaps it is time for a follow up interview, Ms Masters to clarify some of these outstanding points?

From Bloomberg:

The trader is London-based Bruno Iksil, according to five counterparts at hedge funds and rival banks who requested anonymity because they’re not authorized to discuss the transactions. He specializes in credit-derivative indexes, an off-exchange market that during the past decade has overtaken corporate bonds to become the biggest forum for investors betting on the likelihood of company defaults.


Investors complain that Iksil’s trades may be distorting prices, affecting bondholders who use the instruments to hedge hundreds of billions of dollars of fixed-income holdings. Analysts and economists also use the indexes to help gauge interest rates that companies must pay for new credit.


Though Iksil reveals little to other traders about his own positions, they say they’ve taken the opposite side of transactions and that his orders are the biggest they’ve encountered. Two hedge-fund traders said they have seen unusually large price swings when they were told by dealers that Iksil was in the market.

So how long until Bruno Iksil, and his massive one way bet, becomes the next Glenn Hadden, or the next Howie Hubler, or the next Boaz Weinsten? And how long until US taxpayer have to bail him out, either with direct rescue money, or with commingled deposits used to plug trading losses? Because MFGlobal was just an appetizer as to how JPM operates with "segregated" money.

Repeating the punchline again, because it bears repeating.

In some cases, Iksil is believed to have “broken” the index -- Wall Street lingo for the market dysfunction that occurs when a price gap opens up between the index and its underlying constituents, the people said. The persistence of price dislocations has frustrated some hedge funds that were betting on the gap to close over time, the people said.

And that, for those confused, is how JPMorgan operates: they lie about everything, fully aware they have perpetual immunity because they are more powerful than the Fed (just recall Jamie Dimon's symbolic spitting in the face of Ben Bernanke), they are a tri-party repo dealer thus in the center of the entire shadow banking system, and have the biggest single-bank derivative exposure in the world, at $70 trillion as of December 31.

JPMorgan is modern finance.

And because of they they can and will get away with everything, lying on prime time TV most certainly included.

Yet while JPMorgan may manipulate the gold, silver, or any other market, for its or the Fed's agenda, there is a silver lining: it allows everyone to buy physical assets at artificially deflated paper spot prices. And for that, JPM should be thanked. Because until the grand reset takes place, JPMorgan will never be held accountable for any of its actions in the current status quo regime. Period.

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Thu, 04/05/2012 - 21:22 | 2321043 Miss Expectations
Miss Expectations's picture

It would be difficult to invent an more Dickensian name than Blythe, um, dominatrixish.

Thu, 04/05/2012 - 21:30 | 2321067 Zero Govt
Zero Govt's picture

she's a very sick woman surrounded by even sicker men ..banking just doesn't get any better than that

Thu, 04/05/2012 - 22:09 | 2321159 ekm
ekm's picture

I remember there was a Lehman woman manager who appeared on CNBC only days before it pulverized. She said that Lehman was...strong,,,great and all good things.

Thu, 04/05/2012 - 23:58 | 2321290 XitSam
XitSam's picture

And was it Ken Lay touting the stabilty of Enron at same time it was tanking?  And now Blythe and Ben ...

Fri, 04/06/2012 - 00:07 | 2321302 ekm
ekm's picture

Something is about to happen.....................

Thu, 04/05/2012 - 21:27 | 2321059 ekm
ekm's picture

Same as in communism. The more they interevene the more they do idiotic moves, the more they don't know what they are doing they more they think they will never get caught.

Greece seems to have something to pay on April 20 nd another payment on May 12.

Athens News says that the greek gov has stolen the money unversities had deposited in greek banks.

Bernanke and Dimon have a meeting.

Something is getting close to happening. Remember, government think they can control everything until.........they can't. Then............ Niagara Falls.

Thu, 04/05/2012 - 22:09 | 2321158 brettd
brettd's picture

At some point, I wonder when the many decent CEO/leaders in america are going to start stepping up 

and taking a stand against the insanity.  There are plenty of people who are NOT schmucks.

Thu, 04/05/2012 - 22:13 | 2321162 ekm
ekm's picture

Right now there is Central Planning of the Economy but NOT Central Planning of Life ...yet.

Should Obama win in Nov, you americans may end up like us here in Canada and most of people in Western Europe, a partial central planning of life. It starts with the odious Universal Health Care.

November is the make a right turn.

Thu, 04/05/2012 - 23:17 | 2321243 Atomizer
Atomizer's picture

Nice observation.

Thu, 04/05/2012 - 23:20 | 2321247 ekm
ekm's picture

Thx but it is more than that. Its life experience.

Thu, 04/05/2012 - 21:30 | 2321068 steelhead23
steelhead23's picture

OK, I readily admit that I don't wholly grasp what's going on here, but if Bruno is placing huge bets on corporate failures, why would any corporation in the world do business with JPM?  I mean, to do business with JPM, you have to show them your books.  If you have lots of assets but bad cash flow (takeover target) and went to JPM for a line of credit, you could suddenly find your stock price declining (Bruno would short you), making you an even more tempting takeover target?  And dear God, combine this with JPM's ability to move the stock markets using money borrowed from the Fed (I understand they are taking used toilet paper as collateral).  Also, some rubes over at MarketTicker believe a stock market crash is imminent.  Wouldn't JPM stand to own the universe if Bruno bet the house that the stock market would crash?  Uh, is this legal?

Thu, 04/05/2012 - 21:38 | 2321089 ekm
ekm's picture


What kind of question is that? Is it legal????

JPM thinks

Thu, 04/05/2012 - 21:52 | 2321118 Marginal Call
Marginal Call's picture

I'm curious to what his prop position is and why he's in CDS.  The CDS market has a confidence issue after MF Global and Greece, everyone in the world knows they are virtually worthless.  So who's his target?  Who's he trying to liquidate?

Thu, 04/05/2012 - 22:07 | 2321154 ekm
ekm's picture

I'm thinking JPM want to lure in and liquidate greek bond holdouts.

Fri, 04/06/2012 - 11:34 | 2322240 NotApplicable
NotApplicable's picture

Everybody not in the club.

Thu, 04/05/2012 - 21:30 | 2321069 ekm
ekm's picture

And for those who thing that the Banking Industry runs the White House, this should prove them wrong.

The Military Industry runs the WH and the Banks.

Fri, 04/06/2012 - 06:56 | 2321553 Ace Ventura
Ace Ventura's picture

The BANKS OWN the Military Industry and the WH.

There, fixed it for ya.

Fri, 04/06/2012 - 10:44 | 2322089 RallyRoundTheFamily
RallyRoundTheFamily's picture

Wow I guess there is your answer on how they will deal with the rioting.

Thu, 04/05/2012 - 21:31 | 2321072 Goldilocks
Goldilocks's picture

Rush~roll the bones (6:10)

Thu, 04/05/2012 - 21:43 | 2321104 peekcrackers
peekcrackers's picture

plus 1 goldilocks .. I am rush Fan

Fri, 04/06/2012 - 11:38 | 2322247 NotApplicable
NotApplicable's picture

Funny, reading this article, and the thread has "The Temples of Syrinx" in my head.

We've taken care of everything...

Thu, 04/05/2012 - 21:31 | 2321075 Benjamin Glutton
Benjamin Glutton's picture

oops...nothing short of a Dimon/Obama beer summit at 40,000 feet aboard Air Force One could solve this PR nightmare.



Thu, 04/05/2012 - 21:31 | 2321076 sitenine
sitenine's picture

I think I'm going numb.

Can someone remind me again why there are no bankers in jail?

Thu, 04/05/2012 - 21:42 | 2321102 ss123
ss123's picture

Too Big to Jail

Thu, 04/05/2012 - 21:54 | 2321129 Marginal Call
Marginal Call's picture

We privatized the prisons.  The bankers now employ the jailors. 

Thu, 04/05/2012 - 21:55 | 2321130 DollarMenu
DollarMenu's picture

The bankers write the laws,

the bankers own the prosecutors,

the bankers place the judges.

Did I miss anything?

Thu, 04/05/2012 - 22:01 | 2321141 logicalman
logicalman's picture

Because banksters make the rules

Haven't you figured it out yet?!

Thu, 04/05/2012 - 21:36 | 2321085 neevarp
neevarp's picture

Who else hates the senseless comments followed with the "bitchez" terminology over here?

Thu, 04/05/2012 - 21:59 | 2321135 DollarMenu
DollarMenu's picture

It is unique to ZH, almost since day 1.

Get used to it.

It will not go away.


Fri, 04/06/2012 - 01:16 | 2321352 Zgangsta
Zgangsta's picture


Thu, 04/05/2012 - 22:04 | 2321148 sof_hannibal
sof_hannibal's picture

End game snitchez.

Thu, 04/05/2012 - 22:58 | 2321218 zanez
zanez's picture

It's the ZH signature comment. Is nearly always funny to someone.

Thu, 04/05/2012 - 23:18 | 2321245 Dingleberry
Dingleberry's picture

Not me....bitchez.

Fri, 04/06/2012 - 02:12 | 2321397 putaipan
putaipan's picture

long senseless comments female doggies !!!!

(someone projected a 1000 plus comments on the previous blythemaster post....and then the HEADLINE ..... curious lack of interest. thnx tylers-but unless nancypelosi gets caught with her panties stuck in her mouth-)

Fri, 04/06/2012 - 11:40 | 2322253 NotApplicable
NotApplicable's picture

Go whine elsewhere.

BTW, do you always make a habit of insulting your hosts?

Thu, 04/05/2012 - 21:40 | 2321096 non_anon
non_anon's picture

the elusive "Higgs Boson" has been discovered at JPM.

Thu, 04/05/2012 - 21:42 | 2321101 ss123
ss123's picture

Joe Public doesn't care as long as his steady stream of free S.N.A.P. pea meals keep coming.

Thu, 04/05/2012 - 21:49 | 2321114 centerline
centerline's picture

Correct.  But, little does Joe Public realize is that a-holes like JPM are gambling with his pea meal credits.  In fact, they already blew his pea meal credits long ago and are just kiting checks to cover the losses now.

Fri, 04/06/2012 - 11:43 | 2322263 NotApplicable
NotApplicable's picture

I'm going to start up a sign company to produce all of those SNAP/EBT Accepted Here! signs I see going up everywhere.

It's the only true growth industry I see at the moment.

Thu, 04/05/2012 - 21:48 | 2321110 peekcrackers
peekcrackers's picture

"Yet while JPMorgan may manipulate the gold, silver, or any other market, for its or the Fed's agenda, there is a silver lining: it allows everyone to buy physical assets at artificially deflated paper spot prices."


 On Sale hookers .. Get it while you can .. dont forget your ammo and scotch

Thu, 04/05/2012 - 21:50 | 2321115 whoopsing
whoopsing's picture

You Break It You Bye It

Thu, 04/05/2012 - 21:50 | 2321116 tony bonn
tony bonn's picture

these revelations about satan's asshole....i mean jpm are not shocking but fascinating nonetheless.....that rules are for the little people certainly provides mammon with an escape clause...

"....The persistence of price dislocations has frustrated some hedge funds that were betting on the gap .." [emphasis added]

and thus we find the problem - the operative word being is casino economics and tax payers have to bail out these is long past time for a tax payer revolt....these creeps will crash and burn - let them do so...


Thu, 04/05/2012 - 21:53 | 2321120 WhiteNight123129
WhiteNight123129's picture

Aside from monetary value, what would be the entertainment value of throwing half a physical metric ton of Silver on Iksil's desk? He can throw back 0101 electronic Silver back on ours, are we scared Bitchez?...... That's what I thought, I guess we are not.

Thu, 04/05/2012 - 21:54 | 2321123 ebworthen
ebworthen's picture

After Corzine, why would they fear breaking any rule or law?

The gumshoe rubber-stamp detectives of law enforcement are busy on Snipe hunts and chasing down Leprechaun sightings so what does the J.P. Morgue have to fear?

Thu, 04/05/2012 - 21:59 | 2321136 brettd
brettd's picture



Fri, 04/06/2012 - 02:18 | 2321401 putaipan
putaipan's picture


(brought to you by the committee to elect the "other mormon")

Thu, 04/05/2012 - 22:00 | 2321138 FranSix
FranSix's picture

OT:  Gold miners willingly drop their drawers to get spanked by the banks:

Thu, 04/05/2012 - 22:02 | 2321143 ZeroPower
ZeroPower's picture

Oh shit, he's balls deep in MAIN is he? Maybe in XOver?

Fact of the matter is, these (index) CDS markets are so fucking liquid it would indeed literally take "hundreds of billions" to move that shit in a way that would make others squirm. And theres no way one guy can have that much on, i dont care if he's a jr trader or the desk MD for hybrids trading... unless of course he's going rogue a la UBS style (delta one anyone?).

Granted, the JPM faucets do drip quite extensively..

Thu, 04/05/2012 - 22:04 | 2321147 Atomizer
Fri, 04/06/2012 - 00:12 | 2321310 JW n FL
JW n FL's picture




Food for thought ZH family…

MF Global's Two Trustees Showing Signs of Disagreement

Great! Grab!! Thanks!!!

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