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  • Topic: JPMorgan Chase, Risk, Credit derivative
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  • Published : March 18, 2013
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United States Senate

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman John McCain, Ranking Minority Member

JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES MAJORITY AND MINORITY STAFF REPORT

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS UNITED STATES SENATE

RELEASED IN CONJUNCTION WITH THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS MARCH 15, 2013 HEARING

SENATOR CARL LEVIN Chairman SENATOR JOHN McCAIN Ranking Minority Member PERMANENT SUBCOMMITTEE ON INVESTIGATIONS ELISE J. BEAN Staff Director and Chief Counsel ALLISON F. MURPHY Counsel ZACHARY I. SCHRAM Senior Counsel ELIZABETH V. BALTZAN Former Congressional Fellow ERIC S. WALKER Former Detailee HENRY J. KERNER Staff Director and Chief Counsel to the Minority BRAD M. PATOUT Senior Policy Advisor to the Minority STEPHANIE HALL Counsel to the Minority SCOTT D. WITTMANN Research Assistant to the Minority FERAS SLEIMAN Law Clerk TODD PHILLIPS Law Clerk

ADAM HENDERSON Professional Staff Member MARY D. ROBERTSON Chief Clerk

3/14/13 (9:30am)

Permanent Subcommittee on Investigations
199 Russell Senate Office Building – W ashington, D.C. 20510 Majority: 202/224-9505 – Minority: 202/224-3721 W eb Address: http://www.hsgac.senate.gov/subcommittees/investigations

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

TABLE OF CONTENTS
I. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Subcommittee Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Increasing Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Hiding Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Disregarding Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) Avoiding and Conducting OCC Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) Misinforming Investors, Regulators, and the Public . . . . . . . . . . . . . . . . . . . . . . . . C. Whale Trade Case History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. Findings of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Increased Risk Without Notice to Regulators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Mischaracterized High Risk Trading as Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Hid Massive Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) Disregarded Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) Dodged OCC Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) Failed Regulatory Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) Mischaracterized the Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Require Derivatives Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Require Contemporaneous Hedge Documentation . . . . . . . . . . . . . . . . . . . . . . . . . (3) Strengthen Credit Derivative Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) Investigate Risk Limit Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....
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