JP Morgan Breaks The Markets

How many of you remember the time that the massive global brokerage firm MF Global collapsed due to mismanagement and what many believe is reckless decision-making designed to enrich a small minority? Or what about Kweku Adoboli, the “rouge” UBS trader who managed to managed to lose the firm 2 billion dollars last year betting on European equities? Before that there was Jerome Kerviel, the Societe Generale trader who lost nearly 5 billion euros, though he claims that his actions were encouraged by the company and the practices for which he was convicted were widespread among the SG traders and well known by management.

Some might say it is easy to cherry pick bad-apples within an industry as large as international finance. Regulators will always say that hindsight is 20/20 and the cases look easy only when looking backwards. When the case is in front of you, before any wrong-doing is clear, it is much harder. This may be true. I am not a financial regulator. But here are some names the people who DO regulate the securities industry might want to look at a bit more closely: JP Morgan and Bruno Iksil.

See, investors are a little frustrated because apparently Mr. Iksil, a derivatives trader at JP Morgan, has amassed positions so enormous that he can actually control the direction of the 10 trillion dollar derivative marke(yes, trillion, with a t). A single individual being able to distort market prices at will is generally frowned upon within the investor community and as a result there has been a bit of brouhaha.

According to Bloomberg, Mr. Iksil’s trades actually go beyond mere market manipulation, but have even managed to break several credit indexes by causing the price of the indexes themselves and their underlying credit-default swaps to become decoupled.

Huge credit index positions are exactly what caused Merrill Lynch to blow up in 2008 and need an emergency rescue from Bank of America. But the Bloomberg article mentions that Mr. Iksil is making it rain to the tune of 100 million a year for JP Morgan, so it’s unlikely that they will make the music stop anytime soon, unless Bruno fucks up and ends up facing criminal charges as a “rogue trader” the same way Adoboli and Kerviel did.

JP Morgan, of course, is the same firm that has caught heat in recent years for what many believe is the rather convincing evidence that they have had a significant role in manipulating global silver prices.