129823520724687500_416"London whale" why ran aground: small friction loss "self-mutilation" version
JPMorgan Chase the huge losses that may not like the media. JPMorgan Chase for over-the-counter derivatives trading giant losses since the beginning of the case, most of the media losses attributed to it by JPMorgan and hedge funds "bet", and move the focus point to which a nickname called "London whale" traders Iksil. But a few days ago a hedge fund manager (pseudonym h.F.) has disclosed to the Business Journal of the different versions. "London whale ' is not the name of a trader, but the whole deal contract code. "H.F. said," hedge funds have not kept pace with the Bank ' bet '. In our opinion, are problems with internal control of JPMorgan Chase. "On May 17, the Hong Kong, China held a gathering of hedge fund managers in the world"Hedging viewpoints" Forum, after the H.F. when communicating with reporters to disclose, some media giant JPMorgan describes the deviation of the loss event. "London whale" origin of the deal began in February-March this year, JPMorgan to many hedge fund initiative to provide a synthesis of the credit derivative contract of deposit (Synthetic CredIt Derivatives), the contract was based on some kind of Greece debt derivatives as the base of the over-the-counter contracts. Put aside the technical details aside, this contract basically demands that JPMorgan Chase provides to the customer an amount not less than a ratio, assumed to be no less than 7% fixed income �C if Greece debt derivatives yields more than the ratio, JPMorgan requiredPay interest on the excess. Many hedge funds have purchased these products, but they are worried about Greece debt in case of default, income insecurity. To this end, JPMorgan Chase was also issued to the customer and Greece debt-related CDS, as soon as Greece debt reached breach of conditions stipulated in the contract, JPMorgan Chase will provide income protection. As to price, hedge funds have to payCertain premiums.
In other words, if Greece debt does not have default, hedge fund is the guaranteed minimum index of customer 7% fixed income less the portion of the premium cost, total income of less than 7%. From the design of the entire contract, JPMorgan Chase is in gambling as a baseline indicator of Greece debt derivatives yield will be provided to the customers consistently exceeding its guaranteed minimum interest rates, it can be at this rateRush funds into the money.
H.F. said that before accepting the above over-the-counter, hedge fund company made a lot of in-depth research, Greece may conducted a situation analysis of the trend of Treasury bonds, just the relevant formula is comparable to an IPO Prospectus, ultimately feel that this is a more secure investment programme, with JP Morgan to do transactions. But he did not thinkJPMorgan will have accumulated a large number of such contracts, with dozens of them doing a counterparty, even the Investment Bank of Goldman Sachs and Bank of America that eventually involved. This type of contract transaction amount so big, so the industry some people simply use "London whale" as performed by the transaction code Iksil--traders trading with the contract has a certain degree of level, So it is then also possible the media refer to him as "London whale" reasons. Hedging policy blunders from the whole deal, hedge funds and there is no bet. H.F. say: "return on our starting point is that the transaction was very nice, would like to earn a little interest. "Delivery rate of only partially due to such transactions in cash, and leverage available, it isTo hedge funds of all ages.
H.F. said earlier this year, there is no investment products on the market, European debt problems have been hanging in there, great market fluctuations, it is difficult to have a clear strategy
Diablo 3 gold, and JPMorgan to provide contract corresponds to a certain guaranteed fixed income, be approved. "We want to be, Greece always in such a long time mayGovernment bonds when yields rise, so there should be additional opportunities to earn income. At least I have not ' gamble ' Greece debt default. In fact, I do not believe that Greece would default or leave the eurozone--to this day are not entirely sure about it.
"He said. At the beginning of trading, JPMorgan Chase in a good position; however, are later EuropeIsland Councils sudden turmoil, Greece rising bond yields, synthesis credit deposit contract benchmark index rallied above, to the disadvantage of JPMorgan Chase. Normally, at the beginning of trading
Rift CD-key, JPMorgan Chase has to consider hedging Greece risks of bond yields soar. It related to the need to buy Greece debt to meet fixed income position; on the other hand, because of itsSelling CDS, Greece debt default risk recruiting upper body, so it is necessary to look for related tools on the market to hedge. Not sure JP Morgan early the two hedge and hedging positions. H.F., to be sure, JPMorgan Chase was using the wrong hedge. It is learnt that the JP Morgan could use other synthetic derivative tools, Before hoping to offset hedge funds with the contract.
But because of the two different risk coefficients of product
Rift Platinum, combined with its hedging tool itself in the OTC markets lacked liquidity and therefore cannot perform to a large extent, there is no way to hedge against risks of contracts in early. "Run into such situations, the best way is to stop as soon as possible, rather than hedging.
"H.F. said. For foreign mediaCDX.NA.IG.9 of disclosure and the role of, H.F. because you do not know the specific case, declined to comment.
But he pointed out that the CDX tool is the synthesis of corporate bonds, derivatives, if it is used to hedge debt derivatives, no way. CDX. NA. IG.9 is one of the services financial data firm Markit indices, Where the NA representatives in North America, IG representative investment-grade (Investment Grade) corporate bond, 9 for the 9th generation. Quite interesting is, according to the information provided by Markit, CDX. NA. IG.9 is the index of September 2007 is already on the line, date of issue long before the global financial crisis, beginning with125 companies, even including the later accident United States "two rooms" and CIT Group, and Washington Mutual Inc., so currently only 121 companies.
But from the viewpoint of disclosure, the products are less likely to become JPMorgan hedge "London whale" contract tool. Loss or forcing JPMorgan Chase setFunding now JPMorgan Chase before the problem is severe, as the Greece situation deteriorated, international credit rating company Fitch recently downgraded Greece's sovereign rating to CCC level, only a step away from the junk. As soon as Greece debt fall into the spam rating, hedge fund will require higher compensation for JPMorgan Chase on a CDS contract. Hong Kong media was recently disclosed data, mogendaPass floating losses had reached $ 7 billion. As Greece bond yields soaring, JPMorgan floating losses or will continue to expand, but how much deficit, also subject to hedge fund clients when the above contract.
If hedge funds do not disassemble this deal, JP Morgan losses can in theory with Greece has been the deterioration of the situation to increase. From the whole deal, MorganChase the main error is: first of all, it OTC transactions throughout the dish too, turning themselves into difficult to slaughter "whale" and, secondly, it did not stop in time, but not before the related hedging instruments to hedge positions, which may cause the loss. H.F., to calculate the JPMorgan total actual losses are difficult. Although, asCounterparty positions of hedge funds according to their estimated losses on the transactions of JPMorgan Chase, JPMorgan Chase is not known but the internal positions and policies. But one thing is almost certain, this event is not understood by the outside world a trader's problems, because a similar implementation of large positions accumulated and hedging strategies, require higher levels of review and approval�� Hong Kong Capital hedge fund fellow "hedging perspective" said after the meeting, with different risk coefficients and the lack of liquidity of the tools do hedge, hedge was not there, and probably damaged two. Like JPMorgan Chase, impossible to make such mistakes. "If it really takes a similar action, and certainly is a problem in the management, because it is notIs that a trader can do.
"The researcher said. H.F. do not think the Bank will recover, after all, it is the United States largest commercial banks, thick, and a good relationship with the Government, is to lose some money. But he predicted JPMorgan Chase if unable to open in time, is likely to raise funds, estimated at $ 10 billion or moreAnd it might give its competitors or those sovereign investment funds create some opportunities.
As regards hedge funds, H.F. expressed no interest in buying bank stocks, "bank stocks not currently popular." Be marked with the "h" and "bet" label of hedge funds, H.F. feel a little for their grievances, the whole event like JPMorgan Chase in "self-mutilation". But there is no doubtThis will increase the supervision of regulators on the whole industry. "None of our business? We just want to get fixed income. And because of this incident and regulatory strengthening, not good for us. "He said.
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