Trading Surges Boosted Whale’s Position Before JPMorgan Audits

Volume surges by London Whale could mean deeper problems for JP Morgan.

Jamie Dimon Jamie Dimon

July 24 (Bloomberg) -- Trading surges that temporarily boosted the value of credit derivatives held by JPMorgan Chase & Co. may provide clues about whether traders at the bank masked losses that have spiraled to $5.8 billion.

Spikes in late January and again at the end of February, which more than doubled the volume of trades in an index tied to the creditworthiness of companies, lowered the cost of the index, raising the value of the bank’s holdings. The surges came just before end-of-the-month bank audits to verify prices.

Investigators will want to look into whether traders tried to manipulate the price of an index to boost the value of holdings, said John Coffee, a securities-law professor at Columbia University Law School. Such actions resemble what’s called “painting the tape,” in which a trader engages in “purchases that are motivated only by a desire to influence a price in a thin market,” he said. Prosecutors and plaintiffs’ lawyers would need to prove intent, Coffee said.

IG9 Position

February Surge

In the last two days of February, trading volumes again ballooned to twice the quarterly average, fueling a 5-basis-point drop in the index even as the more active benchmark fell 1.4, Markit data show.

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