With the Volcker rule about to happen in July, the timing of bringing forward JPM’s whale trader is somewhat amusing. The trader so big, we can’t call him by his name, is fueling the prop trading debate. There is no point to worry, derivatives are just used for hedging purposes, and everything is netted out, so the “true” risk is almost zero, or? From Bloomberg.
JPMorgan Chase & Co. (JPM) trader Bruno Iksil’s outsized bets in credit derivatives are drawing attention to a little-known division that invests the company’s reserves and fueling a debate over whether banks are taking excessive risks with federally insured and subsidized money.
Iksil’s influence in the market has spurred some counterparts to dub him Voldemort, after the Harry Potter villain. He works in London in the bank’s chief investment office, which has assembled traders from across Wall Street to its staff of 400 who help oversee $350 billion in investments. While the firm describes the unit’s main task as hedging risks and investing excess cash, four hedge-fund managers and dealers say the trades are big enough to move indexes and resemble proprietary bets, or wagers made with the bank’s own money.
The trades, first reported by Bloomberg News April 5, stirred debate among U.S. policy makers over the Easter-holiday weekend as they wrangle over this year’s implementation of the so-called Volcker rule, the portion of the Dodd-Frank Act that sets limits on risk-taking by banks with government backing. The law passed after the collapse of the subprime mortgage market triggered the worst financial crisis since the Great Depression. (INDU)
“I wouldn’t be surprised if the pro-Volcker folks used this as a test case,” said Douglas Landy, a partner at law firm Allen & Overy LLP who is representing Canadian banks in opposing a current draft of the rule.
Full article here.
Must see video with Paul Volcker.