Bloomberg reports that, according to its sources outside the firm, a JPMorgan trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the $10 trillion market.
The trader is said to be London-based Bruno Iksil, who specializes in credit-derivative indexes - a market that during the past decade has overtaken corporate bonds to become the biggest forum for investors betting on the likelihood of company defaults.
Investors complain that Iksil’s trades may be distorting prices, affecting bondholders who use the instruments to hedge hundreds of billions of dollars of fixed-income holdings.
Though Iksil reveals little to other traders about his own positions, they say they’ve taken the opposite side of transactions and that his orders are the biggest they’ve encountered. Two hedge-fund traders said they have seen unusually large price swings when they were told by dealers that Iksil was in the market.
Bloomberg also reports that Iksil has become such a big client of credit-derivatives dealers that some started calling him Voldemort, the Harry Potter book-series villain so powerful he simply was referred to as 'He Who Must Not Be Named'. Iksil also has been dubbed the 'London whale'.
Although JPMorgan has said that the trades are part of the firm's hedgeing strategy, market participants feel that they have the look at proprietary punts, and the trades are now thought likely to force U.S. regulators to seek more detail on firm’ derivatives positions to help them distinguish risk management from speculation.
The news organisation also quotes Douglas Landy, a partner at law firm Allen & Overy, who said: 'I wouldn’t be surprised if the pro-Volcker folks used this as a test case'.
The Wall Street Journal reports that Kavi Gupta, a trader at Bank of America Merrill Lynch, sent a note to investors last week saying that 'hedge funds are accelerating wagers against 'the large long', or bullish investor'.
And The Financial Times quotes one unnamed credit hedge fund manager, who said: 'The risk in this kind of trade is always that one leg widens when you don't expect it to. The thing I'd be questioning, though, is why JPMorgan has such a big directional position when banks aren't supposed to be prop trading any more'.