S. Hrg. 113–96 

JPMORGAN CHASE WHALE TRADES: 

A CASE HISTORY OF DERIVATIVES 

RISKS AND ABUSES 

HEARING 

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

VOLUME 2 OF 2 

MARCH 15, 2013 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

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( 
OF DERIVATIVES RISKS AND ABUSES—VOLUME 2 OF 2 

JPMORGAN CHASE WHALE TRADES: A CASE HISTORY 
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85–162 PDF 2013

S. Hrg. 113–96 

JPMORGAN CHASE WHALE TRADES: 

A CASE HISTORY OF DERIVATIVES 

RISKS AND ABUSES 

HEARING 

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

VOLUME 2 OF 2 

MARCH 15, 2013 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

RICARD J. KESSLER, Staff Director 

KEITH B. ASHDOWN, Minority Staff Director 

TRINA D. SHIFFMAN, Chief Clerk 

LAURA W. KILBRIDE, Hearing Clerk 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

CARL LEVIN, Michigan Chairman 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

KELLY AYOTTE, New Hampshire 

ELISE J. BEAN, Staff Director and Chief Counsel 

ZACHARY I. SCHRAM, Senior Counsel 

ALLISON F. MURPHY, Counsel 

HENRY J. KERNER, Minority Staff Director and Chief Counsel 

STEPHANIE HALL, Minority Counsel 

MARY D. ROBERTSON, Chief Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Levin .................................................................................................... 1 

Senator McCain ................................................................................................ 7 

Senator Johnson ............................................................................................... 9 

Prepared statements: 

Senator Levin .................................................................................................... 91 

Senator McCain ................................................................................................ 98 

WITNESSES 

FRIDAY, MARCH 15, 2013 

Ina R. Drew, Former Head, Chief Investment Office, JPMorgan Chase & 

Co., New York, New York .................................................................................... 10 

Ashley Bacon, Acting Chief Risk Officer, JPMorgan Chase & Co., New York 

New York .............................................................................................................. 12 

Peter Weiland, Former Head of Market Risk, Chief Investment Office, 

JPMorgan Chase & Co., New York, New York .................................................. 13 

Michael J. Cavanagh, Head of JPMorgan Chase & Co. Management Task 

Force Reviewing CIO Losses, and Co-Chief Executive Officer, Corporate 

& Investment Bank, JPMorgan Chase & Co., New York, New York .............. 28 

Douglas L. Braunstein, Current Vice Chairman, Former Chief Financial Officer (2010–12), JPMorgan Chase & Co., New York, New York ......................... 30 

Hon. Thomas J. Curry, Comptroller of the Currency, U.S. Department of 

the Treasury ......................................................................................................... 61 

Scott Waterhouse, Examiner-in-Charge, OCC National Bank Examiners— 

JPMorgan Chase, Office of Comptroller of the Currency ................................. 62 

Michael Sullivan, Deputy Comptroller for Risk Analysis, Risk Analysis Department, Office of the Comptroller of the Currency ........................................ 63 

ALPHABETICAL LIST OF WITNESSES

Bacon, Ashley: 

Testimony .......................................................................................................... 12 

Prepared Statement ......................................................................................... 108 

Braunstein, Douglas L.: 

Testimony .......................................................................................................... 30 

Cavanagh, Michael J.: 

Testimony .......................................................................................................... 28 

Prepared Statement ......................................................................................... 117 

Curry, Hon. Thomas J.: 

Testimony .......................................................................................................... 61 

Prepared Statement ......................................................................................... 129 

Drew, Ina R.: 

Testimony .......................................................................................................... 10 

Prepared Statement ......................................................................................... 101 

Sullivan, Michael: 

Testimony .......................................................................................................... 63 

Prepared Statement ......................................................................................... 129 

Waterhouse, Scott: 

Testimony .......................................................................................................... 62 

Prepared Statement ......................................................................................... 129 

Weiland, Peter: 

Testimony .......................................................................................................... 13 

Prepared Statement ......................................................................................... 111 
Page

IV 

APPENDIX 

Report by the Permanent Subcommittee on Investigations Majority and Minority Staff entitled ‘‘JPMorgan Chase Whale Trades: A Case History of 

Derivatives Risks and Abuses,’’ March 15, 2013 ............................................... 150 

EXHIBIT LIST 

1. a. Growth of Synthetic Credit Portfolio, chart prepared by the Permanent 

Subcommittee on Investigations ................................................................. 511 

b. Synthetic Credit Portfolio Daily Profits and Losses, chart prepared 

by the Permanent Subcommittee on Investigations ................................. 512 

c. Synthetic Credit Portfolio Aggregate Profits and Losses, chart prepared 

by the Permanent Subcommittee on Investigations ................................. 513 

d. Synthetic Credit Portfolio Risk Limit Breaches, chart prepared by the 

Permanent Subcommittee on Investigations ............................................ 514 

e. Value-at-Risk for the CIO (10Q VaR), chart prepared by the Permanent Subcommitteeon Investigations ......................................................... 515 

f. Inaccurate Public Statements on April 13, 2012, chart prepared by 

the Permanent Subcommittee on Investigations ...................................... 516 

g. Synthetic Credit Portfolio Internal Profits and Loss Reports, JanuaryMay 2012, chart prepared by the Permanent Subcommittee on Investigations ....................................................................................................... 517 

h. 2011 CIO Compensation vs. Investment Bank Comparables, chart prepared by the Permanent Subcommittee on Investigations ...................... 518 

i. Timeline: Key Events in JPMorgan Chase Whale Trades, chart prepared by the Permanent Subcommittee on Investigations ...................... 519 

2. JPMorgan Chase presentation slides, Chief Investment Office—Organization, April 2012. [JPM–CIO–PSI 0001875–876, 879–880, 885] .................... 522 

Documents Related to Increasing Risk: 

3. Testimony of Jamie Dimon, Chairman & CEO of JPMorgan Chase & 

Co., before the Senate Committee on Banking, Housing and Urban Affairs, June 13, 2012 (This strategy, however, ended up creating a portfolio 

that was larger and ultimately resulted in even more complex and hardto-manage risks. This portfolio morphed into something that, rather than 

protect the Firm, created new and potentially larger risks.) .......................... 527 

4. JPMorgan Chase/OCC internal email, dated July 2012, re: CIO: Response 

to Regulator Requests on NBIA, Risk Tolerance and Follow-up VaR model 

questions, attaching Chief Investment Office New Business Initiative Approval Executive Summary. [OCC–SPI–00081611 and Excerpt of OCC– 

SPI–00081631] .................................................................................................. 531 

5. JPMorgan Chase & Co. Audit Department Report, CIO Global Credit 

Trading (Chief Investment Office (CIO) credit trading activities commenced in 2006 and are proprietary position strategies executed on credit 

and asset backed indices.). [JPM–CIO–PSI–H 0006022–023] ....................... 553 

6. JPMorgan Chase Summary of Positions (01/03/2011—$4 billion; 12/30/ 

2011—$51 billion; 03/30/2012—$157 billion). [JPM–CIO–PSI 0037609] ..... 555 

7. JPMorgan Chase internal emails, dated January 2012, re: International 

Credit Consolidated P&L 09 Jan-2012 (Let’s review the unwind plan 

to maximize p l. We may have a tad more room on rwa. Pls schedule 

asap.). [JPM–CIO–PSI 0000075–078] ............................................................. 556 

8. JPMorgan Chase internal emails, dated January 2012, re: Meeting materials for 11am meeting attaching J.P.Morgan Core Credit Book Highlights, January 2012. (As of COB 16th January 2012 the CIO calculated 

Core Credit Book RWA was USD20.9bln; This compares to average 

USD40.3bln RWA for December 2011 provided by QR). [JPM–CIO–PSI 

0000098–101] .................................................................................................... 560 

9. JPMorgan Chase internal email, dated January 2012, re: Credit book 

Decision Table—Scenario clarification (The fourth scenario is our Target 

scenario and the one we are hoping to implement again by midyear.). 

[JPM–CIO–PSI 0000105–106] ......................................................................... 564 

10. JPMorgan Chase internal email, dated January 2012, re: credit book 

last version, attaching J.P.Morgan Core Credit Book Highlights, January 

2012. (The trade that makes sense.). [JPM–CIO–PSI 0000159–173] ............ 566 
Page

V 

11. JPMorgan Chase internal emails, dated January 2012, re: update on 

core credit book (the only one I see is to stay as we are and let the 

book simply die. That we should take some hits because the markets 

might create noise in the P&L is a certain reality. Yet, the control of 

the drawdown now is generating issues that make the book only bigger 

than notional.). [JPM–CIO–PSI 0001223] ...................................................... 581 

12. JPMorgan Chase internal email, dated January 2012, re: update on core 

credit book (. . . notionals become scary and upside is limited unless 

we have really unexpected scenarios. In the meantime, we face larger 

and larger drawdown pressure versus the risk due to notional increases. 

Please let me know the course of action I should take here.). [JPM– 

CIO–PSI 0001766] ............................................................................................ 582 

13. JPMorgan Chase internal email, dated January 2012, re: hello, quick 

update in core credit . . . (. . . we can show that we are not at mids 

but on realistic level. * * * I went I to ISMG and advised that we 

set the book for long risk carry the time for us to see whether we really 

need to fight in mars.). [JPM–CIO–PSI 0001229] .......................................... 583 

14. JPMorgan Chase internal emails, dated January 2012, re: Core book 

p&l drawdown and main exposures (The current strategy doesn’t seem 

to work-out. . . . the book doesn’t behave as intended.). [JPM–CIO–PSI 

0000221–223] .................................................................................................... 584 

15. JPMorgan Chase internal email, dated March 2012, re: priorities (If we 

need to [a]ctually reduce the book, we will not be able to defend our 

positions. . . . We need to win on the methodology and then the diversification.). [JPM–CIO–PSI 0001219] ............................................................. 587 

16. a. JPMorgan Chase internal email, dated March 2012 re: CIO Core Credit P&L Predict [20 Mar]: –$39,686k (dly) –$275,424k (ytd). (. . . the 

lag in P&L is material ($600–800M).). [JPM–CIO–PSI 0016487–489] ... 588 

b. JPMorgan Chase internal email, dated March 2012 re: International 

Credit Consolidated P&L 20-Mar-2012 (. . . the lag in P&L is material ($600–800M).). [JPM–CIO–PSI 0019474–486] .................................. 591 

17. JPMorgan Chase Transcript of Call, March 2012, between Martin-Artajo 

and Iksil, (. . . that’s why I tried sending this P&L I sent also the 

comments it came from Julien but I wrote it, where I said OK you 

know we take this loss, we are maintaining long risk where we have 

to be, the rally is on IG but guess what you know it’s lagging so much 

that actually we have to show loss, and I explained that this is a lag 

that keeps going, that amounts to a potential of 800 bucks. . . .). [JPM– 

CIO–PSI–H 0006392–400] ............................................................................... 594 

18. JPMorgan Chase internal email, dated March 2012 re: CIO Core Credit 

P&L Predict [22 Mar]: +$82k (dly) –$276,990k (ytd). (Today we sold 

protection. . . .). [JPM–CIO–PSI 0016499–501] ............................................ 603 

19. JPMorgan Chase internal emails, dated March 2012 re: I would like 

to understand the increase in positions in credit (Ina is freaking—really! 

Call me). [JPM–CIO–PSI 0000410–412] ......................................................... 606 

20. JPMorgan Chase transcript of instant message dated March 23, 2012 

(Bruno Iksil: this year for the first time, achilles started thinking i could 

be of use other than to make money . . . just to protect the whole group 

but here is the loss and it become too large and this is it. . . .). [JPM– 

CIO–PSI 0001240–246] .................................................................................... 609 

21. JPMorgan Chase transcript of instant message dated March 23, 2012 

(Bruno Iksil: . . .I am going to be hauled over the coals * * * you don’t 

lose 500M without consequences . . .). [JPM–CIO–PSI–H 0006438, 450– 

464] .................................................................................................................... 616 

22. JPMorgan Chase internal email, dated March 2012 re: Tranche Plan 

(Now that we have the new RWA increase, Ina would like to discuss 

the forward plan for reduction. She does not want any trades executed 

until we all discuss it.). [JPM–CIO–PSI 0001267] ......................................... 632 

23. JPMorgan Chase internal emails, dated March 2012, re: synthetic credit— 

crisis action plan (Clearly, we are in a crisis mode on this.). [JPM– 

CIO–PSI 0001220–222] .................................................................................... 633 

24. a. ‘London Whale’ Rattles Debt Market, April 6, 2012, The Wall Street 

Journal ......................................................................................................... 636 

b. JPMorgan Trader’s Positions Said to Distort Credit Indexes, April 

6, 2012, Bloomberg ...................................................................................... 638 

25. JPMorgan Chase internal emaisl, dated April 2012, re: Credit (A bit 

more than we thought). [JPM–CIO–PSI–H 0002276] .................................... 641 
Page

VI 

26. JPMorgan Chase internal email, dated April 2012, re: Net positions vs 

average trading volumes (The below table shows that CDX.IG.9 net position for CIO is $82.2bio, which is approximately 10–15 days of 100% 

of trading volume based on the 1m avg volume published by JPMorgan 

Research. ITX.9 net position for CIO is $35bio, which is approximately 

8–12 days of 100% trading volume based on the 1m avg volume.). [JPM– 

CIO–PSI 0001026–027] .................................................................................... 642 

27. OCC internal emails, dated May 2012, re: CIO call with Mike Brosnan 

(They took up a strategy to reduce their make believe voodoo magic ‘‘Composite Hedge.’’ . . .). [OCC–SPI–00021602–604] ............................................ 644 

Documents Related to Hiding Losses: 

28. Grout Spreadsheet, March 12–16, 2012. [JPM–CIO–PSI–H 00002812] ...... 647 

29. JPMorgan Chase internal emails, dated March 2012, re: update on Core 

PNL (The divergence has increased to 300 now). [JPM–CIO 0003475] ........ 648 

30. JPMorgan Chase internal emails, dated March 2012, re: Synthetic Book— 

URGENT (Option B: we settle with the IB . . . and have an impact 

on P/L that could be as large as –350MM.). [JPM–CIO–PSI 0000416] ....... 649 

31. JPMorgan Chase internal emails, dated April 2012, re: update (. . . if 

we exclude very adverse marks to our book the potential loss due to 

market moves or any economic scenario . . . would not exceed . . . –200 

MM USD. . . .). [JPM–CIO–PSI 0001429] .................................................... 650 

32. a. JPMorgan Chase transcript of call between Julien Grout and Bruno 

Iksil, dated March 16, 2012 (I can’t keep this going, we do a oneoff at the end of the month to remain calm. * * * I don’t know where 

he wants to stop, but it’s getting idiotic.). [JPM–CIO–PSI–H 0003820– 

822] ............................................................................................................... 651 

b. JPMorgan Chase transcript of instant message dated March 16, 2012 

(it is 300 now 1000 for month end? ouch well that is the pace). 

[JPM–CIO–PSI–H 0003815–819] ............................................................... 654 

c. Transcript of Audio Recording Produced to the Permanent Subcommittee on Investigations, call between Javier Martin-Artajo, Ina 

Drew, and Gina Serpico. Undated (likely April 2012) (Ms. Drew: It’s 

absolutely fine to stay conservative, but it would be helpful, if appropriate, to get, to start getting a little bit of that mark back.). [JPM– 

CIO–PSI–A 0000076.wav ............................................................................ 659 

d. JPMorgan Chase transcript of call between Javier Martin-Artajo and 

Alistair Webster, dated May 8, 2012 (So then when, if we roll forward 

to March, if the front office marks had migrated . . . to the aggressive 

side, most of them, not all of them, to the aggressive side, but they’ve 

also migrated from either mid to somewhere close to being at the, 

you know, the bounds of the bid or offer.). [JPM–CIO 0003631–636] ..... 662 

33. JPMorgan Chase internal email, dated April 2012, re: CIO Core Credit 

P&L Predict (10 Apr]: –$5,711k (dly) –$626,834k (ytd) (Daily P&L: 

–$5,710,991 * * * Daily P&L: –$394,735,120). [JPM–CIO 0003570–576] .. 668 

34. a. JPMorgan Chase internal emails, dated April 2012, re: Credit Index 

and Tranche Book (. . . CIO FO marked their book at the most advantageous levels. . . .). [JPM–CIO–PSI–H 0006636–639] ............................ 675 

b. JPMorgan Chase internal emails, dated April 2012, re: URGENT ::: 

Huge Difference for iTraxx & CDX (The desk marked the book at 

the boundary of the bid/offer spread. . . .). [JPM–CIO 0003582–3587] 679 

35. JPMorgan Chase internal emails, dated April 2012, re: Collateral Disputes (This isn’t a good sign on our valuation process. . . . I am going 

to dig further.). [JPM–CIO–PSI–H 0000108–109] ......................................... 685 

36. JPMorgan Chase internal memorandum, dated May 2012, re: Firm’s review of the valuation of its CIO EMEA credit portfolio in light of the 

current market conditions and dislocation that occurred in April 2012. 

[JPM–CIO–PSI–H 0006730–747] .................................................................... 687 

Documents Related to Disregarding Limits: 

Overview and Organization: 

37. J.P. Morgan slide presentation, Market Risk Limits, March 2012. (Business Unit must take immediate steps toward reducing its exposure to 

be within the limit, unless a One-off Approval is granted by all Grantors 

and Grantees of limits) [OCC–SPI–00117682] ............................................... 705 
Page

VII 

38. Document prepared by Bruno Iksil, including excerpts of JPMorgan 

Chase internal emails December 2011-March 2012. [JPM–CIO–PSI 

0021879–917] .................................................................................................... 709 

39. JPMorgan Chase internal emails, dated May 2012, re: Information needed 

(. . . please find the CIO excessions attached.). [JPM–CIO–PSI–H 

0000627–636] .................................................................................................... 748 

VaR Models and Limits: 

40. JPMorgan Chase internal emails, dated January 2012, re: JPMC 

Firmwide VaR—Daily Update—COB 01/09/2012 (Pat’s model is in line 

with the 70 VAR and has a much better explanation for these changes. 

Hopefully we get this approved as we speak.). [JPM–CIO–PSI 0000093– 

097] .................................................................................................................... 758 

41. JPMorgan Chase internal emails, dated January 2012, re: Breach of 

firm var (Below please find details of the VaR limit breach. The VaR 

increase is driven by Core Credit (tranche) in EMEA. The VaR has increased steadily since the end of December as positions in CDX.HY onthe-run indices have been added to the portfolio to balance the book, 

which has been taken longer risk. . . .). [JPM–CIO–PSI 0000141–145] ...... 763 

42. JPMorgan Chase internal email, dated January 2012, re:CIO VaR (FYI. 

Dual plan . . . as discussed keep the pressure on our friends in Model 

Validation and QR.). [JPM–CIO–PSI 0000151] ............................................. 768 

43. JPMorgan Chase internal emails, dated January 2012, re: CIO VaR 

heads up and update (Importantly, for the same COB 26 January, the 

*new/full revaluation methodology* shows VaR decreased ($1.3MM) from 

70.8mm to 69.5mm. I estimate that this would make CIO global VAR 

closer to $76MM vs. the currently reported number >$115. We anticipate 

final approval on Monday and that the *new methodology should become 

the official firm submission from Monday, for 27 Jan COB.* Limit issues 

should therefore cease beginning from Monday.). [JPM–CIO–PSI 

0000177–179] .................................................................................................... 769 

44. JPMorgan Chase internal emails, dated January 2012, re: draft of the 

MRG review of the HVAR methodology for the CIO core credit books 

(Operational Risk—The VaR computation is currently done off spreadsheets using a manual process. Thus it is error prone, and not easily 

scalable. * * * ACTION PLAN: CIO should re-examine the data quality 

and explore alternative data sources. For days with large discrepancies 

between dealer marks and IB marks, the integrity of the data used for 

HVAR calculation should be verified. * * * Please go ahead with the 

implementation of the new HVaR methodology for the CIO credit books.). 

[JPM–CIO–PSI 0000187–191] ......................................................................... 772 

45. JPMorgan Chase internal emails, dated April 2012, re: CIO VaR (FYI— 

we discovered an issue related to the VAR market data used in the 

calculation which we need to discuss. This means our reported standalone 

var for the five business days in the period 10–16th April was understated 

by apprx $10mm.). [JPM–CIO–PSI 0001205] ................................................. 777 

RWA, CRM and Optimization: 

46. JPMorgan Chase internal emails, dated December 2011, re: RWA— 

Tranche Book (The estimates of reductions will be: Model reduction QR 

CRM (ackno[w]ledged already) 5 [billion] (Pat estimate); Model reduction 

QR VAR 0.5 [billion] (Pat estimate); Model Reduction QR Stress 1.5 

[billion] (Pat estimate)). [JPM–CIO–PSI 0000032–034] ................................ 778 

47. JPMorgan Chase internal emails, dated March 2012, re: CIO CRM results 

(We got some CRM numbers and they look like garbage as far as I 

can tell, 2-3x what we saw before.). [JPM–CIO–PSI 0000338–339] .............. 781 

48. JPMorgan Chase internal emails, dated March 2012, re: New CRM numbers . . . (With their new model, QR is reporting that we have a stand 

alone CRM of roughly 6bn. This is radically higher than the worst loss 

we see at the same confidence level; the loss we see is far below 2bn.). 

[JPM–CIO–PSI 0036342–344] ......................................................................... 783 

49. JPMorgan Chase internal emails, dated March 2012, re: CIO CRM results 

(Based on our models, though, we believe that the $3bn increase in RWA 

is entirely explained by a $33bn notional increase in short protection 

(long risk) in your portfolio between Jan and Feb. * * * The change 

in notional is not correct and the CRM is therefore too high.). [JPM– 

CIO–PSI 0000371–372 ] ................................................................................... 786 
Page

VIII 

50. JPMorgan Chase internal emails, dated March 2012, re: Optimizing regulatory capital (To optimize the firm-wide capital charge, I believe we 

should optimize the split between the tranche and index books. * * * 

I don’t think we should treat this as regulatory arbitrage. Instead we 

should treat the regulatory capital calculation as an exercise of automatically finding the best results of an immensely arbitrary and complicated 

formula.). [JPM–CIO–PSI 0011025–026] ........................................................ 788 

51. a. Excerpt from transcript of audio recording produced to the Permanent 

Subcommittee on Investigations, call between Anil Bangia and Patrick 

Hagan, dated March 21, 2012. [JPM–CIO–PSI–A 0000089] ................... 790 

b. Excerpt from transcript of audio recording produced to the Permanent 

Subcommittee on Investigations, call between Anil Bangia and Patrick 

Hagan, dated March 21, 2012. [JPM–CIO–PSI–A 0000090] ................... 791 

c. Excerpt from transcript of audio recording produced to the Permanent 

Subcommittee on Investigations, call between Peter Weiland and Patrick Hagan, dated March 22, 2012. [JPM–CIO–PSI–A 0000091] ............ 793 

52. JPMorgan Chase internal emails, dated April 2012 (We haven’t made 

the case of how this book runs off and whether risk can be managed 

effectively. . . .). [JPM–CIO–PSI 0000497–498] ............................................ 794 

Credit Spread Risk Metrics and Limits: 

53. JPMorgan Chase internal email, dated January 2012, re: there is more 

loss coming in core credit book (I reckon we have another 50M coming 

from CDX IG9 exposure. The guys have a huge skew trade on and they 

will defend it as much as we do.). [JPM–CIO–PSI 0001225] ........................ 796 

54. JPMorgan Chase internal emails, dated February 2012, re: Csbpv limit— 

please read (We have a global credit csbpv limit. It was set up at the 

initiation of the credit book. Unfortunately we have been breaching for 

most of the year. * * * I have no memory of this limit. In any case 

it need to be recast with other limits.). [JPM–CIO–PSI–H 0002936] ........... 797 

55. JPMorgan Chase internal email, dated February 2012, re: CIO Global 

Credit spread BPV limit breach-COB 02/09/2012 (Since mid-January 

CIO has been in breach of its global csbpv limits, driven primarily by 

position changes in the tranche book.). [JPM–CIO–PSI 0001823–825, 832] 798 

56. JPMorgan Chase internal emails, dated April 2012, re: CIO DAY 1 (CIO’s 

10% CSW by my group’s model estimate is long 245mm of risk; their 

own models (run by Weiland) quote $145mm. I don’t understand the 

difference in the models and don’t know how good a measure of risk 

10% CSW is for their book. But I spoke to Ashley and we agree that 

10% CSW has been trending up for CIO, by either their model or ours.). 

[JPM–CIO–PSI 0000449–451] ......................................................................... 802 

57. JPMorgan Chase internal email, dated May 2012, re: CSBPV History 

(Early in 2012 net CSBPV increased dramatically as IG positions were 

added and offset between HY and IG grew). [JPM–CIO–PSI–H 0000810– 

811] .................................................................................................................... 805 

Documents Related to OCC Oversight: 

58. OCC internal email, dated January 2012, re: CIO Quarterly Meeting 

(The MTM Book is decreasing in size in 2012.). [OCC–SPI–00004695] ....... 807 

59. OCC internal emails, dated April 2012, re: CIO deck ([H]ave you still 

been getting the CIO deck? I don’t recall seeing it lately.). [OCC– 

00004720] .......................................................................................................... 808 

60. JPMorgan Chase/OCC email, dated April 2012, re: materials for Fed/ 

OCC/FDIC call at noon today, attaching Synthetic Credit Book Review 

for Briefing by CIO to OCC. [OCC–SPI–00009712–724] ............................... 809 

61. JPMorgan Chase/OCC emails, dated April 2012, re: CIO January 2012 

valuation memo and metrics (Apologies for not distributing the February 

valuation work. I just sent the February and March reports.). [OCC– 

00004735–736] .................................................................................................. 822 

62. JPMorgan Chase/OCC emails, dated April 2012, re: Quick questions pp 

4 and 5 of yesterday’s presentation (I believe there is modest long credit 

risk sensitivity to the portfolio now.). [OCC–SPI–00023815] ......................... 824 

63. OCC internal email, dated April 2012, re: JPM CIO / IG9 ′′whale′′ trade 

(JPM’s CIO has been using a synthetic credit (credit derivative) portfolio 

since 2007. It was initially set up to provide income to mitigate other 

significant credit losses that would surface under a broad credit stress 

scenario.). [OCC–00012521–523] ..................................................................... 825 
Page

IX 

64. JPMorgan Chase/OCC emails, dated April 2012, re: CIO EMR? (Does 

the CIO still produce an EMR? It wasn’t included in the January Treasury EMR, which is where I used to see it. I’m looking for the balance 

sheet information that was in it.). [OCC–00004723] ...................................... 828 

65. JPMorgan Chase/OCC emails, dated April 2012, re: Info on VaR, CSBPV, 

and stress status and limits (We are working on a new set of limits 

for synthetic credit and the current CS01 will be replaced by something 

more sensible and granular.). [OCC–SPI–00022340–341] ............................. 829 

66. OCC internal emails, dated April 2012, re: Weekly Market Summary 

period ending 4/13 (The Whale Trade issue is considered closed—email 

went out to Senior Management yesterday). [OCC–SPI–00023057–060] ...... 831 

67. OCC internal email, dated April 2012, re: Weekly Market Summary period 

ending 4/20 (For the second consecutive week, CIO is breaching its $1.0bn 

stress limit. . . .). [OCC–SPI–00023753–755] ................................................ 835 

68. OCC internal emails, dated May 2012, re: CIO Synthetic Position (Doug 

Braunstein and John Hogan called to provide an update on the CIO 

position. * * * Current losses are approximately $1.6 billion.). [OCC– 

SPI–00021853] .................................................................................................. 838 

69. OCC internal email, dated May 2012, re: CIO information for Wednesday 

(However I asked James to first, put in a request for more granular 

daily P&L on the synthetic credit. . . . Bank will likely object to this. 

. . .). [OCC–SPI–00013737] ............................................................................. 839 

70. OCC internal emails, dated May 2012, re: My opinion on yesterday’s 

meeting (I wasn’t satisfied with the comments made about valuation process and thresholds yesterday, and so we have some followup here. * * * 

In addition to reserve, there were likely problems with the thresholds 

themselves. * * * Valuation was one of the things Hogan said they are 

looking at). [OCC–00005302–304] ................................................................... 840 

71. OCC internal emails, dated May 2012, re: J.P. Morgan Chase (We received a lot of pushback from the bank, Ina Drew in particular, regarding 

our comments. In fact, Ina called Crumlish when he was in London 

and ′′sternly′′ discussed our conclusions with him for 45 minutes. Basically 

she said that investment decisions are made with the full understanding 

of executive management including Jamie Dimon.). [OCC–00001746] ........ 843 

72. Morgan Chase/OCC emails, dated May 2012, re: CIO P&L reporting 

(We’d like to get the synthetic credit P&L for the past five weeks broken 

out on at least a weekly basis.). [OCC–00004759] .......................................... 844 

73. OCC internal emails, dated May 2012, (Does not add up. Collateral 

dispute of $700 mil versus a double digit reserves amount?). [OCC–SPI– 

00009335] .......................................................................................................... 845 

74. OCC internal emails, dated May 2012, re: Not Getting CIO daily P&L 

after only one day (I got one CIO daily P&L distribution and then didn’t 

yesterday.). [OCC–00004540] ........................................................................... 846 

75. OCC handwritten notes, dated May 2012, re: SBC Staff Briefing (JPMC 

transactions at issue involved an effort to hedge the bank’s credit risk. 

Hedging credit risk is not uncommon, and if done properly, reflects sound 

management risk.). [PSI–OCC–10–000001] .................................................... 847 

76. OCC internal emails, dated May 2012, re: CIO call with Mike Brosnan 

(I told Mike B that the Joe Sabatini emails with selected position information were sent by the bank after initial OCC and FRB enquiries. We 

concluded that this information was pretty much useless, as it did not 

tell us what was happening risk wise.). [OCC–SPI–00021628–631] ............. 848 

77. OCC internal emails, dated May 2012, re: cio var change (Here are 

a few comments from the days preceding the synthetic credit VaR model 

change that became effective 1/27/12. Note the reduction of CIO VaR 

by 44% to $57mm.). [OCC–SPI–00021932] ..................................................... 852 

78. OCC internal emails, dated June 2012, re: 2nd Wilmer Hale Call (I 

then followed with a question relating to what I described as mismarked 

books to which Hogan forcefully stated JPM books were not mismarked; 

leaving both Elwyn and me left puzzled over how a collateral dispute 

could be resolved by agreeing to the counterparties marks, without admitting your own marks were incorrect.). [OCC–SPI–00071386] ....................... 853 
Page

X 

Documents Related to Misinformation to Investors, Regulators, and 

the Public: 

79. a. JPMorgan Chase internal email, dated January 2012, re: JPMC 

Firmwide VaR—Daily Update—COB 01/19/2012 (The impact of the 

new VaR model based on Jan. 18 will be a reduction of CIO VaR 

by 44% to $57mm.). [JPM–CIO–PSI 0002457] .......................................... 856 

b. JPMorgan Chase internal email, dated January 2012, re: JPMC 95% 

10Q VaR—Limit Excession Notification (COB 1/19/12) (. . . reduction 

of CIO VaR by 44% to $57mm.). [JPM–CIO–PSI 0001890] ..................... 857 

c. JPMorgan Chase internal email, dated January 2012, re: APPROVAL 

NEEDED: JPMC 95% 10Q VaR One-Off Limit Approval (. . . reduction of CIO VaR by 44% to $57mm.). [JPM–CIO–PSI 0004660–661] ..... 858 

d. JPMorgan Chase internal emails, dated January 2012, re: APPROVAL 

NEEDED: JPMC 95% 10Q VaR One-Off Limit Approval (Jamie 

Dimon: I approve.) [JPM–CIO–PSI 0001337–338] ................................... 860 

e. JPMorgan Chase internal email, dated January 2012, re: : JPMC 

Firmwide VaR—Daily Update—COB 01/26/2012 (. . . reduction of 

CIO VaR by 44% to $57mm.). [JPM–CIO–PSI 0003346] ......................... 862 

f. JPMorgan Chase internal email, dated January 2012, re: : JPMC 

Firmwide VaR—Daily Update—COB 01/26/2012 (. . . reduction of 

CIO VaR by 44% to $57mm.). [JPM–CIO–PSI 0003715] .......................... 863 

g. JPMorgan Chase internal emails, dated January 2012, re: : JPMC 

Firmwide VaR—Daily Update—COB 01/26/2012 (A CIO model 

change is planed to go in this week-end. New VaR methodology approved (and now the same methodology as IB) reduces standalone 

Credit VaR by approx $30 mio.). [JPM–CIO–PSI–H 0001675] ............... 864 

h. JPMorgan Chase internal emails, dated January 2012, re: JPMC 

Firmwide VaR—Daily Update—COB 01/27/2012 (The Firm’s 95% 

10Q VaR as of cob 01/27/2012 is $108mm of the $125MM limit, 

a decrease of $53mm from the prior day’s revised VaR, driven by 

CIO (implementation of newly approved VaR model for synthetic credit).). [JPM–CIO–PSI 0001339] ................................................................... 865 

80. JPMorgan Chase internal email, dated February 2012, re: CIO Business 

Review Materials. [JPM–CIO–PSI 0001940–942, 949–951, 958–961, 963] .. 866 

81. J.P.Morgan Directors Risk Policy Committee—CIO 2012 Opportunities 

and Challenges, March 2012. [JPM–CIO–PSI 0015015–018, 023] ............... 877 

82. JPMorgan Chase Audit Department Report, dated March 2012, Audit 

Rating: Needs Improvement. [JPM–CIO–PSI 0009289–296] ......................... 882 

83. JPMorgan Chase internal emails, dated April 2012, re: Jamie’s fine with 

this (Here are some revised points based on your comments.). [JPM– 

CIO–PSI 0000543–544] .................................................................................... 890 

84. a. JPMorgan Chase internal email, dated April 2012, re: CIO (Post December as the macro scenario was upgraded and our investment activities turned pro risk, the book was moved into a long position.). [JPM– 

CIO–PSI 0000539] ....................................................................................... 892 

b. JPMorgan Chase internal email, dated May 2012, (WHAT HAPPENED?). [JPM–CIO–PSI 0001212–214] ................................................. 893 

85. JPMorgan Chase internal email, dated April 2012, re: Synthetic Credit 

Summary (In Q4, we decided to neutralize the risk profile of this book.). 

[JPM–CIO–PSI 0001588–589] ......................................................................... 896 

86. JPMorgan Chase internal emails, dated April 2012, re: Deliverables for 

meeting tomorrow (Doug had the question of why we just didn’t reduce 

the HY position to reduce our risk rather than going long the IG 9 

(we discussed carry (ie associated p&l). . . .). [JPM–CIO–PSI 0001646– 

647] .................................................................................................................... 898 

87. JPMorgan Chase internal emails, dated April 2011, re: Credit risk limits 

(This is the governance used in the IB to control what is currently going 

on in CIO. We (obviously) need to implement this in CIO as soon as 

possible.). [JPM–CIO–PSI 0001086] ................................................................ 900 

88. JPMorgan Chase internal emails, dated April 2012, re: Single names 

CDS basis relative to IG 9 CDS—URGENT update (. . . the market 

is quiet today. To[o] early to tell but so far about flat P/L. The tension 

has stopped now. The bank’s communications yesterday are starting to 

work.). [JPM–CIO–PSI–H 0002340, 342] ....................................................... 901 

89. JPMorgan Chase internal email, dated April 2012, re: updated (We are 

working on Jamie’s request for Correlation of the credit book against 

the portfolio. . . .). [JPM–CIO–PSI 0001077–078] ........................................ 903 
Page

XI 

90. JPMorgan Chase internal email, dated April 2012, re: synthetic credit 

information for April 13 earnings call, including SCP P&L scenarios. 

[JPM–CIO–PSI 0001701–709] ....................................................................... 905 

91. JPMorgan Chase internal email, dated April 2012, re: Synthetic Credit 

Materials (The way that we at CIO have book-run the Core Book to 

balance the negative carry cost of High yield Book overtime has been 

using Investment Grade strategies that gave us some carry or buying 

optionality (or both). . . .). [JPM–CIO–PSI 0001100–106] ......................... 914 

92. JPMorgan Chase internal email, dated April 2012, re: If asked about 

London / CIO and Volcker (We do not believe that our activity in 

any way goes against the law as passed by Congress, nor the spirit 

or proposed rule as written.). [JPM–CIO–PSI–H 0002418] ......................... 921 

93. JPMorgan Chase internal emails, dated April 2012, re: CIO (Doug and 

I asked that the first day. Answer was it most ′′efficient′′ way to do 

it. I would say they just wanted to improve the carry on the book 

by selling protection and taking in some premium.). [JPM–CIO–PSI 

0001753–757] .................................................................................................. 922 

94. Excerpt from April 13, 2012, JPM—Q12012 JPMorgan Chase & Co. 

Earnings Conference Call [JPM–CIO–PSI 0001151–160] ........................... 927 

95. JPMorgan Chase internal email, dated May 2012, re: 10-Q call—Buyside 

and sellside comments (2) (Have a lot of contacts in Washington who 

said this is going to be a big deal for Volcker; need to manage this 

in DC because the hit there is going to be a lot bigger than the hit 

on earnings). [JPM–CIO–PSI 0017754–758] ................................................ 937 

96. JPMorgan Chase & Co. (JPM) Business Update Call, 10-May-2012 .......... 942 

97. Correspondence from Douglas L. Braunstein, Vice Chairman, JPMorgan 

Chase & Co. to the Permanent Subcommittee on Investigations, dated 

February 4, 2013 (. . . my statements on April 13 regarding those hedging characteristics were references to the portfolio’s design and historical 

performance as a hedge. I was not commenting on the hedging effectiveness of the portfolio as of April 13.). [PSI–JPMC–35–000001] .................... 962 

98. Report of JPMorgan Chase & Co. Management Task Force Regarding 

2012 CIO Losses, January 16, 2013 .............................................................. 963 

99. Response provided by The Honorable Thomas Curry, Office of the Comptroller of the Currency, to question raised at the March 15, 2013 hearing .................................................................................................................... 1095 

100. a. Responses to supplemental questions for the record from Douglas 

Braunstein and Michael Cavanagh, JPMorgan Chase & Co., with 

attachment ................................................................................................. 1099 

100. b. SEALED EXHIBIT: Attachments to supplemental questions for the 

record from JPMorgan Chase & Co ......................................................... * 

101. Responses to supplemental questions for the record from The Honorable 

Thomas Curry, Scott Waterhouse and Michael Sullivan, Office of the 

Comptroller of the Currency, with attachments .......................................... 1113 

VOLUME 2 

102. Documents cited in footnotes to JPMorgan Chase Whale Trades: A Case 

History of Derivatives Risks & Abuses, the Report released in conjunction with the Subcommittee hearing on March 15, 2013. A Document 

Locator List provides bates numbers and document descriptions of the 

documents cited in the Report. Not included are documents related 

to Subcommittee interviews, which are not available to the public, and 

widely available public documents ................................................................ 1304 
(1304) 

DOCUMENT LOCATOR LIST 

The following Document Locator List references documents cited 

in footnotes to JPMorgan Chase Whale Trades: A Case History of 

Derivatives Risks & Abuses, the Report released in conjunction 

with the Subcommittee hearing on March 15, 2013, as well as 

documents released at the Subcommittee's hearing. Not included 

are documents related to Subcommittee interviews, which are not 

available to the public, and widely available public documents. 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page # 

3/9/2012 OCC Supervisory Letter, "Examination ofFSI Stress * Testing Framework" [Sealed Exhibit] 

FDICPROD-OOO 1783-831 1314 

IFDICPROD-0024274-275, 286 1363 

FDICPROD-0036009 1370 

FDICPROD-0039217 -219 (0039218* is unprintable excel file** ** 

JPM-CIO 0000546-547 1383 

JPM-CIO 0000576 1385 

JPM-CIO 0000987 1386 

JPM-CIO 0003424-442 1387 

JPM-CIO 0003443 1406 

JPM-CIO 0003445-456 1407 

JPM-CIO 0003457-459 1419 

JPM-CIO 0003475 (Printed as Exhibit 29) 648 

JPM-CIO 0003476-477 1422 

JPM-CIO 0003481 1424 

JPM-CIO 0003489-491 1425 

JPM-CIO 0003492 1428 

JPM-CIO 0003493-504 1429 

JPM-CIO 0003507-508 1441 

JPM-CIO 0003515-541 1443 

Permanent Subcommittee on fnvestigations 

EXHIBIT #102 
1305 

DOCUMENT LOCATOR LIST 

! Bates Number or Document Description Paee# 

[JPM-CIO 0003543-554 1470 I 

JPM-CIO 0003555-561 1482 I 

!JPM-CIO 0003562-563 1489 I 

JPM-CIO 0003564-565 1491 

JPM-CIO 0003567-569 1493 

JPM-CIO 0003570-576 (Printed as Exhibit 33) 668 

JPM-CIO 0003582-3587 (Printed as Exhibit 34b) 679 

JPM-CIO 0003590-591 1496 

JPM-CIO 0003590-596 [Sealed Exhibit] * 

JPM-CIO 0003597-598 1498 

JPM-CIOOO03603-605 1500 

JPM-CIO 0003631-636 (Printed as Exhibit 32d) 662 

JPM-CIO 0003637-654 1503 

JPM-CIO-E 00004695 1521 

JPM-CIO-E 00013052 1522 I 

JPM-CIO-E 00014689-691 1523 

JPM-CIO-E 00033939-941 1526 

JPM-CIO-PSI 0000032-034 (Printed as Exhibit 46) 778 

JPM-CIO-PSIOOOO039 1529 

JPM-CIO-PSI 0000041-047 1530 

JPM-CIO-PSIOOOO073-074 1537 

JPM-CIO-PSI0000075-078 (Printed as Exhibit 7) 556 

JPM-CIO-PSI 0000083-086 1539 

JPM-CIO-PSI 0000093-097 (Printed as Exhibit 40) 758 

JPM-CIO-PSI0000098-101 (Printed as Exhibit 8) 560 

JPM-CIO-PSI 0000105-106 (Printed as Exhibit 9) 564 

JPM-CIO-PSI 0000141-145 (Printed as Exhibit 41) 763 

JPM-CIO-PSIOOOOI46-149 1543 

JPM-CIO-PSIOOOOI51 (Printed as Exhibit 42) 768 

JPM-CIO-PSIOOOOI52-153 1547 i 

JPM-CIO-PSIOOOOI57-158 1549 

JPM-CIO-PSIOOOOI59-173 (Printed as Exhibit 10) 566 

JPM-CIO-PSIOOOOI77-179 (Printed as Exhibit 43) 769 

JPM-CIO-PSIOOOOI87-191 (Printed as Exhibit 44) 772 

JPM-CIO-PSI0000221-223 (Printed as Exhibit 14) 584 

JPM-CIO-PSI0000338-339 (Printed as Exhibit 47) 781 

JPM-CIO-PSI0000371-372 (Printed as Exhibit 49) 786 

JPM-CIO-PSIOOO0373-375 1551 

JPM-CIO-PSIOOO0378-380 1554 

2 
1306 

DOCUMENT LOCATOR LIST 

I Bates Number or Document Description Pae;e# 

JPM-CIO-PSIOOO0386 1557 

JPM-CIO-PSIOOO0387-388 1558 

JPM-CIO-PSI 0000410-412 (Printed as Exhibit 19) 606 

JPM-CIO-PSIOOO0415 1560 

JPM-CIO-PSI0000416 (Printed as Exhibit 30) 649 

'JPM-CIO-PSI0000449-451 (Printed as Exhibit 56) 802 

JPM-CIO-PSI0000497-498 (Printed as Exhibit 52) 794 

IJPM-CIO-PSI 0000539 (Printed as Exhibit 84a) 892 

JPM-CIO-PSI0000543-544 (Printed as Exhibit 83) 890 

JPM-CIO-PSIOOO0546 1561 

JPM-CIO-PSI 0000571-573 1562 

JPM-CIO-PSIOOO0944 1565 

JPM-CIO-PSIOOO0960 1566 

JPM-CIO-PSIOOOI021-023 1567 

JPM-CIO-PSIOOOI024 1570 

JPM-CIO-PSI 0001026-027 (Printed as Exhibit 26) 642 

JPM-CIO-PSIOOOI066 1571 

JPM-CIO-PSIOOOI077-078 (Printed as Exhibit 89) 903 

JPM-CIO-PSIOOOI086 (Printed as Exhibit 87) 900 

JPM-CIO-PSIOOOI093 1572 

JPM-CIO-PSI 0001100-106 (Printed as Exhibit 91) 914 

JPM-CIO-PSIOOOI137-139 1573 

JPM-CIO-PSI 0001151-160 (Printed as Exhibit 94) 927 

JPM-CIO-PSIOOOI200-204 1576 

JPM-CIO-PSIOOOI205 (Printed as Exhibit 45) 777 

JPM-CIO-PSIOOOI212-214 (Printed as Exhibit 84b) 893 

JPM-CIO-PSIOOOI219 (Printed as Exhibit 15) 587 

JPM-CIO-PSIOOOI220-222 (Printed as Exhibit 23) 633 

JPM-CIO-PSIOOOI223 (Printed as Exhibit 11) 581 

JPM-CIO-PSIOOOI225 (Printed as Exhibit 53) 796 

JPM-CIO-PSI 0001226 1581 

JPM-CIO-PSIOOOI227-228 1582 

JPM-CIO-PSIOOOI229 (Printed as Exhibit 13) 583 

JPM-CIO-PSIOOOI234-235 1584 

JPM-CIO-PSIOOOI236 1586 

JPM-CIO-PSIOOOI240-246 (Printed as Exhibit 20) 609 

JPM-CIO-PSIOOOI247-258 1587 

JPM-CIO-PSIOOOI259-260 1599 

JPM-CIO-PSIOOOI267 (Printed as Exhibit 22) 632 

3 
1307 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page # 

JPM-CIO-PSI0001337-338 (Printed as Exhibit 79d) 860 i 

JPM-CIO-PSI0001339 (Printed as Exhibit 79h) 865 

I JPM-CIO-P SI 0001429 (Printed as Exhibit 31) 650 I 

JPM-CIO-PSIOOOI582-583 1601 

iJPM-CIO-PSIOOOI588-589 (Printed as Exhibit 85) 896 

JPM-CIO-PSIOOOI645 1603 

JPM-CIO-PSIOOOI646-647 (Printed as Exhibit 86) 898 

JPM-CIO-PSIOOOI701-709 (Printed as Exhibit 90) 905 

JPM-CIO-PSI 0001719 1604 

JPM-CIO-PSIOOOI753-757 (Printed as Exhibit 93) 922 

JPM-CIO-PSIOOOI766 (Printed as Exhibit 12) 582 

JPM-CIO-PSIOOOI784-814 1605 

JPM-CIO-PSIOOOI815-816 1636 

JPM-CIO-PSI 0001823-825, 832 (Printed as Exhibit 55) 798 

JPM-CIO-PSIOOOI826-831 1638 

JPM-CIO-PSI 0001875-876, 879-880, 885 (Printed as Exhibit 2) 522 

JPM-CIO-PSI 0001890 (Printed as Exhibit 79b) 857 

JPM-CIO-PSI 0001940-942, 949-951, 958-961, 963 866 (Printed as Exhibit 80) 

JPM-CIO-PSI0002457 (Printed as Exhibit 79a) 856 

JPM-CIO-PSI0003346 (Printed as Exhibit 7ge) 862 

JPM-CIO-PSI0003715 (Printed as Exhibit 79f) 863 

JPM-CIO-PSI0004660-661 (Printed as Exhibit 79c) 858 

JPM-CIO-PSI 0005264 1644 

JPM-CIO-PSIOO05996 1645 

JPM-CIO-PSI 0007884-887 1653 

JPM-CIO-PSIOO08773-775 1657 

JPM-CIO-PSI 0008878 1660 

JPM-CIO-PSI 0009289-296 (Printed as Exhibit 82) 882 

JPM-CIO-PSI 0011025-026 (Printed as Exhibit 50) 788 

JPM-CIO-PSIOO13270-336 1661 

)PM-CIO-PSIOO13563-566 1728 

IJPM-CIO-PSI 0013890-891, 903 1732 

I JPM-CIO-PSI 0014195 1735 

JPM-CIO-PSIOOI4779 1736 

JPM-CIO-PSIOOI4783-784 1737 

JPM-CIO-PSIOOI4797 1739 

JPM-CIO-PSI 0014803-804 1740 

JPM-CIO-PSIOOI4833-836 1742 

4 
1308 

DOCUMENT LOCATOR LIST 

Bates Number or Documeut Description Palle# 

JPM-CIO-PSI 0015015-018, 023 (Printed as Exhibit 81) 877 

JPM-CIO-PSIOOI6487-489 (Printed as Exhibit 16a) 588 

JPM-CIO-PSIOOI6499-501 (Printed as Exhibit 18) 603 

JPM-CIO-PSIOOI7022-027 1746 

JPM-CIO-PSIOOI7427 1752 

JPM-CIO-PSIOOI7712 1753 

JPM-CIO-PSIOOI7754-758 (Printed as Exhibit 95) 937 

JPM-CIO-PSIOOI7987-988 1754 

JPM-CIO-PSIOOI7989 1756 

JPM-CIO-PSI 0018046,067-071 1757 

JPM-CIO-PSIOOI8241-244 1763 

JPM-CIO-PSIOOI8281 1767 

JPM-CI0-PSIOOI9474-486 (Printed as Exhibit 16b) 591 

JPM-CIO-PSI 0020168-170 1768 

JPM-CIO-PSI0021879-917 (Printed as Exhibit 38) 709 

JPM-CIO-PSI0021953-974 1771 

JPM-CIO-PSI0023061-079 1793 

JPM-CIO-PSI0032235 1812 

JPM-CIO-PSI 0032406-424 1813 

JPM-CIO-PSI0036179-181 1832 

JPM-CIO-PSI0036342-344 (Printed as Exhibit 48) 783 

JPM-CIO-PSI 0037501 (unprintable excel file**) ** 

JPM-CIO-PSI 0037534 (unprintable excel file**) ** 

JPM-CIO-PSI0037609 (Printed as Exhibit 6) 555 

JPM-CIO-PSI-0002050-063 1835 

JPM-CIO-PSI-A 00000018 (Audio File**) ** 

JPM-CIO-PSI-A 00000054 (Audio File**) ** 

JPM-CIO-PSI-A 00000055 (Audio File**) ** 

JPM-CIO-PSI-A 00000060 (Audio File**) ** 

JPM-CIO-PSI-A 00000069 (Audio File**) ** 

JPM-CIO-PSI-A 00000164 (Audio FiIe**) ** 

JPM-CIO-PSI-A 0000076.wav (Printed as Exhibit 32c) 659 

JPM-CIO-PSI-A 0000089 (Printed as Exhibit 5 I a) 790 

JPM-CIO-PSI-A 0000090 (Printed as Exhibit 51 b) 791 i 

JPM-CIO-PSI-A 0000091 (Printed as Exhibit 51c) 793 

JPM-CIO-PSI-A 0000140 1849 

JPM-CIO-PSI-H 0000108-109 (Printed as Exhibit 35) 685 

JPM-CIO-PSI-H 0000141-146 1862 

JPM-CIO-PSI-H 00002812 (Printed as Exhibit 28) 647 

5 
1309 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page # 

JPM-CIO-PSI-H 0000546-556 1868 

JPM-CIO-PSI-H 0000627-636 (Printed as Exhibit 39) 748 I 

JPM-CIO-PSI-H 0000810-811 (Printed as Exhibit 57) 805 

JPM-CIO-PSI-H 0001142-145 1879 

JPM-CIO-PSI-H 0001354-402 1883 

JPM-CIO-PSI-H 0001577-579, 582-584 1932 

JPM-CIO-PSI-H 0001675 (Printed as Exhibit 79g) 864 

JPM-CIO-PSI-H 0002093 1938 

JPM-CIO-PSI-H 0002204-213 1939 

JPM-CIO-PSI-H 0002276 (Printed as Exhibit 25) 641 

JPM-CIO-PSI-H 0002340, 342 (Printed as Exhibit 88) 901 

JPM-CIO-PSI-H 0002418 (Printed as Exhibit 92) 921 

JPM-CIO-PSI-H 0002712-717 1949 

JPM-CIO-PSI-H 0002740-741 1955 

JPM-CIO-PSI-H 0002742-743 1957 

JPM-CIO-PSI-H 0002744-45 1959 

JPM-CIO-PSI-H 0002746-792 1961 

JPM-CIO-PSI-H 0002799-801 2008 

JPM-CIO-PSI-H 0002813-814 2011 

JPM-CIO-PSI-H 0002815 2013 

JPM-CIO-PSI-H 0002880 2014 

JPM-CIO-PSI-H 0002897-898 2015 

JPM-CIO-PSI-H 0002936 (Printed as Exhibit 54) 797 

JPM-CIO-PSI-H 0003798-819 2017 

JPM-CIO-PSI-H 00038] 5-819 (Printed as Exhibit 32b) 654 

JPM-CIO-PSI-H 0003820-822 (Printed as Exhibit 32a) 651 

JPM-CIO-PSI-H 0006022-023 (Printed as Exhibit 5) 553 

JPM-CIO-PSI-H 0006392-400 (Printed as Exhibit 17) 594 

JPM-CIO-PSI-H 0006401-407 412-432 2039 

JPM-CIO-PSI-H 0006438, 450-464 (Printed as Exhibit 21) 616 

JPM-CIO-PSI-H 0006636-639 (Printed as Exhibit 34a) 675 

JPM-CIO-PSI-H 0006730-747 (Printed as Exhibit 36) 687 

JPM-CIO-PSI-H-BEP 0006817-899 [Sealed Exhibit] * 

JPMC-Senate/Levin 000026-035 2067 

JPMC-Senate/Levin 000155-156 2077 

JPMC-SenatelLevin 000157-163 2079 

JPMorgan Chase & Co. Business Update Call, 10-May-2012. 942 (Printed as Exhibit 96) 

OCC-000012521-523 (Printed as Exhibit 63) 825 

OCC-OOOO 13 61 2086 

6 
1310 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pae:e# 

OCC-OOOO 1746 (Printed as Exhibit 71) 843 : 

OCC-00001746-748 2087 

OCC-OOOO 1826-829 2090 

OCC-00002135-136 2094 

OCC-00002263-264 2096 

OCC-00003 507-510 2098 i 

OCC-00003917-918 2102 i 

OCC-00004035 2104 I 

OCC-00004087-089 2105 I 

OCC-00004227 2108 

OCC-00004540 (Printed as Exhibit 74) 846 

OCC-00004720 (Printed as Exhibit 59) 808 

OCC-00004723 (Printed as Exhibit 64) 828 

OCC-00004730-731 2109 

OCC-00004735-736 (Printed as Exhibit 61) 822 

OCC-00004 7 46 2111 

OCC-00004759 (Printed as Exhibit 72) 844 

OCC-00005121-122 2112 

OCC-00005302-304 (Printed as Exhibit 70) 840 

OCC-00005405-406 2114 

OCC-00005554-555 2116 

OCC-0005509 2118 

OCC-SPI-OOOOOO 18-020 2119 

!OCC-SPI-00000031-032 2122 

OCC-SPI-00000250-259 2124 

OCC-SPI-00000298-304 2134 

OCC-SPI-00002481-485 2141 

OCC-SPI-00003247-256 2146 

OCC-SPI -00004164-169 2156 

OCC-SPI-00004177 2162 

OCC-SPI-00004312-313 2163 

OCC-SPI-00004695 (Printed as Exhibit 58) 807 

OCC-SPI-00004734-735 2165 ! 

OCC-SPI-00009335 (Printed as Exhibit 73) 845 

OCC-SPI-00009712-724 (Printed as Exhibit 60) 809 

OCC-SPI-OOO 1 0490-492 2167 

OCC-SPI-00010657-659 2170 

OCC-SPI-00011198-200 2173 

OCC-SPI-00011201-203 [Sealed Exhibit] * 

7 
1311 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pa2e# 

OCC-SPI-00013737 (Printed as Exhibit 69) 839 

OCC-SPI-00013762-763 2176 

OCC-SPI-00021381-382,386 2178 

IOCC-SPI-00021602-04 (Printed as Exhibit 27) 644 

OCC-SPI-00021700 2181 

OCC-SPI-00021723-725 2182 

OCC-SPI-00021853 (Printed as Exhibit 68) 838 

OCC-SPI-00021894-895 2185 

OCC-SPI -00021932 (Printed as Exhibit 77) 852 

OCC-SPI -00021996-002 2187 

OCC-SPI-00022340-341 (Printed as Exhibit 65) 829 

OCC-SPI-00022350-352 2194 

OCC-SPI-00023057-060 (Printed as Exhibit 66) 831 

OCC-SPI-00023753-755 (Printed as Exhibit 67) 835 

OCC-SPI-00023815 (Printed as Exhibit 62) 824 

OCC-SPI-00023929-932 2197 

OCC-SPI-00025835-836 2201 

OCC-SPI-00026410 2203 

OCC-SPI-00032575-576,580-582 2204 

OCC-SPI-00033116-119,123-125 2209 

OCC-SPI-00033162, 165, 170 2216 

OCC-SPI-00033688-693 2219 

OCC-SPI-00035319-321 2225 

OCC-SPI-00035322-324 2228 

OCC-SPI-00036145-166 [Sealed Exhibit] * 

OCC-SPI-00038895 [Sealed Exhibit] * 

OCC-SPI-00052685 2231 

OCC-SPI-00055687 2247 

OCC-SPI-00056794 2248 

OCC-SPI-00065656 2267 

OCC-SPI-00065657 [Sealed Exhibit] * 

OCC-SPI -00070715 2268 

OCC-SPI-00071386 (Printed as Exhibit 78) 853 

,OCC-SPI-00074914 2271 

I OCC-SPI -00081266 2284 

OCC-SPI-00081611 (Printed as Exhibit 4) 531 

OCC-SPI-00081631 (Excerpt) (Printed as Exhibit 4) 532 

OCC-SPI-00085027 2285 

OCC-SPI-00088644 2287 

8 
1312 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Page # 

OCC-SPI-00089239 2314 

OCC-SPI-00089295 2341 

OCC-SPI-00089351 2368 

OCC-SPI -00089407 2395 

OCC-SPI-00114068 2421 

OCC-SPI-00117682 (Printed as Exhibit 37) 705 

OCC-SPI-00132363 (unprintable excel file**) ** 

OCC-SPI-00134805 (unprintable excel file**) ** 

OCC-SPI-00134832 (unprintable excel file**) ** 

OCC-SPI-00134902 (unprintable excel file**) ** 

OCC-SPI-OO 135422 2446 

OCC-SPI-0033162, 165, 170 2451 

PSI-DTCC-OI-00000 1-003 2454 

PSI-JPM-30-000001-026 2457 

PSI-JPMC-24-00000 1-002 2483 

PSI-JPMC-33-000001 2485 

PSI-JPMC-35-000001 (Printed as Exhibit 97) 962 

PSI -JPMC-3 7 -000001 2486 

PSI -OCC-06-00000 1-0 18 2487 

PSI-OCC-06-0000 19-033 2505 

PSI-OCC-10-00000l (Printed as Exhibit 75) 847 

PSI-OCC-13-000001-126 [Sealed Exhibit] * 

PSI-OCC-17-000001-002 [Sealed Exhibit] * 

PSI-OCC-17-000003-004 [Sealed Exhibit] * 

PSI-OCC-17-000005-007 [Sealed Exhibit] * 

PSI-OCC-17 -000015-018 [Sealed Exhibit] * 

PSI -OCC-17 -000019-024 [Sealed Exhibit] * 

PSI-OCC-17-000025-028 [Sealed Exhibit] * 

PSI-OCC-17-000029-032 [Sealed Exhibit] * 

PSI-OCC-18-00000 1-004 [Sealed Exhibit] * 

PSI-OCC-22-000001-018 2520 

PSI -OCC-23-00000 1 2538 

Report of JPMorgan Chase & Co. Management Task Force 

Regarding 2012 CIO Losses, January 16,2013. (Printed as 963 

Exhibit 98) 

Testimony of Jamie Dimon, Chairman & CEO of JPMorgan 

Chase & Co., before the Senate Committee on Banking, 527 Housing and Urban Affairs, June 13,2012 (Printed as 

Exhibit 3) 

9 
1313 

DOCUMENT LOCATOR LIST 

Bates Number or Document Description Pal:(e# 

Transcript of Audio Recording of JPMorgan Chase Earnings 2539 Call with Media on April 13, 2012 

* SEALED EXHIBITS retained in the files of the Subcommittee. 

* * On CD retained in the files of the Subcommittee and available for public 

review. 

10 
1314 

JPMC & COMPANY 

CIO Synthetic Credit Portfolio 

FDICPROD-0001783 
1315 

CIO lJ"date Provided By the Firm 

As far back as 2006, CIO's mandate was to act as a traQllional AlM function with multiple 

priorities, including in~~-cess cash, man3.,gjng.the.fi[~.ens~nd and 

capital hedging (mitigating str§U~-Dts). ----.--... 

': From inception through ~::d 2011, the CIO activities indicated that the firm was acting unde~ this mandate. __ 

-Going into 2012 the firm had short high yield credit positions and as the market conditions were 

im~oVi:~~~~t?.JlfiJhes~ges:-------·-----·"·" "---"--'--

• To achieve the goal of redudng the short high yield positions, the CIO desk entered into a 

significant long credit position via investment grade indices (IG-9). From a notional perspective, the 

firm was net long credit. 

• The firm believed that due to the historical correlation (beta) of the tranches of the IG-9 index, tJ1ey 

were getting into a neutral position by going long 4-5 times the high yield short positions, 

-The firm concedes that at this point, the CIO desk was no longer hedging its book and had real 

exposure to high yield verses investment grade as the historic relationship between them changed. 

Essentially, the macro hedge no longer represented a hedge against their bank portfolio once the 

desk was net long credit. JP senior management has described the trade as mismanaged and poorly 

executed. 

FDICPROD-0001784 
1316 

CIL Jpdate Cont'd 

In late March, the firm started to see days of significant losses in the hundreds of millions 

of dollars. Ina Drew (CEO of CIO) first explained to management that the dislocation of 

the markets was an anomaly and the historic relationship would eventually revert to the 

mean, She expected that the CIO desk would end the quarter between -150mm and up 

250mm in pI!. 

On April 5, the "London whale" story [?In and the position continued to experience 

significant losses. Losses totaled approximately $415 million on April 10, 2012. 

The feeling inside the firm was that the trade was too big, the market knew their holdings 

and that they were being attacked Of targeted causing the positions to continue to 

deteriorate. At this point they still belieyed that the price levels would revert to the mean. 

FDICPROD-0001785 
1317 

Tirueline 

, __ • Redacted by the Pennllllent 

Subcommittee on lmoatiptiODl 

April, 4-6: News reports that in recent weeks investors have been puzzled by 

unusual movements in credit markets citing a JPM-UK trader with "deep pockets~ 

putting on large credit trades and dubbed "the London Whale". Bloomberg reports 

ofthe ~London Whale", a JP Morgan trader amassing a large positions in the CDX 

IG Series 9 and the European ITRAXX Series 9 Indices, 

FDIC onsite staff contact the ace and NY Fed to inquire about the news reports . 

April 12: Pre~earnings release meeting with Regulators (including the FDIC) with 

CFO Doug Braunstein. Mr. Braunstein reports that there are no problems within 

the CIO book. 

April 13: Jamie Dimon told analysts that the media attention on the big bets taken 

by one of the bank's traders in London, dubbed the London Whale, was "a 

complete tempest in a teapot. "The Wall Street Joumal reported that trader Bruno 

Michel Iksil, who is part of the bank's chief investment office, has a very large 

position in credit default swaps in corporate bonds and some hedge funds are 

betting against him. Asked about the trades by an analyst on a conference call, 

Dimon said: "Every bank has a major portfo!io.~ 

CON"flDENTlAL Thio- document .. ..m::tIy ....... legad and co~""""'IIIII_ ~ n... ;'""",,"ol d<>Itberal):,"~ afthoo f~",1 Dej>Oi~ InJlu,"r>re 

C<tlJ>O<8llon. Th,."e maleriab maj' 001 be oo;>~d 0' diolll1bllled wlt/)OU! the written punn,,"sOon of the FDIC Q( Iil9 allawtld undl'lf "f'!'1ic.1b1e bw. 

FDICPROD-0001786 
1318 

Titueline Confd 

-_ .. Redacted by the Permanent 

Suboommlttee OR 'nvestipttoas 

April 16: FDIC, acc and NY Fed meet with Ina Drew who provides an overview of the 

synthetic credit book and its recent rebalancing. P&L scenarios were presented and discussed 

at this time. Analysis indicates high stress loss of hundreds of millions of dollars. 

April 19: FDIC onsite team attends regularly scheduled monthly meeting with the NY Fed, 

Team raises topic of C/O and synthetic credit book and told that there were no issues with 

which they should be concerned. 

May 4: Firm discusses the $2 billion loss with the oce and the NY FeeL 

May 10: JPMC announces unrealized losses of $2 bi!1ion in their synthetic credit position in the 

CIO portfolio in the past six weeks, The firm continues to annOUnce changes in strategy and 

management for the CIG portfolio. FDIC learns of loss with the publlc announcement 

May 21; SEC begins investigations into the appropriateness and completeness of JPMC's 

financial reporting, specifically addressing the value-at-risk (VaR) model for CIO and whether it 

was applied in a way that allowed the portfolio to appear safer. 

May 21: JPMC suspends repurchases of its stock, but intends to continue dividends 

payments. 

May 24: The chairman of the Senate Banking Committee request s that Jamie Dimon testify 

before the panel. 

CONFIDe:N'T1AL.:Ttm d<xum .. ,,! '" .'tJC!ly prtllil!o!led-and ~rrtIoaland..,l'kI<:I!lhe i1Iemaldilllb ....... tions "'11>0. FWe<;olo.,P<"'KlImm.noe 

CD!'jlOfa1ICIn. These malerial& may !1Q\ be ropio!d or dj~trlbl/hoj w\I/u)u\ !I>e lM1!Jen pem1~'km ,"I \lte. FDIC Dr as alltJwe.d Ulldel applooabIB jaw 

FDICPROD-0001787 
1319 

ObSG ations Prior to Loss Announcement 

• In 2010, the acc issued an MRA addressing Issues in CIO investment policies and portfolio decisions. 

In particular, the acc noted a need to clearly define the processes used to manage investments and 

to identify objectives and investment parameters. 

JP Internal Audit reviewed EMEA CIO Credit-Market Risk and Valuation Practices and noted "needs 

improvemene on March 30, 2012. Deficiencies noted include: 

- Use of unapproved models 

I nsufficient consideration of potentially applicable fair value adjustments 

Lack of formally documentedJconsistentty applied price testing thresholds 

_ Exclusion of strategic asset allocation book from the firm wide market risk limits framework 

FDICPROD-0001788 
1320 

CIO Lck of Transparency 

Minimal reporting to the regulators. FDIC only received quarterly Executive Management Report for 

CIO which contained mostly balance sheet information. 

No reporting of VaR, limit utilization or CIO P&L to the regulators. 

FDIC did not attend regular meetings to discuss cle. It is our understanding that only quarterly 

meetings were heJd between the ace and the firm. 

Other areas of the firm, such as the investment bank, provide much greater transparency. Evidenced 

by week!y, monthly and quarterly meetings with the firm to discuss credit and market risk issues, as 

well as Treasury issues. P&L reported to the regulators on a daily basis together with periodic 

reporting regarding limits and exposures. 

FDICPROD-0001789 
1321 

Firm )If Assessment 

Special team led by Mike Cavanagh to evaluate transaction timeline and the risk management controls 

in place, including reporting and limits. 

Outside counsel engaged to review all supporting documentation including emails and other 

correspondence. 

Firm focused on what issues were escalated, to whom and when. 

Review of the two VaR models used from January 2012 to date, including governance around the 

models. 

Evaluate the history and role of compensation in CIO's trading strategy. 

JPMC Board of Directors has established an independent committee to assess the situation. 

Firm would like to complete its work so that it can disclose results to the public at its July 19 analyst 

meeting. 

CONFIOE~l' Thi:!. document ill slrlct!)t IltJ>'il!t\led "nd ~n!id"n\i~! and ~cls lIle InIsmat debberll1;l""" of!h .. I'''d''!idDtpo!l"~ !n~um.1>CII Corpo.raUon, ~/!>mat!lIlBt5~nO\beeopied<"d~l!ldwltt1011!Ul!lwrltmnpeTmi:i'5a,gf\fleFOICOfIlS-oiKowedu""'r~l'p"'ab"'~_ 

FDICPROD-0001790 
1322 

ReguL .or Work Plan Focus 

Firm's current financial and funding profile. 

CIG mandate and operations of individual business Hnes. 

Potentia! risk of synthetic credit trading portfolio to the firm. 

cia models and valuation methods. 

Potential range of losses in portfolio and impact on lead bank's ability to continue dividends to the 

holding company. 

Strength of risk management, governance and control framework. 

Vo!cker Rule implications. 

FDICPROD-0001791 
1323 

cia Overview 

FDICPROD·0001792 
1324 

Firm Summary of CIO 

CIO is responsible for managing the firm's structural 

risks (e.g., interest rate risk, macro credit risk, FX ao Net In~ $Mn 

capital risk, MSR hedging). $6POO ,.----------------

Traditional asset f liability management (e.g., invest $5,000 

excess liabilities). $4,000 

• Focus on long-term fisk management and value, not $3.000 

short-term profits. $.2,000 

Reported mark-ta-market gains for the CIO AFS 

investment portfolio are -$88 (reflects ..... $18 of 

securities gains realized in 2Q12). 

Since 1Q07, CIO has generated -$218 in 

cumulative revenue - assocjated with -$11.58 

cumulative net income. 

$1,000 

" 

". 

15% 

10% 

2010 

CIO % of Firms Total Net Inc. 

CONF!DENTlAl:ThIs~lrI.ia$tridlyprMlej)l!da!ldt:Onl'01l>f\tlalal'lllrelleasthe;nlemald.,jibeliOliOl1.oflhaF'ederalDet>o"'I!!I5u",nca 

Corp<>nIllon.Th<lrem>d_!smayT>Olbflcupledotdlmib\lledwilboulltlewrtttenpormi .. lanoft:lel'D!C<>rasalIOlW'."dull<!efSppiic:.b161 ..... _ 

2011 

8.11% 

FDICPROD-0001793 
1325 

POI )lio Mix (as of 1 Q12) 

1 Investment Portfolio: primary toof for traditional asset I liabl1fty management (e.g., investing firm's excess 

~h~q:Ui~ru~~~1 ______ ~~ __ ~~"~Ma~~ .. =aw~~Ii~R~'M¥.'~.~~J'mm~MD'==9a"'~~~~~ 

Redacted by tbe 

Permanent Subcommittee on Investigations 

2. Synthetic Credit Book: tool for managing the firm's credit risks, pn'marily those arising from the CJO 

Investment Portfolio 

.Revenue recognized as marl< to market 

-$1578 of notional net exposure ($768 Bill RWA) 

3, Other Portfolios: additional portfolios used to manage the 5rm's aggregate franchise balance sheet and 

structural risks (e.g., FX capital hedging, MSR hedging, other MTM position) 

.Revenue primarlly recognized as mark-to-market 

FDICPROD-0001794 
1326 

Chief Investment Office - Direct Reports 

Ina Drew 

Chief Investment Officer 

CDNFlDENTLAL.:Thio¢>eume<dio..lridty ~ BndconbnU .. llIllII ~IM Iolemal<leQbero;ti!'ll1O Olthil Fe~"I1Il DepcsI!I'ISI}l'lIoee 

Ccq>OraUQn, TheBe.....""..lsm..,..n"'bewp""'ordis:trllM~w;thoU!!h!"'fil!zmpenn/!is"'n ofth&FDICDf.asa~ W>d...-IIl>Plicablehrw 

FDICPROD-0001795 
1327 

International CIO 

Achilles Macris 

International Chief In ..... estment Officer 

I PhlllipaAdam I 

I I I I 

I Java-MarHn.-Artajo I I Chris Chan I P .. ,,,,~' I I Allaon Giovannetti Head of Ewcpe- and Head o/'Asia Irdematlon~! COO il'llamallor..alCFQ CredfttmCfEqUlly 

I I I Ge'rg' _",nop •• 'os I I Rayson Ctnmg Head of Europe Rates HeM!)f Asia Rate5 

~IoPh'ilb1!l"""_ClOGl®;'l\COO 

"'RepQtIStoJohnW\ImaI_CIOGIobalCFO 

OONF1OENTIAL.;Th"docum..mls$!rid!!I~"ndtonl\doO~IiII!"ndl!!f!~thel~ltHMldI!I~oftha~edeNolDE:p6.aIMtJr·1I11M 

C~lon. n""ell">&tl!flatsmBYnolba""l'ied.OfdlGlJ!butedw!tl!oull~wrlt\el1 permluJon01 IlteFOIC OtllS .~~ ~nderiIPplo:abjt low. 

I 

] 

FDICPROD-0001796 
1328 

International Chief Investment Office 

Equity and Credit 

IA __ ·I 

1",.-.. -1 

L~ 

I """,,,,,,", 1 I T. __ 1 

Javier Martin-Artajo Head of Europe arid Cred~ & Equtty 

u;;.~ 

I J_as.~1 

CONfiDENTIAL: ThQ. "",,","ern 10 s:IidI'! prMI<!gftd at<!! C<l~fidantla.1 alld reftect~ 1M Inborn,,1 dellberliHons otllM! Feders! o..l1D"ij INurn""" Carpc,,,N,,,, TIlese m""'MIs may""" b<i copiad Of,;h.lrtI>lIt..d \"fl'tho.LII. tM "",illen p""",,,,,)Qn aI!tIe FDIC <>f ... ,,~~ UI>Il<!rllf'pl~ law 

FDICPROD-0001797 
1329 

CIO ~ ~presents the Majority of the Firm's Af Portfolio 

Redacted ,by the 

Perm.oem Subcommittee 00 IIWestigations 

FDICPROD-0001798 
1330 

CIO Balance Sheet 

_ - Red.ded by the Permanent 

Subcmnmiltee OD lavestiptions 

-Current Amortized Cast Totals $344Bn 

-Portfolio provides: 

• 30 day stress buffer of. __ 

• 360 day stress buffer of ~ 

CONF1DElfTlAl:Thiodocumenti5strl<:llyp<Ml&gooar>dconlidefrl.lalaodretlect5tnolnte<naldelibe,alio""pfthe-F.,o"ralDepoIttl""""",,,,, 

Corporation. The ... materials lTIiIynai. be ct)pied Of di.I!bJt!>d.,.j\houl!he wrilt.Bn pem"'$ion ott~ FOtc or ItS allowed ull<ler >IpP/">eabla,...,. 

FDICPROD·0001799 
1331 

_. Redacted by tbe remaDeDt 

SabcolnmlttH oa'fmrestigatlom 

The firm sold $24.5Bn in securities that realized 

approximately $1 Bn in gains. 

10 AFS .A$.sels Update-2Q1Z Salt1$" 

Amortized Cost 

AgencyMBS I MBS 

orporate Bonds 

Marketable CDs 

Muni, 

Non-.US Governments 

RMBS, ABS & eLO 

~~n_' ·23 

... Amortized Cost: price as adjusted over time for 

accounting changes in any discount or premium. 

MarketV~ 

-24.5 

-1.5 

COHFlOENTlAL:ThlsdGeUmenti'l.m:tlyprlvU"IIooandconridentlatandn:!led5u",lf1h,m,atdc!/tr<Olatlons.<IItlleFedflteIDepooHIn$uranee 

Corporation. Th""emal8flll"'mllynolbi>ctlpl<!dofdis.'rlbLII.I!dYdlI><»JtIl>e'lnit\en.,.,.,.....Jnnot~FDlCora!BIl<>WEldvod8f""'pliI;.Bl:)lela .... 

FDICPROD-0001800 
1332 

Summary of the Synthetic Credit Position in the CIO Portfolio 

CONFlDENTlAL: Thls \k>aIment i!lsl!ldlyprl\llleged al!d c»nfidellljal and re!\edII the-lnt<lma! d~!Io~~ 01 111 .. Fe~1 ~!>OOltln$l!ra"oa 

Corporation. !hotl;e maler\;l!!l rMl' notl:te o;>ple:l or dltbfbL!\lld lIO'\I!)out!he YI'fIl;ten permloloo ofl~ FDtc or ~ a)c.,ed Qr<!~r""pli<:abla I ...... 

FDICPROD-0001801 
1333 

Syntheuc. Credit Book Issue Overview 

JPMC buys and sells various synthetic credit indexes as a tool for managing the firm's credff 

dsks arising from C/O securities investments and the firm actively invests in vadous index 

relationships. 

200,000,000,000 ----------------

100,000,000,000 l-----------~-----

50,000,000,000 l--=~-,,~--mrtl--

CONFtOENTlAL Thi~~tis.lllrldlypnvn..ged""deonfo:l&ntiaJMd ~l>Cblhelnl .. ""'Id<,\lb<ireUonsolthE> f'1!Id91'6Io..~ 10"""''''''' Cotp<>OOlon>TI1e""mal.9tiB18mll'ynglbecopiedDfd<S!nbuiedwilhou!tl>elNlitleope<mIs"""cfItleFD1C ... ;tSaR~\.mOe!-'lppliclI.blcl3w, 

FDICPROD-0001802 
1334 

Dve .. lew of Synthetic Credit Book Repositit. .. mg 

Late in 2011, the synthetic credit position was \ong credit protection in high yield {HY) 

Early in 2012, CIO sought to be short C!redit protection in investment grade (IG) 

Net notional (factored'"') 

High Yield indices - Net short 

Investment Grade indices - Net long 

Total book 

$51B 

$329mm 

($177)mm 

Late 2011, Synthetic Credit Spread Book 

provided net protection from credit spread 

widening 

$155B 

$631mm 

($904)mm 

Early 2012, the CIO sought to implement a 

strategy to reduce protection and to short HY 

FDICPROD-0001803 
1335 

Position Overview Balance provided by the finn (May 13, 2012) L Negortive ,. Buying Credit Protection 

Positive= Selling Credit Protec.!ion 

• Rtsks: Directional, curve, off-the run, forward 

default exposure when Investment Grade S 09 

5 yrs matures in December2012, 

• contributes to Investment Grade IfS. High Yield 

position as well --------.-.. --,--.. --------.. ~--

(1,355) (33,020) 

(195) (lsS) 

4291 4,1B3 

(3.2-30) 440 

iNTERNAL USE ONL"Y 

Senior 

28,435 

100 

8,295 

39,185 

• Long Investment Grade risk and short high 

yield risk 

• Long Investment Grade and short lower quality 

names in Europe 

J.P.Morgan 

FDICPROD-0001804 
1336 

CIO Nistorical Profit and Loss 

• P&L for Synthetic Credit Book began to show significant 

!osses at the end of March 2012 

• Total Year to Date loss is $3.7Bn as of May 15\11 

Q1 $700Mn 

• 02 $3.DBn 

J "r,' 

3D·Mar $ 319192503 

10-A r $ 415,342,049 

O-A r $ 222070242 

11·Ma $ 570159849 

14-Ma $ 227592775 

- -$1.0CX!.a!&.+_-------------i1-~-_I._J1_t_.Jt. 

_n~ClMD +--------------~I___f-~l__1l__tt~ 

.~~+--------------------I----~~~ 

_:I3,llOO.m.h +---------,------'---'---:---t-l 

CONF1DENTIAJ...:Th"<lOCI.Il'1\e.rrtb;sl1ictlyprM\GgO>daro<l""rIfid8nlIa! .. nd~!hatn!emalde!lbenrlio~""lI>eF.od8"'t~!nSU"",,," 

Corpontion. TheIIemalo""Jr.mli)'notbllcopied<.>fdir.l!ib\!tedwitl>o<Jl.th<lwr\l;tenpe=IOfi"'"1,.... FtllCoro.s~undofapp1~~ 

FDICPROD-0001805 
1337 

Firm Stress Losses for Synthetic Credit Portfolio 

FDICPROD-0001B06 
1338 

Fi. is extreme tail loss estimate for 1 Yea .s over $12Bn 

Portfollo tail risk based on economic capital model 

i.wMi!!\¥mA 

Assumes no management actions to 

reduce risk over time 

Primary risk is driven by the HY 11G spread 

ratio 

As this ratio declines, losses increase 

Currently the ratio is roughly 5.511 whUe at 

the 99.9% loss the ratio is roughly 

estimated to be 3/1. 

'H@M,- E@I!II'=i!i=~hlllh. ___ .IiMm.!lI.2Hlt.!ftI:!.¥ 1lll¥··I·:,jE.1Il'5:l1ijl!l·II __ • 

~ 

... ,1,.--....... _ 

- -- :-;;~----- .. ~-~.: ,-1.211 

FDICPROD-DDD18D7 
1339 

Su ... mary of Synthetic Credit Book Risk Fa~,ors (May 30, 2012) 

The firm leveraged its strategy by investing in combinations of credit indexes. 

Primary strategies include the six listed below. 

Est Quarterly Loss Potential (Using 5yr Historic Data ) 

1. Directionality (exposure to spread widening) 

2. Curve ( long vs. short) 

3. Decompression ( IG vs. HY) 

a. Crossover verses Itraxx 

b. Europe verse US 

4. Off- the-Run (older vs. newer issues) 

5. Tranche ( Senior vs. Equity) 

6, Individual Names Default 

Portfolio Worst 3 Months: 

Sum of without diversification 

$436Mn 

$10Mn 

$2,037Mn 

$143Mn 

$12Mn 

$O.OMn 

$505Mn 

$O.OMn 

$1.8Bn 

$ 3.1Bn 

CONFiDENTlA.L:Tt1"~O!i!t$tlk::!l)'p!llIl~andconf1de<1ijal"nd-..ltoB\r1t~rna'<I..r~!"""'ofth"Fcde<BI~il.j"""",~C<I 

Corpa"'tIon. T1Ieso ""'!,.,;.,~ rTJa1l1DlbD «>poa<I or<llo.!!ib!l\old wllnolJttt1~ WT11te" permlSBlOIl 01 me role", .. alltJwed...-.1'" "pplic;atl .. I ...... 

FDICPROD·0001808 
1340 

Risk rrofile and Attribution 

Reductions in risk contribution were in ~Credit Spread Wjdening~ and ~On the Run Vs. Off the Run" but at 

the expense of an increase in basis between "High Yield vs. investment Grade 

1 5122 Risk Base Model Change I 

4."" ,...------====';:==== 

-+!-Maturity Mi'lnQtch 

~~lshy;elrlV$..ln~l1tGrJde@U5Ij$eumpe ___ OntheRul'lvsol'fttleRun --!'"""Tl'"ilncheC<lfl ... latlon 

__ lrd!vldtlalNallleJ 

• Ma~kl!lo. F~II'" dtl!$SEld Ie 1he95'l!. C<lr>IkIenoe level nool><'l\deIl!l)tWllhothllf~!>eldco"'lBl'llloca1wletl!lr1o:r .. kh ... leifoo'''n?&L ~tebm~llnlSTlB5"lh""'ilino 

d'"""",~~~~ic!'l haIleMJ.- ,o:a1lQu 1<Jdu<ling C<>lTelirtlof1· ohoukl "",bIltfrnm a $1m!.llt~""""" mowe In all n.~ fad"'" to !he S5~ ...",fidem", ""'lit, e....l!$ <>Il JPM via>o off''''' "" ""ell 

R!>spf>dJYeDay. 

CONFlOENllAl:Thi!; dOcwnenli!.$trldIy~ ~nd COIIIldoonllaland reftecblhe b1lamel c!ellberal""'" m'tIl'I'Il'9dmalDeposa Io="'nce 

Co/J><>",lton. ~ma"'riabi'""'lnotb!o-.>llpio<lord!w\lwledWlltmu\loowrit\enpennluicl11afIheFDlGoroo.!IIIl:M'I>du~~b"'law. 

FDICP RO D-OOO 1809 
1341 

VaR 

CONPLOEN'TlAL '111 .. <k>curnt>n\ Is !>trid!yplivlj"O"'l and OOI'I!Id&n\iai ~<1d JUfIe.::ts t~ Inl,romQl de/ibe',"""n5 oIUle F..oerlll Depolll!UHlfBnt:O 

Corporaboo.~Jn3\erjalsml'1nc1beca;>\o!dord"t<lbu\ftdwitnootlt1eWlillenpeml! ... klIIoftllef'D!I::"'lIsal\awedu""elawlj""blel.!M 

FDICPROD-0001810 
1342 

Changes in the VaR Model 

In early January, CIO exceeded its Value at Risk (VaR) limits. These excesses were approved as CIO 

argued that the VaR model in use (Model A) was overestimating risk in the CIO portfolio. 

-On January 201h 2012, the VaR limit was increased temporarily from $95 mm to $105 mm. Even after 

this increase, the VaR utilization contlnu.ed to remain over its new temporary limit of $105 mm with a 

maximum utilization of $120 mm . 

• On January 26th , a new VaR model (Mode! B) was implemented. The firm believed the new model 

captured the risk of the synthetic credit portfalJo more effectively. After implementing the new model the 

VaR utilization went down significantly. The VaR limit was changed back to $95 mm. 

-Over the course of the next few months, the maximum VaR utilization increased from $59MM in 

February to approximately $95mm in April. 

.On May 10111 , the firm realized that the Model B may be actually understating risk in the Synthetic Credit 

portfolio and decided to revert back to Model A. As a result of this change, the VaR for CIO shot up from 

$94 mm to $147 mm in one single day 

• This increase in VaR caused both cia and firm-wide limit breaches. 80th limits were increased 

temporarily-the CIO limit was increased from $95 mm to $160 mm and the firm wide VAR limit was 

increased from $180 mm to $200mm. 

• The finn recalculated the VaR for the 100 filing for the first quarter. 

• The finn has acknowledged that the weakness in Mode! B was due to flawed implementation. 

CONFlOE.NTVJ.:11IIsd~.,.~t<Ic:tlyp,~aM oonriOOnlIa!alldretlBel5ih.: 1n"',~al<ie!ib~,IItic".oflhe Fed.,!al Cepos~\nsu_ 

CoIJ'~, ll\4!&11 maI"IllOls mil')' I'ICII b8 COllied or dislribuled wilhllUllh.,wrilIell r>efITOnlDl1 <fmc FDle or as a~........:I under applicat>ie bM 

FDICPROD-0001811 
1343 

CIO &ynthetic Credit VaR Model (New vs. uld) 

fa CIO Total-l0Q VaR (95 fimitl 

210 

180 

160 

120 

90 

.0 

utilization 

--Or~n.1 ----Rfllalod -LiITil I\r; ...... ,."r\ 

I 

I 

I 

•• ..J .... ,...,. ..... ,.~~ 

Wlnl 10Ml IIMn11211n1 1I1nZ Zlli12 31m2 4f1f12 5f1f12 Li1i11_1Il111151f2O.1JlIi 

-The dotted blue line represents VaR estimates 

restated using the old methodology. 

-The solid blue line after January 2012 

represents VaR under the new methodology. 

·The orange line represents the established 

VaR timits. 

'" 

FDICPROD-0001812 
1344 

JPII.,"; 1 OQ for First Quarter 2012 

CIO VaR increases 238% (+.$131Mn) 

The table below shows the results of the Firm's VaR measure using a 95% confi nee !evel. 

Total IS trading VaR by risk tvpe. cr~it portfolio vaR and other VaR 

2QU AtMarch31, 

{lnmillioos.) ". "'" ." 2<1" 20ll 

18 hR. by rist type 

rJJedlOCDmI! ,. j " • " $ " $ " , 56 , " , ft)reignl'xmange 11 , H " Equities; 

(om!llQdltie!arod~r U " " " " " " Il 16 

DWe~ifil':iltionbenefitto'Btra(\lngVaR (46}"l N •• (3S) 10) NU [>! N •• (62)1') (31)1" 

181n1d!naVaR " ., 64 4<l B. 54 61 

CredltJKIrrtolloVaR 

Di'll!l"5ffil:atlon~to!Btradll'lland[J"edir: " " " " " " portJo/IoYJR (.141 ,oj .... (7)10> . .. N •• (13)") (7)\01 

TotaIIBtracnngandO'~portfol~V.aa " B3 " ,., " 

ChletlllYestmellt Offire{"QOi vaR«l '" " "7 lB. (3)"" " totaiotJlerV'aRt'l .. 197 " " ., 191 .. DiversttiOltionbenetittototallBandcttterVOJR (47) .... N •• HM $I {:in w N •• ~M iii\ (61}'" {S6lt.< 

lotaltaandotht!rYaRltl , 170 $111 $. 232 , .. , ., , "" $2:01 ... {;t) A~rase 't'aR and ~ vall. were II$S than tile sum of the vaR of 1'11(! comPOll2l13 destrlbecl ab(we. whk'h!~ due to porttolio (!foofJsltiGlti.on. f/ll! 

dlvrfsltlcatloofflectreflemt!letadlhattherl.sk5W!!1'"enotpmecUyrom>:la.ted.TIleriskafapontoflOotposh:loo!;islt1erl!!tnll§lJaltvll5s tt1an me SlIm 

Dfthl!r~of(hepoD!.;ltlOO$lhemSl'tv..s. 

(b). ~gnat@ll~Jl(l( meaningful !", .. n.becausetnf. miAimum jUJr:lma:dmum may oalJr on di~aa.vs torditfen!nt risI( rompIlrle!lU, arla tl!!IICl!itiJi £lot 

meanllJgfullOcDmouteap!lrtfoll~io"elted.. 

{() (10 VilA p!"eSoNte« abo>'e for the period entIeO J.Llrth 31, 21J12 5II[)e/5l!l1e$ me Am!"; ViIR dlrooslJ/t$lncllJ(jed InllS FOOt1 <\.1(, filed on Aprill). 21'111 and 

w<:s talcWted IQng a methodoklgyronsistE'tltWitt1 C1'oe methOOoIotN IIW'l til calCUlate ac'S Vall. In lOll.lrrtll2lrzg the IT5.\" QualW' ot lOll re11ea.l'd ,,,,,-

73 

FDICPROD-0001813 
1345 

CIO Reporting and Limits 

Risk reporting was not comprehensive 

Severa! of key risk matrices relevant to this portfolio were not reported. 

• Maturity~mismatch risk 

• High Yield liS. Investment Grade risk 

• Illiquidity of older indices or tranches (Le. on~the-run vs. off the run) 

• Correlation risk between Super senior and Equity tranche positions and the default risk of individual 

names. 

Limit Structure was weak 

.Before the loss announcement, the limit structure applicable to the synthetic credit books consisted of a 

relatively simple set of limits consisting of VAR, Stop Loss, Credit Spread BP01 and 10% Credit Spread 

Widening . 

• VAR limit, one of the three element of the limit structure, was not effective in controlling risks, as VAR 

model in use understated risks of Synthetic credit book significantly. 

• The limit structure in place waS also deficient as it did not limit five key risks of the synthetic credit 

portfolio (listed above) were not included. 

CONflOENT\AL: Thhd<>Cl.lJn'>flljsst!\dlyprMle\I<Id "nd~nlial and rel\r,.:IsIheInn.malde1Jbe:o.lf""" />/lh&FflII<>mID!:po>lft Irnuranc& 

Corpor!!llon. Thes~ rN<\!IrIalo mil)' no!. be ~le<Ior dO;l.,ib~ wlthO\ll IlrBwriUen permiss\nn <lftllf. FDIC or 115 allowed und .. , appbb~ low. 

FDICPROD-0001814 
1346 

Weak Limit Governance 

Trading positions exceeded eXisting limits 

According to firm's risk policy, limit excesses should result in notification to market risk and limit 

approvers and a decision should be made whether positions should be cut or a temporary or 

permanent change to limit needs to be approved. 

On March 30th 2012, three out of four of the existing limits were breached. One of these limits -

Credit Spread BPV was exceeded 937% for 59 trading days. 

The Mark-to-Market Stop-Loss limit was exceeded by 1SB'Vo for 5 business days. However, this 

excess was not escalated as th.is limit was only 'advisory' (e.g. not a hard limit which would require 

hedging or cutting of the positions). 

The limit on 10% Credit Spread Widening (CSW) was in excess for over a month from March 22 

to April 30th. 2012. with an average limit utilization. 

Escalation procedures for limit excesses remain unclear. Some of these limits were increased 

temporarily and traders were not asked to cut their positions. 

CONFIDENTIAl: Th .. docum .. r¢ is Slrid!y pri~kogsd lind ronfide<J!ia1 8I1d reflects 1M IrlllOII'al dehberatlcn$ all!>e Federal Oe,>oo.'llnB<Jta~"" 

Corpor.Wtm, The...- ",alf;rialSo mil;( not be r:cpied '" dlsklu,tIed wilhOUl the 't'I'~lel\ pe""~lon c1 It>!! FDIC or !IS aROl>md """~' applicabl<t t,... " 

FDICPROD-0001815 
1347 

New Limits were established on May 1" 2012 

29 new limits specific to the Synthetic Credit Book have been implemented to create consistency with the 

JPMC's IB approach. Some of key limits implemented are: 

-Maximum net notional exposure limits for 4 major indices 

-95% VaR limit on Synthetic Credit Book - in addition to the existing 99% limits 

.Umits on curve steepening by 10%, 

-Limits on "higher~order" shocks - U.S, and EU compression ( Extent to which Synthetic Credit Book is 

exposed to differential performance of IG and HY positions within a given geography) and 10% correlation 

shift ( Sensitivity of the tranches to a 10%) shift: of the correlation curve). 

CO~IDI"H'n<'L ,hill ~~tis "tdd!\'priyI~ and co;rlidentIaJ "rei relltlclo the- \1\I6f1\11Jdallbemllol1~"'1heFIM""1I tle"".ltl ... "",nca CorpataUon. TlIeas m8\erl!o~ mill' fl(I\ be cop;ed IlrdlSlrtAAed ",;UlQut Im>..ntlan pe,",SIIIon 01 tho FmC or u al""-'l ij!l<lel appUcahlB 1 ...... 

FDICPROD-0001816 
1348 

Limit Utilization Under Old and New Limits 

The firm stated that the protocols for limit excess approval were 

followed. Some of these limits were increased temporarily without 

asking traders to reduce their positions. 

However positions continued to exceed some of the new temporary 

Ii mils. 

CONFIDENTIAL Th~ dooum&ntls striai)' ~;on<! con!'t!enllal and relJetb!he in\ema\ d .. !lra"'~OM pfjhe Fedel1ll D.."oso1InsUfM"'" 'C~tkm. TIIe""m!l'I",,/s mm'fn<>l.be ocpiedOidlst~buled.oL4the_ p"m1isJ;i\m of the FPlt <>I'<!IS eijowed"nd"'8~ic;>b1eI ...... " 

FDICPROD-0001817 
1349 

Volcker Rule 

FDICPROD-0001818 
1350 

Over".~w 

Redacted by the 

Permanent SlIbcommlttee on Investigations 

FDICPROD·0001819 
1351 

Volcker Rule 

RedadCd by the 

Permanent Subcommittee on Investigations 

FDICPROD-0001820 
1352 

Redacted by tbe 

Permanent Subcommittee on Investigations 

FDfCPROD-OOD1821 
1353 

Firm Financial Profile 

CONfiDENTIAL: Thls d!><:u!Tl911l is slr'o::!J,o f'd'<ik>g...:! aM CQIlIjd''''IIaI and l1!!leeIs the Intemal <'k>llIleJ'aticno at 'h~ F""ernl Dep""tt '""",an<;>! CoI'poraUon. The ... ma~~maYllol beo;Qj>R:doldl~!ribuInd",,';II""'llhe~n~.O)r1 oH""FOIC <>1""" ~un6M"I'P!lcab1o ~ 

FDICPROD-0001822 
1354 

Firm L. .. uidity 

Redacted by lbe 

Permanent Subcommittee on Investigations 

CONFIOENTlAl...:This~is~lrdI)'p~daIldOO!\lidoont;.!And reftecbthe In\1!maldl!Jibe, ... tIono (lllhel'ed ..... 1D"I"'$l.!"~lIT'!Ir>ce 

C:.orporot;"n. Thenmatl!'l'labmIl)'TlQlbeeoplado,dlstr!buledW!tholllt.",wrtI"",pem'\t.l1Oll<l.It!eFOICO<;I.a~ow:edu!'lder!Oppllcat> .... """" 

FDICPROD-0001823 
1355 

Firm Liquidity Cont'd 

Redacted by the 

Permanent Subcommittee on Investigations 

CONFIDEN11Al: This doe.!Irnent iii slridly !>< .... ilegt>;I a'>d 00I1tide111W and refleel$ ~ ",(lima! del/bomll~ ollhe R!<Ieral Oepos~ IMul'llr><:e Corpo;.olion.nn..a"""..na!omllyn.,.tb8CQjl'ied0fdi5!<ib.ih,dwilh"ullJ>e'll'ltt\&rtpstml:nionol!l1eFDlCof,,~alk>l-;edu_appl\<:lib!eiaw 

FDICPROD-0001824 
1356 

Capital Dashboard - JPM (5-11-2012) 

JPM- BANK HOLD 

CO 

\ 

Redacted by the \l 

Permanent Subcommittee on In"~t::J 

( ........ Ii 

JPM"s lj109b of L.v.13 A. .... ts (FlIlr Vo1ll1t, A~ 

L:.rgHt v, ",.rs on Ab$oluta a""llI MId As % 01 

TCEa1Q% 

L~3Au(!1sAs9lfjofTCE" 

Level;) A&Se~A$ % oITCE 1Q12 

2"0% .\O'l« 

ii~ii~~~~~"~'~~ """' WFC 

,"C .,,\% 

C_J9.,$% 

BAC_l!l.J% 

E;BT_2.oU1"io 

Ul:.e_:UJ% 

!,m_22-O"I. 

;:<"_7,2% 

OK .3,,",-

N:R$ .~.1\O. 

FDICPROD-0001825 
1357 

JPM Dividend Contributions bV BanI<. 

,J ' .. 

'Oil,'. contrtb. JPM~Tl'\Jst 

l01 ... contrib. Chase USA Bank 

• OIl,' eontrill JPM~NA 

2500 -2000 -1500 -1000 -500 

Redacted by the 

Permanent Subeommittee on Investigations 

COt-lFIDCNTW.: ThiS doc:cmenl ~ slrlc1i)' priw;iIoged lOM ""nMon~Dl and rufiB!:I& the in!""",1 ""11t»~""'. otlll .. Fed .. ",! Oe_~ In ...... n ... 

CO<pI:IIlliiorl. n-maleria~!TIII)'''''INoopIe<Iu'd!!.tribtted~l!Iewrltlenpelfl'b.'JloooltheFDICQ'as"""",,,dLmdef''flPllcablel_, 

FDICPROD-0001826 
1358 

Appendix 

-Legal Structure 

-Index Descriptions 

CONROENTlAl: Thit d<>=ll""""''' slrl=l\y prMlege<! IIrIO' e<>rnidonti.t aM ~!he ~jeml>1 dcllberaUom; <Jfl!'!-e Fed ...... 1 Depo~~ lno.un.1)C8 Corpo.-at'"n, Tllesema''''''"''mll)'"''tt.eoopiedgrd;'!nbu! ... wtthoulj;,e.YWTItU:Opol'lOl.s''ncfI!KoFDlCorU$alkwo<>duod.,.a~ica"""law 

FDICPROD-0001827 
1359 

10 Synthetic Credit Trades are booked in Whit£ us Inc. London 

Redacted by the 

Permanent Subcommittee on Investigations 

FDICPROD-0001828 
1360 

Di~.;retionary Return Portfolio - JCF (Chief Inves ... nent Office) 

Credit Synthetics Trades 

Customer CountellJi'lrty face JPMCB London 

Trades are Internally booked with White-friars Inc. 

Reda~ted by tbe 

Permanent Subcommittee on Investigations 

FDICPROD-0001829 
1361 

What a. ~ the COX and ITRAXX Indices 

The COX and ITRAXX are intended to represent returns on pools of Credit Default Swaps 

The pools are genercrlly: 

The more liquid names in the Credit Default Swap market 

Should have the same reference maturity (5yr, 7yr. 10yr being the most common and liquid) 

The credits should be of ENen weights at inception (if 100 credits each would be 1% of pool) 

Segregated by credit quality of reference entity (separate High Grade and High Yield Indices) 

Also, separated by region US, Europe, Asia. Emerging Markets etc 

The pools are generally issued jn ~Series· twieea year with fairly consistent reference credits 

The COX are generally North American and Emerging Market Indices and have the 

characteristics provided below 

CONFIDENTIAL: n,,,, dt>aI..,&n! '" llricfl)o plM!efll'll and omI'dential and renecb the >nlernal Oellt>ftr1llioml of the; Feder3' Depos.!\ lMlurs~ee 

Corpoia!lon. TI>8o&ma!<!<ill1a maynol be O()pled o,dlwibll\od wiI~ou! th~ "'TItIan perm .... ooll "'!he rOIC 0< "" ",<>Ned ..,roe' applicAble lIlYI' . 

........... _ ...... _-------

FDICPROD·0001B30 
1362 

What .. -~ the COX and ITRAXX Indices 'Tranches) CFI Mon" ring Group 

Tranches of the COX and ITRAXX allow leveraged and de-levered risk exposures to the 

respective indices 

These tranches are generally: 

Based on the more liquid Indices 

~ Are quoted with the name of the index for which it is based and two numbers representing the 

attachment and detachment points (these points will vary from pool to pool) 

Risk and return increase with lower tranches and less subordination 

Losses are always absorbed by the most subordinate tranche outstanding (et The first 10% of losses 

,assuming 0% recovery, are laken by the equity tranche below) 

Sample Transaction below would be COX.NA.HY Series 9 5Y 15-25 

Detachment Point 

25% 

Attachment Point 

15% 

less Risk and 

R 

~' 

Greater Risk and 

Return 

FDICPROD-0001831 
1363 

Microsoft Outlook 

From: 

Sent: 

To: 

Subject: 

Reitz, Kar! R. 

Thursday, May 24, 2012 5:35 PM 

Haas, James S. 

Fw: lnfannatton previously provided to FSA 

Attachments: FSA Item 01 - Dally time series of position size and PnL from June 30, 2011 to May 11, 

2012.;..:15X; FSA Item 02 - Daily time series ofVaR for the portfolio from June 30, 2011 to May 11, 

2012.x!sx; FSA Item 03 - Periodic time series of Stress Loss size from "June 30, 2011 to May 11, 

2012,pdf; FSA Item 04 - Detail of the composlUon of the loss on MaL 30, 2012.pdf; FSA Item 05 -

Explanation and breakdown 10% CSW changes from Feb. 29, 2012 to Mar. 30, 2012.xI5x; FSA 

Item 06 - Detail of Risk Parameters applied until late Aprll2012 and Re-assessment Risk 

factors.pdf 

From: Yao, James 

Sent: Thursday, May 24, 2012 05:14 PM 

To: Reitz, Karl R. 

Subject: FVtJ: Information previously provided to FSA 

Karl, 

Pleas€' find attachp.d the rSA information, as di;~cussed on the cillL Welcome to the SWAf team 

Jame:, 

From: Arya, Om P. 

Sent: Thursday, May 24,20123:13 PM 

To: Yao, James; Charurat, Bob; Capsavage, Brian A. 

Cc: Byars, Jessica P. 

Subject: FW: Information previously proVided to FSA 

FYI. 

From: Genova, Diane M. i.tr:@.:.ll2.:.9.,enova diane.@iQm9rgan.r:omJ 

Sent: Thursday, May 24, 2012 1:19 PM 

To: Q';anne.DobQ~fk@Dy.frb.pI9.; Waterhouse (Regulator), Scott X; Needham, Catherine; Arya, Om P. 

Subject: Information previously provided to FSA 

Attached are the documents previously requested and provided to the FSA relating to the CIO Core 

Credit Book. The attached includes: 

8/27/2012 

PRIVILEGED 

Item 1: Daily time series of position size and P&L from June 30, 2011 to May 11, 2012 

Item 2: Daily time series of VaR for the portfolio from June 30, 2011 to May 11, 2012 

ltem 3: Periodic time series of Stress Loss size from June 30, 2011 to May 11, 2012 

Item 4: Detail of the composition of the loss on March 30, 2012 

FDICPROD-0024274 
1364 

Item 5: Explanation and break down 10% CSW changes from February 29, 2012 to 

March 30, 2012 

Item 6: Detail of risk factors and stress parameters applied until late Apri12012 and reassessment of additional risk factors 

This email is confidential and subject to important disclaimers and conditions including on offers for the 

purchase or sale of securities, accuracy and completeness of information. viruses, confidentiality, legal 

privilege, and legal entity disclaimers, available at lill£.:;iW\\,\v.jplnol'gan.com}pa!fI?S)discjo:sure~/elTlaiL 

8/27/20[2 

PRIVILEGED FDICPROD-0024275 
1365 

Date VaR 2011 Model Var New Model 

06/30/2011 31,338,508 

- 07/01/2011 - -

111 

30,589,886 

- 2011 30,587,033 - 1 30,683,067 - 11 30,590,642 - 07/08/2011 31,474,673 - 07111/2011 30,500,550 - 07/12/2011 30,389,702 - 07/13/2011 30,237,788 - 07/14/2011 30,244,166 - 07115/2011 29,468,672 - 07/18/2011 29,456,958 - 07/19/2011 28,174,434 - 0712012011 28,174,085 - 07/2112011 28,150,466 - 07/22/2011 27,877,989 - 07125/2011 27,908,472 - 07/2612011 27,936,898 - 07/27/2011 28,062,722 - 07/28/2011 27,398,853 - 07/29/2011 27,225,892 - 08/01/2011 26,514,898 - 08/02/2011 26,107,184 - 08/0312011 26,058,601 

08/04/2011 26,066,711 

- 08/05/2011 26,105,509 - 08/08/2011 26,241,045 - 08/09/2011 26,348,602 

08/10/2011 26,010,313 

08/11/2011 25,800,342 

- 08/12/2011 25,815,935 - 08/15/2011 52,912,468 - 08/16/2011 53,534,478 - 08/1712011 53,500,336 - 08118/2011 55,516,312 

08/19/2011 53,914,576 

- 08122/2011 53,546,037 - 08/23/2011 51,325,303 - 08/24/2011 50,431,939 - 08/25/2011 50,717,034 - 08/26/2011 50,699,310 - 08129/2011 51,468,566 - 08/30/2011 51,690,246 - 08/31/2011 52,404,742 - 09/01/2011 52,883,600 - 09/02/2011 - - 09/05/2011 51,898,136 - 09/06/2011 51,942,463 - 09/07/2011 53,287,788 - 09/0812011 54,321,543 - 09/09/2011 56,667,209 -

FDICPROD-0024286 
1366 

09/12/2011 56,602,695 

- 09/1312011 57,226,187 - 09/14/2011 57,583,227 - 09/1512011 58,553,854 - 09/16/2011 59,122,446 - 09/19/2011 58,517,726 - 09/20/2011 58,626,919 - 09/21/2011 58,241,615 - 09/2212011 58,262,644 - 09/23/2011 56,674,658 - 09/26/2011 57,879,882 - 09/27/2011 59,176,446 - 09/28/2011 57,918,884 

09/29/2011 58,900,427 

- 09/30/2011 57,219,556 

10103/2011 56,313,141 

- 10/04/2011 55,912,197 

10/05/2011 57,341,678 

10/06/2011 58,435,360 

- 10/07/2011 - - 10/10/2011 60,687,443 

10/11/2011 59,198,110 

- 10/12/2011 62,577,472 - 10/13/2011 62,189,919 - 10114/2011 63,692,856 - 10/17/2011 62,084,711 - 10/18/2011 64,540,672 - 10/19/2011 64,770,248 - 10/20/2011 64,225,622 

10/21/2011 65,683,420 

- 10124/2011 65,850,811 - 10/25/2011 65,062,135 

10/26/2011 64,575,559 

- 10/27/2011 69,667,426 - 10/28/2011 73,944,380 - 10/31/2011 68,599,657 - 11/01/2011 66,858,203 - 11/02/2011 67,627,873 

11/03/2011 69,636,645 

- 11/04/2011 69,664,779 - 11/07/2011 69,401,729 

11/08/2011 69,742,061 

- 11/09/2011 66,851,976 - 11/10/2011 - - 11/11/2011 69,070,795 - 11/14/2011 68,260,963 - 11/15/2011 67,654,883 

11/16/2011 67,979,297 

- 11/17/2011 66,973,561 - 11/18/2011 66,980,368 - 11/21/2011 67,345,302 

11/22/2011 69,550,770 

- 11/23/2011 - - 11/24/2011 68,149,159 - 11/25/2011 68,103,767 

FDICPROD-0024286 
1367 

11/28/2011 67,488,768 

- 11/29/2011 67,787,755 - 11/3012011 67,147,763 

1210112011 67,086,213 

12/02/2011 67,051,785 

1210512011 67,031,741 

- 12/0612011 66,755,445 - 1210712011 70,791,029 - 12/08/2011 71,753,872 - 1210912011 72,585,365 - 12/12/2011 73,436,048 - 12/1312011 72,731,525 

12/14/2011 72,851,735 

12/15/2011 71,206,169 

1211612011 70,318,680 

1211912011 70,322,118 

1212012011 72,314,888 

- 1212112011 71,825,878 - 1212212011 78,399,504 - 1212312011 78,401,167 - 1212712011 78,322,119 - 12128/2011 81,157,926 - 1212912011 82,452,593 

1213012011 82,270,219 

0110212012 

- 0110312012 94,561,512 

0110412012 94,892,531 

- 0110512012 96,096,744 

0110612012 95,372,685 

0110912012 92,641,094 

- 0111012012 96,516,439 - 0111112012 98,154,081 - 0111212012 99,771,149 - 0111312012 - - 0111612012 98,982,038 - 0111712012 94,427,628 - 0111812012 97,190,972 - 0111912012 100,838,403 

0112012012 100,658,767 

- 0112312012 101,631 

0112412012 103,555 

- 0112512012 106,417,378 - 0112612012 109,430,803 - 0112712012 125711,990 62,560,584 

0113012012 126,163,028 65,001,864 

0113112012 126,039,349 61,839,252 

0210112012 123,353,147 56,617,752 

0210212012 124,186,108 56,193,368 

0210312012 124,593,715 52,589,752 

0210612012 122,544,351 51,046,872 

0210712012 125,061,518 54,269,624 

0210812012 125,181,484 53,449,820 

0210912012 125,147,041 48,979,864 

0211012012 125,524,820 48,807,880 

0211312012 125,401,441 50,444,436 

FDICPROD-0024286 
1368 

0211412012 127,337,622 51,717,968 

0211512012 126,906,301 51,706,496 

0211612012 126,232,307 52,131,796 

0211712012 

-

- 0212012012 125,496,566 48,707,460 

0212112012 127,442,929 47,859,568 

0212212012 127,943,468 47,803,892 

0212312012 128,143,932 48,056,652 

0212412012 128,197,993 48,501,808 

0212712012 128,759,881 49,962,864 

02/2812012 129,003,016 50,142,140 

0212912012 129,887,198 50,452,808 

03101/2012 129,771 51,055,536 

03102/2012 131, 49,957,936 

0310512012 134, 48,875,644 

0310612012 136,670,905 50,655,420 

03/0712012 137,399,706 49,544,876 

0310812012 137,242,492 49,724,496 

03109/2012 135,867,233 49,248,324 

03/1212012 136,974,905 49,666,256 

0311312012 134,927,272 49,146,444 

0311412012 137,023,545 47,913,840 

03/1512012 137,926,901 48,085,788 

0311612012 137,940,158 49,500,428 

0311912012 138,833,530 48,946,504 

0312012012 138,979,719 50,095,804 

0312112012 154,304,951 52,542,460 

0312212012 176,598,844 61,100,484 

0312312012 178,937,377 60,525,240 

03126/2012 174,305,324 59,148,584 

03/27/2012 175,372,249 58,114,248 

03/28/2012 180,246,289 57,785,224 

03129/2012 180,617,205 58,992,360 

03/30/2012 168,370,300 58,879,980 

04/0212012 181,518,641 57,819,958 

04/03/2012 182,155,910 57,121,964 

04/0412012 184,322,182 60,482,140 

04/05/2012 184,323,061 60,482,616 

04/06/2012 184,006,468 60,216,896 

04/0912012 184,927,225 61,108,212 

04110/2012 184,530,965 71,853,320 

0411112012 185,441,910 71,025,360 

04/1212012 185,398,279 68,785,480 

04/1312012 186,239,810 72,598,024 

04116/2012 187,034,251 73,376,576 

04117/2012 186,630,091 70,357,192 

04118/2012 187,663,989 72,906,072 

04/19/2012 188,580,913 75,215,453 

04120/2012 188,408,744 75,276,095 

04/23/2012 190,412,469 82,173,581 

0412412012 188,644 884 81,456,263 

04/25/2012 187,644,321 84,176,313 

0412612012 188,059,782 ! 87,996,439 

04127/2012 192,810,686 85,933,435 

04/30/2012 191,311,240 91,051,626 

FDICPROD-0024286 
1369 

05/01/2012 186,683,923 88,887,431 

05/02/2012 185,489,619 88,814,768 

05/03/2012 182,696,518 89,511,582 

05/04/2012 182,691,110 89,506,005 

05/07/2012 177,151,245 91,468,679 

05/08/2012 155,343,373 81,895,979 

05/09/2012 146,738,714 - 05/10/2012 - 05/11/2012 -

FDICPROD-0024286 
(.)nfirit 'l:i;-)iCFI Monitorin

What Happened in JP Morgan's CIO? A Primer (July 16,2012) CONFIDENTIAL FDICPROD-0036009 
eFt Monitorin

- Background - What happened to JP Morgan in the Markets? 

- What happened to JP Morgan's CIO Trading Portfolio? 

- Directional Risk 

- Investment Grade vs. High Yield Risk 

- "On the Run" vs. "Off the Run" Risk 

- What Happened to JP Morgan's CIO Controls? 

Cunfidf'nti;-): i'lterna! Discussion Or.!'y. CONFIDENTIAL FDICPROD-0036009 
Background CFI Monitorin

January - April 6th 2012 

JP Morgan commences selling protection (going long) the COX investment grade Indices going from Net 

protection buyers of $8 billion to Net protection sellers of $60 billion Net Notional by the end of March (The 

largest of these positions is the COX IG Series 9, which had a Net protection sell of nearly $75Bln. 

JP Morgan also increases its position in the European ITRAXX Investment Grade Indices from Net protection 

sellers of $76 billion to Net protection sellers of $115 billion by the end of March (The largest of these 

positions is in the ITRAXX Series 9, which had a Net Protection Sale of $90 Billion by the end of March) 

Both Indices are considered "off-the-run" and liquidity in these markets can be limited 

JP Morgan had sold enough protection in these indices to create a market dislocation 

As hedge funds saw the dislocation they attempted to purchase protection in anticipation of a market 

correction, but the size of JPM's trades dislocated markets further, creating paper losses for the hedge funds 

It is suspected that these Hedge Funds begin to circulate news of the large JPM positions 

April 6th 2012 

Bloomberg reports of the "London Whale", a JP Morgan trader amassing a large positions in the COX IG 

Series 9 and the European ITRAXX Series 9 Indices . 

April 6th - May 10th 2012 

JP Morgan in separate statements indicates 

"The CIO unit is focused on managing the long-term structural assets and liabilities of the firm and is 

not focused on short-term profits.' 

"Our CIO activities hedge structural risks and invest to bring the company's asset and liabilities into 

better alignment." 

Markets reacts to reports and begins to trade against JP Morgan 

May 10th 2012 

Jamie Dimon makes public announcement of potential losses and potential errors made by JPM and its CIO 

group 

Codid,':l:iiJ! For lntecOlof Purposes Only_ FDICPROD-0036009 

CONFIDENTIAL 
What Happened to JP Morgan in the Markets? (A Simple Example) CFI Monitorin

JP Morgan (eIO) 

Trade 

Sell $1MM Prot COX IG 

Series 9 @ 200 

Sell $1 MM Prot COX IG 

Series 9 @ 190 

MTM Result 

None, assuming initial 

trade at Market 

Made 10 Bps on 

Original $1 MM Position 

Made 20 Bps on 1st and 

10 Bps on 2nd Position 

No MTM Chanijof,.SiBeQ,. ;11 

no 1 J 

Lost 20bps on Original, 

30bps on 2nd, 40bps on 3rd 

The Simple Example Synopsis 

COX IG Series 9, 5 Year --I 

Theoretical Spread 

(Cost of Buying 

Protection on Underlying 

Hedge Funds 

Trade MTM Result 

200 Bps No Skew J 

200 Bps (-10 Skew) 

Buy $1 MM Prot COX IG 

Series 9 @ 200 

Buy $1 MM Prot COX IG 

Series!:t@190 

Buy $1 MMProt COX IG 

Series 9 @ 1 BO 

0 \., '1·'1 r'. ; NQ INTEREST '." " .. ","_..:.r-... :; I;.; 

Sell Prot COX IG Series 

9@220 

None, assuming Initial 

trade at Market 

Lost 10 Bps on Original 

$1 MM Position 

Lost 20 Bps on 1st and 

10 Bps on 2nd Position 

No MTM Change Since 

no transactions 

Made 20bps on Original

30bps on 2nd, 40bps on 3

- JP Morgan begins selling protection on the CDX IG Series 9 at or near theoretical value of the underlying credits and 

continues to sell at lower spreads, which begins to drive the index below the theoretical value, creating a Negative Skew 

- Hedge Funds see an arbitrage opportunity and begin buying protection, waiting for spreads to return to theoretical 

- JP Morgan continues selling protection, driving the spread down further and creating MTM losses for hedge funds 

- Hedge Funds circulate rumors of large positions held by JPM, and begin to realize that JPM needs to exit these positions 

- Hedge Funds get the last laugh, as the spreads finally do converge to theoretical and JPM is finding it very expensive to 

Buy back their protection 

Con:ic!entia! For IntEn,al Discussion DurpoSE::s CONFIDENTIAL FDICPROD-0036009 
What Happened to JP Morgan's CIO Trading Portfolio? CFI Monitorin

The CIO Trading Portfolio (Is an Index an Index?) 

The CIO had nearly 100 individual Index positions of varying exposures, vintages, and tenors 

- They severely underestimated the ability for these indexes to diverge from historical or assumed relationships and move 

independently 

- This problem was exacerbated by the fact that they became such a large participant in some specific indexes (COX IG 

Series 9 and the ITRAXX Main Series 9) that it caused greater market dislocation 

What were the Major Risks to JPM? (Recall our earlier "Basis Risk" discussion) 

- "Directional Risk" is the Risk that the spreads move against you, uniformly across indices and in parallel 

SPR01 of Portfolio r-. Unexpected Parallel _I Unexpected LossiGain Market Move Directional Risk 

"Investment Grade vs. High Yield" Is the Risk that Investment Grade Indices (ie. COX IG and the ITRAXX Main) 

dislocate from assumed relationships to the High Yield Indices (ie. COX HY and the ITRAXX XO) 

Change in Relationship High Yield vs. Investment Grade R

"On the Run" vs "Off the Run" Is the Risk that "Off the Run" Indexes perform in an unexpected manor in relation to 

"On the Run" Indexes 

CDX IG Series 9 r Change in Relationship -l CDX IG Series 18 "On the Run" vs "Off the Run Risk

Confidenti"i-- ]:0'· )01er;:ai Discussion Purposes Onl,/- CONFIDENTIAL FDICPROD-0036
What Happened to JP Morgan's CIO Trading Portfolio? CFI Monitorin

How big are these Risks and how do they appear? (A Hypothetical Portfolio Loosely 

based on JPM positions as of May 5th) 

Beta Adjusted 

Net Notional SPR01 Assumed Beta .. SPR01 

US High Yield 5 000 000 000 8000 000 5.0 40000000 US In\estment Grade 

CDX IG Series 9 "Off the Run" 75,000,000,000 (40,OOO,QOO) CDX IG Series 14 "Off the Run" (S,OOO,OOO,OOO) 2,000,000 COXIG Series 15 "Off the Run" (20,000,000,000) 7,000,000 COXIG Series 16 "Off the Run" (20,OOO,OOO,OOO) 7,000,000 COX IG Series 17 "On the Run" 10,000,000,000 (5,000,QOO) 

CDX IG Series 18 "On the Run" 20 000 000 000 9 000 000 

Tota! US In\estment Grade 60 000,000 000 (38,000 ODD) 1.0 38,000,000 

European High Yield (10000000000) 3000,000 5.0 15000 000 European In\estment Grade l1S 000,000 000 25000000 1.0 25000000 

Total 160,000,000,000 (52,aOO,DOO) (a,aOO,DOO) 

c:::J Assumed to be the Beta1 Baseline 

How big are these Risks and how do they appear? (Some Basic Definitions) 

- SPR01 Is the profit or loss from a 1 basis point widening of the underlying spread 

- 'Beta Is the assumed relationship between the performance of two different Indexes, Beta's are based on the "On the 

Run" COX IG Series 18 and COX IG Series 17 

- Beta Adjustment Is simply the SPR01 for a given Index multiplied by it Beta 

Confidential For !nternal Discu:,slon 0,,1,;. CONFIDENTIAL FDICPROD-0036009 
What Happened to JP Morgan's CIO Trading Portfolio? CFI Monitorin

Directional Risk - What is it? How Does it Work? 

Bela Adjusted Basis Point Projected Profit & 

Net Notional SPROt Assumed Beta* SPROt Sproad Move Loss 

US High Yield 5000,000 000 8,000000 5.0 40000000 25.0 200000000 

US In\estment Grade 

COX IG Series 9 "Off the Run" 75,000,000,000 (40,000,000) 1.0 (40,000,000) 5.0 (100,000,000) COX IG Series 14 "Off the Run" (5,000,000,000) 2,000,000 1.0 2,000,000 5.0 10,000,000 COX IG Series 15 "Off the Run" (10,000,000,000) 7,000,000 1.0 7,000,000 5.0 35,000,000 COX IG Series 16 "Off the Run" (20,000,000,000) 7,000,000 1.0 7,000,000 5.0 35,000,000 COX IG Series 17 "On the Run" 10,000,000,000 (5,000,000) 1.0 (5,000,0001 5.0 {15,000,0001 COX IG Series 18 "On the Run' 20 000 000 000 9000000 1.0 9000000 5.0 45000000 

Total US Investment Grade 60 000,000,000 38000,000 1.0 38000000 5.0 190000000 

European High Yield 10000 000 000 3000000 5.0 15000000 25.0 75000000 

European Imestment Grade 115000 000 000 25000000 1.0 25000000 50 12S 000000 

( (4O,000,000)J 

Assumed to be the Beta1 Baseline 

How can "Directional Risk" drive JP Morgan's Losses 

- As indicated in the previous slide the "Directional" P&L results from a uniform widening of spreads, under predefined 

Beta assumptions. 

- In the example above the Investment Grade Indexes widen by 5 basis points and the High Yield Indexes move by 25 

basis points, maintaining the original 5:1 Beta assumption. 

- We then multiply the SPR01 by the basis point move, arriving at the Profit or Loss in each position 

- Summing those individual positions we come to a ($40,000,000) loss, purely from the 5 basis point "Directional" move 

for CONFIDENTIAL FDICPROD-0036009 
What Happened to JP Morgan's CIO Trading Portfolio? CFI Monitorin

Investment Grade vs. High Yield Risk - What is it? How Does it Work? 

Beta Adjusted Basis Point Projected Profrt & 

Net Notional SPR01 Assumed Beta' SPR01 Spread Move Loss 

US High Yield 5000 000,000 8,000000 5.0 40,000000 15.0 120000000 US In,,"stment Grade 

COX IG Series 9 "Off the Run" 75,000,000,000 (40,000,000) 1.0 (40,000,000) 5.0 (200,000,000) COX IG Series 14 "Off the Run" 15,000,000,0001 2,000,000 1.0 2,000,000 5.0 10,000,001) COX IG Series 15 "Off the Run" (20,000,000,0001 7,000,000 1.0 7,000,000 5.0 35,000,000 COX IG Series 16 "Off the Run" (20,000,000,000) 7,000,000 1.0 7,000,000 5.0 35,000,000 COX IG Series 17 "On the Run" 10,000,000,000 15,000,000 1.0 5,000,000 5.0 125,000,0001 COX IG Series 8 "On the Run" 20 000 000 000 9000000 1.0 9000000 5.0 45000000 

Total US In,,"stment Grade 60 000 000 000 38000000 1.0 38000000 5.0 190 000 000 

European High Yield 110000 000 000) 3,000000 5.0 15000000 15.0 45000000 European In,,"stment Grade 115 000 000,000 25000000 1.0 25000000 5.0 125,000000 

-

..jlSQ,OOQ,OOO) ..-' 

c::J Assumed to be the Beta 1 Baseline 

How can "Investment Grade vs. High Yield Risk" drive JP Morgan's Losses 

- As indicated in the previous slide the "Investment Grade vs. High Yield" P&L results from spread movements of 

Investment Grade positions that are not in line the original projected relationships to High Yield positions (Beta's). 

- In the example above the Investment Grade Indexes widen by 5 basis points and the High Yield Indexes only move 

by 15 basis points (implying a Beta of3:1 vs. the assumed Beta of5:1). 

- We then multiply the SPR01 by the basis point move, arriving at the Profit or Loss in each position 

- Summing those individual positions we come to a total loss from the move in spreads of ($150,000,000). 

- Recall from the previous slide you can categorize ($40,000,000) of the loss from "Directional" moves and the 

remaining ($110,000,000) as a "Investment Grade vs. High Yield" loss. 

Confidentia!·- For Purposes Only. CONFIDENTIAL 

FDICPROD-0036009 
What Happened to JP Morgan's CIO Trading Portfolio? CFI Monitorin

"On the Run" vs. "Off the Run" Risk - What is it? How Does it Work? 

Beta Adjusted Basis Point ProJected Profit & 

Net Notional SPRot Assumed Beta'" SPRDt Spread Move Loss 

US High Yield 5,000 000,000 8,000,000 5.0 40000000 25.0 200 000 000 US Im.eslmenl Grade 

COX IG Series 9 "Off Ihe Run" 75,000,000,000 140,000,000) 1.0 140,000,000) 10.0 1400,000,000) 

CDX IG Series 14 "Offlhe Run" 15,000,000,000) 2,000,000 1.0 2,000,000 5.0 10,000,000 

COX IG Series 15 "Off Ihe Run" (20,000,000,000) 7,000,000 1.0 7,000,000 5.0 35,000,000 

CDX IG Series 16 "Off the Run" 120,000,000,000) 7,000,000 1.0 7,000,000 5.0 35,000,000 

COX IG Series 17 "On Ihe Run" 10 000 000 000 /50000001 1.0 5000000 5.0 25 000 000 COX IG Series 18 "On Ihe Run" 20000000000 9000000 1.0 9000000 5." 4 OMOM' 

Total US Im.eslmenl Grade 60,000,000,000 38000,000 1.0 38,000,000 5.0 390000,000 

European High Yield 10000 000 000 3000000 5.0 15000000 25.0 75000000 European Im,estment Grade 115000 000 000 25000000 1.0 25000000 5.0 llSllOOOoo 

(£40,000,000)) 

c:::J Assumed to be the Beta 1 Baseline 

How can "On tne Run" vs. "Off the Run" Risk drive JP Morgan's Losses 

- As indicated on the initial slide the "On the Run" vs. "Off the Run" P&L results from spread movements of "On the 

Run" positions that are not in line with or the original projected relationships to "Off the Run" positions. (It would 

appear that JPM assumed that the relationship was 1:1 or movements would move in lockstep) 

- In the example above most of the Investment Grade Indexes widen by 5 bps and the High Yield Indexes move 25 bps 

(the correct 5:1 Beta assumption) . However the COX IG Series 9 "Off the Run" moves by 10 bps, which is not in line 

with the "On the Run" Series 18. 

- We then multiply the SPR01 by the basis point move, arriving at the Profit or Loss in each position 

- Summing those individual positions we come to a total loss from the move in spreads of ($240,000,000). 

" Recall from the previous slide you can categorize ($40,000,000) of the loss from "Directional" moves and the 

remaining ($200,000,000) as a "On the Run" vs. "Off the Run" loss. 

Confid(,lltld! f-or lnt,:"rnal Di:,(i))sion Only. CONFIDENTIAL FDICPROD-0036009 

, 
What Happened to JP Morgan's CIO Trading Portfolio? CFI Monitorin

"Basis Risk" Is it that Easy? 

In the previous slides we have demonstrated a very simple example and isolated the Basis risks individually 

With nearly 100 positions, the relationships and potential for market deviation increases significantly 

- There are 6 primary Indexes traded 

- On average each Index has approximately 7-8 different Series - There are up to 4 different Tenors (maturities) traded 

- Some of the IndexlSeriesfTenors also have 4-5 tranche positions 

One can easily see how there can be a fairly complex matrix of Beta's, which would need to be dynamically hedged 

and adjusted 

CO}(\C> COl<.]O cox 10 CPXl<.> (lOXia JTRA)(X 

COXIG r"-'-"-,r"'-'''''::''''':':'''''"::'''r':'::''''''''' r·"·':':":,,' "''"''':':'''r' -"S\\"-OY::",-""=r''--1-'-,.=''-r-''-,.-'''-..,-'''"''''''''', 

." .. f-'!'--+-"'''-+-24-'''-I----'''--+-'''''-+-24-'''-I--I--I-£4-I--+-''''--1 

cox 10 

..... 1-"--+-"'4-"4-""--I--""-+-"'+"'4-"'-I----"'--+-"''-+-'''4--'''-I--''''-+-'''--1 

SI16,.., 1--''-t-'''-1--''-+-''-+-''--t--''-t-''--t--'''-1I-'''-t-''-'-1--'''+-=+-'''--t-''''-1 

I 

- To mange the process Indexes, Series, Tenors, or Tranches are sometimes grouped and assumed to have similar 

performance, significantly simplifying the correlation matrix. 

However, this grouping can mask relationships as was the case in the CDX IG Series 9 "Off the Run" vs the CDX IG 

Series 18 "On the Run" 

C:infldentlJl For internal Dis(;,s;;lon PIHI.lOSf:'S CONFIDENTIAL FDICPROD-0036009 
What Happened to JP Morgan's CIO Controls? CFI Monitorin

Letting Traders advise on closing prices without consistent Independent Price Verification 

The previous slides provided an indication of the potential P&L effects from spread changes in specific positions 

- Depending on the liquidity of the specific indexes Bid/Offers can range from 5 or less bps under normal liquid market 

dynamics for "On the Run" Investment Grade Indices to easily 20-30+ bps on "Off the Run" High Yield or less liquid 

tranche positions 

- It appears that, although arguably "GMP" approved, traders were marking their positions on the favorable side, and not 

at Mid or on a consistent basis. 

- Marking spreads on the tight (low) side for Net protection sold positions and, 

- Marking spreads on the wide (high) side for Net protection bought positions 

Poor Implementation and Governance of new trading models 

- Poor and inconsistent new model testing and governance, as CIO itself had primary control of the process 

- A new model was put in place at the beginning of the year and it was discovered to contain errors and inconsistencies 

that resulted in a period of poor risk controls, during this period traders continued increasing positions 

- After discovery of the issues the old model was finally reinstated, but by then the positions were already on the books 

Poor Risk Controls and Structure 

- Failure to identify and set limits to increasing risks as market dynamics shifted 

- An ability for CIO management to override existing Risk limit breaches 

- CIO had an insular structure with limited visibility and control from other groups within the firm 

- CIO's trading successes bred an environment where risk mangers were not motivated to bring issues to the attention of 

senior management 

Potential incentive alignment issues, as CIO Senior Management (including traders) had significant input in CIO Risk 

Manager bonus compensation. (Which can easily be multiples of an employees base salary) 

Co;-:fid21)tial for Orly. CONFIDENTIAL FDICPROD-0036009 
1381 

Microsoft Outlook 

From: 

Sent; 

To: 

Subject: 

Charurat. Bob 

Tuesday, June 05, 2012 11:09 AM 

Reitz, Karl R.; Bennett, Rosalind 

FW: JPM Position Report, as provide to FSA 

Attachments: JPM provided positions to FSA June 30 2011 to May 11 2012.)(ls)( 

Bob Charurat 

Sr. Large Bank Specialist 

RMS Mjd~ TiI'"ii' Bii".niik .B,.".nC.h. Blackberry:. 

From: Yao, James 

Sent: Wednesday, May 30, 2012 11:03 AM 

To: Needham, Catherine; AJya, Om P.; capsavage, Brian A.; Charurat, Bob 

Cc: ledbetter, Stephen L. 

Subject: JPM Positlon Report, as provide to FSA 

Catherine, 

As requested, please find attached a summary position report I prepared from the JPM Information provided to 

FSA. It shows the month end positions of the Indexes going back to June of 2011. It appears that lPM dld not 

significantly increase their positions until the beginning of this year, specifically in the US and European High 

Grade Indexes. That being said they did have a Net Long of SQ..7SBln throughautthe end of last year. 

Please keep in mind that these are net nationals alone and may not represent risk profiles directly. Again, this 

does not take into account things like maturity and leverage from tranches, that are represented in the CROl/s 

or SPR01's. There is also a simple graph af the pOSitions on the following tab for your reference. 

Please let me know if you have any additional questions. 

James 

91612012 

PRIVILEGED AND CONFIDENTIAL FDICPROD-D039217 
1382 

Microsoft Outlook 

From: 

Sent: 

To; 

Cc: 

SubJed: 

Arya, Om P. 

Wednesday, June 06, 2012 8:36 AM 

Yao, James; Charurat, Bob; Bennett, Rosalind; Reitz, Karl R.; Burton, Steven 

Byars, Jessica P. 

FW: Synthetic Credit Report - June 6, 2012 

Attachments: Synthetic Credit Risk Pack 6-6-12.pdf 

From: Gillis, David KF [mailto:david,kf.gillis@jpmchase,com] 

Sent: Wednesday, June 06, 2012 7:48 AM 

To: Dianne.Dobbeck@ny.frb.org; Needham, Catherine; Arya, Om P.; "SCott Waterhouse"; Waterhouse 

(Regulator), Scott X 

Cc: Genova, Diane M,; Hilt, Erin; Gunselman, Gregg B 

Subject: SynthetJc Credit Report - June 6, 2012 

Confidential 

As requested, attached please find a detailed daily P&L and Risk report related to the Synthetic Credit 

Book dated June 6, 2012 for COB June S, 2012. These materials are in draft form and are subject to 

continuing internal review. 

Please contact me at 212-648-0362 with any questions. 

David Gillis 

DI1\·id K.F. Gillis 

l\.Llll~ging Diredor & A"SOl.:latc Gener"l COUllSel 

J.P. Morgan 

270 Pl'lrk Avenue, 38th Fl., New York, S'ew York 10017 

da,";d.Hgi!1h!/'i;jmmwgan.coTl1 'S' Tel: 212.648.0362 ell Cell: 917.359.8854 ;J Fax: 917.46).0170 

This communication Ii< for informational purposes only. It is not intended ru. an offer or solicitation for the purchase or s~!c of any "financial instrument or as 

an offidal eonfin1l31ion or any tran).l,·tion. All market prices, da!>i and other mfQrmation an: nol WRmo.n1ed as to compleLl:'lIe&s or accuracy ~n<J at'<: subject to 

change without notice. Any comments "r statements mad~ herein do nl!! neces,arily lelled those of JPMo,gan Chase &. Co .. its subsid,aries and arT!liaks 

Thi~ transmissiun may ~onlajn illfoml~tion that 'b pnvilclll'ii, ~-.;,nfi:Jentia!.lcg~1!y priviklll:d, arlll/or ex.:n1p! ftum disdosun: llrldcr ~pplkilblc law. Ifyuu arc 

not the m!cnded rec!pie.!lt, you lire hereby notified roa! any di~losure, copying. distribution, or 1I!lC of the infonnation ~ontained hereill {Ulclud,ng lIny 

re!i~ncethercon) is STRTCTl Y PROHIBfTED. Althougb this tr.:msmission and an)' at1.llcnmen~ are believed \0 be free OrMY ¥irus or other def«"1 [hat 

might affect any (:ompu~rsys!em into ",hich it h received and opened, it is Ute re"pWlsibilily of tile redpient to .:nrure t\!atlt i~ virus ITee lind 110 

re~sibi!ity is accepted by lPMorgan Chase & Co., its subsidiaries and affiliates, a~ applicahle, for any loss or dillJ1nge arislIIg in any way from its usc. If 

YOII roceived this tl'ansmi~iol1 in error, plens~ immediately contact tilt: sendrr and de$ll'Oy the mal.erml m its entirety. ",hether In de,trOlli(: or hard copy 

fOnllllt. Thank you. Please refer to hnp;· W\"'\\·.ipltlo:!l.~n ~-oj~'lii,h,':k';\lr~~ for disciosl.lll's relating to European legal ent1ties 

91612012 

PRIVILEGED AND CONFIDENTIAL FDICPROD-0039219 
1383 

Fro",: Drew, Ina .,:lna.Drew@jpmorgan.com> 

Sent: Thu, 05 Apr 2012 23:02:52 GMT 

To: Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com> 

Subject: Re: Bloomberg and upcoming WSJ stories 

. I will be on cell. I called you around 5 30 

---- Original Message --- From: Braunstein, Douglas 

Sent: Thursday, April 05, 2012 06:58 PM 

To: Drew, Ina 

Subject: Fw: Bloomberg and upcoming WSJ stories 

If you are around tmrw would like to catch up around what we say next week on this topiC 

----- Original Message -----

From: Evangelisti, Joseph 

Sent: Thursday, April 05, 2012 06:52 PM 

To: Executive Committee 

Cc: Press Team 2012 

Subject: Bloomberg and upcoming WSJ stories 

Below is the first version of a Bloomberg report related to hedging positions in our 00 group. The Wall 

Street Joumal Is expected to run a front-page story on this tomorrow as well. We've corrected some information about our 00 function and provided the following comments. Please refer any follow up calls 

to me. Thanks, Joe 

• The Chief Investment Office Is responsible for managing and hedging the firm's foreign exchange, interest 

rate and other structural risks. 

• aD is focused on managing the long-term structural assets and liabilities of the firm and is not focused on short-term profits. 

• Our 00 activities hedge structural risks and invest to bring the company's asset and liabilities into better 

alignment. 

• Our ao results are disclosed in our quarterly eamings reports and are fully transparent to our regulators. 

BLOOMBERG 

JPMorgan Trader Iksil's Heft Is Said to Distort Credit Indexes 

2012-04-0522:45:58.172 GMT 

By Stephanie Ruhle, Bradley Keoun and Mary Childs 

April 6 (Bloomberg) -- A JPMorgan Chase & Co. trader of derivatives linked to the finandal health of 

corporations has amassed poSitions SO large that he's driving price moves in the multi-trillion-dollar market, 

according to traders outside the firm. 

The trader is London-based Bruno Iksil, according to five counterparts at hedge funds and rival banks who 

requested anonymity because they're not authorized to discuss the transactions. He specializes in creditderivative indexes, an off-exchange market that during the past decade has overtaken corporate bonds to 

.become the biggest forum for investors betting on the likelihood of company defaults. 

Confidential Treatment Requested By 

JPMORGAN CHASE & CO. 

JPM.cIO 0000546 
1384 

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. 

Analysts and economists also use the indexes to help gauge interest rates that companies must pay for 

new credit. 

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. 

Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Iksil's specific 

transactions. Iksil didn't respond to phone messages and e-mails seeking comment. 

Speculation Intensifying 

Speculation about his positions intensified yesterday after the newest and most-active index of investmentgrade credit, the Markit CDX North America Investment Grade Index of credit- default swaps Series 18 

dimbed 4.4 basis points to a mid-price of 97 basis points at 5:13 p.m. in New York, the biggest increase in 

almost four months, according to Markit Group Ltd. 

The credit indexes are linked to the default risk on a basket of 100 or more companies. 

In some cases, Iksil is believed to have "broken" the index -- Wall Street lingo for the market dysfunction 

that occurs when a price gap opens up between the index and its underlying constituents, the people said. 

The persistence of price dislocations has frustrated some hedge funds that were betting on the ga p to dose 

over time, the people said. 

For Related News and Information: 

RBS earnings: RBS LN <Equity> EM <GO> 

More European banking stories: TNI BNK EUROPE <GO> Top stories about finance: FTOP <GO> Top U.K. 

stories: TOP UK <GO> 

--Editors: David Scheer, Peter Eichenbaum 

To contact the reporter on this story: 

Bradley Keoun in New York at +1-212-617-2310 or bkeoun@bloomberg.net; Stephanie Ruhle In New York 

at +1-212-617-0784 or sruhle2@bloomberg.net; Mary Childs in New York at +1-212-617-6772 or 

mchilds5@bloomberg.net. 

To contact the editor responsible for this story: 

David Scheer at +1-212-617-2358 or dscheer@bloomberg.net; 

Shannon D. Harrington in New York at +1-212-617-8558 or sharrington6@bloomberg.net. 

Confidential Treatment Requested By JPMORGAN CHASE & co. JPM.cIO 0000547 
1385 

From: 

Sent: 

To: 

cc: 

Wilmot, John <JOHN.WILMOT@jpmorgan.com> 

Fri, 06 Apr 2012 19:08:40 GMT 

Dimon, Jamie <jamie.dimon@jpmchase.com>; Braunstein, Douglas 

<Douglas.Braunstein@jpmorgan.com> 

Drew, Ina <Ina.DreW@jpmorgan.com> 

Subject: synthetic credit tranche reserve 

Jamie and Doug. 

The ClO credit book was fully marked at quarter end based on our established pricing and valuation approach 

(resulting in S{SS8)mm in synthetic book MTM offset bV $183mm in positive credit securities revaluation). Given 

the recent deterioration in market nquidity in series 9 synthetic c.redit tranche positions~ we are proposing a 

liquidity reserve of $155mm for, lQ12 for these positions. This reserve was estimated utilizing our establis.hed 

VCG liquidity reseNe framework. let me know if you have any questions. 

John 

Jghn C. WJhnDt f Chief 1nve,.tment Office f 9johll.wUrnotSljpmorgan.com I 'iii Worit: (212) 8l4~54S1 I II' Celt: (9'J7) 664*1690 

Confidential Treatment Requested By 

JPMORGAN CHASE & CO. 

JPM-CIO 0000576 
1386 

From: 

Sent: 

To: 

Wilmot, John <JOHN.Wll.MOT@jpmorgan.com> 

Man, 09 Apr 2012 21:52:47 GMT 

Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com>;Dimon, Jamie 

<jamie.dimon@jpmchase.com> 

Subject: FW: Series 9 tranche liquidity reserves 

Below is detail relative to the liquidity reserve taken on the Series 9 credit tranche positions~ I will forward the related 

notional exposures tomorrow morning as they are not included below and london is closed. John 

John C. Wilmot. I CMeflnv.ntment Office I @jbhn~wllmot@jpmor!an.com I 1iJ WDrk: (212) B34·S452 I a Cell; (917) 664-1690 

6 CREDIT TRANCHE POSITIONS IMPACTED 

3 Maturities of ITRAXX Series 9 (Syr, 7yr, lOyr Maturity) 

3 Maturities of cox Investment Grade (Syr, 7yr, lOyr Maturity) 

CREDITTRANCHES UQUIDITY RESERVE DETAILS 

Total Increase of approximately +$155Miflion 

RATIONALE FOR ADDmONAL TRANCHE LIQUIDITY RESERVES 

A5 part of (lO's recurring liquTdityreview, Credit ~ markets (post Series 8) are deemed liquid and are excluded from 

CID's Liquidity Reserve computation. liquidity reserves are taken forthe Series 6, 7/ and 8 Credit Index and Tranches. 

Credit Tranche markets have always been considered less liquid (compared to Index markets) and liquidity reserves are 

therefore computed and taken. However, in the past, the liquidity Reserve associated with these 6 Series-9 Tranche 

positions was not taken because their markets were deemed suffidently liquid. The eddlti~nal t$155Million liquidity 

Reserve was ~aken due to the inclusion of these 6 Series-9 tranche positions; this reflects the market's reduced liquidity. 

CALCULATON METHODOLOGY (DEFINED BELOW) 

Liquidity Reserve = [CS01) X Square Root (Holding Period) X [Spread Volatilityl 

[AJ (SOl {Credit Spread sensitivity to a lbps change in market spreads relative to Position Size} 

IBJ Holding Period (JPM 16 suggested maximum 120days used byCiOI 

[C] Spread Volatility {provided by JPM 18 VCG;varies by posaion in capital structure; highest volatiUtyfor Equity 

tranches; lowest vo!atllity for Super Senior tranches} 

Conftdential Treatment Requested By 

JPMORGAN CHASE & CO. 

JPM-CIO 0000987 
1387 

~ ... 

• , JPMorganChase 

CONTROLLERS 

CORPORATE ACCOUNTING POLICIES 

CATEGORY: 1-0100 General Accounting Policies 

Fair Value Measurement 

POLlCYNO~ 

EFFECTIVE DATE: 

1-0105 

SUBJECT: 

ISSUE DATE: 

January I, 2012 

May 10,2012 

Accounting Policies Contacts: Alistair Webster (primary) 

Matt Gordon (secondary) 

TABLE OF CONTENTS 

I. INTRODUCTION 

II. DEFINITION OF TERMS 

III. SCOPE 

IV. ACCOUNTING POLICY 

A. Valuation Premise 

B. Relevant Market 

C. ValuationlMeasurement 

D. Valuation Hierarchy 

E. Transaction Costs 

F. Other Considerations 

V. CROSS-REFERENCES 

VI. REFERENCES TO AUTHORITATIVE LITERATURE 

APPENDICES 

I. INTRODUCTION 

Accounting Standards Codification Topic 820, Fair Value Measurement ("Topic 820"), 

provides a single definition and framework for fair value measurements. In May 20 II, The 

FASB issued Accounting Standards Update No. 2011-4, Amendments to Achieve Common 

Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to make 

amendments to clarify or change previous guidance and to converge US GAAP and IFRS. 

In summary, Topic 820: 

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Defines fair value; 

Establishes a three-level hierarchy for fair value measurements based upon the 

transparency of inputs to the valuation of an asset or liability as of the measurement 

date; 

Provides an exception to allow for portfolio based measurements for items managed on 

a net basis and measured at fair value on the balance sheet. 

Prohibits valuation adjustments when fair value is measured using a quoted price of an 

identical asset or liability, and prohibits the application of position size-based 

premiums and discounts to level 2 and level 3 instruments except where the asset or 

liability being valued is considered single unit of account, and a sized-based adjustment 

would be applied by market participants. 

Requires consideration of the Firm's own creditworthiness when valuing liabilities; and 

Expands disclosures about instruments measured at fair value. 

IL DEFINITION OF TERMS 

Fair value 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in 

an orderly transaction between market participants at the measurement date. 

Represents an exit price. The transaction price, or entry price, may in certain cases 

represent the exit price but the entry price should not be presumed to represent the fair 

value of an asset or liability at initial recognition. 

Highest and best use (non-financial assets) 

The highest and best use of a non financial asset is determined from the perspective of 

market participants, even if the entity intends a different use. However, a reporting entity's 

current use of a nonfinancial asset is presumed to be its highest and best use unless market 

or other factors suggest a different use by market participants would maximize the value of 

the asset (e.g. where the maximum value ofthe instrument is derived principally through its 

use in combination with other instruments.) 

Inputs 

Observable-Observable inputs are inputs that reflect the assumptions that market 

participants use in pricing the asset or liability developed based on market data obtained 

from sources independent of the Firm. Characteristics of observable inputs include readily 

available, not proprietary, regularly distributed, and transparent. 

Unobservable-Unobservable inputs are inputs that reflect the Firm's own assumptions 

about the assumptions that market participants would use in pricing the asset or liability 

developed based on the best information available in the circumstances. 

Market participants 

Buyers and sellers in the principal (or most advantageous) market. A market participant 

must be independent (not a related party to JPMC), knowledgeable, able to transact (have 

the legal and financial capacity to do so), and willing to transact (not forced or otherwise 

compelled to do so). 

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Nonperformance risk 

Nonperfonnance risk refers to the risk that the obligation will not be fulfilled and affects 

the value at which a liability is transferred. N onperfonnance risk includes the reporting 

entity's credit risk as well as settlement risk and may include, in the case of commodities, 

the risk related to physically extracting and transferring the asset to the delivery point. 

Unit of account 

The unit of account detennines what is being measured by reference to the level at which 

the asset or liability is aggregated or disaggregated for purposes of applying existing 

accounting pronouncements. 

III. SCOPE 

Instrumentsltransactions for which a fair value or fair-value-based measurement may apply 

but are not subject to this policy include: 

Share based payments accounted for in accordance with Topic 718 and Subtopic 505-

50. While certain measurements in that guidance are fair-value-based measurements, 

they may exclude the effects of certain inputs such as conditions, restrictions and other 

features that would be considered in a fair value measurement under Topic 820. 

Instruments, such as physical commodities, valued in accordance with Accounting 

Research Bulletin No. 43, Inventory Pricing. 

Accounting pronouncements that pennit measurements that are based on, or use, 

vendor-specific objective evidence of fair value. 

Situations where U.S. GAAP provides a practicability exception to the application of 

fair value, for example: 

Guarantees accounted for in accordance with Topic :160 which allows for the use 

of transaction price (an entry price) to measure fair value at initial recognition. 

See also Corporate Accounting Policy #1-0108, "Guarantees." 

Certain disclosures provided in accordance with SUbtopic 825-10, Disclosure 

about Fair Value of Financial Instruments, where it is not practical to measure 

fair value. Corporate Accounting Policies must be consulted where this is 

detennined to be the case. 

Certain Asset Retirement Obligations accounted for in accordance with Subtopic 

410-20 and Sections 440-10-50 and 440-10-55 , Accountingfor Asset Retirement 

Obligations, where fair value is not readily detenninable. 

Certain Contributions accounted for in accordance with FASB Statement No.1 16, 

Accountingfor Contributions Received and Contributions Made, where 

contributions cannot be measured with sufficient reliability. 

Note: Topic 805, Business Combinations, requires the use of fair value as the measurement 

objective, at inception, for certain assets acquired and liabilities assumed in a business 

combination (for example, intangible assets) and these assets and liabilities are therefore 

subject to this policy. In certain circumstances, where the valuation techniques applied to 

the asset or liability may be similar to a fair value measurement but fair value is not 

explicitly the required measurement objective, this policy does not apply (for example, 

receivables, notes payable, plant and equipment to be used). 

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IV. ACCOUNTING POLICY 

This policy describes JPMorgan Chase's (JPMC) policy in consideration of Topic 820. 

The focus of this policy is how to arrive at a fair value measurement. This policy does not 

incorporate guidance regarding which instruments are required to be measured at fair value 

or which instruments the Firm has made an optional election to measure at fair value. 

Fair value measurements 

Fair value is the price to sell an asset or transfer a liability in the principal (or most 

advantageous) market for the asset or liability. The sale or transfer assumes an orderly 

transactionl between market participants. The transaction to sell the asset or transfer the 

liability is a hypothetical transaction at the measurement date, considered from the 

perspective of a market participant that holds the asset or owes the liability. Therefore, the 

objective of a fair value measurement is to determine the price that would be received to 

sell the asset or paid to transfer the liability at the measurement date (an exit price). 

Because that exit price objective applies for all assets and liabilities measured at fair value, 

any fair value measurement requires identification of the following: 

a. The particular asset or liability that is the subject ofthe measurement 

b. The valuation premise appropriate for the measurement 

c. The principal (or most advantageous) market for the asset or liability 

d. The valuation technique( s) appropriate for the measurement, considering the 

availability of data with which to develop inputs that represent the assumptions that 

market participants would use in pricing the asset or liability. 

A. Valuation Premise 

The valuation premise considers that an asset would be used either (a) in combination 

with other assets or with other assets and liabilities (for example, a reporting unit or 

business) or (b) on a standalone basis (for example, a financial instrument). Whether 

the a,set or liability is a standalone asset or liability or a group for recognition or 

disclosure purposes depends on its "unit of account". The unit of account is generally 

determined in accordance with the Topic that requires or permits the fair value 

measurement. 

Financial instruments are generally valued using a standalone valuation premise. 

However, Topic 820 provides an exception to allow for portfolio based measurements 

for items managed On a net basis and measured at fair value on the balance sheet. A 

reporting entity that holds a group of financial assets and financial liabilities is exposed 

to market risks (that is, interest rate risk, currency risk or other price risk) and to the 

credit risk of each of the counterparties. If the reporting entity manages that group of 

financial assets and financial liabilities on the basis of its net exposure to either market 

risk or credit risk, the reporting entity is permitted to apply an exception to Topic 820 

for measuring fair value. The exception permits a reporting entity to measure the fair 

value of a group of financial assets and financial liabilities on the basis of the price that 

would be received to sell a net long position (an asset) for a particular risk exposure or 

to transfer a net short position (a liability) for a particular risk exposure in an orderly 

transaction between market participants at the measurement date under current market 

Confidential Tre2lltmel"t Requested 

by JPMORGAN CHASE & CO. 

4 

JPM..cIO 0003427 
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conditions. Accordingly, the "portfolio" is valued consistently with how market 

participants would price the net risk exposure at the measurement date. 

The exception may be applied under the following conditions: 

• The group of assets and liabilities is managed based on the net exposure to a 

particular market risk ( or risks) or to the credit risk of a particular counterparty 

in accordance with documented risk management or investment strategy 

• lnfonnation is reported on that basis to management 

• Assets or liabilities are required or have been elected to be camed at fair value 

on the balance sheet at the end of each reporting period. 

JPMorgan Chase has elected to apply the portfolio exception to its market making 

derivative portfolios and related cash instruments within the Investment Bank. 

B. Relevant Market 

A fair value measurement should reflect an exit price in the principal market for the 

asset or liability. The principal market is the market (a) with the greatest volume and 

level of activity for the asset and liability and (b) to which the Finn has access. 

Ifthere is no principal market, the exit price should reflect the amount that would 

be received or paid in the most advantageous market (the market in which the Finn 

would maximize the amount that would be received for an asset or minimize the 

amount that would be paid to transfer a liability). 

If there are mUltiple markets for the same asset or liability, the most likely exit 

market should be considered to determine the exit price and the other exit markets 

do not need to be considered. 

For assets and liabilities where there is little or no trading, or a one-way market, the 

Firm must make a detennination of what a willing counterparty would offer to 

purchase an asset or assume a liability. The determination of what a willing 

counterparty would offer to purchase an asset or assume a liability should consider 

all available market information that the market participants would use to price the 

asset or liability. 

A discussion ofthe application of principal market to certain instruments has been 

included in Appendix A 

See also discussion of transaction costs below. 

C. ValuationlMeasurement 

Valuation techniques' used to measure the fair value of an asset or liability should 

maximize the use of observable inputs, including inputs that reflect the assumptions 

market participants would use in pricing the asset or liability developed based on 

market data obtained from independent sources. Valuations must consider current 

market conditions and available market information and will therefore represent a 

market-based, not entity specific, measurement. 

I f an asset or a liability measured at fair value has a bid price and an ask price (for 

example, an input from a dealer market), the price within the bid-ask spread that is 

Connltential Tmatment Requested 

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5 

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most representative of fair value in the circumstaoces shall be used to measure fair 

value regardless of where the input is categorized within the fair value hierarchy. The 

use of bid prices for asset positions and ask prices for liability positions is permitted but 

is not required. Topic 820 also permits the use of mid-market pricing or other pricing 

conventions that are used by market participants as a practical expedient for fair value 

measurements within a bid-ask spread. 

Fair value should be based on quoted market prices, where available. If listed prices or 

quotes are not available, then fair value is based upon internally developed models that 

use primarily market-based or independently-sourced market parameters, including 

interest rate yield curves, option volatilities and currency rates. In certain 

circumstaoces valuation adjustments must be made to ensure that financial instruments 

are recorded at fair value. These adjustments should be applied consistently over time 

and may include: 

Credit valuation adjustments ("CV A") are necessary when the market prices (or 

parameters) are not indicative of the credit quality of the counterparty. 

Debit valuation adjustments ("DVA") are necessary to reflect the impact of the 

Firm's own creditworthiness in the valuation of liabilities that are carried at fair 

value. See further discussion ofDVA in Appendix B of this policy. See also 

discussion of Liability considerations below. 

Liquidity valuation adjustments are necessary when the Firm may not be able to 

observe a recent market price for financial instruments that trade in inactive (or less 

active) markets or to reflect the cost of exiting larger-than-normal market-size risk 

positions. Liquidity adjustments are based upon the following factors: 

The amount of time since the last relevant pricing point 

Whether there was an actual trade or relevant external quote 

The volatility of the principal component ofthe financial instrument 

Valuation adjustments are prohibited when fair value is measured using a quoted 

price of an identical asset or liability In addition, the application of position sizebased premiums and discounts to level 2 and level 3 instruments is prohibited 

except where the asset or liability being valued is considered single unit of account, 

and a sized-based adjustment would be applied by market participants. 

o Costs to exit larger-than-normal market-size risk positions are determined based 

upon the size of the adverse market move that is likely to occur during the 

extended period required to bring a position down to a nonconcentrated level. 

Size of position adjustments may be considered when applying the portfolio 

exception (as described in Section IV.A), if such adjustments would be 

considered by a market participant. 

• Unobservable parameter valuation adjustments are necessary when positions are 

valued using internally developed models that use unobservable parameters 

(parameters that must be estimated and are therefore subject to management 

jUdgment) as their basis. Risk-averse market participants generally seek 

Confidential Treatment Requested by JPMORGAN CHASE & CO. 

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compensation for the uncertainty associated with the cash flows of an asset or 

liability (risk premium). 

Uncertainties and customization related to loan securitization for loans that are 

expected to be securitized, fair value is estimated based on observable pricing of 

asset-backed securities with similar collateral and incorporates adjustments (i.e., 

reductions) to these prices to account for securitization uncertainties including 

portfolio composition, market conditions and liquidity to arrive at a whole loan 

value. 

Restrictions 

There are generally two types of restrictions: 

Restrictions on sale 

Examples of a restriction on sale include restrictions on private placements, 

underwriter lock-up, and volume restrictions. An adjustment must be made to 

the value of the instrument to reflect the price adjustment that a market 

participant would make due to the lack of marketability. An adjustment for a 

restriction should be re-evaluated and adjusted appropriately as the time to the 

expiration of the restriction decreases. 

Note: When a publicly traded security position incorporates both restricted and 

non-restricted securities, the adjustment for restrictions will be applied only to 

the restricted shares. For example, securities subject to SEC Rule 144 

restrictions may have portions of the position that are unrestricted depending 

on trading volume. Additionally, SEC Rule 144 shares may be free to trade if 

a shelf registration has been filed. 

Restrictions on use 

An example of a restriction on use would include a restriction on the use of a 

physical asset such as land or a building. An adjustment cannot be taken as a 

result of the restriction ifit is deemed to be a restriction on use. 

The determination of whether a restriction should be incorporated in the valuation 

of an asset or liability requires judgment and consultation with Corporate 

Accounting Policies. 

• Liability considerations-a fair value measurement for a liability assumes (I) that 

the liability is transferred to a market participant and the liability to the 

counterparty continues (it is not settled), and (2) that the risk of nonperformance is 

the same before and after the transfer. Nonperformance risk or the risk that the 

obligation will not be fulfilled impacts the amount at which a liability would be 

transferred. 

The adjustment to a valuation for nonperformance risk (or the impact ofthe Firm's 

own creditworthiness) is called the Debit Valuation Adjustment or "OVA." See 

further discussion of OVA in Appendix B of this policy. 

Confidenttal Treatm&nt Requuted 

by JPMQRGAN CHASE & co. 

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JPM-CIO oo0343Q 
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D. Valuation Hierarchy 

All instruments measured at fair value are required to be classified within a three-level 

hierarchy that is primarily used for external disclosure purposes. The fair value 

hierarchy prioritizes inputs to the valuation of an instrument. When the inputs to the 

valuation fall within different levels of the hierarchy, the level in which the instrument 

is classified is based on the lowest level significant input to the valuation. 

Detailed below is a description of the hierarchy levels, the Firm's policies associated 

with the determination of classification, and examples' of products included within 

each of the levels: 

Note: Maintenance of documentation to support the level of classification for a product 

within the fair value hierarchy is the responsibility of the Line of Business Controllers 

and CFOs. 

Levell-inputs to the valuation methodology are quoted prices (unadjusted) for 

identical assets or liabilities in active markets. 

An active market is defined as one in which an accurate daily price can be obtained 

from mUltiple reliable sources and a fair value measurement (exit price) may be 

arrived at without adjustment or the use of a model. 

Where a quoted price in an active market is available for the identical asset but 

pricing of the individual instruments is not practical/efficient, the Firm may use an 

alternative pricing method (for example, matrix pricing). Where an alternative 

pricing method is utilized as a practical expedient the instruments must be 

classified in a lower level of the hierarchy. 

Examples of Level I instruments: 

Highly liquid government bonds, certain mortgage products (for example, residential 

agency pass-through securities), exchange-traded equities, and exchange-traded 

derivatives. 

Level 2-inputs to the valuation methodology include: 

Quoted prices for similar assets or liabilities in active markets. 

Quoted prices for identical or similar assets or liabilities in markets that are not 

active, that is, markets in which there are few transactions for the asset or liability, 

the prices are not current, or price quotations vary substantially either over time or 

among market makers (for example, some brokered markets), or in which little 

information is released publicly (for example, a principal-to-principal market). 

Inputs other than quoted prices that are observable for the asset or liability, either 

directly or indirectly, for substantially the full term of the financial instrument (for 

instance, interest rates and yield curves observable at commonly quoted intervals, 

volatilities, prepayments speeds, loss severities, credit risks, and default rates). 

• Inputs that are derived principally from or corroborated by observable market data 

by correlation or other means (market-corroborated inputs). 

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There is generally evidence of two-way flow (purchases and sales in the market) for 

instruments that are classified within Level 2. 

Examples of Level 2 instruments: 

Common stocks traded and quoted on an inactive market in an emerging country, 

privately placed bonds whose value is derived from a similar bond that is publicly 

traded, over-the-counter interest rate swaps valued based on a model whose inputs are 

observable LIBOR forward interest rate curves, resale and repurchase agreements, 

warehouse loans, and debt obligations, certain high-yield debt securities, as well as 

certain structured liabilities where the inputs to the valuation are primarily based upon 

readily observable pricing information. 

Level3-inputs to the valuation methodology are unobservable and significant to the 

fair value measurement. Fair value for Level 3 instruments is based on internally 

developed models in which there are few, if any, external observations. For 

transactions in this category, there is rarely a two-way market, and typically there is 

considerable structuring (making the product largely one-off and JPMC specific). 

Unobservable inputs should only be used when observable inputs are not available 

(inputs are unobservable when they reflect the Firm's own assumptions about the 

assumptions market participants would use to price the instrument). 

The exit price measurement objective remains the same in Level 3; therefore, the 

Firm's own data should be adjusted if there is contrary data indicating that market 

participants would use different assumptions to price the instrument. 

In certain circumstances, an instrument that is classified within Level 3 at inception 

may become more observable as it approaches maturity. In those cases, when the 

unobservable component is no longer significant, the instrument will be transferred 

to Level 2 at that time. 

Instruments for which there is an unobservable input are generally classified within 

Level 3. If there is evidence present to demonstrate that the unobservable inputs are 

not significant to the valuation through evidence such as two-way market trades, 

extensive pricing agency data, broker data or other relevant trade information, the 

instrument may be classified within Level 2. 

Examples of Level 3 instruments: 

Long-dated commodity swaps where the relevant forward price curve is not directly 

observable or correlated with observable market data, shares of a privately held 

company, structured notes with significant unobservable inputs, mortgage servicing 

rights, retained interests in securitizations, and goodwill. 

E. Transaction Costs 

The price in the principal (or most advantageous) market used to measure the fair value 

of an instrument should not include transaction costs. Transaction costs represent 

incremental direct (I.e., invoiced) costs to transact in the principal Or most 

advantageous market, are not an attribute of the asset or liability being measured, and 

are reported as direct expenses in the Consolidated Statement ofIncome with limited 

Confidential Tl'N.tment Requuted 

by JPMORGAN CHASE & CO. 

9 

JPM-CJQ OOB343Z 
1396 

exception (see Corporate Accounting Policy #1-0107, "Netting of Assets and 

Liabilities and Related Income and Expense"). Transaction costs include, but are not 

limited to, invoiced brokerage and commissions and certain due diligence costs. 

Transaction costs which are incorporated within the bid offer spread (i.e., in-the-price 

brokerage) are reported net within principal transactions and are not separately 

identified for reporting purposes. 

Transaction costs do not include the costs that would be incurred to transport an asset 

or liability to (or from) the principal (or most advantageous) market. Where location is 

an attribute of the asset or liability as may be the case for a commodity, the price in the 

principal or most advantageous market used to measure fair value of the asset or 

liability should be adjusted for the costs that would be incurred to transport the asset or 

liability to (or from) its principal (or most advantageous) market. 

F. Other Considerations 

Cut-off time 

For instruments for which quotes are available prices must be obtained at the same time 

each business day. This includes cases where products are valued using models even 

though market prices are available in other time zones (for example, when trading 

across different exchanges). In addition, prices for hedges and the items being hedged 

must be sourced at the same time of day. 

For internal trades between portfolios based in different regions, each side may be 

priced using the closing price obtained at the appropriate cut-off point in the relevant 

region. 

V. CROSS-REFERENCES 

Corporate Accounting Policy #1-0106, "Fair Value Option" 

Corporate Accounting Policy # 1-0 I 07, ''Netting of Assets and Liabilities and Related 

Income and Expense" 

Corporate Accounting Policy # I-OJ 08, "Guarantees" 

Corporate Accounting Policy #1-0112, "Consolidation of Variable Interest Entities" 

Corporate Accounting Policy #2-0301, "RepurchaselReverse Repurchase Agreements and 

Securities Lending and Borrowing" 

Corporate Accounting Policy #2-0401, "Trading Securities" 

Corporate Accounting Policy #2-050 I, "Investment Securities" 

Corporate Accounting Policy #2-0603, "Loan Securitizations" 

Corporate Accounting Policy #2-0604, "Commercial Loans and Lending Facilities" 

Corporate Accounting Policy #2-0605, "Consumer Loans" 

Corporate Accounting Policy #2-0701, "Long-Lived Assets (Other than Internal Use 

Computer Software/Web Site Development) 

Corporate Accounting Policy #2-100 I, "Foreclosed Assets" 

Corporate Accounting Policy #2-1005, "Investments in Nonmarketable Equity Securities" 

Corporate Accounting Policy #3-0701, "Long-Term Debt" 

Corporate Accounting Policy #5-0 I 01, "Accounting for Derivatives and Hedging 

Activities" 

Corporate Accounting Policy #6-0101, "Accounting for Lending-Related Fees" 

Confidvntill Trvatment Requested by JPMORGAN CHASE & CO. 

10 

JPM-CIO 0003433 
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Corporate Accounting Policy #6-0 102, "Interest Income Recognition" 

VI. REFERENCES TO AUTHORITATIVE LITERATURE 

FASB Statement No. 107, Disclosure about Fair Value ojFinancial Instruments 

FASB Statement No. 115, Accountingjor Certain Investments in Debt and Equity 

Securities 

FASB Statement No. 123R, Share Based Payment 

FASB Statement No. 141 Business Combinations 

FASB Statement No. 143, Accountingjor Asset Retirement Obligations 

FASB Statement No. 157, Fair Value Measurements 

FASB Statement No. 159, The Fair Value Optionjor Financial Assets and Liabilities 

ASR No. I 18, Accounting, Valuation and Disclosure oj Investment Securities 

Confidential Treatmant R&quuted by JPMORGAN CHASE & co. 

II 

JPM-CJO 0003434 
1398 

APPENDIX A 

Fair Value Measurements for Certain Instruments Carried at Fair Value 

This Appendix is intended to give further background regarding the fair value 

measurements for certain instruments carried at fair value. The list is not meant to be all 

inclusive. 

I. Derivatives: IB Market-Making under portfolio exception 

Background 

The Finn makes markets in derivative contracts, transacting with retail and 

institutional clients as well as other dealers. 

Valuation Premise 

For the IB market making portfolio, JPM has elected to apply the portfolio 

exception provided in Topic 820. As a result, the unit of account is the net 

open position 

Relevant Market 

In general, the dealer market is the Finn's principal market for derivative 

transactions as the greatest volume of derivatives activities occur in the dealer 

market and the Finn's IB market making businesses have access to that 

market. In addition the dealer market is the most advantageous exit market for 

the Finn. 

ValuationlMeasurement 

As a result of electing the portfolio exception, the unit of valuation for IB 

market-making derivatives is the portfolio. The starting point for the valuation 

of the 18 market-making derivatives portfolio is mid market. As a dealer, the 

Finn can execute at or close to mid market thereby profiting from the 

difference between the retail and dealer markets. If the Finn cannot exit a 

position at mid market certain adjustments are taken to arrive at exit price. 

(See Section IV.C. of this policy for a discussion of valuation adjustments.) 

II. Structured NoteslReposlResaIes 

Background 

The Finn issues structured notes' as a means to deliver derivative risk to retail 

and institutional clients that wish to invest in derivative risk in a funded fonnat. 

Derivative risk, which may include credit risk, interest rate risk, foreign 

exchange risk, commodity risk and equity risk, is embedded in a debt host 

contract and issued in the Finn's name. The derivative risk is the primary 

driver of the profit and loss. 

Valuation Premise 

The valuation premise for structured notes is on a standalone basis. The unit of 

account is the transaction. 

Confidential TreabMnt Requested by JPMORGAN CHASE & CO. 

12 

JPM--CIO 0003435 
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Relevant Market 

There is no active secondary market for most structured note products and 

sales to third parties are rare. Dealers (issuers) will provide indicative quotes 

for their own paper and will repurchase or unwind with the original 

counterparty (investor). A dealer generally will not buy instruments issued by 

others. As such, not all market participants operate on both sides of the 

structured notes market. 

The principal market for the Firm is the primary (issuance) market for 

structured notes. Market participants include other dealers (issuers) to whom a 

liability could be transferred (who take positions on the liability side of their 

balance sheets). 

ValuationlMeasurement 

To estimate the fair value of structured notes, cash flows are evaluated taking 

into consideration any derivative features and are then discounted using the 

appropriate market rates for the applicable maturities. As the primary risk in 

the "funded derivative" is derivative risk, market participants that issue 

structured notes use the same assumptions in valuation as those used in 

deriving an exit price in the derivatives market. In the absence of actual data 

for liability transfers for this product, the hypothetical transaction is based on 

assumptions in active markets for similar risks (derivative market). 

III. Mortgage Loan Warehouses 

Background 

The Firm purchases and originates mortgage loans for securitization. Types of 

mortgages include: Agency mortgages (conforming mortgages sold to GNMA, 

FNMA and/or Freddie MAC) AIt-A, Alt-B, subprime and commercial 

mortgages. 

Valuation Premise 

The unit of account is the mortgage loan. Mortgage warehouse loans are 

valued on a standalone basis. 

Relevant Market 

The principal market for a product or instrument is the market in which the 

Firm transacts with the greatest volume or level of activity. The securitization 

market is the principal market for mortgage warehouse loans as securitization 

is the primary exit strategy for the Firm. 

ValuationlMeasurement 

Fair value is based upon observable pricing of asset-backed securities with 

similar collateral and incorporates adjustments (i.e., reductions) to these prices 

to account for securitization uncertainties including portfolio composition, 

market conditions and liquidity to arrive at a whole loan value. 

Confldentla' Treatment Requested 

by JPMORGAN CHASE & CO. 

13 

JPM..cIOOOD34.J6 
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Valuation technique 

All mortgage warehouse loans should be priced using a mock securitization 

(bond execution) basis, which is a market approach valuation technique. 

Under this approach, structuring models (combined with Rating Agency 

modeling approaches) are used to create representative deal structures, 

including bond levels by rating with loss coverage amounts and reflect the 

"offer" side of the market where the securitization take out occurs. 

IV. Mortgage Servicing Rights 

Background 

Mortgage servicing rights ("MSRs") represent rights to receive cash payments 

in connection with performing the tasks required to service pools of previously 

sold mortgage loans. These cash payments include, but are not limited to, 

negotiated servicing fees, interest earned on escrow balances, late fees, and 

float earnings on principal/interest payments. 

Valuation Premise 

Pooling of MSRs maximizes value to the market participants by both creating 

less uncertainty in the cash inflows and permitting the market participant to 

benefit from cost synergies that occur in servicing more mortgage loans. As a 

result of these benefits, market participants see more value for MSRs that are 

pooled in a portfolio than they would for individual servicing contracts. 

Consequently, the highest and best use ofMSRs from the perspective of 

marketplace participants is in-use. 

Relevant Market 

MSRs are not traded actively with readily observable prices; sales are typically 

negotiated and brokered privately between entities. Trading volume is 

infrequent and unlike the brokering of a financial asset, the entities transacting 

must have a servicing platform and be able to perfurm the required servicing.' 

Sales ofMSRs are also subject to approval by investors in the mortgagebacked securities issued when the underlying loans were securitized. Based on 

the above, the principal market for MSRs, for the Firm, is a hypothetical 

market where the market participants have extensive servicing capabilities and 

benefit from certain cost economies of scale. 

ValuationlMeasurement 

The valuation of MSRs is generally estimated by calculating the present value 

of the estimated net future servicing cash flows to be received over the life of 

the servicing contract. The net cash flows are comprised of servicing revenues 

less related costs of servicing. The maximization ofMSR value must either 

increase the cash inflows or decrease the costs of servicing. 

ConftdertUal Trvatment Requested 

by JPMORGAN CHASE & CO. 

14 

JPfoiI-CIO 0003437 
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APPENDIXB 

JPMC Implementation ofDVA 

(See also discuSsion of liability considerations in Section IV.C. of this policy.) 

In order to incorporate the effect of changes in the Firm's creditworthiness in derivative 

valuations, and because there is no industry standard for such calculations, the Firm 

developed its DVA methodology utilizing assumptions that it believes other market 

participants would use to value liabilities due by the Firm. 

Specifically, the Firm leverages its current Credit Valuation Adjustment (CVA) 

methodology used to calculate and record the effect of counterparty credit risk for 

derivative receivables. The CVA is derived by calculating an expected positive 

exposure (EPE) at time of counterparty default (including certain collateral 

assumptions) and applying to it the counterparty's credit spread or a proxy thereof and 

a standard default recovery rate to arrive at an adjustment for credit. Similarly, DVA is 

calculated as expected negative exposure (ENE) x JPMC's market credit spread and a 

standard recovery assumption. Details for each of these key inputs follow. 

Expected Negative Exposure (ENE) 

The basic building block for DV A is Expected Negative Exposure (ENE); that is, what 

the Firm would expect to owe derivative counterparties at the time of its default. This 

is computed by first generating possible scenarios· of underlying market factors and 

averaging over all portfolio market-to-market values, treating positive values as zero. 

These scenarios take into account the impact of legally enforceable netting agreements 

and existing collateral agreements with the counterparty as well as collateral 

agreements which are probable of being enacted in the event of a significant 

deterioration in the Firm's credit standing. 

Legally enforceable netting agreements 

The Firm has master netting agreements in place with virtually all derivative 

counterparties. Upon default or termination of anyone contract, a master 

netting agreement provides for the net settlement of all contracts with the 

counterparty through a single payment in a single currency. The netting 

provisions in the agreement are legally enforceable and as such would serve 

as a mitigant (a reduction) to ENE to the extent that the Firm had positive 

exposure to the respective counterparty for other derivative contracts. An 

important assumption that the Firm makes for both CVA and DVA is that the 

Firm would net settle all deals where possible. The Firm believes that this 

assumption is well corroborated by its behavior and the behavior of other 

market participants. The Firm also believes that the incorporation of netting 

agreements into the DVA calculation is supported by paragraph 15 of 

Statement 157 which indicates that the terms of credit enhancements related 

to a liability should be incorporated in the value of that liability. Although it 

deals with presentation, Paragraph 21 of FIN 39 also acknowledges that 

credit risk is best reflected by net amounts under a master netting agreement. 

Confldentlal Treatmrmt Requested tty JPMORGAN CHASE & co. 

15 

JPM-ClO 0003438 
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Existing collateral arrangements with counter parties 

Consistent with the Finn's approach regarding master netting agreements, 

the Finn incorporates the existence of collateral agreements in deriving the 

ENE. The Finn assumes that a counterparty to which an assignment was 

being made would demand credit protection comparable to that obtained by 

the transferor, thus requiring reflection in the exit price. 

Probable collateral arrangements 

In an idiosyncratic default scenario, the Finn also considers the probability of 

new credit enhancements being required at the time of the credit event.' This 

assumption impacts the exposure (ENE) to the Finn's counterparties as the 

Finn's credit deteriorates. 

As the Finn heads to default idiosyncratically, in order to maintain its 

derivatives franchise the Finn would likely be required by its counterparties 

to either enter into unilateral collateral agreements where there are none, or 

to renegotiate existing collateral agreements to tenns more favorable to the 

Finn's clients. For modeling purposes, the assumption is that a unilateral 

collateral agreement, in favor of the client, would be put into place. 

Consideration of the impact of probable credit enhancements within the 

valuation appropriately prevents the recognition of a gain that would not be 

realized due to the imposition of a new collateral agreement. 

While it is clear that derivative counterparties impacted by the Finn's credit 

deterioration would request additional credit support, there is also evidence 

suggesting that market participants faced with a call for additional collateral 

would also respond by posting collateral in order to protect their derivative 

franchise. The Finn notes that several finns have established AAA-rated 

entities to house their derivatives activity for precisely this reason. 

JPMC Credit Spread 

The second major component of the DVA calculation is the Firm's credit spread. An 

observable market indicator of the Finn's creditworthiness, the credit spread is the sum 

of (a) the market risk premium (reflecting the market's perception of the Firm's credit 

risk or the systemic risk) and (2) the real probability of default (the idiosyncratic entityspecific risk factor). 

The Finn currently uses counterparty credit spreads from the credit default swap 

market to calculate the CV A. Credit default swap spreads assume a recovery 

assumption. Many of the Finn's competitors also use credit spreads to assess the credit 

risk associated with counterparty receivables. It is therefore reasonable to assume that 

market participants would similarly include the Finn's observable credit spread as a 

key input in derivative valuations. 

The Firm's CVA methodology is based on the best evidence of how sophisticated 

market participants value the credit risk inherent in derivative transactions. The DVA 

methodology applies the same logic where the Finn is in a payable (versus receivable) 

position. In order to validate the reasonableness of the methodology and how credit 

would be considered in the transfer of a liability, the Finn considered recent 

transactions where the impact of the counterparly's creditworthiness was clearly 

Confldenti.lll Treatment Requested 

by JPMORGAN CHASE & CO. 

16 

JPM..cIO 0003439 
1403 

considered in the unwind price of a derivative receivable. The Firm believes that where 

an entity is required to assess its own creditworthiness for liabilities which it records at 

fair value, an adjustment similar to that applied for counterparty creditworthiness is 

appropriate and, although based on limited historical evidence, supportable. The Firm 

believes that this methodology will also be validated by the pricing of future 

unwinds/assignments and as such, the Firm believes that its calculation ofDVA-the 

product of the ENE, the JPMC credit spread, and a standard recovery rate-produces 

an exit price consistent with that derived by a market participant. 

Other considerations - DVA for structured notes 

In order to assess nonperformance risk for structured notes, the Firm leveraged the 

current DV A methodology applied to derivatives with limited modification. 

Modifications were based on the following: 

Cash flows on derivatives may be either positive (inflows) or negative 

(outflows), whereas cash flows on a structured note are all outflows. As a 

result, for structured notes, the equivalent of the ENE (within the derivative 

calculation) is the libor flat discounted cash flows for the note. 

Due to operational constraints, the DV A methodology for structured notes 

assumes that there is only one cash outflow which happens at maturity, similar 

to a zero coupon note. 

The DV A methodology for structured notes is based on readily available information 

(data) for the underlying structured notes. The data required is: I. fair value of the 

structured note in its entirety (excluding the impact of the Firm's credit) and 2. the 

expected maturity of the instrument 8 The methodology calculates an adj ustment to the 

fair value based upon the Firm's survival probability at the expected maturity date of 

the instrument. The formula is as follows: 

DV A = FV • (l-SP(EM,RR))'(I-RR) 

FV: the model-based fair value of the instrument as reported on the Firm's 

books and records (exclusive of the Firm's credit spread). The fair value 

represents the expected negative outflows as described below. 

SP(EM,RR) is the Firm's survival probability at the note's expected maturity 

EM, which is the equivalent of the JPMC credit spread X a recovery rate RR. 

The Firm's use of CDS spreads to calculate the DV A for structured notes is principally 

based on the substance of the instruments being valued. Structured notes can be 

viewed as funded derivatives or hybrid instruments that are similar in many ways to 

derivatives. As market participants within the hypothetical wholesale market for 

structured notes would include other dealers; and as other dealers generally incorporate 

an adjustment for credit risk into the fair value (exit price) of derivatives using 

liquid/observable CDS spreads; the Firm has consistently used CDS spreads to value 

similar risks within the structured note population. 

ConndeQtia, Treabnent Requested 

by JPMORGAN CHASE & CO. 

17 

JPM-CIO 0003440 
1404 

APPENDlXC 

Nonrecurring Fair Value Measurements 

Certain assets, liabilities and unfunded commitments are measured at fair value on a 

nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing 

basis but are subject to fair value adjustments in certain circumstances (for example, 

when there is evidence of an impairment or there is a lower of cost or fair value 

adjustment.) 

Examples of instruments that are subject to nonrecurring fair value adjustments 

include: 

Held-for-sale loans or commitments carried at lower of cost or fair value; see 

Corporate Accounting Policy #2-0604, "Commercial Lending Facilities." 

Held-for-investment (accrual) loans that are impaired and are written down to 

fair value based on the fair value of the underlying collateral, or based on an 

observable market price; see Corporate Accounting Policy #2-0611, 

"Allowance for Credit Losses." 

Equity investments accounted for either at cost or under the equity method; see 

Corporate Accounting Policy #2-1005, "Investments in Nonmarketable Equity 

Securities." 

Goodwill and other intangible assets; see Corporate Accounting Policy #2-

1004, "Intangible Assets and Goodwill." 

Long-lived assets including real estate, fixed assets, assets under operating 

leases, and capitalized software; see Corporate Accounting Policies #s 2-0701 

to 2-0705, "Premises and Equipment." 

Confidential Tr&alrnent RE!que&btd by JPMQRGAN CHASE & co. 

18 

JPM-CIO 0003441 
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ENDNOTES 

1 An orderly transaction assumes exposure to the market for a period prior to the measurement 

date to allow for marketing activities that are usual and customary for transactions involving 

such instruments; it is not a forced transaction (for example, a forced liquidation or distress 

sale). 

, Valuation techniques may include: 

Market approach 

The market approach uses prices and other relevant information generated by market 

transactions involving identical or comparable assets or liabilities and may include use of 

matrix pricing or market mUltiples derived from a set of comparables. 

Income approach 

The income approach uses valuation techniques to convert future amounts (for example, 

cash flows or earnings) to a single present amount (discounted). Valuation techniques 

include present value techniques; option pricing models, such as Black-Scholes-Merton 

formula (a closed-form model) and binomial model (a lattice model) which incorporate 

present value techniques, and the mUlti-period excess earnings method, which is used to 

measure fair value of certain intangible assets. 

Cost approach 

The cost approach is based on the amount that currently would be required to replace the 

service capacity of an asset (otherwise known as current replacement cost) 

J The examples provided are generalized across asset classes. Classification within the valuation 

hierarchy is based on a review of the products and the related facts and circumstances including 

the significance of any unobservable inputs to the valuation methodology. 

4 Within this appendix, the term "structured note" is used to refer structured notes, structured 

repo and structured resales. 

, Another consideration is that even for an entity with servicing capability, the size of the 

servicing operations may not provide adequate economies of scale in its own servicing cost 

structure. 

6 The final ENE is a weighted average of the results from the two default scenarios (a systemic 

default and an idiosyncratic default). 

7 In the systemic default scenario it is much less clear that the Firm's counterparties will be able 

to impose or change collateral agreements in their favor, thus incremental collateral has not 

been considered. 

• Underlying data collected from the businesses include carrying value, expected maturity and 

Legal Entity (to determine the application of the bank versus holding company spread). 

Confidential Treatment Requ8ated 

by JPMORGAN CHASE & CO. 

19 

JPM-CIO 0003442 
1406 

From: lksll, Bruno M <bruno.m.lksil@jpmchase.com> 

':ent: Thu, 01 Mar 2012 05:44:04 GMT 

.0: Stephan, Keith <kelth.stephan@jpmorgan.com> 

Subjecl:: FW: Core credit book update 

----- Original Message ----- From: lksil, Bruno M 

Sent: Wednesday, February 29, 2012 10:27 PM 

To: Martin-Artajo, Javier X 

Subject: Core credit book update 

I have sold important amounts of protection In Ig9 lOyr (close to 7bln all day or 3.Sm esOl) and this will 

push the esOl beyond the 25m limit. This is related to month end price moves that were all adverse 

although we could limit the damage. 

I reckon the csOl will ~ump to 28m ( I bough protection for approx SOOk in hy and xover) from 25m this 

momlng. r went back inside the 25m limit this momlng Initially but there was an insistent bid on Ig9 10yr 

later in the day. Among the other weird moves we observed today, I picked this one because this Is the 

most obvious one when we analyze the lags we have in the core book. 

I will correct the breach tomorrow buying back some protection on main s16 mostly and us hy. Initially, I 

sold risk in hy in front of the risk I added in ig9 lOyr but the hy market could not provide enough risk versus the size I was trading in 199. 

I he reason why Ig9 lOyr was well bid was that MBlA was reporting its earnings at the close. Hence, into 

the us close, I could see good bids for risk in hy17 (that has mbla In it) but the protection became bid in 

Ig9 10yr ( while the Ig9 5yr was tlghtening!). So r engaged In seiling protection In Ig9 lOyr. It was modest 

at first and became agressive as we drew towards ny close. Then the bids for risk in hy vanished and I 

could not offset all the risks properly. r did not want to run after the market prices after the close in 

equities. 

I bought a little ig17 5yr but in a very small amount I apologize for the trouble it may cause. This would 

not create a material long risk exposure In term of say 50pct credit spread widening ( SOm or so). It is 

unfortunate that it happens at month end the day when mbla reports its earnings at the close. The 

exposure to mbia default Is not materially altered because the 5yr cds trades at 27-28 pts upfront plus 

500runnlng. So, a lot is priced in. More I sold risk in hy17 that contains mbia. 

This trade will also Increase the rwa snapshot at month end I am afraid. 

Best regards 

Contl~tftUli frflllmlfll RII!q'*'1111 tty JPIIIO"RGAN CHASE. & co. 
1407 

March 9, 2012 

ConfidenUal Treatment RequestEd 

by JPMORGAN CHA.SE &, CO, 

Transcript of call 5601530708350439343.txt 

1 TRANSCRIPTION OF TELEPHONE TAPES 

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HIGHLY CONFIDENTIAL 

J PMO rgan chase 

277 Park Avenue 

New York. New York 

page 1 

Draft Transcript· Subject to Review and Correction 

Likely Contains ErT'OI'$ 

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JPM-CtO 0003445 
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March 9. 2012 

Confidential TrEUltment Requested 

by JPMORGAN CHASE & CO. 

Transcript of call 5601530708350439343.txt 

1 Call #5601530708350439343 

2 

custodian: Julian Grout 

4 participants: Bruno Iksil, Julian Grout 

MR. IKSIL: Hello. 

MR. GROUT: Hello, Bruno. 

MR. IKSIL: Yes. 

6 

7 

8 

9 MR. GROUT: Are you doing well? 

10 MR. IKSIL: Yes. 

11 

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14 

15 

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17 

MR. GROUT: very well. Are you 

well rested this week? 

MR. IKSIL: Yes. 

MR. GROUT: Are you rel axed? 

MR. IKSIL: Yes, yes, I don't want 

to go back home, so I'm relaxed. 

MR. GROUT: I know. This is a 

18 radical change. 

19 MR. IKSIL: Yes, this is very good 

20 for me. YOU will see, it's a party over here. 

21 Just one thing to clarify. In fact, Eric 

22 updated the flight curve to around 12 noon. 

23 

24 

MR. GROUT: Yes. 

MR. IKSIL: And we didn't change it 

25 since then because I must say that I am not very 

1 much aware 

MR. GROUT: Yes, yes, it seems' 

page 

Draft Transcript - Subject to Review and Correction 

Likely Contains Errors 

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JPM-ClO 0003448 
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March 9, 2012 

Confidential TrNtment Requested 

by JPMORGAN CHASE & co. 

Transcript of call 5601530708350439343.txt 

3 correct to me. 

4 MR. IK5IL: The year-to-date 

overall when I see Atlas -- it is closer to the 

6 one I see in the Atlas. 

7 

8 

MR. GROUT: Yes, okay, very well. 

MR. IK5IL: You see, by strategy 

9 this is not it. I have negative 0.4 with regard 

10 to core and negative 0.5 on tactical, but I have 

11 2.2 million in reserve. 

12 MR. GROUT: so you should release 

13 the 2.2 million. 

14 MR. IK5IL: I release 2.2 million? 

15 This leads to 700 verSus negative 1.4. 

16 

17 

18 

MR. GROUT: Yes, that's good. 

(Inaudi bl e) . 

MR. GROUT: IS it cooti (phonetic) 

19 or cooti and credit? It's all included. 

20 

21 

MR. IK5IL: That's all. 

MR. GROUT: okay, very well, very 

22 well, very well. I see very well what they're 

23 doing. And that's it, it's JP, so one shouldn't 

24 try to understand. As you can see, I had this 

25 meeting with (inaudible). of course the guy is 

1 super bulletproof. 

2 Risk LIB. The guys take a model 

3 from CRM LIB that is blowing a fuse. The guys 

4 at flow LIB defend him systematically so 

everything is going well, it's normal. 

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March 9, 2012 

COnfidential Tmtment RequBstztd 

by JPMORGAN CHASE & CO. 

Transcript of call 5601530708350439343.txt 

6 MR. IKSIL: (Inaudible). 

7 MR. GROUT: And fortunately thanks 

8 to our friends in New York, we are sure that 

9 it's going to continue. 

10 well, you know, you shouldn't .... 

11 one must not be a philosopher. 

12 

13 

MR. IKSIL: Yes, yes. 

MR. GROUT: We don't really have a 

14 choice. There's life after that. That's true, 

15 there is life after that and that's the way it 

16 is. 

17 The result is not so bad after all. 

18 In fact, when you see how we messed up, it's not 

19 so bad. 

20 

21 

22 

23 

24 

25 

MR. IKSIL: Yeah, here it's pushing 

it a little bit. 

MR. GROUT: Yes, yes, of course, 

yes. 

MR. IKSIL: So you will see --

MR. GROUT: Yes, yes, I imagine. I 

1 see that very well. 

2 Is Ravi -- does Ravi know about the 

3 magnitude? 

4 MR. IKSIL: I told him, yes, I told 

him. 

6 I hold him that they had to push 

7 back two or three SIS today. There's nothing 

8 they could do it. Everything is calm. It was 

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Transcript of call 5601530708350439343.txt 

9 yesterday, in fact, that worrisome 

10 

11 

MR. GROUT: Yes. 

MR. IK5IL: It was with 

12 (inaudible). The guys did not want to give me 

13 any colors. It was something that did not make 

14 any sense anyway. 

15 MR. GROUT: That's okay. Report 

16 that thing that was accumulated day after day 

17 and that's it. You see? 

18 Here we're lagging -- we're lagging 

19 -- well, you'll tell me this on Monday and 

20 anyway, I see the impact very well. I have a 

21 vague idea you know how thi sis goi ng to end up. 

22 You know that (inaudible) Trevor is 

23 going to try to get some capital, Ina will say 

24 no, so it will be a big fiasco and it will be a 

25 dig drama when, in fact, everybody should have 

6 

1 -- should have seen it coming a long time ago 

2 and everybody's -- and everybody's working in a 

3 way that would lead for that to happen. 

4 So you see all that we're going to 

do is that when we get to the end of the month, 

6 we will we will lose another 200 pars, and at 

7 the end of the month we will defend ourselves 

8 and we will say in the end, this is your fault, 

9 and that's it. 

10 Anyway, you see we cannot win here. 

11 I don't focus on Core right now. It's not worth 

Page 5 

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Likely Contains Errors JPM-CIO OO0344S 
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conndentlal Treatment Reque.sled 

by JPMORGAN CHASE & CO. 

Transcript of call 5601530708350439343.txt 

12 it. It's not worth it. We're fighting against 

13 our own firm. So you see we have to think. 

14 

15 

MR. IKSIL: Um-hum. 

MR. GROUT: what is important is 

16 what you mentioned and that is Radiant 

17 (inaudible). That all rallies except the ones 

18 that are holding Radiant. I am sure that the 

19 five years rallied. 

20 

21 

MR. IKSIL: The five years plunged. 

MR. GROUT: But the five years did 

22 not last five years. so you see -- wouldn't you 

23 know that it's your own firm that is doing this? 

24 what do you want to do? What do you want to do? 

25 It's not worth it. you see. This 

1 is a (inaudible). It's not worth the fight. 

2 MR. IKSIL: Um-hum. 

MR. GROUT: One must be 

4 philosopher. Just keep it like this. We keep 

the flotation line and we drown nicely and 

6 quietly and if we have to accelerate. we never 

7 know. we may get a loan. 

8 (Inaudible). 

9 MR. IKSIL: I spoke to our analyst 

10 once again about Radiant today. This is an 

11 interesting situation. in fact. because I think 

12 that Dire (phonetic), Radiant. you have two 

13 companies, you have Goldman Sachs. This is 

14 really on a single name 

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ConndenUa! Treatment RequestEd 

by JPMORGAN CHASE & co. 

Transcript of call 5601530708350439343.txt 

15 MR. GROUT: Yes. 

16 MR. IKSIL: okay -- and JP on the 

17 index, in fact. 

18 MR. GROUT: Yes. 

19 MR. IKSIL: 50 you see on JP we 

20 lose the index. On (inaudible). 

21 MR. GROUT: Yes. 

22 MR. IKSIL: And you see, in fact, 

23 that when of the guys talked to you -- when the 

24 guys speaks to you I asked the guy did 

25 everything go well this year? He said no, not 

8 

1 at all. I don't know anything about this. We 

2 must stop this nonsense. 

The market is creating a false 

4 focus on the maturity that they have in January 

2013 -- February 2013. 

6 

7 

MR. GROUT: Yes. 

MR. IK5IL: They say yes, yes, 

8 they're going to be able to pay it back no 

9 problem, but that's not the problem. They could 

10 always pay it back. They have enough cash to 

11 pay it back today if they needed. You see? 

12 

13 

MR. GROUT: um-hum, um-hum, um-hum. 

MR. IKSIL: The problem is what's 

14 going to happen if they have to admit their loss 

15 or not. 

16 MR. GROUT: Yes. 

17 MR. IK5IL: And here, you see, here 

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Transcript of Call 5601530708350439343.txt 

18 is where it gets interesting. This is where the 

19 guys are -- this is where the lady from Goldman 

20 told me anyway, the regulator, which is the 

21 Insurance Department of pennsylvania, which is 

22 the one regulating Radiant --

23 

24 

MR. GROUT: Yes. 

MR. IKSIL: -- they are the less 

25 strict in the country, ironically, you see. 

1 

2 

4 

MR. GROUT: Yes. 

MR. IK5IL: And they have no 

interest in -- to put Radiant (inaudible). 

You see, the other analyst said, 

you know, it is in their best interest to 

6 protect the policyholders. 

7 

8 

MR. GROUT: Yes, yes. 

MR. IKSIL: 50 I found it 

9 interesting to see that -- I felt that there was 

10 somebody who was pushing really. 

11 MR. GROUT: Yes, there's a lot of 

12 money involved. 

13 MR. IKSIL: Yes. Yes, and it was 

14 (inaudible) of course. 

15 

16 

MR. GROUT: urn-hum, urn-hum. 

MR. IK5IL: (Inaudible), but here I 

17 must finish 

18 MR. GROUT: Go ahead. We see this 

19 way if it's benign --

20 MR. IKSIL: I forgot to update the 

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Transcript of call 5601530708350439343.txt 

21 G-9 curve. I stayed at 14.5 versus 34. I need 

22 to (inaudible) or I can do that on Monday. 

23 MR. GROUT: Yes, go ahead and do 

24 that on Monday. Forget about it. It's against 

25 us and it's going to complicate things for you 

1 

2 

4 

6 

7 

8 

9 

regardi ng P&L, so forget about it. 

MR. IKSIL: Yes. 

MR. GROUT: 00 it Monday. 

MR. IKSIL: Yes. okay, so have a 

good last two days. 00 you know what time'you 

get in on Monday? 

MR. GROUT: I get in early. 

Normally I should get there around 8:30 in the 

morning. I have a meeting with (inaudible) 

MR. IKSIL: At 9 a.m.? 

MR. GROUT: At 9 a.m., yes. 

MR. IKSIL: (Inaudible) . 

MR. GROUT: okay. 

MR. IKSIL: okay. 

MR. GROUT: And anyway, it's our 

future, you see. You see, when you're on 

10 

10 

11 

12 

13 

14 

15 

16 

17 vacation, you see that this thing is dead at its 

18 birth. It's going to die so what's going to 

19 it's a firm, it's a special firm, JP. 

20 Everything is going well, it's dynamic, 

21 everything is questioned very frequently, so we 

22 will see what's going to happen. 

23 We're going to try to do our job. 

Page 9 

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March 9, 2012 

~ 

ConfJdenUaf Treatment Reqwsted 

by JPMORGAN CHASE & CO. 

24 Transcript of call 5601530708350439343.txt 

I believe that it is better to say that it's 

25 dead, that we are going to crash. The firm will 

1 

4 

6 

7 

8 

9 

10 

11 

12 

13 

14 

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16 

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18 

19 

20 

21 

22 

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11 

servi ce the debt. The CIO is perfectly prepared 

for (i naudi bl e) . YOU see what I mean? 

SO we're going to be in the center 

of this thing. It's going to be very 

uncomfortable but we must not screw up. That's 

all. It's going to be very political in the 

end. 

That's it. 

MR. IKSIL: Yes. 

MR. GROUT: We'll see. We'll see, 

but if they -- but if they continue to push the 

G-9 complex like this, we may recharge 

(inaudible) because it's almost for free now if 

they continue. 

I'm still waiting a little bit, you 

see. we must have some rally that (inaudible) 

are compressed and at that point it's going to 

become interesting. 

MR. IKSIL: Yes. 

MR. GROUT: It will become -- well 

-- where is the five years at this time? 

well. 

MR. IKSIL: Eighty-one thousand. 

MR. GROUT: oh, yes, it grew very 

MR. IKSIL: Yes, but at the same 

page 10 

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Liltely Contains Errors JPM-CIO 0003454 
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Transcript of call 5601530708350439343.txt 

12 

1 time, you see, what do we call it, Radiant, that 

2 12 lost 1.5 points, so -- so it's not the end of 

the world. 

4 

6 

MR. GROUT: Yes. Yes, if Radiant 

(inaudible) the entire curve must converge. 

MR. IK5IL: That's it. In fact, 

7 their marketing point on the CNM is to say that 

8 there's no problem in any way. They're going to 

9 present a tender for January 2013, February 

10 2013. So there's no interest in having CDLS 

11 from December 2012 when we know for sure that 

12 after that they're going to die. 

13 MR. GROUT: Yes. 

14 MR. IK5IL: You see, this ;s a good 

15 marketing argument. 

16 MR. GROUT: Yes. And while why 

17 would they make a tender if they're certain 

18 they're going to die? I don't understand the 

19 objective very well. You see? 

20 MR. IK5IL: Exactly. I think this 

21 is something where they can, in fact, make 

22 (inaudible) 

23 

24 

MR. GROUT: Yes. 

MR. IK5IL: They can say 

25 (inaudible) February 2013 what's this mess. 

1 MR. GROUT: Yes. So what you are Page 11 

Draft Transcript· Subject to Review and Correction 

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Confidential Treatment Requested 

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Transcripe of call 5601530708350439343.exe 

going to do? Anyway, we'll see about that 

Monday. 

we're going to (inaudible) with our 

equities. We are protected with (inaudible). 

We don't have anything to worry about, in any 

case. However, we muse be careful. 

MR. IKSIL: Yes. We must. 

MR. GROUT: okay. We have uneil 

December to cover this thing. we have sometime. 

MR. IKSIL: Yes. In the meaneime, 

enjoy your laSe days. 

MR. GROUT: 

MR. IKSIL: 

MR. GROUT: 

MR. IKSIL: 

MR. GROUT: 

um-hum. 

Okay. 

Okay. 

okay. 

ciao. 

(End of call.) 

page 12 

Draft Transcript ~ Subject to Review and Correction 

Likely Contains Errors JPM-CIO 0003456 
1419 

From: Grout, Julien G <juiien.g.grout@jpmchase.com> 

Sent: Thu, 15 Mar 2012 18:45:37 GMT 

To: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com>; Iksil, Bruno M 

<bruno.m.iksii@jpmchase.com> 

Subject: Book ex-xis.zip 

CQrYfIdo);'ltia,t Treab'nefrt fb'!q\Ieated 

by- JPMORGAN CIiASE & CO, 
1420 

Confidential TreatmentRe~sted 

by JPMORGAN CHASE & co. 

ar-' 

ar-' 

ar-' 

ar-' 

(5f (90) 

(6' (90) 

(8; 136) 

(8: 181 

(53)1 3. 

(55)! 3, 

(58)1 4, 

(38)! 4] 

JPM-CfOoo03468 
1421 

CDX.lG910y CDX.HY 

ConRdentiaJ Treatment Requested 

by JPMORGAN CHASE & CO. 

2.0 

2.0 

3.0 

4.0 

• 

0.17 

0.18 

0.18 

0.12 

• • I 

426 8.6 5.7 

431 10.0 5.7 

493 9.0 6.8 

516 7.8 7.8 

JPM.clO 0003455 
1422 

From: 

""ent: 

Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Mon, 19 Mar 2012 11:44:53 GMT 

,,: Martin-Artajo, Javier X <javier.x:martin-artajo@jpmorgan.com> 

CC: Grout, Julien G <julien.g.grout@jpmchase.com> 

Subject: Core Book analysis and proposed strategy 

Book position 

- The book has positive carry, P&l upside on defaults and positive convexity if spreads gap wider. It is relatively neutral 

directionally overall at current market spread levels> 

- To obtain this profile, the book receives the forward credit spreads. When markets are caught in squeeze like this 

one, the P&L volatility can become very large: this is what is happening since the beginning of this year in CDX IG9 and 

Main ITRAXX S9 series. The hit amounts to 5-10 Bps lag in those forwards versus the 50-GOBps rally. 

- The book incurred a loss of 100m usd IN us hy from KODAK default and RESCAP almost certain default: this 

weakness have been corrected now and offers decent upside in any new default in HY indices 

Market behaviour 

- The CDX 169 and ITRAXX Main S9 are the series where index tranches still trade. This is where the street owns some 

protection especially in the longer tenDrs for capital relief reason and uncertainty about the timing of defaults. 

- some large Hedge funds have some "skew trades" where they buy protection on the series 9 lOyr indices versus the 

Single names 

-in the rally, those series (where the book is long risk and the street is short risk) have lagged consistently: by trading 

j trying to correct the lag, we could retrieve 1-2bps but then we met strong resistance either with size or bid-ask 

widening. 

- this year the tranche market depth has vanished: we can trade but small size each time with an appetite from 

dealers to load protection on the longest tenors. 

-in US HY, in addition to the 2 defaults, we face a flattening trend advertized by dealers saying that either we have 

defaults or we rally; either ways, the curve flattens and we have a steepener on. 

- as a summary, the book is a very visible player and holds a trade that the street wants to have now: ie a protection 

against unpredictable defaults. At the same time, they still own their uno defaultU trades from last year. So the street 

systematically steepens the series 9 curves and maintain the longest tenors wider than anything else. 

Proposed strategy: let the P&l fluctuate while not defending, just maintaining the upside on defaults over time 

·CDX IG and ITRAXX MAIN: over the next 18 months 

buy back the protection in 0-3 10yr to reverse the profile (3Bln in main, 6bln in IG) 

- buy some 0-3 in 7yr tenors ( lbln main-2 bin in 16) 

- sell protection over time on wldenings to maintain the carry ( 5-10 Bin Main and IG) 

- CDX US HY: over the next 18 months 

- put flatteners on in HY14-hylS-hy16-hy17 series while we own the protection on the.5yr now 

-let the longs in HY10-hyl1 series live as they have lost already 18 names out of 100 and look safer than hy 14 

to hy17 series 

P&L possible range: the loss is likely to range between 100m to 300m 

• main reason is the COX IG91ag (2-3bps or 100-150m) 

- second next is CDX HY: the hit is another 100m spread within the tranche and index bjd~ask. Typical here, you 

cannot really trade but the mid"does not change. 

Confl<'fMtlal 'Tnlatment Reqyuted 

by JPMORGAN CHJt.SE.& CO. 
1423 

- third is Main itraxx : the curve in S9 steepened by Sbps pushing the forward back up while the other curves 

steepened 1 bp in the rally. The hit here is BO-l00m. 

- the estimated bid-ask on the book grossly amounts to SOOm all-in { 200m for !G, 100m for Itraxx main, 200m for COX 

HY). 

Conclusion 

- the book has very useful features and should be maintained with its upside on defaults as much as possible. 

- the market is very small now and we are too visible with likely some of our trades creating a concern among dealers 

: this affects us both in the bid-ask cost and the Mark':"To_market because the street owns the !ong term protection to 

rl1ver their legacy, ie "no default!! trades mostly held in form of steepeners and long risk in short term equity tranches. 

- there is a trap that is building: if we limit the Mark-To_Market we risk increasing the notionals further and weaken 

our position versus the rest ofthe market. One solution would be to letthe book be really long risk, yet this would not 

be in a liquid market and may increase the P&L noise especially in corrections. 

- the solution proposed amounts to be longer risk and let the book expire carrying the upside on default: I think we 

own here a very good position for a size that is also significant. This would involve some mechanical trading, ie buy 

protection on·10yr equity tranches, put flatteners in HY 14-17 and SEll protection on spread wdidening. 

The PNL breakdwon and bid-ask analysis will come soon after. Julien is on it. 

Bruno 

Confiden6af Tft!atmmt Req"~ 

by JPMORGAN ctiASE & CO. 
1424 

March 20, 2012 

Transcript of Call # 5601530708350332357 

Participants: Bruno Iksil 

Iksil Hello Javier. It's Bruno. Again, you know we can't try to be close to the market 

prices and we would show a loss of 40 million core and 3 million in tactical and I 

wanted to know if that was okay with you. I'm going to send you an SMS to get 

your, your approval. We're still in the range but its three(?) everywhere so, as I try 

to get closer to the target and I don't want to make it last you know. I think we 

should, we should start, start showing it. Please call me back if you can or just 

reply to my SMS please. 

Draft Transcript - SubJect to Review and CorrecUon 

Likely Contains Errors COnt'tdenthll Trelltment Requested 

by JPMORGAN CHASE & CO. 

JPM-Cla 0003481 
1425 

From: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

"'ent: Wed, 21 Mar 2012 14:55:33 GMT 

cc: 

Drew, Ina <Ina.Drew@jpmorgan.com> 

Macris, Achilles 0 <achilles.o.macris@jpmorgan.com>; Goldman, Irvin J 

<irvin.j.goldman@jpmchase.com> 

Subject: Synthetic Book 

ina 1 

the purpose of the meeting is to highlight an important issue that are appearing in the book from the market in terms of P!L 

but is related to the findings that we have made so far regarding the RWA's of the book. 

Our recent changes in the book and capital have highlighted that we have reduced our RWA by 10 BIn from the beginning of 

the year and also increased the IB's RWA too for a similar ammount. This result is a larger reduction in RWA than what we 

thought in January. 

cid:image003.png@OlCD0697.67FA07CO 

We have increased our CS01 from being net short in JAN to net long in MAR and reduced our total book Nationals by 14 

Bin. This has resulted in an increase in the books RWA due to capital charge called IRC of 18 Bin in RWA. This should be seen 

as the extra long that the book currently has as compared with what the model would consider' neutral, The fact that the 

increase that we have seen in the book has not materialized in our performance has raised the follOWing issues: 

1, Our current underperformance in the Synthetic Book is large compared to our estimates given the changes in the profile of 

the book. 

2. The increase in transparencywith QR and now with Risk Management regarding the optimatization is highligting the 

positions that we have and also revealed that our .optimatization benefrt is increasing the RWA cost to the IB and increased 

their speed to reduce the CRM by externalizing it with a counterparty or to reduce the books offsetting trades . 

, .. e dilemma that we face at the moment is that we are improving our RWA position vs the IB but the trades that we made 

from the beginning of the year are upsetting this balance with our IB ( and others) because as they have been eager to take 

Co,nfjdentl1ll Trutment ReqUMted 

tty JPMORGAN CKASE & co. JPM-CIO 0OO34A9 
1426 

the opposite side of our trades this was due to a more bearish view and also the benefit that that opposite position would 

have for their capital. The IS now is becoming aware of this as the numbers where released on Monday and therefore their 

reaction in the market. 

My conclusion here is that we need to keep our current positioning that is slighly increasing the long in JG and then correct 

the RWA next quarter either by reducing the IRC by selling our extra long IG or get the CRM charge reduced by joining the IB 

and reduce the exposure with a third party, 

ards 

Confld-entlaf TI't-Iltyt,eht Requuted 

ty JPMORGAN CHASE &. co. 
1427 

RWA 

stress VaR 

CRM 

CRM standalone 

CRM dioJ. fador 

4QZOll' 

4;774 

13.168 

ActUDi 

Z5,395 

31% 

-8.122 

Jan.zO~Z 

pre-split 

ZZ'feb20n 

i.~7:z. 

8,a12 

78,753 

29% 

-22»41 

55,921 

, ,0 

post-split 

~ MarZOn 

"Z,3n 

8;812 

Estimate 

15.600 

5% 

-780 

14»20 

18,750 

( 44,754; -

Confidential Treatment Requested JPM-CIO 0003491 

by JPMORGAN CHASE & CO. 
1428 

From: Drew, Ina <Ina.Drew@jpmorgan.com> 

Sent: Thu, 22 Mar 2012 17:48: 11 GMT 

To: Macris, Achilles 0 <achilles.o.macns@jpmorgan.com>; Martin-Artajo, Javier X <javier.x.martinartajo@jpmorgan.com> 

Subject: I was confused by the incerased position noted today after 

Yesterday's exhaustive meeting. 

Coqfldentlal Ttai\l'tmentR~ted 

by JPMORGAH CHASE .. CO. 

JPM-CIO 0003492 
1429 

March 23, 2012 

Canfidenttal Treatment Requested by JPMORGAN CHASE & CO. 

call #5722876946602392261 

1 HIGHLY CONFIDENTIAL 

2 -----------------------------------x 

3 Transcription of Recorded Telephone 

4 Conversations 

-----------------------------------x 

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CALL NUMBER: 

5722876946602392261 

PARTICIPANTS 

ARTAJO-STEPHAN 

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Confidentiaf Treatment Requested 

by JPMORGAN CHASE & CO. 

call #5722876946602392261 

HIGHLY CONFIDENTIAL 

MR. ARTAJO: JPMorgan. 

KEITH: Hello, Javier, it's 

Keith, -how are you. 

MR. ARTAJO: Hey, Keith, man. 

Havi ng a lot of headaches here.. 

KEITH: I cannot wait to come 

back to London. I can't tell you 

how much fun it is, like, in the 

amount of time I have spent 

discussing with pete and Irv, and I 

sometimes just feel like a broken 

record, like, you know, especially 

-- and I'm trying to, to be, you 

know, as thorough and as patient as 

I can be. But, you know, I'm just 

getting strange requests, like, can 

you walk me through this, can you 

walk me through that? I mean I've 

been through the book before with 

pete as you're aware. I talk to 

him every day about it. So I have 

some patience to take Irv through 

it. But it seems like there's a 

breakdown in the link of 

HIGHLY CONFIDENTIAL 

communication here because I was 

under the impression that everybody 

was very clear that what that what 

Page 2-

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3 

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March 23, 2012 

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Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

call #5722876946602392261 

we were doing was adding. another 20 

to 25 million of risk in one sense 

MR. ARTAJO: No, no. 

KEITH; Now it seems like 

everybody says, no, we didn't know 

what we were doing. 

MR. ARTAJO: I spoke with Ina. 

The reason I told her, the reason 

I'm doing that is to defend the 

position, okay. we cannot do that. 

I just with didn't want the 

investment bank to rollover us. 

This is increase the book by 25 or 

26 billion of IWA which is freaking 

them out. I said, look, you know, 

relax. I just don't want -- I 

needed to do this in order to 

settle with them, okay. okay. so 

when this is going all the way up, 

man, just for you to know. And I 

HIGHLY CONFIDENTIAL 

we have raised this issue and he's 

4 

going to talk to Hogan and he's 

going to talk to Danielle pinto and 

he's goi ng to talk to the Ameri ca', 

okay. So we escalating the problem 

here all the way up. The issue 

Page 3 

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JPM.CIO 0003495 
1432 

March 23, 2012 

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Confidential Treatment Requested by JPMORGAN CHASE & CO. 

call #5722876946602392261 (2). txt 

here is that the investment bank is 

manipulating the prices. They want 

us out of -- you know how valuable 

the IG9 position is, right. 

KEITH: I don't. 

MR. ARTAJO: And we have a lot 

of'it. It is almost they trying to 

squeeze us out. I have evidence 

they trying to squeeze us from a 

loft different point of views 

because we get the marks, we get 

the shit, Bruno saying he's getting 

very rattled. We have a good 

position. It's not performing and 

we are getting paranoid here. At 

the same time, I didn't want them 

to squeeze us out of the trade. I 

said, okay, man, I don't mind if we 

HIGHLY CONFIDENTIAL 

get a little high on our IWA. I 

get long on IG. This defense, the 

decompression trade. It puts a 

little bit of pressure on them 

because we are going to have to 

settle this now, okay. We going to 

have to settle these differences 

here. You know, whether or not we 

do a trade or not. This is out of 

my control or out of control now. Page 4 

Draft Transcript· Subject to Review and Correction 

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March 23, 2012 

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Confldentild Treatment Requested 

by JPMORGAN CHASE & CO. 

call #5722876946602392261 

This is Ina. Ina has to decide 

this with, with Jess. 

KEITH: Jess. 

MR. ARTAJO: With Jess staley 

basically. Otherwise it going to 

be a shit show. These guys are 

putting things on the street. It 

is a fight between JPMorgan and 

JPMorgan and tne street. This is a 

stupid thing, okay. So, you know, 

the problem that we have is that 

we've been trying to optimize our 

book. We didn't know how it works. 

So obviously we made mistakes. 

6 

HIGHLY CONFIOENTIAL 

We've made mistakes because we, we 

think there is reward. We think 

like okay this is good for me, this 

is a good trade, so we put a book 

that has long carry and has got 

good defaults. It is a very good 

book. You ask Bruno what he really 

thinks. He thinks he hasn't made a 

mistake. Maybe a little slow in 

covering the short we have in 

investment grade, okay. So we 

haven't really stepped on shit 

really other than having a little 

Page 5 

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JPM-CIOOOOJ.497 
1434 

March 23, 2012 

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Confl~nfial Treatment Requested 

by JPMORGAN CHASE & CO. 

call #5722876946602392261 

bit of unfortunate defaults on 

Kodak. But, you know, i.t' s fine 

that the book is down for some 

reason. But, you know, it is good 

for our file and we like the book. 

So this is what I told Ina. The 

investment bank for some reason 

they are incredibly sensitive to 

the position that we have, okay. 

The investment grade. I don't know 

why that is. Bruno thinks that 

HIGHLY CONFIDENTIAL 

because of the size of the book 

they have; ·i t' s a very fl at book 

but it has huge notionals, okay. 

And apparently what I'm hearing is 

that the book is very sensitive to 

this thing in their own, in their 

own behavi or, okay. 

KEITH: I think it's -- I 

think, and you and I discussed this 

briefly before I left on Tuesday, I 

think that's a function of the fact 

that if you look at what that thing 

does as sort of the on the run 

correlation series, it remains the 

thing that looks like the cheapest 

instrumentation to hedge your sort 

of single name exposure in the 

Page 6 

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JPM-C10 0003498 
1435 

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l' 

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Confidential Treatment Reques1ed 

by JPMORGAN CHASE & CO. 

20 

21 

call #5722876946602392261 (2). txt 

ratings and all the rest. So 

there's a perpetual bid to kind of 

continue to just, you know, lift 

protection on IG9 ten year and at 

the same time they end up the other 

way around I think. Because what 

.you do is sell protection on the 

HIGHLY CONFIDENTIAL 

other. 

MR. ARTAJO: That's right. so 

they end up with having a mirror 

position with ours, right. 

KEITH: compression trade 

basically. 

8 

MR. ARTAJO: So basically we 

are fighting the idea. They are 

doing that. Now they are fighting 

with two things. One is actually 

by trying to source the risk. But 

we are not trading a lot of volume, 

okay. The whole problem that I 

have with this, and the whole 

problem I have with Bruno is if 

they were trading size on the other 

side I feel, shit, we've got a bad 

position, okay. So, fuck, you 

know, they really want it. But 

they are not trading volume. They 

page 7 

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1436 

March 23, 2012 

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Conl'idenUaI Treatment Requested 

by JPMORGAN CHASE & CO. 

call #5722876946602392261 

had just volume us. They are just 

giving us bad marks. So they are 

not getting -- it's not that they 

are giving us headache and the 

HIGHLY CONFIDENTIAL 

market is moving and you trade and 

the opposition increases and gets 

worse. opposition increases 

because we trade with them but we 

don't trade size. There is no 

volume, okay. so this this is 

purely their trading, this month 

end. They are worried about this. 

They must have something in the 

book that is obviously not working 

because otherwise I don't see the 

investment bank reacting this way. 

I haven't seen them react this way, 

okay? But it is very obvious they 

are targeting us. They have a lot 

of information about what we do. 

They have our positions. They 

really are targeting us. We had 

too many dialogues here. I've had 

too many dialogues· with 

(INAUDIBLE), too many dialogues 

with the America (INAUDIBLE) has 

too many dialogues there too. Ina 

has mentioned this. To be honest 

page 8 

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JPM-CIO OD03~OO 
1437 

March 23, 2012 

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~ 

ConndenUal Treatment Requested 

by JPMORGAN CHASE & CO. 

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call #5722876946602392261 (2).txt 

10 

HIGHLY CONFIDENTIAL 

with you, this, they know that we 

are sensitive to this. They know, 

they know, they know very well now. 

So they are manipulating the market 

and we have to stop it. .Because 

now it is coming to me from the 

market. The market is asking us 

what the fuck are we doing. We 

have a large position. And that's 

last thing you want. Then you need 

to stop that. I told Peter, this 

is all the way up. It might go to 

Jamie Dimon then. 

KEITH: Just to, just to add 

like a little bit more color and 

this is like a random anecdotal 

thing. But some like junior 

fucking kid called Ari wechsman who 

works in credit. 

MR. ARTAJO: What? 

KEITH: There's a junior kid 

who works in market risk for 

credit, credit markets who 

apparently was calling the market 

Page 9 

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JPM-C10 oooJ501 
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Confidentiaf Treatment Requested 

by JPMORGAN CHASE & CO, 

call #5722876946602392261 

HIGHLY CONFIDENTIAL 

risk guys in CIO in New York 

sayi ng, hey,. we've had 1 i ke two 

standard deviation distortion in 

this main verse cross over 

decompression and apparently it's 

all because of a big prop trader 

called Bruno in CIO. That's just 

for you to know, right. So--

MR. ARTAJO: That is nasty, 

man, that is nasty. 

KEITH: What that means is that 

the traders in credit flow are 

telling that to their risk guys and 

just spreading sheet. 

MR. ARTAJO: That's right. But 

we need to stop that. 

. KEITH: I don't know how to get 

in front of it. I don't know. I 

mean th·e only thing we can do is 

what you're suggesting now, which 

is Ina has to have.that 

conversati on wi th J es.s and someone 

has to say knock it the fuck off 

because we look like idiots in the 

(2).txt 

12 

HIGHLY CONFIDENTIAL 

street. 

MR. ARTAJO: That's right. We 

need to stop this exactly. 

page 10 

Draft Transcript - SUbject to Review and Correction 

Likely Contains Errors JPfJI-CiO 0003507 
1439 

March 23, 2012 

.y. 

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Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

call #5722876946602392261 

KEITH: I'm telling you, this 

is like associate level market risk 

kid who doesn't even know what the 

word decompression means. Can ~ou 

tell it's not his words. 

MR. ARTAJO: We need to stop 

this. We need to stop this shit 

internally. We need to stop that. 

I mean listen we have issues here 

too. I'm not saying, I'm not 

telling you honestly that we are 

the pretty boys and everybody else 

is, is ugly. We have an issue here 

that, .you know, I'm using too big 

IWA. But this is known by, by the, 

it's a known weakness. They are 

using that, they are exploiting us. 

They think they can take us out. 

That's what they really think with 

no capital. And this is what we 

what needs to stop. 

(2).txt 

13 

HIGHLY CONFIDENTIAL 

KEITH: All right. 

MR. ARTAJO: Irv is calling my. 

I'll call you back. 

KEITH: All I did is a graph 

with the notionals and I sent it to 

you and I sent it to Irv. I'll 

Page 11 

Draft Transcript., Subject to Review and Correction 

Likely Contains Errors JPM-CIO 01)0350:) 
1440 

March 23, 2012 

18: 24: 16 

Confidential Treatment Requ-e$led 

by JPMORGAN CHASE & CO. 

8 

9 

10 

11 

12 

13 

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20 

21 

22 

23 

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call #5722876946602392261 

talk to you later. Bye. 

Page 12 

Draft Transcript - Subject to Review and Correction 

Likely Contains Errors 

(2). txt 

JPM-CIO 0003504 
1441 

,--= Redacted by the Permanent 

--Subcommittee on Investigations 

From: BRUNO IKSIL <BIKSIL2@1.1III •••• 

Sent: Fri, 23 Mar 2012 14:56:42 GMT 

BRUNO IKSIL <BIKSIL2@:tI!l!l!!!!!!I!'-",;BRUNOIKSIL<bruno.m.iksil@jpmorgan.com>; .0: JAVIER MARTIN-ARTAJO <JMARTAJO@ I 

Subject: 

03/23/2012 05:37:08 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room 

03/23/2012 05:37:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOUCITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BEUEVED TO BE REUABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABIUTY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CUENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/23/2012 05:37: 11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

hello 

03/23/2012 05:37:11 JAVIER MARTIN~ARTAJO, MORGAN (J.P.) has joined the room 

03/23/201205:37:12 JAVIER MARTIN-ARTAJO, MORGAN (J.P.) says: 

*** MORGAN (J.P.) (20833) Disclaimer: THIS IS FOR INFORMATION ONLY AND NOT THE PRODUCT OF 

JPMORGAN 's RESEARCH DEPT.IT IS INTENDED FOR THE RECIPIENT ONLY.IT IS NOT AN OFFER OR 

lUCITATION FOR PURCHASE OR SALE OF ANY FINANCIAL PRODUCT AND NOT SUITABLE FOR PRIVATE 

_JSTOMERS.PRICES ARE INDICATIVE ONLy.wE MAY HOLD A k'POSmON OR ACT AS MARKET MAKER IN 

ANY FINANCIAL PRODUCT DISCUSSED ABOVE. CUENTS SHOULD CONSULT THEIR ADVISORS ON 

TAX,ACCOUNTING,LEGAL OR OTHER ISSUES ARISING AND EXECUTE TRADES THRO!,JGH A JPM ENTITY IN 

THEIR HOME JURISDICTION UNLESS GOVERNING LAW PERMITS OTHERWISE. FOR A"INFORMATION 

ABOUT JPM UK ENTITIES REFER TO J.i""www.jpmorgan.com/pages/disclosures 2009 JPMORGAN CHASE & 

CO. JPMSL IS AUTHORISED AND REGULATED BY THE FSA. 

03/23/2012 05:38:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

the main is pushed back up xover does not move 

03/23/2012 05:38:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

eurostoxx was at the same level yesterday 

03/23/2012 05:38:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ade tries to contact you for some colour on IB 

03/23/2012 05:39:06 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

the var increase went a lot from tactical because they picked the wrong equity delta 

03/23/2012 05:39:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i sold a little more protection in main for tactical 

03/23/2012 05:39:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i am done for the whole book now 

,/23/2012 05:39:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i sent u a couple of emails 

Gonfidentlal Treatme.rtt R.equest~ 

tty JPMORGA,tf CHASE & co. JPM-ClO D!lQ.l6l:I1 
1442 

/23/2012 05:39:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tney push also the series 9 main wider than market 

03/23/201205:40:11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

so we will lose more today 

03/23/201205:40:12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

for sure 

03/23/2012 05:40:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

andf this is going to happen across the book 

03/23/2012 05:40:31 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

they will also fram the hy indices and tranches against us 

03/23/2012 05:40:35 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

this will be aggressive 

03/23/201205:41:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

main ahs widened 2.5 bps 

03/23/201205:41:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

nothing else moved 

n~/23/2012 05:41:54 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

m yesterday 

03/23/2012 05:53:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I reckon we have today a loss of 300M USING THE BEST BID ASKS 

03/23/2012 05:53:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

and approx 600m from mids 

03/23/2012 05:53:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i see it coming 

03/23/2012 06:07:34 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I will stop trading at all now 

03/23/201206:07:53 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

I do not need to unless removing the long risk in 0-3 10yr S9 and IG9 

03/23/2012 07:54:01 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

do you need any material to be prepared for today's meeting? 

03/23/2012 10:56:23 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I was on the call 

03/23/2012 10:56:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

T -.sked Pat and Samir to provide marginals to see what I can do to reduce the var and rwa 

Confidentlal Treiltment Requested 

by JPMORGAN CHASE: & co. JF>M..clOOOllJ5t18 
1443 

From: JUUEN GROUT <JGROUT3@ ••••• 

- - Redacted by tIt~ Permanent 

Subcommittee on Investicatloas 

'>ent: Fri, 23 Mar 2012 18:37:47 GMT 

To: JUUEN GROUT <JGROl!Tl@_; JUUEN GROUT <julien,g,grout@jpmchase,com>; 

BRUNO IKSIL <BIKSIL2@ __ BRUNO IKSIL <bruno,m.iksil@jpmorgan.com> 

Subject: 

03/23/2012 05:45:49 JUUEN GROUT, JPMORGAN CHASE BANK, has joined the room 

03/23/2012 05:45:50 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOUCITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BEUEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABIUTY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CUENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/23/2012 05:45:54 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

03/23/2012 05:45:54 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room 

03/23/2012 05:45:54 BRUNO IKSIL, JPMORGAN CHASE BANK, says: *** JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

ONFIRMATION OF TERMS. THE INFORMATION IS BEUEVED TO BE RELIABLE, BUT WE DO NOT 

vVARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABIUTY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CUENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/23/2012 05:45:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

salut 

03/23/2012 05:46:01 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

salut 

03/23/2012 05:46:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c mort la 

03/23/2012 05:46:28 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

david de CS appoelle au sujet des skew trades. je lui demande un prix ferme sur indice vs single names? 

03/23/2012 05:46:32 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

coupons matched etc 

03/23/2012 05:46:33 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

? 

3/23/2012 05:46:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

Confidential T~;rtment Requested 

by .fPMORGAN CHASE 8, CO. 

JPM-ClOOO0351S 
1444 

03/23/2012 05:46:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c un full upfront 

J3/23/2012 05:46:54 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok understood 

03/23/2012 05:48:11 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

pour revenir a ton premier pOint 

03/23/2012 05:48:14 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

continue a vendre la 55 

03/23/2012 05:48:25 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

leve la 0-3 lOyr 

03/23/2012 05:48:28 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

on en discutera lundi si tu veux bien, 

03/23/2012 05:48:32 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok ok je continue ca 

03/23/2012 05:48:38 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 05:48:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je te dis 

fl3/23/2012 05:48:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

; vont nous defoncer 

03/23/2012 05:48:56 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

y a bcp a dire, mais je ne veux pas charger ta charette qui est deja bien remplie 

03/23/2012 05:52:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c soir tu as au moins 600m 

03/23/2012 05:52:36 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

BID ASK 

03/23/2012 05:52:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

MID 

03/23/2012 05:52:51 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

BID ASK TU AS 300M AU MaINS 

03/23/2012 05:54:46 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tu as vu Ie run de jospehine .. attack full force. 

03/23/2012 05:57:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 05:57:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c partout 

3/23/2012 05:58:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

on est mort je te dis 

Confidential Trell'lment Requuted 

by JPMORGAN CHASE & CO. 

JPM·CIOOOO3516 
1445 

03/23/201205:58:19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: mais bon c hors de mon controel maintenant 

B/23/2012 05:58:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

j'ai fait ce qu'iI fallait 

03/23/2012 06:04:04 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/23/201206:18:11 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

oula bnp ... 

03/23/2012 07:27:02 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno/ 

03/23/2012 07:30:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 07:31:38 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

I'arret du trading c nous 3 ou juste moil 

03/23/201207:31:49 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

toi 

03/23/2012 07:31:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: sur core 

03/23/201207:31:52 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

k 

03/23/2012 07:32:05 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

eric/luis ils peuvent continuer, sur leur tactical 

03/23/2012 07:32:06 BRUN,9 IKSIL, JPMORGAN CHASE BANK, says: 

continue sur la ss les 0-3 1A yr 

03/23/2012 07:32:07 JULIEN GROUT, JPMORGAN CHASE BANK, says: ok? 

03/23/2012 07:32:11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 07:32:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

continue sur les 25-35 HY 

03/23/2012 07:32:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

pas les 15-25 

03/23/2012 07:32:53 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/23/2012 07:33:02 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tu pourras me donner la couleur stp? s'iI y en a. 

3/23/201207:33:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

rien poour Ie moment 

Confidential Treatment Rel:lueosted 

by JPMORGAN CHASE & CO. 

JPM-CIOOOO3S17 
1446 

03/23/2012 07:33:20 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

J3/23/2012 07:33:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ca va se negocier avec I'IB 

03/23/2012 07:33:34 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tout en haut 

03/23/2012 07:33:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

et je vais en prendre pour mon grade 

03/23/2012 07:33:44 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

today? 

03/23/2012 07:33:49 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

mais bon on a du carry 

03/23/2012 07:33:51 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ah? cela fa ete confirme/ 

03/23/2012 07:34:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c pas necessaire 

03/23/2012 07:34:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu ne perds pas 500M sans conseuqences 

1)3/23/2012 07:34:30 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

arde Ie pour toi 

03/23/2012 07:34:39 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

oh oui 

03/23/2012 07:34:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c Ie bon sens qui me dit ca 

03/23/2012 07:46:55 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tua as parle a august? sinon, je lui dis de nous montrer Ie skew trade (sous Ie bon format)? 

03/23/2012 07:47:29 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 07:47:35 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/23/2012 07:47:38 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

essaie de collecter des prix fermes 

03/23/2012 07:47:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je n'ai rien vu de ferme pour Ie moment 

03/23/201207:48:15 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

3/23/2012 07:56:47 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

Bruno? tu as besoin de qqcho/ 

Cortflclential Treatment Requested 

by JPMORGAN CHASE &. CO. 

JPM-CIOOOO3518 
1447 

03/23/201208:13:16 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bon bruno 

J3/23/2012 08: 13:26 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

javier est reparti dans un conf call avec A 

03/23/2012 08: 13:32 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

je n'ai pas pu lui parler 

03/23/201208:14:05 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok 

03/23/2012 08: 14:24 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

mais· bon il n'avait pas l'ai concerne par des slidse .. plutot autre chose 

03/23/201208:14:35 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

je vais chercher Ie dej et je reviens 

03/23/2012 08:26:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu es la? 

03/23/2012 08:31:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

urgent 

03/23/2012 08:33:49 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

oui 

'13/23/2012 08:59:30 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

~garde ton email 

03/23/2012 09:00:02 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

essaye de retrouver les run de roman shukhman sur ig9 pour montrer qu'ils sont plus steep et mettent Ie 

i99 10yr plus que Ie marche 

03/23/2012 09:01:36 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

03/23/2012 09:02:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

essaie de retrouver les chat sur les chat de jp oU ils nou sniffent 

03/23/2012 09:02:13 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

tu te rappelles I;'histoire de debut d'annee avec Sylvain sur Ie roll s9 5y? 

03/23/2012 09:02:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

non 

03/23/2012 09:02:26 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c'etait koi deja? 

03/23/201209:02:41 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

j'avais checke sylvain, et fait une gross taille de roll s9 5y 

03/23/2012 09:02:51 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

~ux de temps apres iI me dit que jpm Ie lift dessus 

03/23/2012 09:02:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ah oui 

ConfldenUalTreatmentRequested 

by JPMOR(3AN CHASE & co. 

JPM"cIOOOQ3S19 
1448 

03/23/2012 09:03:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says: > faut Ie retrouver celui la 

03/23/201209:03:13 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

je 'ai, en francais malheureusement 

03/23/2012 09:03:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c pas grave envoie 

03/23/2012 09:03:31 JULIEN GROUT, JPMORGAN CHASE BANK, says: en rrecanche peux tu me rappeler ce que tu avais trade/booke? 

03/23/2012 09:03:33 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

achilles comprend tres bien Ie francais 

03/23/201209:03:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

cad? 

03/23/2012 09:03:48 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

je veux Ie timing exact 

03/23/2012 09:03:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

de quoi? 

03/23/2012 09:04:03 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ben des evenements 

3/23/201209:04:16 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

parce que si tu as deja traite du roll avant moi la dessus 

03/23/2012 09:04:20 JULIEN GROUT, JPMORGAN CHASE BANK, says: ca sera encore plus limpide 

03/23/2012 09:04:23 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tu vois? 

03/23/2012 09:04:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je ne me souviens plus 

03/23/2012 09:04:39 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok je regarde Ie blotter 

03/23/2012 09:04:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: c quel jour? 

03/23/2012 09:05:27 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ah ui! tu as traite 250m de roll 59 avec db a 7h55!! 

03/23/2012 09:05:29 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

Ie 4-jan 

03/23/201209:06:11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

'k 

03/23/201209:06:18 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu as Ie chat? 

Confidentllli Treatment Requested 

by JPMORGAN CHASE & CO. 

JPM-C!00003S20 
1449 

03/23/2012 09:06:22 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

'joute Ie 

03/23/2012 09:06:29 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

avec sylvain? oui 

03/23/2012 09:06:31 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je ne vois rien chez moi 

03/23/2012 09:06:37 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

mais je me rappelie 

03/23/201209:14:32 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok apparemment tu as booke Ie trade vers 8h20 ce jour la, moi j'ai trade a 9h. 

03/23/2012 09:14:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

cool 

03/23/2012 09:50:07 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

pour I'instant je n'ai que 5 'pieces' au dossier 

03/23/2012 09:53:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

regarde ton email 

03/23/2012 09:53:49 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

vu 

3/23/2012 09:53:50 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

un de plus 

03/23/2012 09:54:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ben oui on ne va pas bosser comme si on etait parana tout Ie temps aussi 

03/23/2012 09:54:25 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

6 pieces 

03/23/2012 09:56:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

re9arde tes chats a toi avec JP 9UYS 

03/23/2012 10:05:37 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je fais Mark Shirfan 

03/23/2012 10:22:50 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

vois tes emails stp 

03/23/2012 10:23:14 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je vois 

03/23/2012 10:23:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

la var explose 

03/23/2012 10:23:28 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

-,ui 

03/23/2012 10:23:35 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c foutu 

Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

JPM-CIOOOO3.52.1 
1450 

03/23/2012 10:23:37 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

~ sule moyen c Ie book a zero 

03/23/2012 10:25:04 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

tu peux me dire ce que t'a dit ade ce matin? 

03/23/2012 10:25:50 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

3 gars de I'ib sont venus lui demander ma taille sur ig9 

03/23/2012 10:26:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je ne veux pas savoir qui c 

03/23/2012 10:26:19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je suis sur lecall 

03/23/2012 10:28:01 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

as tu eu des updates sur les marginal? 

03/23/2012 10:28:06 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

no 

03/23/201210:28:10 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

rwa 

03/23/2012 10:28:22 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

48.7 

3/23/2012 10:28:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

,es marginals sur Ie rwa 

03/23/2012 10:29:15 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

non rien .. en cours 

03/23/2012 10:29:33 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

j'en ai besoin 

03/23/2012 10:29:39 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

je sais 

03/23/2012 10:29:44 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

je viens de relancer pat 

03/23/2012 10:29:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

merci 

03/23/2012 10:31:18 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

tu peux me faire les transcripts de david gldenberg a CS stp? 

03/23/2012 10:31:38 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je suis sur Ie call 

03/23/2012 10:31:45 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

'k 

03/23/2012 10:31:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tout est sur Ie chat de cs 

Confidential Treatment Requasted 

by JPMORGAN CHASE & CO. 

JPM.cI00003522 
1451 

03/23/2012 10:31:58 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

eux tu Ie faire 

03/23/2012 10:32:03 JULIEN GROUT, JPMORGAN CHASE BANK/ says: 

ok 

03/23/2012 10:57:13 BRUNO IKSIL/ JPMORGAN CHASE BANK,says: 

appelle moi qd tu peux 

03/23/2012 11:36:16 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tjs en ligne? 

03/23/2012 11:38:42 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

dis moi quand tu as pu retrouver les chats de David Goldenberg 

03/23/2012 11:38:43 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

stp 

03/23/2012 12:00:09 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c sur Ie chat de cs sur la fin de mois 

03/23/2012 12:00:16 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

et iI ya celui de citi 

03/23/2012 12:00:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

il faut montrer les deux en parallel 

3/23/2012 12:00:34 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

peux tu me les envoyer stp? 

03/23/2012 12:01:06 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok je fqis citi 

03/23/2012 12:01:12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu peux fqire cs? 

03/23/2012 12:03:39 JULIEN GROUT/ JPMORGAN CHASE BANK, says: 

C'ETAIT SUR QUO! DEJA? LES 6B? 

03/23/2012 12:04:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok laisse tomber 

03/23/2012 12:04:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je e fais 

03/23/2012 12:04:S4 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

desole y avait javier j'ai perdu Ie fil 

03/23/201212:04:59 BRUNO IKSIL,JPMORGAN CHASE BANK, says: 

pas de pb 

03/23/2012 12:05:06 BRUNO IKSIL/ JPMORGAN CHASE BANK, says: 

~garde tes email 

03/23/2012 12:0S:16 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je faire janvier et fevrier sur credit suisse 

Confidential Tre~errt Requested 

by JPMORGAN CHASE &. CO. 

JPM.cIODOO3523 
1452 

03/23/2012 12:05:44 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

'eux tu te rappeler des chats ou les traders te disaient que I'IB poussait sur ig97 

03/23/2012 12:07:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

non 

03/23/2012 12:07:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

aucun 

03/23/2012 12:19:23 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

03/23/2012 12:19:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 12:19:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ignore Ie dernier email pour csfb* 

03/23/2012 12:19:49 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c un dupe 

03/23/2012 12:19:52 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bon j'ai les marginals old fashion 

03/23/2012 12:19:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ah demande a Javier 

3/23/2012 12:20:01 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

quel pnl on print today 

03/23/2012 12:20:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je ne sais plus la 

03/23/2012 12:20:22 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

j'ai aussi les marginals pour un split IRC/optimal tranches book, ca t'interesse? 

03/23/2012 12:20:29 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

aui 

03/23/2012 12:20:33 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

stp va voir javier 

03/23/2012 12:20:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je ne sais pas quel pnl envoyer la 

03/23/2012 12:20:42 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

ok je vais aller lui demander. il pense que les pieces que j'ai amassees ne sont pas assez 

03/23/2012 12:20:44 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/23/2012 12:20:49 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

" vais aller lui envoyer 

03/23/2012 12:22:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

dis moi qd core delta est updated 

Confldenlllli Treatment Reques1ed 

by JPMORGAN CHASE & CO. 

JPM.cI00003524 
1453 

03/23/2012 12:24:27 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

'one 

03/23/2012 12:24:51 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

si on doit faire bcp plus de ig9 vs ig18 it faut faire une simulation sur Ie rwa via Pat 

03/23/2012 12:27:17 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bon je fais Ie pnl la 

03/23/2012 12:27:18 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok? 

03/23/2012 12:29:55 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ah non on ne fera jamais cal 

03/23/2012 12:29:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

y en a mare a la fin 

03/23/2012 12:30:13 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu as parle a Javier? 

03/23/2012 12:37:12 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tu noteras qu'iI veut fa ire les simuls de capital AVANT de traiter 

03/23/2012 12:51:30 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bon ca va douiller sur la compression la 

3/23/2012 12:52:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 12:53:00 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

as tu parle a Javier? 

03/23/2012 12:56:06 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

b? 

03/23/2012 12:56:35 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

03/23/2012 12:56:39 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/23/2012 12:57:19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

we show -3 until month end on this one 

03/23/2012 12:57:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

anyway 

03/23/2012 13:03:35 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

je peux appeler? 

03/23/2012 13:03:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

-i tu veux 

03/23/2012 13:07:52 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

Ie bo ne va rien faire, parce quele pb aujourd'hui c'est la compression 

Confldential Treatment Requested 

by JPMORGA.N CHASE & CO. 

JPM-C!OOOO3SZS 
1454 

03/23/2012 13:08:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

arrete 

03/23/2012 13:08:19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu ne perds pas 200m en compression 

03/23/2012 13:08:55 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bon 

03/23/2012 13:09:28 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

on a 34m de cs01 en ig. hy unc'd today (par rapport a nos marques) et ig+3.25. ca fait 110m 

03/23/2012 13:09:35 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

ok? 

03/23/2012 13:09:44 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ecoute je n'ai pas Ie temps 

1)3/23/2012 13:09:49 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

:Jk 

03/23/2012 13:09:51 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/23/2012 13:09:53 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je suis avec pat pour voir les trades 

03/23/201213:10:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tout ce que je te demande c de dire a Javier ce que tu vois 

03/23/201213:10:14.BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c tout et ils decide ce qu'on montre 

03/23/201213:10:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

parce que la moi je ne sais plus 

03/23/2012 13:10:26 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je regarde la reduction du rwa 

03/23/2012 14:37:47 JUUEN GROUT, JPMORGAN CHASE BANK, has left the room 

Confidef1t!aITreatrnentReque&ll!d 

by JPMORGAN CHASE & CO. 

JPM-C100OO3S16 
1455 

E-MAIL TRANSLATION 

Conl'idenUal Treatment Requested 

by JPMORGAN CHASE & CO. 

JPM-C!OD!)03527 
1456 

From: mLTEN GROUT <1GROUT3@ •••••• 

Sent: Fri. 23 Mar 201218:37:47 GMT 

_ -= Redacted by the Permanent 

Subcommittee on III\' .. tigali~s 

To: mLTEN GROUT <JGROUn@ ••••• ~JULIEN GROUT 

<j ulien .g.grout@jpmchase.com>;BRUNOIKSIL<BIKSIL2@' ••••• :BRUNO 

IKSIL <bruno.m.iksil@jpmorgan.com> 

Subject: 

03/23/20]205:45:49 mLIEN GROUT. JPMORGAN CHASE BANK. has joined the room 

03123/201205:45:50 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (741671) Disclaimer: THlS IS FOR INFORMATION ONLY, NOT 

AN OFFER OR SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL 

INSTRUMENT. NOR AN OFFICIAL CONFIRMATION OF TERMS. THE INFORMATION IS 

BELIEVED TO BE RELIABLE, BUT WE DO NOT WARRANT ITS COMPLETENESS OR 

ACCURACY PRICES AND A V A1LABILITY ARE INDICATIVE ONLY AND ARE SUBJECT TO 

CHANGE WITHOUT NOTICE. WE MA Y HOLD A POSITION OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT 

THEIR OWN ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF 

THIS INFORMATION AND EXECUTE TRANSACTIONS THROUGH A IP. MORGAN ENTITY 

IN THEIR HOME JURISDICTION UNLESS GOVERNING LAW PERMITS OTHERWISE. 

03/23!20 }205:"5 :54 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

03123/201205:4554 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room 

031131201205 :4554 BRUNO IKSIL. JPMORGAN CHASE BANK. says 

* * * JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY. NOT 

AN OFFER OR SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL 

INSTRUMENT, NOR AN OFFICIAL CONFIRMATION OF TERMS. THE INFORlvlA TION IS 

BELIEVED TO BE RELIABLE, BUT WE DO NOT WARRANT ITS COMPLETENESS OR 

ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND ARE SUBJECT TO 

CHANGE WITHOUT NOTICE. WE MAY HOLD A POSITION OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT 

THEIR OWN ADVISORS REGARDING ANY TAX. ACCOUNTING OR LEGAL ASPECTS OF 

THIS INFORMATION AND EXECUTE TRANSACTIONS THROUGH A IP. MORGAN ENTITY 

IN THEIR HOME JURISDICTION UNLESS GOVERNING LAW PERMITS OTHER WISE. 

03/23/201205:45:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

salut 

hi 

031231201205:46:01 JULTEN GROUT, JPMORGAN CHASE BANK, says: 

salut 

hi 

03!23/20 1205:4603 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

c mort Ia 

'it is over/it is hopeless now 

03!23 !20 ] 205:"6:28 JULIEN GROUT, JPMORGAN CHASE BANK says: 

david de CS appoel1e au suje! des skew trades. je lui demande un prix fenne SUr indiee vs single names? 

David from CS calls about skeW trades. I ask him a firm price on index vs single names? 

031231:;01205:"6:32 mLIEN GROUT. JPMORGAN CHASE BANK says: 

Confiden6a1 Treatment Requ~ 

by JPMORGAN CHASE & co. 

Draft Transe'ript ~ Subject to Review and'Correction 

Likely Contains Errors JPM·CIO 0003528 
1457 

coupons matched etc 

coupons matched etc 

0312312012054633 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

? 

? 

03 !23/201205:46:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

aui 

yes 

03/23!20 1205:46:46 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

c un full upfront ' 

it is a full upfront 

03/23/201205:46:54 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok understood 

ok understood 

031231201205:48: 11 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

pour revemr a ton premier point 

to get back to onr first point 

03/23 !20 1205:48: 14 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

continue a vendre 1a ss 

keep on selling the ss 

03/23/201205:48 :25 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

leve la 0-3 10yr 

levy/raise/exercise the 0-3 IOyr 

031231201205 :48'28 JULIEN GROUT, JPMORGAN CHASE BANK. says 

on en discutera lundi si tu veU)( bien, 

we will talk about that on Monday ifi! is fine with you 

03/23/201205:48,'32 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

ok ok je continue ca 

ok ok I continue that 

03123!20 1205:48 :38 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

aui 

yes 

03/23 !201205:48:48 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

je te dis 

I tell YOll 

03!23/201 205:48:52 BRUNO TKSIL, JPMORGAN CHASE BANK., says 

iIs, vont nous defoncer 

they ar~ going to trash!des1roy us 

03/231201205:48 :56 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

y a bcp a dire, mais je ne veux pas charger ta charette qui est deja bien remplie 

there is a lot to say, but I don't want to burden you more than you already are 

03/23/20 12 055228 BRUNO [KSIL. JPMORGAN CHASE BANK, says 

c soir tu as au moins 600m 

tonight you'll have at least 600m 

03123.12012055236 BRUNO lKSIL. JPMORGAN CHASE BANK, says 

BID ASK 

BID ASK 

03/23.120120552:40 BRUNO lKSIL. JPMORGAN CHASE BANK. says: 

MID 

MID 

Confidential Trellhnent Reque5ted 

by JPMORGAN CHASE &. CO. 

Draft TranSCript ~ Subject to Review and Correction 

Likely .Contains Errors JPM-CIO 0003529 
1458 

031231201205 :52 :51 BRUNO TKSIL. JPMORGAN CHASE BANK, says: 

BID ASK TU AS 300M AU MaINS 

BID ASK YOU HAVE 300M AT LEAST 

03/23/2012 05:54:46 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tu a> vu Ie run de jospehine .. attack full force. 

You have seen Josephine's fun .. attack full force. 

03/23/2012 05: 57 :56 BRUNO IKSTL, JPMORGAN CHASE BANK. says: 

oui 

yes 

03/23/20120557:59 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

c partollt 

it is everywhere/all over the place 

03123/2012 0558:04 BRUNO IKSTL, JPMORGAN CHASE BANK. says: 

on est mort je te dis 

W~ afe dead I lell you 

03/23/201205:58: 19 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

mais bon chars de man controel maintenant 

btlt then it is out of my hands now 

03/::312012 05:58:27 BRUNO TKSIL JPMORGAN CHASE BANK, says: 

j'ai fait ce qu'il fallail 

I did what 1 had to do 

03/23 /2012 0604.04 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

ok 

031231201206:18:11 JULIEN GROUT, JPMORGAN CHASE BANK. says 

ouJabnp .. . 

wowbnp .. . 

03/23/201207:2702 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

bruno! 

bruno! 

03/231201207:30:46 BRUNO IKSTL, JPMORGAN CHASE BANK. says: 

oui 

yes 

03/23/2012 07:31:38 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

l'alTet du trading c nous 3 au juste moi? 

The stop of the trading, is itthe 3 of us or only me? 

03123/2012 07.'31:49 BRUNO IKSlL. JPMORGAN CHASE BANK, says: 

toi 

you 

031231201207:31 :52 BRUNO IKSTL, JPMORGAN CHASE BANK, says: 

sur COre 

on core 

03/23!2012 07:31 :52 JULlE GROUT, JPMORGAN CHASE BANK. says: 

ok 

ok 

03 ;2312012 07:32:05 JULIEN GROUT, JPMORGAN CHASE BANK. says 

eric/luis ils peuvent continuer, sur leur tactical 

e.ie/luis can go on, on their tactical 

03/23/201207:32:06 BRUNO IKSlL, JPMORGAN CHASE BANK. says: 

Confiderrtfal Treatment Reque.r;ted 

bY' JPMORGAN CHASE & CO. 

Draft Transcript - Subjecllo Review and Correction 

Likely Contains ErrQ~s 

JPM-CfO 0003531: 
1459 

continue sur la ss Ies 0-3 1 A yr 

go on with the, ss the 0-3 1 A yr 

03;23/2012 07:32:07 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok? 

Ok? 

03;2312012 07:32: II BRUNO IKSlL, JPMORGAN CHASE BANK, says: 

aui 

yes 

03/23/201207:32:27 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

continue sur les :!5-35 HY 

goon with the :!5-35 HY 

03123/20120732:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

pas les 15-25 

not the 15-15 

03/23!201207:32:53 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

ok 

ok 

03;23/201207:33 :02 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

tu pounas me donner la couleur sip? s'il y en a. 

will you give me the color please 0 jf there is 'orne. 

031231201207:33: 17 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

rien poour Ie moment 

nothing tor now 

03/231201207:33 :20 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

ok 

ok 

03123/20120733 :28 BRUNO IKSlL, JPMORGAN CHASE BANK, says: 

ca va se negocier avec I'IB 

it will be negotiated with the lB 

03/23!20 1207: 33:34 BRUNO IKSlL, JPMORGAN CHASE BANK, says: 

tout en haut 

at the top 

031231201207:33:41 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

et je vais en prendre pour man grade 

and I am going to be hauled ov~r the coals 

031231201207:33:44 JULIEN GROUT, JPMORGAN CHASE BANK. says 

today? 

today? 

03;23/]0120733:-49 BRUNO IKSlL, JPMORGAN CHASE BANK, says: 

nlais bon on a du calT)' 

but we bave some C-alTY 

031231201207: 33 :51 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

ah? cela t'a ete confirme! 

ah? it was contlnned to you? 

03 !23 1201207:34:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c pas necessaire 

it is not necessary 

031231201207: 34: 20 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

tu ne perds pas 500M sans conseuqences 

you don't lose 500M without consequences 

Confidential Treatment Requested by JPMORGAN CHASE & CO. 

Draft Transcript - Subject to Review and Correction 

likely Contains Errors JPM-CIO 0003531 
1460 

03/23/201207'34.30 8RUNO TKSIL. JPMORGAN CHASE BANK. says 

garde Ie pour toi 

keep it for you 

03123/201207:34:39 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

oh oui 

oh yes 

03/23 /20 120734:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

c Ie bon sens qui me dit ea 

good sense iells me so 

03/23120120746:55 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tua as parle a august? sinon. je lui dis de nous montrer Ie skew trade (sous Ie bon format)? 

Did you talk to august? othen"ise, I tell him to shqw us the skew trade (under the good lonnat)? 

03/2312012074729 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

yes 

03;l3 /2012074735 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

ok 

03123/201207.+7:38 BRUNO lKSIL, JPMORGAN CHASE BANK, says: 

essaie de collecter des prix fermes 

try to wllect finn prices 

03/2312012074745 BRUNO lKSIL, JPMORGAN CHASE BANK, says: 

je n'ai rien Vll de ferme pour Ie moment 

I haven't seen anything finn tor now 

03123/201207-181 5 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

ok 

03123/201207:56:-17 JULIEN GROUT, JPMORGAN CHASE BANK. says 

Bruno? tu as besoin de qqchol 

Bruno? do you need anything? 

03123!20 12 08:13:16 JULIEN GROUT, JPMORGAN CHASE BANK, says 

bon bruno 

well bruno 

m!23 1201208: 13 :26 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

javier est reparti dans un eonf call avec A 

Javier is back again in a phone call with A 

03 ;23;2012081332 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

je n'ai pas pu lui parler 

I couldn't talk to him 

1)JI23 .120120814 :05 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

ok 

ok 

03/23.'201208'14:2-1 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

mais bon il n'avait pas I'ai conceme par des slidse .. plutot autre chose 

but anyway he did not seem coneemed by the slides .. rather something else 

03;23 ;201208:14:35 JULIEN GROUT, JPMORGAN CHASE BANK, says 

je vais chereher Ie dej etje reviens 

I am going to get lunch and I come back 

03/23/]01208'26: 17 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

tu es la? 

Are you here? 

CDnfidentlal Treatment Requested 

by JPMORGAN CHASE & CO. 

Draft Transcript· Subject to Review and Correction 

likely Contains Errors JPM-CIO 0003532 
1461 

03/23/201208:31:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

urgent 

urgent 

03/23.12012 08:33-19 JULIEN GROUT, JPMORGAN CHASE BANK, say s: 

oui 

yes 

03123/2012085930 BRUNO IKSLL, JPMORGAN CHASE BANK, says: 

regarde ton email 

look at your email 

03/23/201209:0002 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

essaye de retrouver les run de roman shuklunan sur ig9 pour mOlltrer qu'i Is sont plus steep et mettent Ie 

ig9 lOyr plus que Ie marche 

try to find roman shukhman's runs on ig9 in order to show that they are "more steep"isteeper and that 

they put the ig9 10 yr more than the market 

03123!20 1209:01 :36 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

bruno 

03/23/20120902:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

essaie de retrouver les chat sur les chat de jp au ils nou sniffent 

try to tind the chats about the jp's chat where they sniff us 

03123/2012090213 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tu te rappelles I'histoire de debut d'annee avec Sylvain sur Ie roll 59 5y? 

do you remember the story ii'om the beginning of the year with Sylvain all the s9 5y roll ? 

03/23 ;'20120902:20 BRUNO IKSIL, JPMORGAN CHASE BANK says: 

non 

no 

03/23/20 1209:i!2'26 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

c'etait koi deja? 

What was it again? 

03123/20120902:41 JULIEN GROUT, JPMORGAN CHASE BANK, says 

j'avais checke sylvain, et fait une gross taille de roll s9 5y 

I had checked with Sylvain and done a big size ofroll s9 5y 

03 /23L!01209:0251 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

peux de temps apres il me dit que jpm Ie lift dessus 

sl10111y after he tells me thatjpm lifts him from it 

03/231201209:0256 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

ah oui 

oh yes 

03/23/201209:03:0-1 BRUNO TKSIL. JPMORGAN CHASE BANK says: 

i1 taut Ie retrouver celui la 

we need to tind this one 

03/23/201209:03:13 JULIEN GROUT, JPMORGAN CHASE BANK, says 

je 'aL en francais malheureusemellt 

I have it, in French unfortunately 

0312320120903 :21 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

c pas grave envoie 

it does not matter, send it, 

03123 /2IJ 120903:3 1 JULIEN GROUT, JPMORGAN CHASE BANK. says 

en rrecanche pellx tu me rappeler ce que tu avais trade/booke? 

However could you remind me what you tradedlbooked ? 

03123120120903 :33 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ConfidenUa,1 Treatment Requested 

by JPMORGAN CHASE & CO. 

Draft Transcript - Subject to Review and Correction 

Likely Contains Errors JPM-ClO 0003533 
1462 

achilles comprend Ires bien Ie !Taneais 

achiIles understands French very well 

03/23 .120 1209-03:42 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

cad? 

Which means? 

03/23/201209:03:48 JULIEN GROUT. JPMORGAN CHASE BANK. says: 

je yeux Ie timing exact 

1 ivant the exact timing 

03;21'201209:03:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

de quoi? 

of what ? 

03/23.1201209:0"':03 JULIEN GROUT, JPMORGAN CHASE BANK, says 

ben des evenements 

well, of the evenrs 

03.123.12012090.116 JULIEN GROUT, JPMORGAN CHASE BANK, says 

parce que si tu as deja traite du roll avant moi Ia dessus 

because ifYOll have already treated some roll before me on that 

03123/2012090420 JULIEN GROUT, JPMORGAN CHASE BANK. says 

ca sera encore plus Iimpide 

it will be even c1eare.r 

03/23/20120904:23 JULIEN GROUT. JPMORGAN CHASE BANK. says: 

tll yois? 

Do you see? 

03123.f20 1209:04:32 BRUNO IKSIL JPMORGAN CHASE BANK says: 

je ne me souvlens plus 

I don't remember 

03/23.1201209:04:39 JULIEN GROUT, JPMORGAN CHASE BANK, says 

okje regarde 1e blotter 

ok r look at the blotter 

03!23!201209_-04:4I BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

c queljour? 

What day is it? _ 

03123/201209:05:27 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ah ui ! tll as traite 250m de roll s9 avec db a 7h55 !l 

oh yes! You dealt with 250m ofro!! s9 with db at 7h55!! 

03 i23 1]0 12 0905 :29 JULIEN GROUT, JPMORGAN CHASE BANK, says 

le4-jan 

011 41h Jan 

03 !23/20 120906: 11 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

ok 

ok 

03123 !20 ]209:0618 BRUNO IKSIL, JPMORGAN CHASE BANK. says 

tu as Ie chat? 

Do YOll have the eha!': 

03.12]/20120906:22 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ajoute Ie 

add it 

03123/201209:06 :29 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

avec sylvain? oui 

Confidential Treatment Requested 

by JPMORGAN CHASe & co. 

Draft Transcript ~ Subject to Review and Correction 

Likely Contains Errors JPM·CIO 0003534 
1463 

with Sylvain? yes 

03/23/20120906:31 BRUNO IKSIL JPMORGAN CHASE BANK. says: 

je ne vois rien c.hez moi 

I can't see anything on mine 

03/23 IlO 1209:06:37 BRUNO IKSTL, JPMORGAN CHASE BANK, says: 

rnais je me rappelle 

but I remember 

031231201209: ]4:32 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok apparemment tu as booke Ie trade vers 8h20 ce jour Ja, moi j'ai trade a 9h. 

ok apparently you booked the trade around 8h20 this day. and Ilrade.d at 9h. 

03/231201209: 14 :52 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

cool 

cool 

03123/201209'5007 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

pour J'instantje n'ai que 5 'pieces' au dossier 

for now I have only 5 documents in the file 

03 ;23/201209:53:./5 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

regarde ton email 

look at your email 

03!23/20 1209:53:-19 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

Vll 

seen 

031231201209:53:50 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

unde plus 

one more 

03;23/201209:54:03 BRUNO lKSIL, JPMORGAN CHASE BANK, says 

ben oui on ne va pas bosser comme si on etait parana tout Ie temps aussi 

well yes, we are not going to work as if we were paranoid all the time! 

03/23 J 20 1209: 54:2 5 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

6 pieces 

6 documents 

03/23120120956:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

regarde tes chats a toi avec JP guys 

look at your m\l1 chats with the .lP guys 

03/23 /2012 10:OS :37 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je tais Mark Shirfan 

I look at Mark Shirfan 

03123!20 12 10:2250 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

vois les emails stp 

look at the emails please 

03/23/201210231./ BRUNO IKSIL, JPMORGAN CHASE BANK, says 

je vois 

I see 

03123/2012 10:23'21 BRUNO IKSIL JPMORGAN CHASE BANK, says: 

la var explose 

the var explodes 

0312312012 10:2328 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

oui 

yes 

ConndentiaJ Treatment Requested 

by JPMORGAN CHA.SE & CO, 

Draft Transcript ~ Subject to Review and Correction 

Likely Contains Errors 

JPM-CIO 0003535 
1464 

03i23:20 12 10:23 :35 BRUNO ]KS1L. JPMORGAN CHASE BANK, says: 

c fautu 

it is over 

03i23 /30 12 10:23 :37 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

Ie sule moyen c Ie book a zero 

the only way is the book at zero 

03123 :2012 ]0:25 :04 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

tu peux me dire ce que t'a dit ade ce matin? 

Can you tell me what ade told you this morning? 

03/231201210:2550 BRUNO TKSIL. JPMORGAN CHASE BANK says 

3 gars de I'ib sont venus lui demander rna taille sur ig9 

3 IB guys came to ask him my size on ig9 

03/23/2012 1026:08 BRUNO IKS]L, JPMORGAN CHASE BANK, says: 

je ne veux pas savoir qui c 

r don't want to know who it is 

03/2312012 1026: 19 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

je suis sur Ie call 

I am on the call 

03/23/20]210:28:01 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

as tu ell des updates sur les marginal? 

Did you get the updates about the marginal? 

03/231201210:28:06 JULIEN GROUT. JPMORGAN CHASE BANK says: 

no 

no 

03/23/201210:28:10 BRUNO lKSIL, JPMORGAN CHASE BANK. says: 

nva 

rwa 

03/23/201210:28:22 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

48.7 

48.7 

03 !23 f2012 10:2848 BRUNO IKSIL. JPMORGAN CHASE BANK says: 

les marginals sur Ie rna 

the margi nals on the Twa 

03 ;23120 1210:29: 15 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

non rien " en caurs 

no, nothing .. in progTcss 

03!23 1201210:29:33 BRUNO lKSIL JPMORGAN CHASE BANK. says: 

j'en ai besoin 

I need them 

03!23/2012 10:2939 JULIEN GROUT, JPMORGAN CHASE BANK, says 

je sais 

I know 

03/23/20J 2 10:2944 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

je viens de relancer pat 

J just asked Pat again 

03/23/201210:29:59 BRUNO IKSIL JPMORGAN CHASE BANK. says: 

Inerci 

thanks 

03/23/2012 10:31: 18 JULIEN GROUT, JPMORGAN CHASE BANK, says 

tu peux me faire les transcripts de david gIdenberg a CS stp? 

Confidential Treatm~nt Requested 

by JPMORGAN CHASE & CO. 

Draft Transcript .. Subject to Review and Correction 

likely Contains Errors JPM--ClO 0003536 
1465 

Can you please do/check david gldenberg's transcripts to CS ? 

031231201210:31 :38 BRUNO IKSIL. JPMORGAN CHASE'BANK, say s: 

je suis sur Ie call 

1 am on the call 

03/2312012 1 0:3145 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

ok 

03/23/201210:3148 BRUNO lKSIL, JPMORGAN CHASE BANK, says: 

tout est sur Ie chat de cs 

everything in on cs's chat 

03!23 1::012.10:3158 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

peux tu Ie faire 

can you do it? 

03123/2012 10:3203 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

ok 

03 ;23120121057: 13 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

appelle moi qd tu peux 

can me when you can 

03 /]3i:!O 12 II :36: 16 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

tjs en ligne? 

Still online? 

0312312012 11 :3842 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

dis moi quand tu as pu retrouver les chats de David Goldenberg 

tell me when you can find David Goldenberg's chats 

03/23 f2U 12 II :3843 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

stp 

please 

03 ;23 /2012 1200:09 BRUNO lKSIL, JPMORGAN CHASE BANK, says: 

c sur Ie chal de cs sur Ia fin de mois 

It is Oll cs's chat at the end of the month 

0312312012120016 BRUNO lKSTL. JPMORGAN CHASE BANK, says: 

et il ya celui de citi 

and there is the citi one 

03/2312012 1200:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

il faut montrer les deux en parallel 

you need to show both in parallel 

03!23!20 12 120034 JULIEN GROUT, JPMORGAN CHASE BANK, says 

peux tu me Ies envoyer stp? 

Can you send them to me please? 

03123/201212.0106 BRUNO IKSIL JPMORGAN CHASE BANK, says 

ok je fqis citi 

ok I do citi 

03/2312012 1:::01 :12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

tu peux fqire cs? 

Can you do cs please? 

03/23/201212:0339 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

C'ETAIT SUR QUaI DEJA? LES 6B? 

About what was it again? The 6B? 

ConfidenHal Treatment Requested. 

by JPMORGAN CHASE & CO, 

Draft Transcript - Subject to Review and Correction 

Likely Contains Errors JPM-Cl.O 0003537 
1466 

03 ;23!20 12 12:0440 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

ok laisse tomber 

ok give it up 

03/13!10 1212:0441 BRUNO IKSIL. JPMORGAN CHASE BANK, says 

je e fais ' 

I do it 

03123/2012 ]204:54 JlJLlEN GROUT, JPMORGAN CHASE BANK, says: 

desole l' avaitjavier j 'ai perdu Ie fiI 

sorry jav;er was here and! lost track 

03123/2012 12:04:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

pas de pb 

nopb 

03123120]212:05:06BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

regarde tes email 

look at your emails 

03!23/20l 2 1205:16 BRUNO TKSn." JPMORGAN CHASE BANK, says: 

je faire janvier et fevrier sur credit suisse 

I am going to do January and February on credit suisse 

03123/]01212:05:44 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

peu:" tu Ie rappeler des chats au 'Ies traders te disa;ent que I'IB poussait sur ig9? 

Can you remember chats where the traders told you that the IB insisted on ig9? 

03/2312012 12:07:-15 BRUNO TKSIL. JPMORGAN CHASE BANK. says: 

non 

no 

03123/2012]2:07:47 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

aucun 

none 

03123/201212: 19:23 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

bruno 

03/23/2012 J2: 19:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

oui 

yes 

0312312012 12: 19:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ignore Ie dernier email pour csfb* 

disregard the last email for csfb 

03/23 !2012 1219:49 BRUNO TKSIL, JPMORGAN CHASE BANK, says: 

c un dupe 

it is a trick 

03 !23 /2012 12: 1952 JULIEN GROUT. JPMORGAN CHASE BANK. says: 

bon j'ai les marginals old fashion 

well, I have the old fashion marginals 

0312312012 111956 BRUNO IKSIL, JPMORGAN CHASE BANK, says 

ah demande a Javier 

ah ask Javier 

03;23/2011122001 BRUNO IKSlL. JPMORGAN CHASE BANK, says: 

quel pIll on plint today 

what pnl we print today 

03 /232012 ]2:~0:08 BRUNO lKSIL JPMORGAN CHASE BANK. says: 

je ne sais plus Ja . 

Confidential Treatrne~t Requested by JPMORGAN CKASE & co~ 

Draft Transcript ~ Subject to Review and Correction 

Likely Contains Errors JPM-cto 0003538 
1467 

I don't know anymore 

03123/20121220:22 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

j'ai aussi les marginals pour un split IRC/optimal tnmches hook, ca t'interesse? 

I also have the marginals for a split IRCloptimal tranches book, are you interested? 

03/23/20121:;:20:29 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

aui 

yes 

03/231207212:20:33 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

stp va voir javier 

please, go see javier 

03i23120J 2 12:20:40 BRUNO IKSIL, JPMORGAN CHASE BANj(, says: 

je ne sais pas quel pnl envoyer la 

I don't know whieh pnll should send 

0312312012 12:20:42 JULIEN GROUT, JPMORGAN CHASE BANK. says 

okje yais aller lui demander. il pense que les pieces que j'ai amassees ne sont pas assez 

ok I am going to ask him. he thinks thatthe documents that I collected are not enough 

031231201212:20:·14 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

ok 

ok 

03/2312012 12:20:49 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

je vais aller lui envoyer 

I am going to send them to him 

03/23/201212:22:32 BRUNO IKSIL JPMORG.A.N CHASE BANK. says: 

dis moi qd core delta est updated 

tell me when core delta is updated 

03!23/2012 12:24:27 JULIEN GROUT, JPMORGAN CHASE BANK. says 

done 

done 

0312312012 12:24:51 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

si on doit faire hcp plus de ig9 vs igl8 il faut faire une simulation sur Ie rwa via Pat 

if we must do much more ig9 vs ig18. we need to do a simlllation on the rwa via Pat 

03/23/201212:27: 17 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bon je fuis Ie pnlla 

well, I do the pnl now 

03123120121227: 18 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

ok? 

ok? 

031231201212:29:55 BRUNO lKSIL. JPMORGAN CHASE BANK says 

ah non on ne fern jarnais ca ! 

oh no, we will never do that! 

03123120 12 12:2959 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

yen a mare a la fin 

enough is enough 

0312312012 12:30 13 BRUNO IKS1L, JPMORGAN CHASE BANK, says: 

tu as parle a Javier? 

Did you talk to Javier'? 

03/2312012 12:37: 12 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

tu noteras gu'iI veLl! faire les simuls de capital AVANT de traiter 

you' 11 notice that he wants to do the capital simulations BEFORE dealing 

Confidential Treatment Requested 

by JPMQRGAN CHASE & CO. 

Draft Transcript· Subject to Review and Correction 

Ukety Contains Errors JPM-CIO 0003539 
1468 

03123/]012 12:51 :30 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bon ca va douiJIer sur Ia compression Ia 

it is going to be spent/expensive on the compression now 

03/23/2012 12:52:46 BRUNO IKSIL. JPMORGAN CHASE BANK, says: 

Qui 

yes 

031231201212:53:00 JULIEN GROUT, JPMORGAN CHASE BANK, says 

as tu parle a Javier? 

Did you talk to Javier ? 

031]3/2012 125606 JULIEN GROUT. JPMORGAN CHASE BANK. says 

b? 

b? 

03123/201212:56:35 BRUNO TKSlL. JPMORGAN CHASE BANK. says: 

aui 

yes 

03/23/201212:56:39 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

ok 

ok 

03i23 /2012 12:57: 19 BRUNO IKSIL, JPMORGAN CHASE BANK. says: 

we show -3 until month end on this one 

we show -3 until month end on this one 

03123/201212:57:21 BRUNO IKSIL. JPMORGAN CHASE BANK. says 

anyway 

anyway 

03;23!]0121303 :35 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

je peux appeler? 

Can I call? 

03!23/20 121303:47 BRUNO lKSIL, JPMORGAN CHASE BANK, says: 

si tu veux 

if you want 

03 ;231]01213:0752 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

Ie bo ne va rien faire, parce quele pb aujourd'hui c'est la c.ompression 

the bo is not going to do anything. because today's problem is compression 

03123/20121308:07 BRUNO IKSTL. JPMORGAN CHASE BANK. says 

arrete 

stop that 

03123!201213 :08 :19 BRUNO IKSIL. JPMORGAN CHASE BANK. says: 

tune perds pas 200m en compression 

you do not loose 200m with eompression 

03123120111308:55 JULIEN GROUT, JPMORGAN CHASE BANK. says: 

bon 

well 

031231201213:09:28 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

on a 34m de esOI en ig. hy unc'd today (par rapport a nos marques) et ig+3.25. ca fait J 10m 

we have 34m ofesOI in ig. Hy unc'd today (in comparison with our marks) and ig+3.25. it makes 

110m 

031]3/20121309:35 JULIEN GROUT. JPMORGAN CHASE BANK, says 

ok? 

Ok? 

Confidential Treatment RequestlMf 

by JPMORGAN CHASE & CO. 

Draft Transcript .. Subject to Review and Correction 

Likely Contains Errors JPM-ClO D003S«1 
1469 

03/23/2012 1309:44 BRUNO IKSTL, JPMORGAN CHASE BANK. says: 

ecoute je n'ai pas Ie temps 

list-'ll, I dOll't have time 

031231201213:09:49 JULIEN GROUT. JPMORGAN CHASE BANK, says: 

pok 

why?, ' 

03123/20121309:51 JULIEN GROUT. JPMORGAN CHASE BANK, says 

ok 

ok 

03/23/20 12130953 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

je suis avec pat pour voir les trades 

I am with pat to see for the trades 

03/23/20 1213: 10:04 BRUNO IKSTL, JPMORGAN CHASE BANK, says: 

tout ce que je te demande c de dire a Javier ce que tu vois 

all that I am asking you is to tell Javier wbat you see 

03123/201213: 10: 14 BRUNO IKSTL, JPMORGAN CHASE BANK, says: 

c tout et ils decide ce qu'on montre 

that's it and he decides what we show 

03/23/201213:10:20 BRUNO lKSIL. JPMORGAN CHASE BANK, says: 

parce que la rnoi je ne sais plus 

because me. I don't know anymore 

03/23/2012 J3 1026 BRUNO IKSIL. JPMORGANCHASE BANK. says 

je regarde la reduction du rwa 

I look at the reduction in the rwa 

03/23/2012 14 ,:37 :47 JULIEN GROUT, JPMORGAN CHASE BANK. has left the room 

Confidential Treatmerrt Reque!ited 

by JPMORGAN CHASE & CO. 

Draft Transcript - Subject to Review and Correction 

Likely Contains Errors JPM-CIO 0003541 
1470 

From: 

"ent: 

Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Thu, 29 Mar 2012 21:18:08 GMT 

.0: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Subject: Rrst draft of the presentation 

Confidential Treatment Reque&ted 

byJPMORGAN CHASE & CO. 

JPM..c:IOOOO3543 
1471 

1'i!J.N.3Ql:jNOJ ON'if 31'iI\Ii;id '\ll:)!~lS 
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Credit Book: summary 

1- the beta adjusted moves 

2- the Method 

- case of a 1x1 hy vs IG position: illusions with spreads and bp measure sensitivities 

- the book remains neutral x% CSD1 : implications 

1- if JG9 Jags, the book becomes long risk, because we are long risk in IG9 

2- if HY decompresses, the book becomes short risk, because we are short risk in HY 

- Look at beta adjusted moves on history: the whole story is about compression and decompression 

- breakdown .the risk from beta factors 

1- the book has a directional bias, but next it is all about expected loss changes ( mixing carry 

MTM) 

2- the beta neutral book breaks into 3 parts: 

a- decompression trade ie HY vs IG on the run 

b- S9 vs IG on the run and hy off the run vs HY on the rUn 

c - equity tranche slope 

3- the findings: target YTD at -750M 

- the book is huge: 95Bln IG9 and 38Bln S9 fwds , decompression (8M bp in HY or 25Bln, 2.3M in Xover or 7

- Decompression worked very weil and only starting: total gain ytd of BOOM ( 60Bp Xover, 60bps in HY) 

we captured 12% decompression out of a move of 18% 

- Series9 lag is overwhelming: total loss YTD is 1.5bln (22bps in IG9 fwds and main S9) 

- directionality -fjOM and carry -40M ( with no roll down) : total 1 DOm 

-defaults (Kodak and Rescap) cost are estimated at 100M total 

- 0-3 equity slopes cost a total 200M : 50M in itraxx ( 2pts) and 150M in CDX IG ( 5pts) 

-New trades: gain 200M 

1.P.Mo

Conndentllli Traatment Requusted 

by JPMORGAN CHASE & co, 

J
Credit Book: Trading activity: positions and new trades 

Rationale for the positions increase: 

1- cover the HY downside on some defaults, prepare for IG tightening, stay market neutral to minimize RWA 

2- started by selling IG9 5yr and S9 5yr : the curve steepened and the forwards moved up 

3- sold S9 and IG9 5xl0 to limit the P&L hit 

4- defended the P&L at Month end while the decompression kept going and increased the underperformance of S9 series 

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Itraxx Block 

Main OTR Xaver 

Main OTR IG 

S9 Fwd 

5yriG OTReq 

Net5yrOTR 

CDX block 

HY OTR 

IGOTR 

Hyotr HY10-11 

IG9 fwd 

IGOTR 

NetlGOTR 

Confldentl., Treltment Requested 

by JPMORGAN CHASE & CO. 

All trades 

3.700 ·2,479,033,784 

4.500 10,599,246,667 4,300 15,534,528,571 4'.500 14,844,105,079 4.500 22,472,525,079 

All trades 

4.100 ·12,027,013,171 

5.000 52,269,399,240 

4.100 ·2,550,011,220 

2.435 4,293,653,388 

4.500 39,888,688,889 

5.000 ·35,899,820,000 

5.000 12.061,510,760 

.. 

Start Jan Book Start Feb Book Start March Book Current 

·3,756,756,757 ·3,283,783,784 -4,884,371,622 -6,2

16,062,222,222 14,040,000,000 20,883,402,222 26,6

20,497,375,000 27,746,375,000 33,398,625,000 38,5

19,586,380,556 26,513,202,778 31,914,241,667 36,7

·4,116.619,444 6,190,069,444 14,082,350,556 20,7

Start Jan Book Start Feb Book Start March Book Current 

·7,246,905,439 -7,695,056,537 -14,662,635,805 ·19,2

31,495,051,038 33,442,715,708 63,723,815,208 83,7

-8,555,429,927 ·11,325,839,805 ·11,224,162,976 -11,1

14,405,446,694 19,070,202,546 18,899,001,314 18,6

54,651,951,114 75,029,095,559 94,017,484,448 94,5

·49.186,756,003 ·67,526.186,003 ·84,615.736,003 ·85.08

____ ·20,13§ . .3?,s,035 ... ·5,227,()Q9,70§ ·8,934,809.205 ·8,0

J.P.Morg

JPM·
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Credit Book: BP sensitivities and Directionality of the book 

As spreads tightened the IG9 and 89 1 Oyr saw their duration increase while all other legs had a shrinking duration 

1- this created an increase on the expected loss of the long risk that was amplified with the forward exposure 

2- the decompression created a long risk that was covered with a short risk in HY as the market rallied ( Var minimization) 

3- this long risk exposure should have been maintained: this would have triggered an increase in RWA and Var 

4- the decompression trade in HY and Xover was never large enough due to the legacy because we had to increase the 

position to defend the P&L hit without being able to stay long risk ( due to RWA & Var constraints) 

5- the decompression in 59 ( around 25%) have induced a natural increase of long risk circa 1081n long risk in main and 

2581n long risk in IG 

CS01 All trades a Start Jan Book Start Feb Book Start March Book 

Main OTR Xover -917,243 -1,390,000 -1,215,000 -1,807,218 

Main OTRIG 4,769.661 7,228.000 6.318.000 9.397.531 

0 

S9 Fwd 6.679.847 8.813.871 11.930.941 14.361,409 

5yriG DTReq 6.679.847 8.813.871 11.930.941 14,361,409 

0 

Net 5yr OTR 10.112.636 -1,852,479 2,785.531 6.337,058 

0 

COX block All trades Start Jan Book Start Feb Book Start March Book 

HY OTR -4,931,075 -2.971,231 -3.154,973 -6.011,681 

IGOTR 26.134,700 15.747,526 16,721.358 31.861.908 

0 

Hyotr -1.045.505 -3,507,726 -4.643,594 -4.601,907 

HY10-11 1.045.505 3.507,726 4.643.594 4,601,907 

0 

0 

IG9 fwd 17,949.910 24.593.378 33.763.093 42.307,868 

IGOTR -17.949,910 -24,593,378 -33,763.093 -42,307,868 

NetlG OTR 6,030,755 -10,067,688 -2,613,505 -4,467,405 

---------

... 

Current 

Current 

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Conntlentlal Treatment Requellted 

by JPMORGAN CHASE & co. 

JPM·CI
Core Credit Book: P&L explain 

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Positives 

Decompression 

HYoffthe run 

Carry 

New trades 

Book 

Itraxx Block 

Xaver/main ratio 

S9fwd ratio 

Tranche P&L 

New trades P&L 

directional 

IG block 

HY/IG ratio 

+1020M USD 

+560M USD 

+ 200M USD 

+ 150M USD 

+ 110M USD 

TOTALS 

TOTALS 

HY off ther un vs on the run 

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IG9 Fwd 

Tranche P&L 

New Trade P&L 

directional 

Defaulls 

C0T1ndenU.1 Treatment Requested 

by JPMQRGAN CHASE & CO. 

-

Feb 

Negatives ·1S20M USC I 

Steepening S9 and IG9 -1000M USD 

Defaults - 150M USD 

Duration effect 450M USD Equity tranche steepening - -220M USD 

March Current Book TOTALS 

88,516,208 -12,239,142 ·180,141,486 -103,864,420 

0 

58,799,595 44,189,466 57,852,908 160,841,968 

-52,805,736 -122,108,870 -242,054,127 -416,968,733 

20,000,000 -20,000,000 -50,000,000 -50,000,000 

50,000,000 20,000,000 ° 70,000,000 12,522,349 65,680,263 54,059,733 132,262,345 

TOTALS 

-118,638,384 ·71,133,553 ·524,044,348 -713,816,284 

89,015,888 120,496,700 199,004,093 408,516,681 

181,036,597 56,597,893 -34,187,795 203,446,695 

-340,643,952 -69,926,692 -544,970,101 -955,540,745 

-35,000,000 ·70,000,000 -65,000,000 -170,000,000 

20,000,000 20,000,000 ° 40,000,000 -33,046,916 -26,301,454 -28,890,544 .90,238,914 

-100,000,000 -50,000,000 .150,000,000 

4 J.P.M
Core Credit Book: Series 9 steepening explanation: the torwards have laggea 

40bps market rally by 22 bps .... 

CDXIG9 Spread compressio spread 03/01/2012 spread 27/03/2012 Duration chge 

5yr 48% 132 68 -23.00% 

7yr 37% 140 88 -14.00% 

10yr 26% 149 111 2.000% 

On the run 5yr 32% 121 82 -9.00% 

S9forward 22% 152 118 26.00% 

IG15 35% 111 72 -12.00% 

MainS9 Spread compressio spread 03/0112012 spread 27/03/2012 Duration chge 

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7yr 

1Dyr 

On the run 5yr S9 forward 

Component 

10yr underperformance 

Steepening 

Duration effect Beta adjustment 

Total 

Confldlllntlal Trtlatmont RequlllIIted 

by JPMORGAN CHASE & co. 

48% 

34% 

26% 

34% 

22% 

Itraxx Main S9 

B 8p 

4 Bp 

4Bp 

8 Bp 

24 Bp 

170 89 -21.00% 

189 124 -9.00% 195 145 20.000% 

173 115 0,04 

206 160 36.00% 

CDX IG 9 

18p 

4 Bp 

10 Bp 

7 Bp 

22 Bp 

Spread chge Duration adjusted Beta adjusIDur1 

64 90.90 92.3 

52 57.80 51.5 

38 37.51 29.3 

39 40.98 41.0 

34 26.06 19.6 39 41.94 46.5 

Spread chge Duration adjusted Beta adjusl Dur1 

81 101.37 79.5 

65 69.42 45.0 

50 43.97 26.3 58 56,69 40.0 

46 30.54 16.9 

. 

__ 

J.P.Morgan 

JPM-CIOOO
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Core Credit Book: Analysis of the IG9 performance 

IG9 can be proxied as a normallG index of 117 names and 5 HY Names (MBIA, RADIAN, ISTAR, SPRINT, RR Donnelley): 

-The 5 names behaved like the whole HY market: they underperform the IG market and steepened a lot 

- Their move relative to the rest of IG indices allows to explain most of the lag in IG9 curve but not all 

- Yet 5yr IG9 outperformed by 3Bps, 7yr outperformed by 4 bps while 1 Dyr underperformed by 2 Bps: the net 

P&L impact is -100M USD 

5y, compression spread 03/01/2012 spread 27/03/2012 Duration chge Spread chge Index eq bp index based theo 

COXIG9 61% 132 68 ·23.00% 64 64.00 64.0 0.9

RON 60% 31.00% 12.48% 18.5% 15.18 18.82% - 0.24 

MBIA 28% 16.00% 11.49% 4.5% 3.70 9.71% • 4.26 

SPRINT 63% 5.80% 2.17% IG tightening 3.6% 2.98 3.52% 0.09 

RRD 59% 4.09% 1.68% 55.00% 2.4% 1.98 2.48% • 0.06 

SFI 73% 12.62% 3.40% slmul 9.2% 7.56 7.66% 1.28 

% Index loss 55% 44% 51% 55.04% 31.39 3.20 7yr compression spread 0310112012 spread 27/03/2012 Duration chge Spread chge Index eq bp index based thea 

CDXIG9 40% 140 88 ·14.00% 52 62.00 62.0 2.8

RON 34% 52.00% 34.50% 17.5% 14.34 20.94% • 2.82 

MBIA 14% 36.00% 31.00% 5.0% 4.10 14.49% - 7.78 

SPRINT 14% 21.00% 18.00% IG tightening 3.0% 2.46 8.46% • 4.47 

RRD 20% 15.00% 12.00% 45.00% 3.0% 2.46 6.04% • 2.49 

SFI 12% 26.00% 23.00% slmul 3.0% 2.46 10.47% • 6.12 

% Index loss 21% 31% 41% 35.12% 23.36 23.68 

10yr compression spread 0310112012 spread 27/0312012 Duration chge Spread chge Index eq bp index based thea 

COXIG9 26% 149 111 2.000% 38 37.51 29.1 5.2

RON 260/, 66.00% 49.00% 17.0% 13.93 16.65% 0.29 MBIA 10% 51.00% 46.00% 5.0% 4.10 12.86% • 6.44 

SPRINT 1% 36.50% 36.00% IG tightening 0.5% 0.41 9.21% - 7.14 

RRD 3% 30.00% 29.00% 33.00% 1.0% 0.82 7.57% • 5.38 

SFI 19% 38.50% 31.00% 7.5% 6.15 9.71% 1.81 

% Index loss 14% 23% 27% 27.91% 19.26 20.48 

.. 

J.P.Mor

Confldential Treatment ReqUlI.9fed 

by JPMORGAN CHASE & CO. 

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Credit Book: The devil in the details 

1.The steepening of the IG9 HY names was more aggressive than the whole 

HY market: this result in an underperformance of 80M USD 

6 

::onndentlal Treatment Reqoested 

JPMORGAN CHASE & CO. 

OTR HY tightenin 

IG9 HY block Ugh 

HY off the run tigl 

IG9 &yr Hy block 

1 Yr HY tightenin 

IG9 5yr HY block 

15.100% IG9 1 O

14% 

29.733% IG9 7yr 

21% 

45% ig9 5yr 

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Core Credit Book: Summary 

1- the Book has been missing an extra 35M CS01 : this is a cost opportunity of 1.2 Bin due to the 40 bps rally in IG 

- this long risk shows naturally in the spread tightening and with the coming expiry of the short term S9 leg 

- it triggers a an increase in Var- stress Var- CRM- IRC-RWA across the board it we maintain the book balance

2- the need to reduce VAR - RWA and stay within the CS01 limit prevented the book from being long risk enough 

- as we bought protection on HY in the rally, we kept the 10%CS01 neutral to slightly bull 

- the slight bullish bias was·dwarfed by the exposure in the forwards that kept increasing to protect the P&L 

3- Thus a decompression trade was put on in order to remain market neutral, but it increased the CS01 very fast 

- as a result a decompression trade built up both in Xaver and Main: it is a good trade that performed well 

-yet, selling more protection in IG to balance the protection we bought in HY put us close to the CS01 limit 

4- The long risk exposure would likely have missed the first 15 bps and the realistic P&L miss is rather 800M USD 

- despite the conviction on the rally in IG spreads, we needed to sell 1 OBln in main and 30Bln in IG ideally whic

is a significant bullish bet 

- in early February and early March, when spreads widened back, the book would likely have suffered a weekly 

loss of up to 200M each time: this was not an acceptable P&L noise .... So the long would have been 

implemented slowly anyway 

5- carrying this long risk exposure would have triggered some brutal P&L swings of 100-200 in early February and March. 

- the book was aiming at fine tuning the P&L noise while reducing the risks and the nationals on opportunities 

- the losses coming from the IG forwards were already wild; so we waited before being outright long risk for fea

the noise would just increase more 

J.P.M

Conndenthd Treatment Requested 

by JPMORGAN CHASE & CO. 
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Credit Book: Storyboard 

1- Starting point initially the book kept deleveraging in January reducing the shorts in series 9 5yr, removing the short risk in IG

adding short risk in HY. The aim was to create some options on the book as in 2011 to reduce aggressively on opportunities. 

2- Mission: balance the book. : 

a-it was slightly long risk since the 151h of Janu<lry 

b-some protection on HY was bought to reduce the loss on some HY defaults like Kodak and rescap 

c- put some decompression trade to go long IG and neutralize the cost of carrying the protection in HY 

3- Execution : it went all bad .... 

- the forward spreads started underperfonning and this created a residual long risk exposure that had to be 

covered to reduce the Var and RWA 

- the notionals in series 9 were too large and the loss was way larger than the small directional gain ( Jan and 

Feb) 

- The decompression in HY and Xover sped up in March and this put the book short risk and worsened the loss 

the forwards 

4-WhatHappened? 

5- Plan 

- January: tried to reduce the short in the IG9 and S9 5yr but this pushed the forwards up arid the potential was 

already 400M. We reported a loss of 130M USD YTD 

- February: tried to cover the HY downside risk to default and added to IG9 and S9 forwards in order to contain 

the P&L loss as decompression kept going. We reported a loss of 220M USD YTD 

-March: the notionals increased in forward position uselessly and loss accelerated to incredibly high levels. The 

move was too fast and painful. .' 

- put the book to sleep: to stop fiagging our moves to the market 

- maintain a long risk bias wijh 'on the run IG indices to keep a good carry in front of the upside on defaults 

- buy up to 5Bln protection in IG9 0-3 1 Oyr and 2.5Bln Main s9 1 Oyr 0-3 to flatten the future default profile 

6 J.P.Mo

Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

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Core Credit Book: Risk Management and execution mistakes 

1- The reduction of the 5yr IG9 and S9 early in January turned out to be a bad move: 

- initially, sell 5 yr on a roll basis vs on the run IG indices allowed to reduce the short, improve the carry, reduce 

the sensitivity of the book towards flattening and pre-empt a tightening in IG spreads without increasing CS01. 

- the market players quickly steepened the S9 curves starting the underperformance of the forwards: because 

the slight long risk bias was insufficient to cover the loss, we added back some flatteners to correct the hit. 

2- The Kodak default triggered a second wrong move: 

- The loss was 50M and we started covering the risk in February by selling HY14-HY17 indices that contained 

MBIA, Radian, MGIC, ISTAR given that RESCAP risk to default was growing. 

- However, by selling those series and targeting the "mortgage & insurance" related names, we aggravated the 

underperfomnance of the IG9 forwards because they contain MBIA, Radian and ISTAR 

- As a result, those names underperfomned the whole market. Thus the decompression trade worked but the IG

forwi3rd especially underperformed in the rally and this is where the main long risk of the book is. 

3- The Xover I Main decompression trade .... 

- Due to the need to contain the RWA-Var complex, we sold protection on main while buying protection in Xove

- This was a way to profit from either a recovery in Europe IG space without 

- The decompression in HY and Xover sped up in March and this put the book short risk and worsened the loss 

the forwards 

4- What would have happened if none of these bad moves were initiated? 

- The decompression would have happened anyway and the forward underperformance may have been twice 

smaller or down 750. All these mistakes induced an increase in the forward positions to contain the P&L hit. 

- If the book had gone long risk fully, the Var would have increased and the RWA as well: likely 10-15 Bin RWA 

-The carry would have improved and the book would have had twice a weekly drawdown of 200M 

J.P.M

Con"dentlal Tl'Wltmerrt Requeated 

by JPMORGAN CHASE & co. 
1482 

March 30, 2012 

Participants: 

Goldman 

Martin-Artajo 

Goldman 

Martin-Artajo 

Goldman 

Martin -Arta j 0 

Goldman 

Martin -Artaj 0 

Goldman 

Martin-Artajo 

Goldman 

Martin-Artajo 

Goldman 

Martin -Arta j 0 

Transcript of 5725474620132382965 

Javier Martin-Artajo 

IrvGoldman 

Hello 

Hi lrv 

How have you been? 

I'm good man. What's up? 

Ina just called me. She was curious at me .... 

Sorry I can't hear you very well 

She was curious if you had any range of estimate about what the day is going to 

look like. I know you said 2. 

What do you mean 2. Do you mean 2 your time? 

Yeah 

What time is it now? 

It's 12. She just wanted to --

I don't have that yet, unfortunately. I don't have it Irv. 1 don't have it. It is not 

looking good. I don't have it yet. .. um, it is just that it is illiquid, you see. The 

market is I don't know --

I know, I think she is just concerned about--

I just don't want to ... I just don't want to ... I would love to tell you that the 

number is, I don't know, 40 to 50 million. I don't know. I don't think it is going to 

be as small as that. Looking at the numbers that Venkat has and the spreads, the 

numbers look wide. If I have estimates to make, I don't want to do that yet. You 

see, it's very weird close, let me explain what is going on here. We are a bigger 

player in this market, we are a relatively big player, we are not trading here, so that 

is positive in the sense that we are not increasing our positions, but negative in the 

sense that we are not increasing our positions, it is negative in the sense that a bit of 

Draft Transcript - Subject to Review and Correction 

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Conl'ldenHaJ Treatment Requested 

by JPMORGAN CHASE & CO, 

JPM-Cl00003555 
1483 

March 30t 2012 

the spreads are wide and they want to see what we are going to do on the books. 

Since we have two to three trades that we are here and are checking right, I don't 

want Bruno to trade; he needs to trade a very small amount just to get the mark, 

that's [me, but I don't want to really do much and I want to delay that as much as 

possible, right. 

Most of what happens in our book has to do with the US market and less in the 

European market. Most of the P&L issues are on the investment grade in the US, 

and not as much on the high yield in the US, and not as much on the European 

ITrax positions. I need a little bit more time. Sorry about that. Sorry to not know 

what it is. 

I have no new info, urn I have been on the phone quite a lot to be honest with you. 

I do not know what Ina has been asking, but she has been asking quite a few things 

to Achilles and I think it is related to something we mentioned on our meeting this 

morning in tenns of what I think the improvements are on capital and how much it 

is going to be reduced for the quarter end and how much does the reduction of the 

book look like. I was just speaking to Venkat about that. I only have rough 

numbers here of what that is going to be because _ needs to run this process. 

The reason I optimistic that the number is going to reduce. The delta has been 

reduced by about 12 and a half percent by looking at what we've done, so we 

should get an improvement on that, on the IRe. I think that is about right. That is 

what I am hoping. That is what I told you at lunchtime. I think that is going to be 

the same for the February number and for the March number. That will be an 

average. I am not sure exactly how we are going to calculate this. There will be an 

improvement from the number that you had. Now, that is. 

Ina asked Achilles. Tell me if! am wrong, I am triangulating here as I just 

discussed this with Achilles and what I think Ina meant. That still puts in a position 

that we still have to do. No matter how much I can improve this on the second 

quarter on the model with Venkat. We can make some improvements because I 

think we are going to get some help to do that. Again, the numbers are not going to 

look somewhere in the region of what we need to reduce by quarter end if we don't 

do anything in the book. 

What I am working on for Tuesday is actually two sort of plans. Plan A - the book 

stays the way it is with the best improvements thatwe can get and it has positives 

and negatives. Or we need to actually reduce the R W A by doing something here 

and has positives and negatives. So that's kind of what I am working on. 

Goldman Yeah I know 

Martin-Artajo The number for year end is going to be reduced, probably by 5 billion given the 

natural reduction of duration of the book, which is something I told Achilles how 

much do you think that would be. Well, if! give you a rough estimate that should 

be 20 percent of the book since we have lost a little bit of the first quarter so it 

probably going to be something around 15 percent. You will get another benefit 'of 

Cordidenttal Treabne.nt Requested 

by JPMORGAN CHASE 50 CO. 

Draft Transcript ~_ Subject to Review and Correction 

likely Contains Errors 

JPM-ClO 0003555 
1484 

March 301 2012 

Goldman 

Martin-Artajo 

let's say 5 or 6 billion, just from that. If we can get 5 from that, another 5 from the 

model and 3 from what I have done. Reduces from 13 the number you mentioned 

yesterday. I know that this still not great, but it is a number that is a little bit more 

palatable so that whatever Plan B is and there are a number of different things that 

we can do in Plan B that gets us to where we want to be. 

That is what I am working on now. And uh ... I think I am getting good help from 

you guys, from Venkat. I like this guy, he is practical, think he understands the 

issues. Communicates well, said he is okay lending us help from that. Olivier is 

going to work exclusively for us for three months, right. He is going to sit on the 

desk and coordinate all of the things I am trying to do with me, you, Keith, and 

__ . I think he is going to do that, think that is great, have someone to look in 

depth in the book, that has enough experience to do that, he has done that himself. 

I think this is good news. 

I think John Hogan spoke with Ina and maybe Achilles, I don't know who. And it 

is okay, Venkat is fine. 

I think this is good news. Doing as well as we can. I am sorry I created this 

headache for all you guys. I did not expect it to be this way. 

We are a team. You know, we are a team. 

I know you are helping me. I cannot tell you how good everything else here is. 

The L bonds 1 in France, I am going to give you something that will shock you, 

are trading at 55 bps. Something that wastradingjust 120 when we marked the 

book yesterday, we were up like 700 million. 

As I remark today, we are going to be up another 300 or 400. It is just incredible 

what is happening here in the last three days on secured credit. So, I have very bad 

news on the synthetic book and good news on the rest of the portfolio, which is 

incredible to see how much the view that we had, the very strong view that we had 

since the end of November in terms of the solution of the ITRO the loading up in 

the book. Obviously Ina helped us with this, obviously. She gave us the blessing 

to buy as much as we could. But, I think it is more than we thought this effect, the 

portfolio, I think we need to... . 

Goldman So what are you doing? Are you marking at the other 300? 

Martin-Artajo No, I am not marking. I have not had the time to do that and it is not mark to 

market, which is not helping us with the problem that we have. That is why it 

doesn't matter if! mark it or not because it is like a 'first 

Goldman Right, I know, 

Martin-Artajo So, the gains that we have on mark to market are probably going to be somewhere 

in the 60 million, but Ina told me not to consider that. She wanted me to give you 

the number of what the book here does that Irene adjust that. 

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Likely Contains Errors 

JPM-CIO 0003351 
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March 30, 2012 

If we have a little bit more money in the book, so be it. 

Goldman You still don't know ifit is minus 50 or minus ISO? 

Martin-Artajo I don't know, man. I have a bad feeling about a bit or respect here, ok? I think we 

are going to show a hundred --

Goldman You think the worst case? 

Martin-Artajo Don't say anything to Ina yet, please, because I am just telling you. We are not 

trading in the market, ok. There is one position here that matters. I mean 3 bps in 

that position will explain 100 million. 

Goldman I know 

Martin-Artajo The issue is that the market is very sensitive to --

Goldman Ifwe get what you are nervous about, where do you think it could be? If we get 

what you are nervous about, where do you think it could be? 

Martin~Artajo Could have a very bad number, could have 150. Because I am not going to defend 

it. I am not going to fight in the street and increase a position create a problem that 

we created last quarter. I'll explain that on Tuesday. We should have stopped 

doing this three months ago and just rebalanced the book. 

Goldman There are a lot of things that I wish I wouldn't have done in my life. 

Martin-Artajo Exactly 

Goldman We are all just trying to be supportive. Need to move forward. By the way, I sent 

that email about the vacation stuffbecause I think there's just ... When you 

consider the strategy, we are going into the' holidays. I don't know what people's 

vacation schedules are but if people are not around, I mean like, and something 

goes on, you know, I think it is going to be an issue. 

Martin-Artajo I don't understand what you are saying 

Goldman I don't know what people's vacation schedules are there because we are going into 

Easter. This is one of these all hands on deck sort of things. So I am sure it is 

going to come up as a question when you go into strategy, "everyone is going to be 

around, aren't they?" Ijust don't want you to be ... 

It's you and Achilles. It is your business. I am just saying you should be sensitive 

to that because I think people ... 

Martin-Artajo You mean that I should be in the office? 

Confidentl~ Treatment Requested by JPMORGAN CHASE & CO. 

. Draft Transcript ~ Subject to Review and Correction 

likely Contains Errors 

JPM..cI000035S8 
1486 

March 30j 2012 

Goldman Urn, I think you guys should discuss how you are going to handle it, right? 

Martin-Artajo I don't understand what you are saying. Of course I am going to be in the office 

Goldman I am just saying I don't know if Bruno is planning on vacation. I don't know what 

it is. You guys just have to consider that. When you're like ... I am sure it is going 

to be a question that comes up in the strategy session, "we are going into the 

holidays, people are going to be here, right?" You don't want to say, no, these 

people are on vacation 

Martin-Artajo No, there's no one going on vacation. I am here, Bruno is here. You know, Olivier 

is going to be here. 

Goldman I am just being a risk guy and I wanted to make sure you thought of everything 

Martin-Artajo I am staying here. I am not going skiing. I am not going anywhere. I am not going 

to let anything, you know, derail this. This is a big problem I have. I've had this 

problem before. Before you came, we had a problem similar to this in the 

beginning of '09. I don't know if you heard about this. It was almost as bad as 

this. No man. Ina wanted us to do a big deep dive. I am working on a deep dive. 

am going to really be open and explain everything that's gone. 

There are positives and there are negatives. There are things we have done, there's 

a post mortem I'm doing. And then we are going to fmalize with what the plan is. 

So we, that's what I am working on. Of course I am very sensitive to that. I am 

going to present it next week. It is going to be ... Obviously Achilles will be here. 

I am going to be here. Don't worry, we are not going to be calling in from the 

Bahamas and seeing how it goes. Don't worry about that. I am too much ofa 

professional notto ... 

Goldman I am just double checking. Sometimes there is oversight. I sent it just because. 

sent it just like, duh thing. You just never know. Duh, you know, of course. 

Martin-Artajo Of course. You are getting into something that I think is important that you know 

about this. There is no question that it doesn't matter that our books are up 

everything except this book. What matters is that I need to make sure that this 

book is in good shape because this is an incredibly important thing. So, I am not 

going to go on holiday from now until I sort this out, even if it is in the summer. 

I'm not, I'm not, this is my priority and ... I am not going anywhere. I told this to 

my wife. I told this to everybody. The team here is not going anywhere. 

Goldman Right. Ok. That's good, I amjust double checking. It is not like anyone here said 

anything. 

Martin-Artajo I am not taking this lightly just beca\lSe the rest of the books are making a fortune 

here and are TRR here is huge. I mean ... 

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bv JPMORGAN CHASE & CO. 

Dri!l.ft. Transcript ~ Subject to Review and Correction 

Likely Contains Errors 

JPM-elOOOO35S9 
1487 

March 30, 2012 

Goldman 

Martin-Artajo 

Goldman 

Martin-Artajo 

Goldman 

Martin-Artajo 

The only thing anyone here is focused on right now is this. 

This is the only thingI am focusing on. This is the only thing that matters. I am 

only looking at the bad. I am only looking at the bad. I am only looking at the 

problem that we are having with this book, which is a problem and it is a problem 

that I am aware ofthis problem. This has happened to me before and anyone who 

takes positions the size we have has gone through that. Because you know, it is 

funny that you say that because Chris was here and we had dinner with her and her 

husband and Achilles just a couple of days ago and she told us about when she has 

had two or three blowups in _ and she was saying ok man, well this is what I did 

then, this is what happened, this is what we needed to do, and this is what you need 

to make sure that Ina helps you. And all of the things. She told us a lot of things 

that ... she gave us good advice actually. She gave me good advice at least. 

She's been through the war zone. 

She's got three blowups. I am only on my 'second blowup. She is ahead of me. I 

am doing my best. 

I know you are, I feel for you. It is horrible going through this. 

It is horrible. I hate it, ok because I have a great track record here and I am 

relaxed. I know that you were asking me the other day if I was very emotional and 

I am not. It is just that I wanted her to know from me that the tension I had from 

trying to coordinate with QR, trying to coordinate with the lB, trying to coordinate 

and make sure that I communicate this to all of you guys, making sure my team 

doesn't melt down because they are used to winning so they are ... It has been a 

very, very tough two weeks. It has made us stronger. As usual, these things make 

you stronger, makes you more of a team. We're asking for a lot of help from you 

guys, we thank everyone that is helping here. Trying to take securities gains. 

I think we are a team. Maybe this helps improve our transoceanic relationship. I 

guess maybe this helps. To make sure that everyone helps where they can. I am 

getting a lot of help from you guys in New York. I am getting a lot of help from 

QR. I am getting a lot of help from John.' We feel that you guys are helping us. 

Wedo. 

I know that Ina is helping here. She has seen this many times. Ina really has seen 

blowups more than anybody I know. She knows how stressful it is, how bad you 

feel about it and how rational you need to be about this and not become an 

emotional ... just saying things as they are. What is the rational thing to do. What is 

the next move, forget about what you've done, Forget about mistakes. I am 

working on that. I will have a presentation on that. 

The minute I have an estimate, I will let you know. I will call you or send you an 

email. 

Draft Transcript .. Subject to Review and Correction 

Likely Contains Errors 

Confidential Treatment Requested 

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JPM-ClO 0003561) 
1488 

March 3D, 2012 

Goldman 

Confidential Treatmant ReqUNted 

by JPMORGAN CHASE & CO, 

Thanks a lot, bud 

Draft Transcript ... Subject to Review and Correction 

Likely Contains Errors 

JPM-CIO 0003561 
1489 

March 3D, 2012 

CALL # 5601530708350439949 

l\1R. GROUT: [Background chatter] Remi, I can't f"'*' it up, but the system's base is areal 

mess. You know? If I say today -

l\1R. IKSIL: Hello? 

l\1R. GROUT: Yes, Bruno? 

l\1R. IKSIL: Yes. 

l\1R. GROUT: It's good. I found the e-mail of Javier. I found Javier's e-mail. So you can 

change that thing. 

MR.IKSIL: Okay. (inaudible). 

l\1R. GROUT: Go ahead tell me where should I putl\1R.IKSIL: Yes. 

l\1R. GROUT: Tell me where I should take the reserve? 

l\1R.IKSIL: If you can avoid doing that screwed-up thing ("ce true deconne") you can really 

stay with (within?) bid-ask. It's better you see since you don't have a reserve, you see? 

l\1R. GROUT: Uh, for the United States we're back to the bid-ask on the on-the-run ... 

l\1R.IKSIL: Very well. 

l\1R. GROUT: ... on both ICE and IG. [I cannot make out these words exactly - phonetically, 

it sounds like he is saying "sur les etats-unis on est revolu sur Ie bid-ask sur on-the-run sur 'both 

I-SAY I-G' - I interpret this to mean, most likely, "we're at bid-ask on the on-the-run ICE and 

IG, " but that's not 100% clear.] 

MR.IKSIL: Very well. 

MR. GROUT: And for Europe if you want I can scratch out two BPs on the crossover. 

l\1R.IKSIL: But you see what I mean? This is a little at the limit. We should probably do 

something cleaner with a ... you see ... a lesser result ("un resultat moins ... "). You see what I 

mean? 

l\1R. GROUT: Okay. But if! take off -- I can take off four BPs on the crossover. 

MR. IKSIL: Yes. 

l\1R. GROUT: Normally - normally it's a market where we are just about (sounds like "dans les 

guis" - but I don't know what that would mean) at the same time regarding main and crossover. 

Confidential Trestmem R.equested bv JPMORGAN CHASE & co. 

Draft Transcript ~ Subject to Review and Correction 

LikelY,Contains Errors 

JPM-ClO 00035&2. 
1490 

March 30, 2012 

MR.IKSIL: Okay, then dothat. Do that and we'll see. Okay? 

MR. GROUT: Yes. 

MR. IKSIL: Because this costs 10 "boules" (apparently a unit of measurement of money - we've 

heard this from Bruno before,I'm not familiar with the term), that's nothing you see. 

MR. GROUT: Okay. Okay. 

MR.IKSIL: I'm sorry to ask you to do this. But I prefer to do it this way. It's cleaner, you see. 

And weare "dans les clouds" (another expression we've heard, perhaps to mean "blind in the 

market"?) 

MR: GROUT: I must look into this because ... 

MR.IKSIL: You see, now it's okay. I have the connection. I will validate it for you right away. 

Okay? 

MR. GROUT: Okay, that's good. 

MR.IKSIL: Okay. 

MR. GROUT: Very well. We'll talk later. Ciao. 

MR.IKSIL: Yes, thank you. Ciao. 

Confid~ntilll Treatment Requested 

by JPMORGAN CHASE & CO. 

Draft Transcript. Subject to Review and Correction 

Likely Contains Errors 
1491 

From: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

"";ent: Fri, 30 Mar 2012 19:09:19 GMT r_-=--.-=IIed:-7"Od":"ed-:-:"by-III-.-P- .... - ... -.-.--. 

,'0: Goldman, Irvin J <irvin.j.goldman@jpmchase.com> s.._mlttee DO lavesUg •• "" 

Subject: Fw: Any better numbers so far? 

----- Original Message -----

From: Grout, Julien G 

Sent: Friday, March 30, 2012 08:07 PM 

To: Martin-Artajo, Javier X 

Subject; RE; Any better numbers so far? 

no, the market has been very quiet, with very few updates in tranches. still watching. 

-----Original Message-----

From: Martin-Artajo, Javier X 

Sent: 30 March 2012 20;06 

To: Grout, Julien G 

Subject: Any'better numbers so far? 

CanfldentialTreatmentRequested 

by JPMDRGAN CHASE & CO. 

JPM.CIOOOO3S64 
1492 

From: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

'ent: Fri, 30 Mar 2012 20: 15:33 GMT 

.0: Goldman, Irvin J <irvin.j.goldman@jpmchase.com> 

Subject: Update 

Irv , 

We are going to dose the books in one hour and still around -150 MM , 

Rgds 

----------

From: Goldman, Irvin J 

Sent: Friday! Mardl 3D, 2012 06:28 PM 

To: Martin-Artajo, Javier X 

Subject: Re: Best estimate for today - URGENT 

As! mentioned to keith. Ina wants a summary of breakdown when u have 

It bid offer attribution etc 

---------_._---------_. ---------------------- From: Martin-Artajo, Javier X 

Sent: Friday, March 30, 2012 01:21 PM 

To: Goldman, Irvin] 

Cc: Tsef Irene Y 

"~bject: Best estimate for today - URGENT 

Irv/lrene , 

I am at the moment looking at 150 MM USD loss. Bid offers are bad and not a lot oftradlng. Could be as bad as 175 down if 

US equities sell off and not better than 125 MM down . So best estimate so far -150 MM USD . We are nottrading here in 

the market at all . 

Will send you an update at 3 pm NYtime once london closes we probably will get more accurate numbers, 

regards 

Javier 

Con1'identlalTreatmentReq~ 

by Jf'MORGAN CHASE & co. 

JPM-C1000Dl565 
1493 

From: Grout, Julien G <julien.g.grout@jpmchase.com> 

'>E!nt: Fri,30 Mar 2012 20:47:51 GMT 

,0: cra ESTIMATED P&L <CIO_CREDIT]&L@jpmchase.com> 

CC: cra P&L Team <CIO_P&L_Team@jpmchase.com> 

Subject: cra Core Credit P&L Predict [30 Mar]: -$138,135k (dly) -$583,296k (ytd) 

Daily P&L: -$138,135,176 

YTD P&L: -$583,296,256 

Daily P&L($) YTD P&L($) 

Europe Financials -1)177,420 -37,813,322 

Redacted By 

Permanent Subcommittee on Investigations 

Europe High Grade -7,897,632 302,489 

Redacted By 

Permanent Subcommittee on Investigations 

Redacted By 

Permanent Subcommittee on Investigations 

us HY & LCDX -44,527,624 -343,842,681 

Redacted By 

Permanent Subcommittee on Investigations 

JPM-ClOOOOl5&1 
1494 

Redacted By 

Permanent Subcommittee on Investigations 

... ABX / TABX -155 -23,397 

Redacted By 

Permanent Subcommittee on Investigations 

New Investments -79,843,446 -499,159,257 

Redacted By 

Permanent Subcommittee on Investigations 

Dead B'ooks (Core) 563 2,549 

Redacted By 

Permanent Subcommittee on Investigations 

shbook/Costs e e 

ICE Washbook e e 

Redacted By 

Permanent Subcommittee on Investigations 
1495 

~ pical month end session in our space, with low volumes. Credit derivatives are better - after 

the bounce overnight (in stocks and CDX.HY) we opened only slightly tighter; European credit was 

initially wider ~ tensions around the Euro meeting in Copenhagen and the Spanish budget pushed 

spreads wider with FINS index substantially underperforming due to street liquidity and we were 

close to unch'd at that point. However some good eco numbers in the US, rumours of an OK Chinese 

PMI this week end and an apparently positive headline from Copen.hagen (firewall size at EUR geeS 

details to be checked) helped spreads recover. 

Today the book is recording a loss as the month end price action is leading to further 

underperformance of the off the run forward spreads in series 9 (43M in CDX.IG and 313M in iTraxx). 

Furthermore the outperformance of CDX.HY last night after our close is translating into compression 

- this is hurting our decompression position in the US by about 4eM. Last, adverse tranche price 

action across the board is costing us 25M. 

Trading wise J in COX.16 and iTraxx we bought more long dated equity protection (SeM), we sold 

small pieces of super senior tranches (35eM) and we sold 5seM protection in CDX.1G; in COX.HY we 

bought pieces of mezzanine tranches (813M) - again all this .for RWA purposes. 

30-Mar-1 29-Mar-! 2S-Mar-127-Mar-1 26-Mar-\ 23-Mar-! 19-Mar-1 12 12 12 12 12 12 12 

iTraxx.Main S16 

Dec16 

iTraxx.Main 59 

Jun18 

-'10 S9 

, S9 

iTraxx.Xover S16 

OTE 5y CDS 

PORTEL 5y CDS 

BESPL 5y CDS 

DXNS 5y CDS 

CDX.IG17 Dec16 Redacted By 

CDX.IG9 Dec17 Permanent Subcommittee on Investigations IG95110 

5y IG9 

RDN 5y CDS 

MBI 5y CDS 

FON 5y CDS 

SFI 5y CDS 

HY10 

HY11 

HY14 

HY15 

HY16 

HY17 

RESCAP 5y CDS 

Again, a lot of prices are still being framed and we are providing our best estimate. 

Ccnl'idel'ltJ.1 TTUtment Requested 

by JPMORGAN CHASE & co. 

JPM-C100003569 
1496 

From: Demo, Mark <Mark.Demo@jpmorgan.com> 

Sent: Fri, 20 Apr 2012 13:01:10 GMT 

To: Wilmot, John <JOHN.WILMOT@jpmorgan.com> 

Morris, Andrew X <andrew.morris@jpmorgan.com>; Miller, Charles R 

cc: <charles.r.miller@jpmorgan.com>; Bjamason, David <david.bjamason@chase.com>; Hughes, 

Jason LDN <Jason.LDN.Hughes@jpmorgan.com> 

Subject: FW: Largest OTC Collateral Call Dispute Report plus Update on Collateral Disputes Reported to 

Supervisors 

John -I wanted to bring something to your attention. This is a weekly report that we in IB Collateral produce that reflects the 

10 largest collateral disputes for the week. You should know that in our top 10 this week we have quite a few disputes that 

are largely driven by mtm differences on cia London trades, If! look at the total mtm differences across the ClO book facing 

the G-IS - the mtm difference totals over $SOOMM. 

I have included a break out of yesterday's mtm differences by G~lS firm for only the CIO London credit book, The numbers in 

the own column show our trade count facing the counterparty. The numbers in the Diff MTM column show the total mtm 

difference across the ClO london trades facing the counterparty indicated. 

We are in correspondence with your middle office (Rory O'Neil) who has taken our questions regarding these differences to 

your Front Office. We are awaiting a response. We are also doing mtm difference based on product type and underlier which 

we will have a little later today. 

I am working from home today-I can be reached at 917-513-6157 if you want to talk, 

Mark Demo! IB Collateral! J.P. Morgan! 383 Madison Avenue, 11th Floor, New York, NY 10179 ! T: 212622 5485 ! 

mark demo@jpmorgao.com 

JPMC INTERNAL USE ONLY 

From: Demo, Mark 

sent: Thursday, April 19, 2012 6:33 PM 

To: Staley, Jes 

Cc: Zinke, Steinar Xi Sankey, Brian; Eichenberger, Stephen; Cox, Andrew UK; Christ, Michael; Eckstein, Peter C; Waller, Lawrence; 

Ambrecht, Mary R; Hanrahan, Kieran; Brough, Richard; Magnus, Arthur; Keating, Karen R.; Bessln, Jean-Francois Xi King, Ian A; 

Bishop, Elizabeth W; Compton, Paul H; lames, Matthew E; Masters, Blythe; Pinto, Daniel; Hemandez, cartos M.; Riedl Paul A.; IB 

Confldflntllil Tnoabnfllll Roquev.1iod 

by JPMORGAN CKASE & CO. 
1497 

Credit Risk Reportingi Scott, Nico!a R; Robbins, Nigel; O'Reurke, Erini PS Europe Collateral; Sims, Mark; Bruce, James Ai Moores, 

Christopher 0; Morris, Andrew' X; Magalhaes, Auguste P; Miller, Charles R; MOffitt! Albert J; Cisz, Mark M; Pez, Thomas Ii Rallan, 

Luke Xi Lee, Louis TH; Winkelman, Amanda D; McDonagh, Daniel; Diaks, Marc X; Morza ria, Tushar R; Beneskil Beverly J; Gaunekar, 

Siddhl Pj Thomey, William OJ Robinson, Scott A; Willcox, Christepher Pi Jhamna, Sanjay Xi Vigneron, Olivier X; Munro Directs; 

Munro, Graeme; Rubenstein, Stuart; Leach, Mark; Rokkes, Angela; Nuttalll Kenneth E; Nandanar, Preeti H; Bogle, Andre A; Warnier, 

Daniel P; Boit Simona; Dewsen, Thomas X; Kane, Karoline; HealeYt Gareth; Hurley, Jonathan Xi Eichenberger, Stephen; Miller, 

Chanes R 

Subject: Largest OTe Collateral call Dispute Report plus Update on Collateral Disputes Reported to Supervisors 

Attached is this week's report detailing the 10 largest collateral call disputes on the OTC derivatives book. In order 

to reflect ongoing issues with some of the larger broker dealers, this report lists counterparts with which we are 

seeing consistent differences regardless of whether it is JPMC or the counterpart that is showing exposure. 

The report also reflects updates on collateral disputes previously reported to SupelVisors as well as those disputes 

tracking to be reported to SupelVisors for April month end. 

The RAG ratings in col 0 are defined as follows: 

Red = a dispute meets the age, size and risk rating criteria set out in the grid below. 

Amber = the dispute does not meet all the criteria on the grid 

Green = either the dispute has been resolved since the date of the data cut for this report, or resolution is 

imminent. 

,id:imageOO3 .jpg@OIC9C8D7.D84IBBOO 

Mark Demo 

212c622-5485 

Hark Demo! IB Collateral I J.P. Morgan I 383 Madison Avenue, 11th Floor, New York, NY 10179 ! T; 212 622 5485 I 

mark,demo@jomorgao com 

JPMC INTERNAL USE ONLY 

ConncMntlalTn!.alme.ntRequllsted 

by .JPMORGAN CHASE & co. 
1498 

From: Hogan, John J. <John.J.Hogan@jpmorgan.com> 

Sent: Fri, 20 Apr 2012 15:34:20 GMT 

To: Braunstein, Douglas <Douglas.Braunstein@jpmorgan,com> 

Subject: Re: Collateral Disputes 

Will find out, 

From: Braunstein, Douglas 

Sent: Friday, April 20, 2012 11:31 AM 

To: Hogan, John J. 

Subject: Re: Collateral Disputes 

Is this the first time this has happened 

From: Hogan, John J. 

Sent: Friday, April 20, 2012 11:24 AM 

To: Br<!unstein, Douglas 

Subject: Fw: Collateral Disputes 

This isn't a good sign on our valuation process on the Tranche book in ClO. I'm going to dig further. 

From: Goldman, Irvin J 

Sent: Friday, April 20, 2012 11:21 AM 

To: Hogan, John J. 

Subject: FW: Collateral Disputes 

-----Original Message-----

From: Lewis, Phil 

Sent: Friday, April 20, 2012 11:20 AM Eastern Standard Time 

To: Goldman, Irvin J; Weiland, Peter 

Cc: Kastl, Edward R; Bates, Paul T 

Subject: RE: Collateral Disputes 

Yes we are - we have collateral disputes from a number of cQunterparties (obviously on positions that aren't novated to ICE, 

so the tranches and ICE ineligible indices), Blggest are with MS and GS. First we heard of these was this morning (collateral 

process is done at a Legal entity leve! - when differences become big enough they reach out to MO & VCG). MO are checking 

ai' bookings and flows, with the desk and VCG (Jason Hughes/Ed Kastl) are checking marks. We are also trying to get some 

granularity by product 

I'll forward you a note from the collateral guys. 

This table shows differences by cpty and the Gross Absolute PV across all outstanding trades with each cpty 

Sum of ABS Sum of 

CP (Local) MTM DIFF % 

BBVASA 856,948 -141,471 -17% 

BNPP 1,427,575,108 17,698,254 1% 

BOA 3,135,860,802 72,455,626 2% 

BPLC 1,078,123,886 '427,385 0% 

CQ~ntiIoITmlltmentR&fl~ 

by JPMORGAN CHASE" co. 
1499 

CA 28,737,306 

CGML 49,019,323 

CITI 4,417,744,863 

CSI 421,675,999 

CSX 474,311,803 

DBKAG 3,080,139,893 

GSI 4,701,978,454 

HSBCEU 100,908,403 

HSBCUS 35,801,766 

MU 6,244,692 

MSCS 4,124,528,028 

MSIL =,395,628 

NOMURAIP 258,811,944 

RBSPLC 81,168,415 

SGCIB 3,004,157,922 

UBSAG 2,576,649,497 

Grand Total 29,226,690,681 

From: Goldman, Irvin J 

Sent: Friday, April 20, 2012 11:00 AM 

;To: Lewis, Phil 

Subject: FW: Collateral Disputes 

~Iease let me know. 

,-":."--~Original Message----~ 

From, Hogan, John J. 

2,032,294 

-667,742 

60,630,170 

27,289,077 

15,227,896 

56,005,118 

89,576,979 

121,569 

6,027,808 

-156,884 

114,910,670 

1,724,699 

-2,974,037 

-2,667,779 

16,658,449 

46,660,667 

519,983,977 

7% 

-1% 

1% 

6% 

3% 

2% 

2% 

0% 

17% 

-3% 

3% 

1% 

-1% 

~3% 

1% 

2% 

2% 

Sent: Friday, April 20, 2012 10:22 AM Eastern Standard Time 

To: Goldman, Irvin J; Weiland, Peter 

Subject: Collateral Disputes 

'Are you having any in the tranche (or index) positions? 

Ccmfidel'lllal TTMtment ReqUNlIad 

by JPMQRGAN CHASE & co. 
1500 

From: Britton, William <William.Britlon@morganstanley.com> on behalf of portrec ny 

<Portrec_Ny@morganstanley.com> 

.... ent: Fri, 20 Apr 2012 19:34:20 GMT 

To: Vaz, Daniel X <daniel.x.vaz@jpmorgan.com>; portrecny <portrecny@morganstanley.com> 

CC: Port Rees <port_rees@restricted.chase.com>; Coli rcs <coll.ics@jpmchase.com> 

Subject: RE: CIO vs Swaps Dealer Desk - MSCS vs JPMC 

Daniel, 

We completed our initial analysis and it shows two different prices used depending Jf the tranche is done through the ClO 

desk vs the JPM dealer desk. We have significant MTM breaks on positions facing the ClO trades whereas trades facing you 

dealer desk are very much in··line. We have initially looked through all iTraxx 7 and iTraxx 9 Series tranche positions and the 

associated index delta. Can you please have your risk group advise on this issue? 

Thank you 

William Britton 

Morgan Stanley I ISG Operations 

1221 Ave of the Americas, 28th Floor I New Yofi.:., NY 10020 

Phone: +1 212762-5670 ext 5388 

William Brjttoo@mQrganstanley com 

From: Vaz, Daniel X [mailto:daniel,x.vaz@jpmorgan,com] 

-~nt: Friday, April 20, 2012 10:14 AM 

J: portrec ny; portrecny 

Cc: Port Recs; ColliCS 

Subject: RE: 00 vs Swaps Dealer Desk - MSes vs JPMC 

Apologies for the delay Katie. I have sent a follow up email today. Will keep you posted. 

Regards, 

Daniel Vaz I Collateral Management! Investment Bank I J.P. Morgan IT: +9122612 604{)S ! daniel x yaz@jpmoman,com ! jpmorgan.com I Collateral Group Mailbox ! col! ics@jomchase.cQm 

Flrst Escalation Contact: Sneha Gupta I sneha x gupta@jpmoroaocom ! +91-8066763549 Second Escalation Contact Saurabh Sharma I sau@bhx.sharma@jpmorgancom 1 +91-8066763162 

From: Britton, William [mailto:William,Brttton@morganstanley.com] On Behalf Of portrec ny 

Sent: Thursday, April 19, 2012 2:14 PM 

To: Vaz, Daniel Xi portrec nYi portrecny 

Cc: Port Recs; CollIes 

Subject: RE: CIO vs Swaps Dealer Desk - MSCS vs JPMC 

Daniel, 

Can you provide us with an update? 

Thank you 

'Om: Vaz, Daniel X [mailto·danieLx.vaz@jpmoraan com] 

~ent: Wednesday, April 18, 2012 2:11 PM 

To: portrec ny; portrecny 

Cc: Port Recs; CollIes COIIfidentlal Treabnent Requested 

by JPMORGAN CHASE & CO. 
1501 

Subject: RE: 00 vs Swaps Dealer Desk - MSCS vs JPMC 

Katie, 

We are checking with our MO. We wiH update you as soon as we hear from them. Regards, 

Daniel VaZ I Collateral Management I Investment Bank! J.P. Morgan! T: +91 22 612 60408 ! daniel xVaz@jomoroancom I jpmorgan.com I Collateral Group Mailbox I coli !cs@jomchase com 

First Escalatlon Contact: Sneha Gupta ! sneba X guota@jDrnomancom ! +91 ~80 66763549 

Second Escalation Contact Saurabh Sharma I saurabh.x sbarma@jpmorqancom ! +91-8066763162 

From: Schmidt, Katie [maUto-C Schmjdt@moroanstanley corn] On Behalf Of portrec ny 

Sent: Wednesday, April lS, 2012 1:11 PM 

To: Vaz, Danie! X; portrec ny; portreOlY 

Cc: Port Recs; Co!! lCS 

Subject: RE: ClO vs Swaps Dealer Desk - MSCS vs JPMC 

Hi, 

Can you also please confirm if there a single price used regardless of the desk it is booked on? MS uses one curve for front 

office risk and collateral purposes regardless of which desk owns the positions. 

Thanks 

Katie 

Jm: Vaz, DanieJ X [mailto-daniel x vaz@jpmoroan com] 

Sent: Wednesday, April 18, 2012 12:07 PM 

To: portrec oy; portrecny 

Cc: Port Recs; CoIlICS 

Subject: RE: 00 vs Swaps Dealer Desk - MSCS vs JPMC 

Hi Katie, 

I'm on a bUsiness trip & hence my Mumbai number is not react1able. In case of any urgent query, please caU the MSCS ree owner Isha Saraiya at +912261260404. 

All JPM references beginning with "44" would be booked by the aD desk. 

Regards. 

Danle! Vaz ! ColiatelCll Management! Investment Bank I J.P. Morgan I T: +91 22 612 60408 I daniel x vaz@joQ)Qraan.com I jpmorgan.com j 

CoUateral Group Mailbox I col! ics@1pmchasecom 

First Escalation Contact Sneha Gupta I sneha x.gupta@jpmoraan.com 1 +91-80 66763549 

Second Escalation Contact Saurabh Sharma I saurabh x sbarma@ipmoroan.com I +91-8066763162 

From: Schmidt, Katie [maHto·, Schmjdt@lmoraaostan!ey com] On Behalf Of portrec ny 

Sent: Wednesday, April 18, 2012 11:58 AM 

To: Vaz, Daniel X; portrecny 

Cc: Port Rec:si Col! 1CS 

Subject: 00 vs Swaps Dealer Desk - MSCS vs JPMC 

Hi Daniel, 

.ried calling you but couldn't get through. Is it possible to differentiate between the deals done on the Swaps Dealer Desk vs 

the CIa desk for iTraxx Europe Series 9 tranches71've noticed there are some different trade reference formats on the JP trade 

Co""dlmllal Tl"Dllimeot Requesb!<! 

by JPMORGAN CHAse lIo co, 
1502 

!DS. Isthat one waytodoso? 

Thanks 

Katie 

Katle Schmidt Morgan Stanley I Operations 

1221 Ave of the Americas, 28th Floor I New York, NY 10020 

Phone: +1 212762-6868 

Fax: +1 646403-9631 

C Schmldt@mowanstanley.cQm 

NOTICE' Morgan Stanley is not acting as a muniCipal advisor and the opinions or views contained herein are not mtended to be, and do not ccnslilute. advice withm the 

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NonCE. Morg<ln Stanley IS no! acti'1g as <I mvr"Clpal advisor and the opmiCIns or views con18med t-,erem ara flot inte'lded to be. and do not constitute, athrlee Wlthlfl the 

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This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or 

sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity 

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NOTICE' Morgan Stanley is not aoting as a ITlunicipal adVISor and the opinions or views contained herein are nol intended to be. and do not constitute, adVice wrthm the 

meaning of S&:\lon 975 of the Dodd-Frank Wail Street Refor:n and Consumer Protecl,on Act. If you haVE received this comnwnicaliol1 1'1 error. please destroy all 

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Morgan Stanl",\, y('u consent ,0 ,he fOI egQl.'1g 

ConftdentlalTrelltJraentRequesbMI 

by JPMORGAN. CKASE& CO. 

JPLI..c:tOOlXlJ.llO!'i 
1503 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

Table of Contents 

Background 

II. JPMorgan Chase FairValue Measurement Policy 

III. CIO Valuation Approach 

IV. Conclusions 

V. AppendixA - 3/31/12 Position Marks 

VI. Appendix B - Q1 Price Testing Analysis 

VII. Appendix C - CIO Transaction Data 

This memo summarizes the Firm's review ofthe valuation of its CIO EMEA credit portfolio in 

light of the current market conditions and dislocation that occurred in April 2012. 

Background 

The ClO EMEA credit portfolio is made up of Investment and Core Credit portfolios'. The 

Investment portfolio consists of available-for-sale investment securities, while the Core 

Credit Portfolio primarily consists of synthetic credit positions -- credit derivative positions 

on various credit indices and tranches of those indices (the lnde,x and tranche credit 

derivatives portfoliO). These synthetic positions were entered into to manage the market 

value deterioration in a potentia! stress scenario associated with investment securities held 

in the available-far-sale portfolio; the positions have changed over time depending on the 

Firm's view of credit risk. 

ClO has a substantial presence in the financial markets, and the breadth and depth of its 

activity has generally given CIO a good sense of the market, with strong market contacts and 

market intelligence. In particular in these credit products, ClO executed a significant volume 

in the market and therefore had deep access to market pricing and color. 

DuringJanuary, February and through the first few weeks of March, ClO was buying, to add 

to existing positions, the risk of (i.e. selling credit protection) the following indices and 

tranches to reduce the short high yield credit risk pOSition in the portfollo: 

COX Investment Grade North America Series 9, 10 year and 7 year. 

ITraxx Main Series 9,10 year and 7 year 

In addition, on April 6, the business press began reporting on certain of these positions, 

providing other market participants with some level of information regarding the Firm's 

positions and activity. 

1 (10 also has a North America credit portfono~ but that portfolio does not include synthetic credit positions and 

therefore is not subject to this review. 

Confidential T19lJtrrMnt Raque&ted 

by JPMORGAN CHASE & co, JPM-CIO 0003637 
1504 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

In April', market activity and market prices for these credit derivatives changed significantly 

and a number of unusual trends were observed, includIng: 

ConfiduntbJl Treatment ReqlHtsted 

by JPMORGAN CHASE & CO, 

The difference between cost of protection on investment grade indices and high 

yield indices in Europe and North America reduced significantly. 

The difference between cost of protection on short dated risk and long dated risk in 

a number of indices increased significantly. For a number of indices the cost of 

protection on the index moved inconsistently with the prices of protection on 

various tranches of the index. For example, for the iTRaxx Main Series 9 10 year 

during April; 

o Spread moves for the index itself implied some increase in losses due to 

increased correlation within the index. 

o Price moves in the super senior tranche implied losses due to very much 

la rger increases in correlation within the index. 

o Price moves in the more junior tranches implied limited increases in 

correlation. 

'These trends began to emerge in late March, but developed and became much more 

significant in April. 

These changes have been unusual compared tothe historical relationship between 

investment grade and high yield indices, as well as the relationship between index and 

tranche exposures. Due to the com plexity and the size of the Firm's positions, the effect of 

these changes, in conjunction with other market factors, on the estimated fair value of the 

Firm's positions has been significantly negative during April. As noted throughout this 

memo, relatively small variations in price can have a relatively large impact on the estimated 

fair value of the entire portfolio, given the size of the Firm's pOSitions. 

Size of Position Dota 

The following table provides the absolute notional amounts (in U5D) of these positions at 

various dates. 

Table 1: Notional amount of CIO positions 

Notiol1allSl 31.~e~.!.!... .. _. 21-Jan-12 . 28.:f.~b.·',!_~_, .. _" ___ ~£~J::..~.?...... ____ 1,Z:."Y::\·23. lTRAXXNIN 63.677,901,:170 76,235,8.46,930 97,848,010,020 116,962,003,490 lHI,S05:911,551 

CDXIG {15,J2B,527,S39-} (S,4-'16,665,52<1) 6.220,451,026 5"1,767,067,520 55.054.,14.6,920 

COXHY 8,123,572.169 4,810,8013,419 (l,016,9Z4,S33) (7,739,557,-'133) (7,557);I74.,933) 

lTRAXXXO \5.207 ,60;,OOC~ {ol,371,339,OOO) (7,017,1 i1,COO) (8,65?9G9,5'J:J) (8';36455,500) 

!TRAXX FfN$UB (2,324,530,;)00) (2.191,630,000) P,079.320,OCIO) a .• 12,04J,QOC) (Z,080,280.00'J) 

CDXLCDX l,656,1\14,saE 1,825,551,511 1.796,886,575 1,796,8513,575 1,796,688.575 

ITRAXX FINSEN (79,910000) {14D,70G,OOOj 73,150,000 100}06,2S0 

JPM-CIO 0003&38 
1505 

Table 2: CIO's share of market volume 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

The following table compares the absolute notional amount of ClO's transactions in selected 

indices and to the absolute notional of street-wide transactions, in order to provide a sense 

ofthe relative size of ClO's activity in the market for the first four months of 2012. This data, 

as well as similar data from 2011, demonstrates two key points: 1) prior to late March 2012, 

CIO was a substantial participant in these credit markets, and 2) even without ClO's 

involvement (throughout these periods and in April after CIO substantially reduced its 

activity), the remaining street volume was substantial, 

Conftdential Trutment Requested 

by JPMORGAN CHASE & CO. 

ITRAXX SERIES 9 7Y 

Month CIO Notionai Traded 

Jan-12 $ 993,000,000 

Feb-12 4,751,750,000 

Mar-12 775,000,000 

Apr-12 487,500,000 

Total 7.007,250,000 

ITRAXX EUROPE SERIES 9 10Y 

Month cia Notional Traded 

Jan-12 $ 11,769,250,000 

Feb-12 7,244,900,000 

Mar-12 6,601,250,000 

Apr-12 338,750,000 

Total 25,954,150,000 

ITRAXXEUROPE SERIES 16 5Y 

Month C.lO Notio'n,al Traded 

Jan~12 $ 26,440,500,000 

Feb-12 36,359,500,000 

Mar-12 26,075,000,000 

Apr-12 25,000,000 

Total $ 88,900,000,000 

CDXNAIG.97Y 

Month CIO N.oUenal Traded 

Jan-12 $ 7,091,500,000 $ 

Feb-12 8,387,000,000 

Mar-12 2,017,000,000 

Apr-12 256,000,000 

T!,_~'..... .• _...._~ ... .17.751,5QORQrl._ $. 

Month CIO Nonana! Traded 

Jan-12 $ 28,528,000,000 

Feb-12 20,032.000,000 

Mar-12 9,819,500,000 

Apr-12 677 .000,000 

Total 59,056,500,000 

Note: April data extends to April 26, 2012. 

Stre~tVolume CIO% 

6,181,250,000 16% 

9,754,250,000 49% 

8,325,375,000 9% 

5,004,150,000 10% 

29,265,025,000 

Street Volume CiO% 

26,758,710,300 44% 

15,205,250,000 48% 

13,806,250,000 48% 

5.570,925,000 6% 

61,341,135,300 

Street Volume CIO% 

206,771,511,713 13% 

216,991,196,801 17% 

199,058,170,509 13% 

13,785,754,578 0% 

636,606,633,601 

Street Volume CIO% . 

55,936,345,841 13% 

48,791,460,000 17% 

41.738,540,328 5% 

23,310,200.000 1% 

169.7~,546.169 ~~,~-,,-""'-.--. , 

Street Volume CIO% 

83,065,700,000 34% 

48,049.133,456 42% 

72,016,977,456 14% 

31,722,763,000 2% 

234 ,854,573,912 

JPM-CIO 0003639 
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Privileged and Confidential 

Attorney Client Work Product 

May 10,2012 

Given the size of the Firm's portfolio and the nature ofthe positions, the portfolio is 

sensitive to small changes in credit spreads. At March 31, 2012, the sensitivity to a 1 basis 

pOint move in credit spreads across the investment grade and high yield spectrum was 

approximately ($84) million, including ($134) million from long risk positions, offset by $50 

million from short risk positions. 

II. jPMorgan Chase Fair Value Measurement Policy 

Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

General 

Fair value is the price to sell an asset or transfer a liability in the principal (or most 

advantageous) market for th~ asset or liability (an exit price). The sale or transfer assumes 

an orderly transaction between market participants. 

Data Sources and Adjustments 

Va!uation techniques used to measure the fair value of an asset or liability maximize the use 

of observable inputs, that is, inputs that refled the assumptions market participants would 

use in pricing the asset or liability developed based on market data obtained flam 

independent sources. Valuations consider current market conditions and available market 

information and will, therefore, represent a market· based, not firm~specific, measurement, 

Where available, quoted market prices are the principal reference point for establishing fair 

value. Market quotations may come from a variety of sources, but emphasis is given to 

executable quotes and actual market transactions (over indicative or similar non-binding 

price quotes). In certain circumstances valuation adjustments (such as liquidity adjustments) 

may be necessary to ensure that financial jnstruments are recorded at fair value. 

Bid - offer spread and position size 

As further described in US GAAP Accounting Standards Codification Topic 820 Fair Value 

Measurement rASe 820m ), the objective of a fair value measurement is to arrive at an 

appropriate exit price within the bid - offer spread, and ASC 820 notes that mid-market 

pricing may (but is not required to) be used as a practical expedient. 

820-1O-35-36C "If an asset or a liability measured at fair value has a bid price and 

an ask price (for example, an input from a dealer market), the price within the 

bid*ask spread that is most representative of fair value in the circumstances shall 

be used to measure fair value regardless of where the input is categorized within 

the fair value hierarchy (that is, Levell, 2, or 3). The use of bid prices for asset 

positions and ask prices for liability positions is permitted but is not required." 

820-1Q-35-36D "This Topic does not preclude the uSe of mid-market pricing or 

JPM-CIO 0003640 
1507 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

other pricing conventions that are used by market participants as a practical 

expedient for fair value measurements within a bid-ask spread." 

Effective Q12012, size-based adjustments are explicitly not allowed for cash instruments 

held by a firm. However, US GAAP continues to permit size-based adjustments for 

derivatives portfolios if an election is made to do so. Under its current business and risk 

management strategy, the Firm has not made such a portfolio election forthis Cia portfolio, 

and so evaluates the value of its positions without specific consideration of their overall size. 

Cut-off and Timing 

US GAAP is not prescriptive regarding market close and timing of valuation. As an 

operational matter, the Firm allows desks in different regions to mark their books as of the 

close in that region, and requires that these cut-off practices be applied consistently. 

Ill. ClO Valuation Process 

Background 

Cia's valuation process reftects how and to whom cia would exit positions by typically 

seeking price quotes from the dealers with whom CIa would most frequently transact and 

with whom Cia would seek to exit positions, rather than looking for more broad based 

consensus pricing from a wide variety of dealers not active in these credit markets. In that 

regard, CIa's valuation process is consistent with that of a non-dealer investor/manager. 

Cia necessarily uses judgment to identify the point within the bid-offer spread that best 

represents the level at which ClO reasonably believes it could exit lts positions, considering 

availa ble broker quotes, market liquidity, recent price \io!atility and other factors. 

As noted below, Cia's evaluation of valuation adjustments has been based on market 

liquidity for the positions, rather than on the absolute size of ClO~s positions. In the normal 

course of business, CIa will continue to review its valuation practices in light of its current 

risk management and exit strategles to ensure its valuation practices continue to represent 

Cia's estimate of exit price. 

Front Office Mark Process 

The main source of information for pricing comes from the Bloomberg messages (pricing 

runs distributed by the dealers). Where available the desk collects them for all indices and 

tranches. 

Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

JPM-CIO 00036<41 
1508 

Privileged and Confidential 

Attorney Client Work Product 

May 10,2012 

Then depending on the product and availability of information the following processes are 

followed: 

For index products: 

o "On the run" indices (i.e. most recent series, Sy point): as these are the 

most liquid instruments, the front office typically uses the dealer runs. 

o uOff the run" indices: Front office looks at bid-offe r spreads, volumes, 

recent price changes and recent transaction data, and the front office mark 

is established at an appropriate price within the bid-offer. 

For tranche products: 

o For liquid tranches: front office computes the best-bid/best-ask using the 

dealers' runs the tranche is then marked using the mid of this 'besf 

market. 

o For illiquid tranches: front office looks at bid-offer spreads, volumes, recent 

price changes, relevant index prices, and recent transaction data, and the 

front office mark is established at an appropriate price within the bid-offer. 

Timing oj Valuation 

ClO's valuation policy, consistent with the Firm's policy. is to value its positions as of the 

close of business in the relevant region. Although the broker quotes cia receives are 

generally consistent with that timing, other data sources may provide data using dlfferent 

timing, as follows: 

quotes 

Markit/Totem - NA indices and tranches 

Markit/Totem - EM EA indices and tranches 

ICE - NA indices 

ICE - EM EA indices 

New York close 

London ciose 

30 minutes before New York close 

30 minutes before London close 

VCG Independent Process 

VCG independently price tests the front office marks at each month end and determines 

necessary adjustments to arrive at fair value for the purposes of the US GAAP books and 

records, The remainder of this section describes this process. 

A. Pricing data sources 

Cia VCG obtains prices from third parties as follows: 

Markit!Totem' - an independe nt service that provides prices for a wide range of 

products derived from the inputs provided by a number offinancial institutions. 

2 Markit and Totem are within the same group. Markit provides data the credit derivative indices, while Totem 

provides data for the tranche risk of those indices. 

Confidential Treatment Requested 

by JPMORGAN CHASE & CO, 

JPM...cro 0003642 
1509 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

Dealer Quotes - Prices from major broker dealers for specific indices and tranches 

of those indices. 

VCG must approve the sources for all market prices and other parameters as being 

reliable and applicable. 

Cia VCG also looks to actual prices at which ClO has executed recent transactions as an 

additional source of market information. 

The following is a list of the dealers ClO VCG obtains quotes from on a regular basis for 

indices and tranches in which they have a reasonable level of activity: 

Cin 

Deutsche Bank 

Credit Suisse 

HSBC 

Goldman Sachs 

JPMorgan (I B) 

Royal Bank of Scotland 

Barclays 

Morgan Stanley 

BNP Paribas 

Nomura 

BofA/Merrili Lynch 

These dealer quotations are received from a standing solicitation for price estimates. for 

index and tranche positions. The number of dealer quotes received in any particular 

month generally ranges from 1-4, and is based primarHy on which dealers choose to 

provide quotes that period. 

B. Deriving the best estimate of mid-market price (VCG mid-market price) for price testing 

purposes 

Indices: 

For the more liquid indices, typically the on the run indices, VCG utilizes Markit as its 

primary source for the Cia VCG mid-market price. VCG will also look to broker 

quotes, but generally nnds there to be limited differences to Markit data. 

For the less liquid indices, CIa VCG again uses Markit data as the primary source of 

independent data. However, given the reduced liquidity of these indices dealer 

quotes sourced by the front office are also used. Differences between the Markit 

data and the broker quotes are investigated, for example by reviewing actual !evels 

of trading activity. The CIa VCG mid-market price is determined using the 

combination of the Markit data, broker quotes and actual trades executed by CIO 

Tranches: 

ClO VCG uses broker quotes as the primary source of data for determining the ClQ 

VCG mid market prices for the tranches positions. CIO VCG also obtains Consensus 

prices from Totem from the Investment Bank' {JPM IB}. However, (10 VCG uses the 

3 The Investment Bank obtains these as it contributes as a dealer t.o the Totem consensus prices. 

Confidential TAlat.ment Requested 

by JPMORGAN CHASE & CO. 

JPM-CIO 0003&43 
1510 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

broker quotes, with less reliance on TOTEM data, due to the Firm's experience that 

the tranches tend to be less liquid than the indices and for any given position, only 

2-3 dealers tend to be active in that tranche. Therefore, CIO VCG believes that the 

broker quote process is appropriately focused on the more active dealers for those 

tranches. This em phasis on broker quotes also reflects ClO's likely exit strategy, 

which is more likely to be with specific dealers active in these tranches. Where there 

are significant differences between broker quotes and TOTEM, CIO VCG will 

investigate the reasons for such differences, for example, by looking at the levels at 

which ClO has actually executed transactions, to validate the integrity of the broker 

quotes received. 

C. Estimating the range of fair value utilizing price testing thresholds 

Confidential Treatment Requested 

by JPMORGAN CHASE & CO. 

Price testing thresholds are commonly used in valuation to account for reasonable 

degrees of variance between valuation data obtained from different sources. 

These thresholds are generally established to represent normal bid-offer spreads for 

each product, with the goal of ensuring that the tinal mark used by the Firm is 

within the range of bid-offer spread after applying these thresholds. 

Price testing thresholds may be determined on a variety of bases (e.g., volatility of 

parameter, market depth and liquidity and pricing service spreads). 

CIO VCG is responsible for establishing the price testing thresholds used. 

The tolerance thresholds were consistent from 12/31/11 to 3/31/12. 

D. Determining a book price 

The CIO VCG mid-market price plus/minus the price testing threshold set by CIO 

VCG per instrument (the VCG valuation range) is compared to the front office mark. 

If the front qffice mark is outside the VCG valuation range, the position mark is 

adjusted to the outer boundary of the range. Within the VCG valuation range front 

office rnarks may be used without adjustment. 

Irrespective of threshold leve!s, any difference between front office mark and the 

mid-market price may be adjusted,;;lt ClO VCG's discretion. 

CIO VCG has not historically adjusted front office marks directly to MarkitjTotem 

spreads/prices for the less liquid indices and tr;;lnches because: 

D Given its level of activity in the market, ClO has large amounts of specific 

transaction data that should be considered in determining fair value. 

D CIO has observed that broker quotes are indicative prices that are relevant 

to the valuation process, in addition to the consensus prices provided by 

Markit/Totem. 

Based on ClO experience, ClO believes that the broker quotes 

received better reflect executable prices, and therefore represent 

JPM-CIO 00D3&44 
1511 

Confidential Treatment Requestod 

by JPMORGAN CHASE & CO. 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

important market data that should be given priority where 

available. 

CIO's experience is that not all dealers participating in the Totem 

process are active in the relevant products and that obtaining direct 

dealer quotes from the more active dealers for a particular product 

may better reflect executable prices. 

a Markit/Totem prices are based on quotes by market makers acting in that 

capacity. CIO, like other non-dealer investors/managers, is not a marketmaker and it does not contribute to the Markit/Totem service. Furthermore, 

in the case of Totem the resulting data is accessible only to market makers 

who contribute to that service. 

o CIO has observed thatthe business valuation cut-off time may differ from 

the data provided by Markit/Totem. The combination of intra-day price 

moves on the last day ofthe month and the difference between the time 

when Markit/Totem fixes and the time when CIO closes its books can result 

in pricing diffe rences that while small from a price perspective, could be 

significant for such a large portfolio. 

As additional analysis, CIO estimated that as of March 31, 2012, the sum total of the 

differences between the front office marks and the ClO VCG mid market estimates 

was $512 million before adjustment to the boundary of the VCG valuation range 

(considering price testing thresholds) and $495 million after adjustment. 

E. Apply necessary valuation adjustments 

ClO applies valuation adjustments as appropriate for positions deemed to be less 

liquid. Generally, any on the run index (typically, the four most recent series) and 

associated tranches have been viewed to be liquid based on market activity, and 

appropriate front office and ClO VCG judgment In addition, other indices and 

tranches continued to have sufficient market activity to be deemed liquid as of 

March 31, 2012 (for example, ITRAXX Main Series 9 indices and the COX IG Series 9 

indices). 

As of March 31, ClO recorded liquidity valuation adjustments of $188 million forthe 

following: 

o High yield - series 11 and prior indices and tranches. 

o Investment grade - series 12 and prior, excluding series 9 index. 

CIO believes that the investment grade Series 9 index has generally 

traded similar to on the run positions because it is viewed as a 

market benchmark by investors. 

The liquidity adjustments for the series 9 tranches (both high yield and investment 

grade) were recorded as of March 31, 2012 to reflect the decline in market liquidity 

JPM-CIO 0003645 

9 
1512 

Confident~1 Treatment Requested 

by JPMORGAN CHASE & CO. 

Privileged and Confidential 

Attorney Client Work Product 

May 10,2012 

by the end of the first quarter. The incremental liquidity reserve of $155 million for 

series 9 investment grade tranches was applied forthe first time at March 31 as a 

result of this decline in market activity. 

The liquidity reserve was calculated using ClO's standard liquidity reserve 

methodology and using spread volatility provided by JPM lB. This volatility varies by 

position in the capital structure, and is highest for equity tranches and lowest for 

super senior tranches: ; [(501] x square root [holding period] x [spread volatility 

a CS01 is the credit spread sensitivity to a 1 bps change in market spreads 

relative to position size 

o Holding period - JPM IB suggested max 120 days was used 

a Spread volatility - provided by JPM IB; varies by position in the capital 

structure, and is highest for equity tranches and lowest for super senior 

tranches. 

As of March 31 a liquidity valuation adjustment was not recorded for the COX North 

America Investment Grade and Itraxx Main Series 9 indices as each was viewed to 

be liquid. As noted in Table 2 above, trading volume in the Series 9 index continued 

to be relatively robust, including through April, without CIO activity in the market, 

and the volume of market activity excluding CIO has been substantial. 

Details of all adjustments taken to arrive at the fair value for US GAAP books and 

records are included in Appendix A. 

F. Comparison to Industry Practice 

The Firm believes that its valuation practices in Cia are consistent with industry 

practices for other non-dealer investors/managers. ClO, like other non-dealer 

investors/managersl relies more heavily on transaction-level data available through its 

own market activity, and its valuation process reflects its exit market and the 

participants in that market. tn the normal course, the Firm evaluates its own business 

and risk management practices, and makes appropriate refinements to reflect its best 

estimates of fair value. 

G. Review of ClO Ql pricing information 

cia ana'lyzed its pricing data as compared to other available market sources and the 

results are included in Appendix B. 

As oftheJanuary, Februaryand March month ends ClO compared its front office 

marks and final US GAAP book price for reasonableness to a combination of the 

Markit/Totem data, broker quotes and actual transaction data around the month 

end date. 

There was evidence that actual transactions and broker quotes diverged from 

Markit/Totem prices in some cases. 

ClO book marks on individual positions were generally within the bid offer spread. 

JPM-CJ00003646 

10 
1513 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

AS additional analysis, ClO estimated the aggregate difference in the front office 

marks and the CIO VCG mid-market estimates. This difference ($512 million), less 

the price testing threshold adjustment of $17mm and less the liquidity reserve of 

$18Bmm, was approximately $307 million as of March 31, 2012, compared to the 

gross value of derivative receivables and payables of approximately $8 billion, 

IV. Conclusions 

CIa believes that its marks as of March 31, 2012 represents ClO's estimate of its exit 

price as of that date. 

In the context of its gross marks (approximately $2 billion of derivative receiva bles and 

$B billion of derivative payables across ClO's portfolio), intra-day price volatility, and 

CIa's transaction data, cIa believes that it has made reasonable judgments regarding 

the prices within in the bid-offer spread that best represent CJO's exit price. 

The CIO valuation process is documented and consistently followed period to period. 

Market-based information and actual traded prices serve as the basIs for the 

determination of fair value. 

ClO's book value, including the valuation adjustments, at March 31 2012 for the index 

and tranche credit derivatives portfolio is within the range of reasonable fair values for 

such instruments. 

We have shared this memo with PricewaterhouseCoopers; they concur with the conclusions 

reached herein. 

Confidential Treabnel1t R.equested 

by JPMORGAN CHASE & CO. 

JPM.cfO 0003647 

11 
1514 

Appendix A - March 31, 2012 Position Marks 

Privileged and confidential 

Attorney Client Work Product 

May 10, 2012 

The following table provides the notional amount and fair values of the Firm's positions as of March 31, 

2012, including the following: $17 mm tolerance level adjustments, $33 mm liquidity adjustment, and 

$155 incremental liquidity adjustment. 

{Note: subsequent 00 analysis noted that the required tolerance adjustment should have been $12 million, but the followlf'\g 

schedule provides detail of the origil"lal $17 million estimate,} 

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Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

, il.o:',\ ,~"" l1"~.e~",'l3 

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13 

JPM-Cto D003649 
1516 

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Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

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Confidential Treatment Raque&ted 

by JPMORGAN CHASE & CO. 

I.HO,l,j,l12 

(;.11 ~ll'\ 

~U-:":"i 

'~.lM.(lI5S 

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14 

JPM-ClO 0003650 
1517 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

Appendix B - Cl0 Price Testing Data 

The following tables set out valuation estimates of various sources, as well as the final CIO price 

recorded books and records for the most significant positions within the portfolio. The table also 

includes nationals for the positions and whether ClO is long or short the risk of the index/tranche (i.e. 

whether it has sold or purchased credit protection respectively). 

The following observations were noted: 

For all selected positions the front office marks were within the bid offer spread indicated by the 

broker quotes except for the iTraxx Main IDX S09 07Y. 

o This was a result of a front office data input error that was identified and adjusted by VCG to 

the outer boundary, in accordance with the VCG price testing protocol. (The value 

difference between the original front office mark and the intended mark was approximately 

$20 million, and the difference between the CIO book value and the intended mark was less 

than $15 million). 

ClO VCG spreads/prices correspond to Markit/Totem data for the liquid indices and reflect the 

broker mids for illiquid indices and tranches. 

There are a number of instances where the broker-mid spreads/prices diverge from the 

Markit/Totem data. 

There are a number of instances where the CIO transaction data in appendix C show that actual 

traded spreads/prices diverge from Markit/Totem data in similar time periods. For example: iTraxx 

Main IDX Series 16 5 year at February month end, and CDX High Yield Series 10 7 year 10-15% 

tranche at January month-end. 

Average traded prices in the few days surrounding month-end are directionally consistent with the 

paint in the bid offer spread in which the positions have been marked by Cia, as shown by Appendix 

C In general, the front office marks, subject to liquidity adjustments, used for cia books and records 

reflect information derived from numerous data sources availa ble to CIO front office, rather than 

relying solely on anyone Single factor. For example: 

o Recent transaction data (same-day and recent day actual trades) may in some cases be 

viewed to provide more relevant and reliable information regarding current exit prices (see 

additional observations beloW). 

o In some casesl differences between ClO book values and other market information such <IS 

Totem/Markit are created because of timing differences between the ciose of Cia's books 

and the close olthe Totem/Markit data (see additional observations below). 

In certain cases, cia executed trades on the last day of the month at a price that is different than 

Totem (and in several cases, was between the Totem value and the Cia book price). See table 

below for information as of March 31, 2012 (including average traded prices on March 30, 2012): 

ConfidlllinHal Treatment Rl'lquosted 

by JPMORGAN CHASE & CO. 

JPM-CIOODD365t 

15 
1518 

COKNAHY 15-25% S10 05Y 

COXNAHY 15-25% 511 05Y 

COKNAHY IOXS11 07Y 

COXNAIG 0-3% 509 10Y 

iTraxxMain 0-3% S09 10Y 

iTraxxMain lOX S09 07Y 

iTraxxMain lOX 509 10Y 

Tot!=!m 

92.607 

83,108 

101.250 

63.219 

66.202 

129000 

149.000 

Privileged and Confidential 

Attorney Client Work Product 

May 10,2012 

A"9. 

CIO Books Traded 

93.326 93,125 

83.685 83,375 

101.866 101.750 

62.869 63,250 

65.993 66.313 

122.657 129.000 • 

144.250 149.000 • 

~ executed tranche reference trades, not stand~alone traded pfice~ 

The difference between the various data points (FO, Broker prices, and Totem) are relatively 

insignificant on a price basis, when evaluated in context of: 

o Daily price volatility - the following table shows that for most of the tested positions, the 

price difference between the Totem price and the ClO book price is less than the average 

daily price change during recent months, 

Average dail~ Qric~ chgng§; 

March price 

difference 

Totem -CIO Jan Feb : Mar !i>r COKIG Main Series 9 (7Yr) 2,00 2,85 2.00 1,98 2.06 

COXIG Main Series 9 (10Yr) 2.25 2.87 1.73 2.00 2.26 

COKHY 1 00 Series 11 (7Yr) 0.62 0.35 0.31 0.29 0.29 

COXHY 100 Series 14 (5Yr) 0.25 0.30 0,30 0.28 0.28 

COXHY 1 00 Series 15 (5Yr) 0,25 0.30 0,33 0.32 0,33 

iTraxxMain IOXS16 5Y 1.88 3,74 3.22 3.08 405 

iTraxx.Main IOXS09 07Y 6,34 4.42 3.29 3.22 4,31 

IOXS0910Y 4,75 4.24 

o Intraday price volatility -the following table shows three representative series and the 

maximum, minimum and mean prices during the day on March 31, 2012. 

max miD, mean IJ?riation % of mean 

CoXIG Series 185 Y 93.000 90.750 91,910 2,250 2.4% 

COXHY Series 18 5Y 97188 96.750 96.950 0.438 0.5% 

iTra)(X.Main Series 17 SY 127,625 122.750 125.115 4.875 3.9% 

o Potential timing differences - ClO EMEA closes its books at the close of business in London, 

while some of the comparative market data is as of the close of business in New York. This 

timing difference may result in differences in reported prices, 

Confldentlal Treatment Reque.sted 

by JPMORGAN CHASE & CO. 

For example, the market price on March 31, 2012 at 4 pm London time for the COX 

IG Series 18 5 year was 92,88, and the market price at 9 pm {NY close} was 91,25, a 

1.75% difference from the London ciose, 

16 

JPM-CID ODD36S.2 
1519 

.-. 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

~--'-~i;;:;:~~~"~'~v ".~, Ir.:~~,.". 1'0_ ""~:Bo,""r.,.,.,. r,..., ~t::.;-~!.O' 

l I:-OJ( ....... V ItI-,S", $,g~IV 

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CO"""-H"'~.l~"'.!iltO~" U~ 1>,... ~;I"'.'."'" 

S CO""'''-)'IY1~IOO''S'QO~Y 

., CO ......... YJI;J~$t·1I1Y 

Ct> ....... HYOt>~$'.~S ... 

c.O ......... ""'IOl<S'~D~ ... 

Co:u.o ... tGo·n.$o-!Ie~'" 

I~ C{l .. ,.. ... (;~.'''':<O, toY 

II et>.l: ....... JG!O~_OIT 

., COX ..... oG>o ... so'tn ... 

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1~ ;T"' ...... "'n·tOQ ... SOl10 ... 

1~ ;T,. .. ./oI ... 1Ql<SO~orr 

,t ,T'~"'-IOl<S<»lOV 

Hj:.DC 

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'~Q 000 

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,~~~";V' 

l C{l)U ........ t ... '~ ... 5'QOI ... 

cO ......... "'IS-1!"'III.$tOQS" 

COll. ..... M ... 'S-n .. St'D' ... 

I:-O ............. lS.'~S.'OD5 ... 

.. cD ........ ' ... IO)(S..~~ ... 

~ COll. ..... IGD-l'lll. $~'05Y 

.... CC ....... "' .... , ... S .... 'O'f 

" C(I ....... OCIO.>:.!oOgON 

.2 c.1> ........ IG'OXSC,'OV 

'l IT, .......... o.' ... S ... 'IIY t. '"'," ....... 22.'0"""SO.ON 

.S iT ....... _"l~·tOQ"5(l"OY 

,-~~to'1i:~'iiirg1~--~"- --

2 eOx. ....... v'C.15 .. S'C01V 

C.DIt ....... y)~_~s"'s'ocn 

co"' ........ " IS·~S .. $" O~Y 

S CQ)l ..... IIV1!t,.O"""S'OO$V 

~ cc ....... t<Yc;<s',»1V 

1 Co ..... ~~yto~Sl<os ... 

eD ....... IIYItJXS'SO~v 

eo ......... o ... %$.lI9"o-$ ... 

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t2 C.O .... " .. ICl"'S~IO~ 

u 11' .......... 0 ... "'$09'0>' 

I. ,T,._&' .... n .• OC"'50S01~ 

., jJ ... _:~·.oo"'s""'Oy 

>1\ ·,T •• -....l()~S()O 01Y 

11 \l ........... r.lXSO,'Oy 

l!....-:!~~~~~~!L'?-....'7,·< .. b 

j~=.,.':l/.l~'"";;;-;;..---!''''!?' Cox. ..... ""y'O,u"''''ggn· cOll. .. ,,",y,f..n!l",OO$Y 

cO;<H ....... s.n ... S""l.. .63H 

S CO"' ....... V3~.lDO,.. :'0 Ir.IY '01.1<$ 

, COIt .. " ..... "'X&u.~ .. eO ..... "IGC.,,,,.sctD"y t. COIl.. ..... 'C;;9.l,.SG'I!'OV 

" CD"!"A'GIO",SG'I!01Y 

,1 C .... N ... 'OII)XS!I!I,OV 

IllT ...... _O.,J"s ... ,.v •• il' __ ll·'''''-... .5Q~07y 

.! ,T ........... U·'D<I ... ,Og,ov 

• , "' ........... IIll(S:QiON 

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11'H !OH$ ·n.f1~ U.,~, II e1$ 130n 

91.n5 "\25 ill.l:!!; 

CJP ..... ionaI 

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n,l~~ 

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1', ... ~i<;t~.,p~ 

$p, .. ~_ ... ".od ~~ • .,., ....... "'H.' 

Son ... _ ... ~"'~.~ 

p,- "'".,p"". p"". ~,,,,·'p,",,, 

""""'~~-'I"'''' $p'n ............. ,...U 

17 

Col'lfldentJal Treatmarrt Reque&ted 

by JPMORGAN CHASE & COJPM-CIO GOOlGS] 
1520 

Appendix C ~ CIO Transaction Data 

The following tables set out the following: 

Privileged and Confidential 

Attorney Client Work Product 

May 10, 2012 

'SIZE (week ending), - The average traded volume for the relevant week. 

'AVG PRICE (week ending)' - The average price atwhich CIO executed its transactions during the 

relevant week. 

For relevant observations, please refer to appendix B, 

CC)<~"I<Y':I-~~$H'I)'l'f 

(:!Il<.""H'f',,"~f>I'l:IS'f 

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c".'U'''HY~)($U'''v $),1;3 

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.0 ="' ..... !C ........ l;OII'<i1 

" COll._O;;OI'l)<""gOl" 

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ConFidefltial TreatmGnt Requ&$1&d 

by JPMORGAN CHASE & CO. 

IllS 

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t~~J.!iE~'!:!:!!.~_'.!::,;,'i.......l~:~t\!.-~!:,... ... ,!..l" .. '· .. " .... 1.t.; : ..... ;;l~, )~!~.l' ..... ~;!~~.t1.. "._, =_.~""._ 

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18 

JPM-CIO 0003&54 
1521 

95% 100V.R 2011 1011 WID 

$mm) Spot Avg Spot Avg Spot Avg 

IB V.R by risk type: 

Fixed income 40 46 55 49 87 64 

Foreign exchange 8 9 11 11 11 10 

Equities 21 25 22 29 23 20 

Commodities & other 11 16 10 13 12 20 

Diversification benefit to IB trading VaR (35) (37) (37) (38) (42) (42) 

IB Trading V.R 45 59 61 6( 91 12 

CPG 24 27 28 26 29 27 

Diversification benefrt to IS trading & ePG VaR (12) (8 (7) (7) (9) (9) 

TotallB tr.ding & ePG V.R 51 78 82 B3 111 90 

Mortgage Banking VaR 18 20 18 16 19 24 

Chief Investment Office (CIO) VaR 52 51 55 60 56 72 

Diversification benefit to total other VaR (3) (10) (13) (14) (12) (14) 

Total other VaR 61 61 60 62 62 B2 

Diversification benefit to total 18 and other VaR (26) (45) (56) (57) (59) (79) 

TotallB and other VaR 98 94 86 88 114 93 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO·E 00004695 
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From: Macris, Achilles 0 <achil1es,Q,macris@jpmorgan,com> 

Sent: Sat, 05 May 2012 22:37:28 GMT 

To: Drew. Ina <InaDrew@jpmorgan,com> 

CC: Goldman, Irvin J <irvin.j.goldman@jpmchase.com> 

Subject: per the last call: here are the facts: 

Hi Ina, 

! am not sure if! understood this correctly on the last call: 

Jamie asked if the position was increased after you ordered to stop trading. 

I think that your instruction came on March 23 following the SAA meeting in the previous day in which Bruno 

presented the book, 

J have looked into this recently as I was briefly in Asia the following week: 

The week of March 26, the desk did some smaller final rebalancing trades, These trades were not long risk or 

involving the lG9 index. The delta was actually reduced through these transactions. Risk management was 

monitoring this process. 

In the prior week (March 19/ March 23) Javier and team increased the delta in the book. 

The increase was in their delegated authority and not in violation of any .limit. 

Per our previous call. the increase was not discussed with me or you or in any of our management forums. 

Actually, the result of these actions and the corresponding RWA increases, led me to call Venkat and ask for Olivier's 

help at that time. 

The explanation that Javier and Bruno are providing regarding the increased delta is in line with the stated objective 

to balance the book. 

Balancing and risk neutralizing the book, was exactly their instruction from both of us, 

The evidence now provided relating to the need to better balance the book (via the increased delta) is convincing, 

but very complicated. 

In my judgement the increased delta is not one of the main contributing factors for the poor performance of this 

book that deteriorated around the end of Q1. ! have concerns that the increased delta created too much market 

awareness and further increased an already large concentration. 

These issues point to a bad judgement call on concentration and liquidity, as well as luck of escalation of a material 

change to the road map of balancing the book. ! don't however think that beyond these important issues, there was a 

violation of any specific order or limit. 

I hope that this darifies the issue, 

Thanks, 

Achilles 

CONFIDENTIAL TREATMENT REQUESTED BY J"p" MORGAN CHASE & CO" JPM-CIO-E 00013052 
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From: 

Sent: 

To: 

Grout, Julien G <julien.g.grout@jpmchase.com> 

Thu, 22 Mar 201217:46:07 GMT 

cm ESTIMATED P&L <em_CREDIT ]&L@jprnchase.com> 

cc: cm P&L Team <CIO]&L_Tearn@jpmchase.com> 

SUbject: cm Core Credit P&L Predict [22 Mar]: +$82k (dly) -$276,990k (ytd) 

DailyP&L: $82,141 

Y1D P&L: -$276,990,321 

Daily P&L($) Y1D P&L($) 

Europe Financial. -6,597,360 -14,533,858 

Redacted By 

Permanent Subcommittee on Investigations 

Europe High Grade 25,839,314 124,436,937 

---------------------------------

Redacted By 

Permanent Subcommittee on Investigations 

US High Grade -82,388,848 409,065,325 

Redacted By 

Permanent Subcommittee on Investigations 

US HY & LCDX 94,962,354 -347,851,042 

Redacted By 

Permanent Subcommittee on Investigations 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO, JPM-CIO-E 00014689 
1524 

Redacted By 

Permanent Subcommittee on Investigations 

US ABXI TABX-155 -21,008 

Redacted By 

Permanent Subcommittee on Investigations 

Redacted By 

Permanent Subcommittee on Investigations 

Dead Books (Core) -13 2,017 

------------------ ----------- -----------

Redacted By 

Permanent Subcommittee on Investigations 

WashbooklCosts 0 0 

Redacted By 

Permanent Subcommittee on Investigations 

Explanatory P&L (in $1000s): 

Name Total Dirctnl Tranche Carry IR Nrr Adjust FX 

------------ ---------- ------ ------------------------ --------

Redacted By 

Permanent Subcommittee on Investigations 

Close COD 

Redacted By 

Permanent Subcommittee on Investigations 

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Redacted By 

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Another day of weakness triggered by negative news from Chma overnight, a very poor set ofPMI in Europe. 

The market feels shaky here, with European financials, iTraxxXover and CDX1G underperforming. 

Volatilities are higher by about +4pt across the board, but there was no flattening of index curves - some market 

players were actually marking curves a tad steeper, on the off the run series (S9, 1G9). No obvious theme in 

tranches today - equity tranches were steeper again, in CDX.IG, but slightly flatter in iTraxx. 

The behaviour of the book was close to what happened yesterday - the book is making money thanks to the 

decompression trades in Europe and in the US (our shorts in CDXHY, S 14,15,16,17 widened), with gains 

estimated to $80M. Again, the book is getting hurt with losses in index forward spreads in S9 and IG9, and in 

tranches (weaker CDXHY equity and mezzanine tranches, steeper IG9 equity tranches). 

Today we sold protection in the following index: iTraxx.Main (5.65B), iTraxxXover (300M), CDX.IG (3.95B) 

and FINSUB (100M). Beside providing carry, these trades should reduce the VaR, but increase the IRC We are 

pausing in our sale of protection., to see what the overall impact on capital numbers is going to be. 

Again, a lot of prices are still being framed and we are providing our best estimate. 

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From: 

Sent: 

Hagan, Patrick S <patricks.hagan@jpmorgan.com> 

Mon, 02 Apr 2012 12:29:02 GMT 

To: Goldman, Irvin J <irvin.j.goldman@jpmchase.com> 

Subject: RE: Final split? 

Irv: 

Thanks. ! sent him that instruction, so he can get on it. 

I didn't mean to throw a spanner in the works, but we got nervous when our intuition about the CRM 

didn't match QR's modeling runs. !'m over here today with OlivierVigneron, and we have some ideas about the source 

of the discrepancy, if not the magnitude. 

By the way, hanks for your help. 

Pat 

From: Goldman, Irvin J 

Sent: Monday, April 02, 2012 1:42 AM 

To: Hagan, Patrick 5 

Subject: RE: Final split? 

Pat, 

There are two issues. I) trying to understand the qr model is essential. 2) the firm (finance) has to sign off on 

the rwa for the quarter on the split front office chose from a risk perspective. Which is the original second split. 

Which I explained in the previous email. I think it's important for you to explain to Venkat and bruce broder 

that the additional analysis you seek is to understand the qr model not to come up with a new split which is no 

longer possible. 

-----Original Message-----

From: Hagan, Patrick S 

Sent: Sunday, April 01, 2012 08:32 PM Eastem Standard Time 

To: Goldman, Irvin J 

Subject: RE: Final split? 

Irv: 

Every way we look at the second split, the CRM should have come down by an esimated 10%. But it went up ... slightly 

on Mar 7 and then by lOOA.+ on Mar 21. This raises all sorts of red flags (ie, scares the heck out of me), since it means that 

we still only have a weak grasp of what is happening inside QR's model. Which means that we're unsure of which new 

positions would help our CRM/!RC and which will not help, or worse that we may get clobbered by the CRM one month 

out of the blue 

From: Goldman, Irvin] 

Sent: Monday, April 02, 2012 1:16 AM 

To: Hagan, Patrick 5 

Subject: RE: Final split? 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-E 00033939 
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Pat, 

Hope you enjoyed your weekend. I think it's important for you to understand that was approved by ever 

----Original Message-----

From: Hagan, Patrick S 

Sent: Sunday, April 01, 2012 02:03 PM Eastern Standard Time 

To: Broder, Bruce; Venkatakrishnan, CS; Grou~ Julien G; Iksil, Bruno M 

Cc: Goldman, Irvin J; Wilmot, John; Martin-Artajo, Javier X 

Subject: FW: Final split? 

Bruce: 

We still do not have the results needed to make a decision. 

We did a first split with known results for March 7 and March 21. 

We did a second split, of which we expected a reduction of 12.5% IRe for both portfolios, with the CRM decreasing by a 

lesser amount. The March 7 portfolio came back with a CRM at the same level. We are still waiting for the results to 

ensure that the IRe is 12.5% reduced from the first split. We am still waiting for the answer on this IRe. 

When the CRM for Mar 21 was calculated, it came back 40010 higher than before. We do not understand this number. 

Since then we have tried several variations on portfolio 2., and got back growing CRM numbers. We have not been able 

to make sense of the CRM. I am still waiting on QR to ensure that the actuallRC is 12.5% lower. 

Pat 

From: Brooer 1 Bruce 

Sent: 01 April 2012 17:06 

To: Hagan, Patrick S; Wilmot, John; Goldman, Irvin J; Venkatakrishnan, CS; Martin~Artajo, Javier X; Vigneron, Olivier X 

Subject: Final split? 

For perfect clarity, I am forwarding back what I understand has been selected as the final split. Please let me know if this 

is not the correct one. Otherwise, this is what we'll proceed with. 

Thanks, 

Bruce 

From: Hagan, Patrici< 5 

Sent: Wednesday, March 28, 2012 08:45 PM 

To: Bangia, Ani! K; Broder, Bruce; Patel, Samir R 

Cc: Iksil, Bruno M; Grout, Julien G; Martin·Artajo/ Javier X 

Subject: RE: 

These are the positions to be formed into the IRC books of COB Mar 7th and COB Mar 21. 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO, JPM-CIO-E 00033940 
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Good night, 

Pat 

From: BangiaI Ani! K 

Sent: Wednesday, March 28, 2012 10:56 PM 

To: Hagan, Patrick 5 

Subject: RE: 

No problem. I will be around late. 

From: Hagan, Patrick 5 

Sent: Wednesday, March 28, 2012 5:55 PM 

To: Bangia, Ani! K 

Subject: RE: 

It's going to be a couple more hours before we can get you something trustworthy 

From: Bangia, Anil K 

Sent: Wednesday, March 28,201210:54 PM 

To: Hagan, Patrick 5 

Subject: RE: 

I don't understand. Can you elaborate please? 

Is this a computation issue on your side? Is this a matter of re-running the IRC split? 

From: Hagan, Patrick 5 

Sent: Wednesday, March 28, 2012 4:59 PM 

To: Bangia, Ani! K 

Subject: 

We've got to start over on the Mar 7 and Mar 21 positions ... there's no way we can guarantee the correctness of what 

we're doing '" 

Patrick S. Hagan 

Chief Investment Office, 

J.P, Morgan 

100 Wood Street 

London EC2V 7AN 

United Kingdom 

t44 (0)20 7777 1563 

patrick.s.hagan@jpmorgan.com 

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From: Goldman, Irvin J <irvin.j.goldman@ipmchase.com> 

Sent: Mon, 16 Apr 2012 19:02:50 GMT 

To: Zubrow, Bany L <barry.l.zubrow@jpmchase.rom>; Hogan, John J. 

<]ohnJ.Hogan@jpmorgan.com>; Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com> 

CC: Wilmot, John <JOHN.WILMOT@jpmorgan.com>; Drew, Ina <Ina.Drew@ipmorgan.com> 

Subject: RE: Daily Risk Report 

All, 

Wanted to let you know that ClO is having a few hour post mortem session tomorrow in whith we wi!! be dlstusslng the 

strategy going forward. 

From! Zubrow, Barry L 

Sent: Monday, April 16, 2012 1:58 PM 

To: Hoganl John J.; Wilmot, John; Goldmanl Irvin] 

Cc: Braunstein, Douglas 

Subject, RE: Dally Risk Report 

Irv 

Can I suggest that you start circulating SOn1eth-ing~ even if not "perfect!! No doubt it will be a work in progress. 

You shou1d also ioclude progress on "tear UpSIf 

Barry 

-----Original Message-----

From: Hogan, John J, 

Sent: Monday, April 16, 201201:55 PM Eastern Standard Time 

To: Wilmot, John; Goldman, Irvin J 

Cc: Braunstein, Douglas; Zubrow, Barry L 

Subject: Daily Risk Report 

jpbnilrv, 

A" part of the daily risk report you guys are putting together, plea.se Show us a section which outl~s the cuneut trading strategy around risk 

managing the position, both noW and over the next few months. We1'd 1ike to see a glide path of how this risk is going to come do"Wn through the 

Qecember maturity, 

Thanks. 

~ohn 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM·CIO-PSI·H 0000039 
1530 

VAR METHODOLOGY 

PATRICK S. HAGAN AND KEITH STEPHAN 

CHIEF INVESTMENT OFFICE 

JP MORGAN 

PATRlCK.S.HAGANGJPMORGAN.GOM 

KEITH.5TEPHANGJPMORGAN.COM 

AbstT8.ct, We detail the VAR metbodology for the CIO eore credit books. 

1. Overview. Our core credit books are composed of credit deriw.tive swaps on broad based indices 

(eDls) and credit derivative swa.ps on tranches of broad-based indices (CDOs). The value of our credit 

derivative positions is driven by two prime.ry factors; 

i) the overall widening 8lId tightening of the credit spread curves. This determines the future (market 

implied) expected 10Sll rates of the index, and thus the forwacd expected default proba.bility curves implied 

by the market; 

ii) actual defaults .and default payments. 

There are two other, more tactical, factors; 

iii) steepening and flattening of the spread curves, which determines the market's timing of ~e expected 

losses; and 

iv) the distribution of expected losses among the different tranches of the capital structures. The market's 

seeming preference fot equity and junior tranches, or for the more senior tranches, relates to whether the 

market anticipa.tes the index losses coming from relatively rare scenarios in which many names defa.ult, or 

from more oommoD. scenarios jn whicb a few names default. Mathematically, this preference is quantified by 

the correla.tion. 

Finally, there are two secondary risks: 

(v) interest rate risks. Like all swaps, the value of future payments depends on the yield curve. Interest rates 

movements don't direr:tJy effect the amounts paid in to and out of our core books. So this risk is secondary 

to the spread a.nd correlation risks, although Dot particularly small; 

(vi) foreign exchange risks. OUT core books own instruments denominatoo in Eums. As a dollar-based bank, 

we have risk to the Euro/USD exchange rate on a.ny unhedged portion of our book. Like most businesses, 

the montb-end value of tbe Euro-denominated deals is bedged every month, so we only have FX risk to the 

profit/loss of the Euro-denominated instruments sines the beginning of the current montb. 

Our a.pproach to spread and correlation risk is based on the full revaluation of our books under specified 

sr:enarios; it is not based on extrapolating from the Greeks (deltas, gammas, ... ) of our position. We choose 

not to use Greeks, because they only provide an approximate revaluation of our books, and it may be difficult 

to convince others (Md ourselves!) that we had inoorpol'a.t.ed all the significant risks. E.g., are curve-flattener 

cross gamma term.9, or default/delta cross terms negligible? Each such question could require a bistorical 

study to answer, but UBing full revaluations of our books renders all such questions moot. 

Interest raIA:: movements don't affect the amounts paid in to and out oftbe book. So, as detailed below, 

we calculate the additional VAR from interest rates from the PVOl of the book to 1y, 2y, Sy, 5y, 7y, and 

lOy par swap rate shifts. Similarly, the FX VaR will be calculated from the value of the unhedgoo part of 

our Euro-denominated deals, which is generally the differenr:e between the current value of these deals, and 

their value at the last month end. 

2. VAR. Our VAR will be based on tbe 264 scenarios determIned hy the da.il.y market movements over 

the last calendar year. The daily market movements (spread changes, correlation changes, and defaults) will 

be applied to today's market to get 264 possible scenarios for tomorrow's market. Out of these 264 one da.y 

scenarios, the avera.ge l~ over the worst seven scenarios is our "99 Ve.R!' 

One way to view this procedure, is as a Monte Carlo simula.tion of possible one day PNL. Instead of 

using a. theoretical distihution of spread and correlation moves, which could easily overlook subtle interac~ 

tiODS between different market variables, we use an empirical distribution determined by the actual market 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000041 
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movements over the past year. The purpose of the historicaJ data, then, is to provide a. bias~free sampling 

{If the correct, €.Dlpirica.1 distribution, 

Let to be today, and consider a specific index A (e.g" CDX HY series 10). We strip the end-Qf-day price 

quotes for the CD swaps on index A to obtain today's survival curve Qb~lae(T) and hazard ra.te curve hb'..,~(t) 

for this index: 

(2.1a.) .rba.8e(T) = e- J.~ ht ..... (T')dT' = expected fra.ctiOD Oil index surviving a.t least to T; 

(2.1b) h~~(T) = hazard rate = ra.te of demult at T, given survival. until T. 

Currently we use piecewise constant hazard rates h(T) in our stripping procedure, with the nodes corresponding to the maturity dates of the CD index swaps used in the stripping process, This gives WI our base 

curve, 

For each date 1, over the past year, we strip tbe market's CD swap quotes for that date t,. to obtain the 

survival and hazard rate curves as seen at dale t,: 

(2.280) QA(t.;; T) = e - J,~ h

A

(t,;1")dT' = expected fraction surviving to T, as seen at da.te ti; 

(2.2b) hA(t..;;T) = hazaTd rate for date T as seen at date ti 

(2,2c) "'" ra.t€. of default at T, given surviwl from t; to T, as seen at date ti • 

Again, we find these survival and bazard rate curves by stripping the closing marks for the CD swaps em 

series A, as recorded on ti' We we the same stripping procedure as before. 

For date til the market movement of index A's survival curve is 

(2.30) 

For the it" scenario, we use the hazard rate curve 

(2.3b) 

(2.3c) 

A A { A } A hA(ti+liT) h, (T) h".,,(T) 1 + ,,(T) = h .. ,,(T) hAlt;, T) ; 

QtCT) = e- J.:h~(T')dT' = e- J;;' h~ •• (T'){hA(t'+l;T')!h"(tj;T')}dT' 

for series A. That is, toda.y's hazard rate curve is cbanged proportionately to the market movement on da.te 

t" For each tranch B (e.g., the CDX BY series 15. 5Y, {)-1O tranch), let the attachment and detachment 

correlation be 

(2.4.) 

using today's EOD ma.:rk5, For ea.ch bistorical da.te ti., let 

(2.4b) 

be the EOD attachment and detachment correlation for the tranch, Then the one day ma.rket movement for 

da.te i is 

(2.5.) 

(2.5b) 

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For the it" scenario, we use the attachment and detachment correlatioD.s 

(2.6.) 

(2.6b) 

For the it" sceD.ario, we will also apply any defaults that occur on date ti. 

For each of the last 264 business days t .. , we will calculate the change to the cunent vaJue of the core 

books under scenario i: 

(2.7) 

This provides the main risks of OUT books, Before we can find the worst seven outcomes and caJculate the 

VAR99, we need to add the interest ra.te a.nd FX components to the ri5k. 

2,1. Illiquid indices. New~ issued series do not have a year's history. For these we use the spread 

shifts .6f(T), correlation shifts. "'. ,au, ",~.de\ 8.Dd e.ny defaults from the most similar series whlch is liquid 

on the historical da.te t,. For example, the desk currently has positions in CDX IG S17 and CDX HY 517. 

These series started trading on 9/20/2011. For historical da.tes between 3/20/2011 and 9/20/2011, we use 

the spread shifts 5t(T) and correlation shifts, ",f,au, IIf,dOlt from the then-current series CDX IG S16 8.Dd 

CDX HY SHi as proxies for the S17 spread and correlation changes, Before 3/20/2011 (which was the first 

date SUi traded), we used CDX IG 815 and CDX HY S15 as the proxy. 

The series in elilcll family are issued every six months. If the desk were to trade each series when issued, 

then there could be at most two proxy time series for each family. Currently the desk has positions in CDX 

IG series 16 and series 17, CDX HY series 16 and series 17, and Itraxx series 15 and series 16, all of which 

require proxy time series. 

In addition, the historical rn.vket movements for some instruments on some da.tes are missiD.g or unreliable due to market illiquidity. These too will be implied from the liquid market quotes at t"Currentiy 

we investigate whether a. market quote is a. mis-mark when the change in the one da.y spread, a.ttachment 

correlaton, or detachment correlation exceeds 20%, 

(2.8.) 

(2.8b) 

151(T)1 > 20%1, 

11Ir'''ttl > 20%1 or Iv~,detl > 20%\ 

This figure was chosen because, after iD.vestigation, aJl changes of this size ha.ve proven to be market misquotes. Currently, out of a. sample of 7,200 curves (288 days with 40 curves per day), we bve 182 curves 

with problematic entries that ha.ve been repla.ced with their liquid proxies. 

series oldest other total 

CDX IG 11 12 23 

Itraxx Main 14 15 29 

CDXHY 59 69 n8 

other I I 2 

total 85 97 182 

Of these- problematic curves, 85 are in the very oldest series, COX IG series 7, CDX HY series 7, and Irraxx 

Main series 6. These series have the poorest liquidity, and their 3Y index swaps tend to have erratic prices 

because their very short maturity exacerbates market noise, Fortunately, we ha.ve very little exposure on 

these oldest swa.ps, 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000043 
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2.4. VAR and V AR capital. We follow the a.bove procedure to calculate the change to the current 

value of the book under each sa:narios i generat.ed from the previous 264 days. VAR·99 will be the average of 

these daily returns over the 7 WOr5t scenarios. Tbe capita..! will then be calcule.ted as VTIi.times this aVErage 

to obtain the theoretical 10 day loss a.t the 99% confidence level. Besides publishing our etand-alone VaR 

number, we will also publish the entire P/L vector along with the da.tes t;: of the market shift. This will for 

our VAR result to be diversified against other LOBs. 

2.5. Results. The e.ctual spread shifts and correlation shifts used for all the series and tranches are 

in the attached wotkbook Hi3tVallSh.ijtsUsed.:xl.<J. The one day P IL outcomes for these sceoariQS are shown 

in the spreadsheet HuVarPNLVeclars in the workbook CfOCapital&sults£0111_09_30. The strategyby-strategy and position-by-position breakdown of the P IL for the worst seven scenarios is shown in the 

HuVarBrenkdown sheet in the same workbook. 

2.6. CriHques. The VAR obtained from these CAlculations is signi6ca.ntly higher than the desk's current VAR. Thls is because 

a.) our VAR calcula.tions incorporate correlation Plovemeots as well spread movements. Although this 

could decrease the loss aD any given day. including an extra. source of variation genErally raises the VAR; 

b) our full revaluation calculations incorpomte gamma. and crog&.gamma. effects (as well as all higher 

derivative;:). Again, this ca.n decrease or increase the outcome on !W.y given day, but nega.tive gamma 

positions tend to be exacerbat.ed aD the worst days; 

c) survival rurves gener.alJ.y Ba.tten the most when they ace steep, and steepen the Plost wben they ate 

Ha.t. Our methodology applies the steepening/fiatten.iDg experienced on Otle date to to another date t/l<>.oe t 

without also accounting for the steepness or Batness of the curve on date t&....e. This tends to exagerate the 

in£!uence curve steepening and flattening; 

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d) the desk's VAR ca.lculatioDS are based on street deltas, the deJtas quoted by market makers, which are 

often more temperate than the deltas obtained theoretically. Our calculations are based on full revaluations, 

so they correspond to theoretica.l deltas; 

e) the survival curve and correlation shifts see obtained directly from our closing marks. The data quality 

is good for liquid indices where we have large positions, since we have good coverage from market makers 

in these positions. For less liquid series, for series in which we don't have a strong market presence, and for 

illiquid market days, the data quality is poorer. Again, extra. DOiw CM decrease or increase the outcome on 

any given day, but in general, extra noise leads to higher VAR 

Over the next few months we wHl be examining the market movement da.ta, focussing on the worst days. 

By oomparing ~lUr data with data from other databases, we will gradually eliminate the errors in our market 

data. All replacement of market data from our initial data. set will be fully documented and sourted, so as 

to maintain objectivity. 

All the above problems with our methodology generally lead to higher VAR, which is unsurprising since 

VAR can be considered as a. measure of Daise. Accordingly, we believe that our VAR-99 calculation is 

decidedly conservative, 

Yield curve movements and changes in the FX rate do not directly affect the physical payments into and 

out of our COre books, 50 the value of our core credit position is nearly linear in the interest rate and FX 

risks, Accordingly, these secondary risks (interest rate and FX) are being calculated by ma-t.ching the linear 

(delta) risks, This neglects second order risks: interest rate gamma., FX gamma., int.erest rate/spread cross 

gamma terms, .. ,. We believe this is justified by the small size of tbe interest rate and FX risks, as well as 

by the near~linearity of the book values to these risks. 

In developing this methodology, we chose to use relative spread and correlation changes, 

(2.123) 

(2.12b) 

(2.120) 

instead of absolute changes, 

(2.l3,) 

(2.13b) 

(2.130) 

hf(T) ~ h~,,(T) + (hA(t;+>;T) - hA(~;T)}, 

f3f,au = t3f;::t + {,a8'ctt(t,+d _ ,aB,au(ti)}' 

t3~,<J.at = ~d~:~ + t'8,dc:t(tHl) _ ,aB,det{ti)" 

Since neither the spreads nor the correla.tions must remain positive, we believe that using relative changes 

is theoretically sounder that using absolute changes, Abo, the size of the re1a.tive changes seems to be the 

same regardless of the size of the spread itself. Fbr example, in the graphs below, the HY spreads are about 

four times larger than the IG spreads, but the relative changes are simila.r in size. Finally, using the relative 

correlation changes allows us to oompare diIlerent models against each other. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000045 
1535 

COXHYS15 

Spread 

Confidential Treatment Requested by J.P. Morgan 8. Co. JPM·CIO·PSI 0000046 
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... --~- .--~---"~-----

COXlGS1S 

0.1 

0.08 

0.06 

0.04 

0.02 

a 

f€ 

~ ~o.oz 

-0.04 

-0.06 

-0.08 

-0.1 

Hazard rate 

Confidential Treatment Requested by J,P. Morgan I> Co, JPM-CIO-PSI 0000047 
1537 

From: 

Sent: 

Drew, Ina <Ina.Drevw@jpmorgan.com> 

Mon, O;} Jan 2012 23 :05:23 GMT --JleclIIded'by die Permueat . Sto_ .. 1tlee .. , •• esttp_ 

To: Wilmot, lohn <lOHNWILMOT@jpmorgan,com> 

Subject: Re: CRM results for Q4 

Its very important since }fwe can spare some deleveraglng (assuming we believe the risk profile. We pick up 100 

·250 mil in call)' and mOrE optionity. Even with vars stress, thUs qroutcome will bring the total away down. I want 

to get a handle on it before they deJeverage. 

From: Wilmot, John To: Drew, Ina 

Sent: Mon Jan 0918:00:172012 

Subject: RE: CRM re5lJlts for Q1 

I don't believe this Indudes VaR and Stress VaR. My conversation with Pete this morning suggested we were 

coming about spot on for the RWA for this book{CRM was a bit better, basic~lly through higher diversification 

benefit, not risk reduction - but that was offset by higher stress VaR in December). I will reconfirm with Pete. 

JOM C. Wilmot I Chid InvestmentOffire I @ jDhll.wiimo~jpmoJ"ian.eom I it Work: (212) 834·5452 I 'iii' Cril: ••••• 

From: Drew, Ina 

Sent: Monday, January 09, 2012 5:55 PM 

To: Wilmot, John Subject: Fw: CRM results for Q1 

This baffles me. We put in 41 bi/. We now look wrong on the tow side and on the high side. 

From; Drew'.i1.na,,~!-.~~ ...... .. To:'macris@1 

Sent; Mon Jan 09 17:26: 13 2012 

Subject: Re: CRM results for Q1 

We may not need to deleverage as much but we sure better pin down as you say to be certain 

From: rnacris@ 

To: Drew, Ina Sent: Mon Jan 09 17:13:43 2012 

Subject: CRM results for Q1 

A ben~fidal result but it is still "random". The real work needs to done to pin the number to knowable variables 

From: Enfield, Keith [mailtu:Kelth,Enfield@jpmorgan.comj 

Sent: 09 January 2012 15:22 

To; Macris, Achilles 0; macriS@btinternet.com 

a:: Giovannetti, Mson Ci Iksil, Bruno M; Hagan, PatrickS; Martin-Artaio, Javier X 

Subject: CRM results for Q1 

Achilles, 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000073 
1538 

As mentionedl the Q4 CRM model output for CIO is $ 26.4 bn compared to $ 41.S bn in 03. The firm is now 

combining CIO's results with the 18'5 so we are getting a diversific~tion benefit which reduces the number 

further to $l8.3 bn. 

Regards, 

Keith. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000074 
1539 

From: 1ksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Sent: Tue, 10 Jan 2012 19:37:05 GMT 

To: Stephan, Keith <keith.stephan@jpmorgan.com> 

Subject: RE: CRM results for Q4 

yes I will show you tomorrow how the book. has changed between end of dec and now. 

I am much less short. 

t need now the rwa marginals so that' can do the proper trades,ie trades less stupid than go long lik.e all of us, and instead 

create tail upside whlle minimizing the rwa, no matter where the var sits, because the chance is that the higher my varthe 

lower the aggregate var for whole cia. 

From: Stephan, Keith 

Sent: 10 January 2012 19:29 

To: Iks!i, Bruno M 

Subject: FW: CRM results for Q4 

More on the same topic. 

From: Weiland, Peter Sent: 10 January 2012 19:26 

To: Martin-Art:ljo, Javier X 

Cc: Stephan, Keithi Giovannetti, Alison Cj Wilmot, John; Hagan, Patrick Si A!exander, David Mi Gandhi, Samir X Subject: FW: CRM results for Q4 

HiJavierKeith Stephan said you are waiting for some data from me on RWA/ so I wanted to be sure that you saw the email 1 sent you 

yesterday (below). 

That said, I have tried to pull together a mOre organized and complete picture of the components of the tranche RWA for4Q: 

The final actual RWA of $36.26 is at the top end ofthe range I estimated in November of $31.5~36.0B, which came from the 

components: 

VaR $3.5-5.0B 

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Stress VaR $8.0-11.08 

CRM $20.08 (diversified) 

-- Redacted by the Permanear 

Subcommittee on lavestieations 

I'll discuss this Thursday at SAA, but there were two components that affected the final figure for 40: 

The actual dIversification factor (relative to 18) came to 31% rather than 25%, redudng CRM compared to estimate 

VaR. and stress VaR lncreased significantly in December increasing those components compared to the estimate 

The Decemberdata and the trend in tranche VaR recently point toward increased RWA for lQ. We should discuss. 

I continue to plug away with OR to try to bring our views and theirs into alignment, and as I say below I think there are 

Important issues that OR. needs to explaIn with respect to methodology. 

Pete 

PcterWeilw-.d 1 J.PMorgan I Chiefh)¥e.stmen1 Office I 170 PBrkAve. I 'li' Tc1:.f.l:!12 834 55491V Cel!:+ •••••• 

peter weHand@inroorean oom 

From: Weiland. Peter Sent: Monday, January 09, 2012 12:38 PM To: Martin-Artajo, Javier X 

Subject: RE: CRM ""uits for Q4 

Thanks Javier. Happy 2012 to you. 'look forward to seeing you early next month. 

The below Is very much in line with all the discussions we had toward the end of 2011, the only IT!aterial difference being that 

the diversmcation factor used came to 31% instead of the 25% I had used to estimate (resulting in $18.38 CRM RWA rather 

than the $20B I had estimated). The $26.46 standalone is pretty much where we were expecting it to land. 

I have been trying to get the dialogue going between Pat and OR on the topic of what Pat calls Ilre-centering" and what they 

call "de-meaning". ThiS" is the big methodological sticking point I think. 1 will talk to OR this week and get some conversations 

set up. 

Pete 

?eterWeil!lJ1d i J.PJrlorgan IOtit:flm"es.lmcnr0ft1oc1170PmtAve.! 'li' Td;+12t2 834 5549j2 C~H;+ •••••• 

peter wejlRod@jpmQrgan crnn 

From: Martin-Artajo, Javier X 

Sent: Monday, January 09, 2012 11:50 AM 

To: Weiland, Peter Subject: FW; CRM results for Q4 

Pete, 

Happynewyearfirst of all , 

Can you give me more info regarding this below 7 

regards 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000084 
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From: 8lfieldl Keith 

Sent: 09 January 201215;22 , •••• 

~ ~=r:~n:~~ q~ano Mi Hagan, PatlicX 5; Martln-~jo, Javier X 

Subject: CRM ""ults fur Q4 

Achilles, 

--= Redacted by the Permanent 

Subcomndttee OR Im'atip~o:as 

As mentioned, the Q4 CRM model output forCIO is $ 26.4 bn compared to $ 41.S bn in 03. The firm is now cambiningaO's 

results with the IB's 50 we are getting a diversification benefit whlth reduces the number further t,o $ 18.3 bn. 

Regards, 

Keith. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO·PSI 0000085 
1542 

Confidential Treatment Requested BV 

JPMORGAN CHASE & CO. 

'C' . , . 

., 

Confidential Treatment Requested by J.P. Morgan & Co. 

JPM-CIO 0000086 

JPM-CIO-PSI 0000086 
1543 

From; Macris, Achilles 0 <achilles.o.macris@jpmorgan.com> 

Sent; Fri, 20 Jan 201214:49:17 GMT 

To: Drew, Ina <Ina.Drew@jpmorgan.com> 

Subject; VaR 

Hi Ina, 

Our VaR will be per below at month-end ($S7m - or below} - however: 

--Red.aed by the Permanent 

S.Kommittee on lave5tigatioftJ 

Look atthe new model forVAR, Firm down but mVAR for IB from~ ••••• IThiS will happen with 

capital hopefully End of Ql . 

Best, 

Achilles 

from: Lee, Janet X 

Sent: 20 January 2012 13:54 

To: Stephan, Keft:hi Goldman, Irvin J; Weiland, Peter 

Cc: Martin-Map, Javier X; Macris, Achilles 0; Kalimtgis, Evan 

Subject: RE: Breacn of firm var 

For point 3, please see table attached for details of impact analysis on cob 01/18 using the,neW madej's results. 

The synthetic book's VaR drops from $9Bmm t<? $53mm. Firmwide VaR will see a 29% reduction from $138mm 

to $98mm, back under the $125mm limit. CIOVaR will see a reduction of 44% to $S7mm, back under the 

$9Smm limit. 

18/0112012 Current 10QVaR 

Firmwide 

Inv Bank Regional 

CIO 

CIO_lnternational 

CIO EMEA 

CIO CREDIT EMEA 

CIO CORE CREDIT 

Thanks, 

Janet Lee 

GiefInve.stroent Office 

JPMorg.wOH:se 

Phone: +44 (rJ)207 m 2174 

Email janet-x.lee@lpmchase.c.om 

From; Stephan, Keith 

Sent: 20 January 2012 12:02 

137961472 

102385,406 

100,778,451 

100,328,172 

99,879,941 

97176,584 

To: Goldman, Irvin J; Weiland, Peter 

Current 10QmVaR. 

137961 472 

85490464 

82,272,976 

80,924,464 

78,319,448 

73,183992 

Cc: Martin-Artajo, Javier X; Macris, Achilles 0; Kalimtgis, Evan 

Subject: FW: Breach of firm var 

Importance: High 

Confidential Treatment Requested by J,P, Morgan & Co, 

NewModel 10QVaR New Model 1 DC 

98456,554 98,45E 

57,183430 . 32,102 

56,421,966 28,19~ 

55,936,163 26,847 

54,960,953 24,071 

53110655 20,152 

JPM-CIO-PSI 0000146 
1544 

Irv & Pete 

Below please find details of the VaR limit breach. The VaR increase is driven by Core Credit (tranche) in EM EA. 

The VaR has increas.ed steadily since the end of December as positions in CDX.HY on~the~run indices have been 

added to the portfolio to balance the book, which has been taken longer risk since the expiry of CDX.HY.ll 3Y 

positions which matured 21 Dec 2011. 

Key Points: 

1. The increase in VaR is largely attributed to increased short risk positions in CDX,HY indices - which we 

have discussed withe desk and which were added spedfically to reduce the outright long CSOl profile 

of the book (as we are additionally over the MtM CSOl limit and actively reducing this risk to move 

within the $SMM CSOl threshold) 

2. We are reviewing the details of the current VaR number and actively working with the desk to reduce 

the current VaR based on current marginals, while continuing to address the CSOl as abovei N.B. the 

action taken thus far has further contributed to the Positive Stress benefit in the Credit Crisis (large 

Flattenlng Sell-off) for thIs portfolio which has Increased from +$1.4blo to +$1.6bfo"from 17-19 Jan. 

3. We are in late s.tages of model approval forfull revaluation which will have the effect reducing the 

standalone VaR for Core Credit from circa $96MM to approx $70MM - impact analysis on the marginal 

contribution to the Firm is ongoing and will be distributed later today. 

I expect that we will resolve through active risk management the breach of VaR limit using current method over 

the next two trading sessions, depending on liquidity. 

Furthermore, I believe that the process of model approval is nearing completion and that this wi!! be 

implemented in the nert 1-2wks in production. 

My recommendation therefore 1s that we do not address, nor upstze the limit for CIO - but that we continue to 

work in partnership with the desk to manage to the current $9Smm limit over the next two to three trading 

sessions - and that we discuss further with the model review group (MRG) today the schedule for completion of 

approval of the new model with a view toward implementation next week if possible. My team ar'ld ! are 

dis aggregating strategy level marginal VaR (reported daily) to the level of position I instrument level marginal 

VaR to provide the desk with precise list or actions that can be taken to most effectively reduce VaR while 

maintaining balance of other risk measures. This wi!! be complete by mid~afternoon london time today_ 

Evolution of CUrrent VaR using production model: 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0000147 
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~~( cid:image001.png@OlCCD767.766510CO 

The details of the drivers of the VaR increases, using current model for measurement are as follows: 

lonI8 tolon19 (from $94,7mm to$98.6mmJ-+S3 Bmm move: 

1) +4mm from Stg 150 -Increased HY14- HV16 short risk position by $l.D75bn 

lanI7 to Jon18 (from $91.8mm to$94.7mml +$3mm move: 

1) +Zmm from 5tg I8US -Increased IGI7 5Y short risk position by $2.25bn 

2} +lmm from Stg 14EU -Increased /traxx MN16 long risk position by $7BSmm 

Jon16 to 10n17 (from $96mm to$91.8mmJ- f$4mml move: 

1) -4mm from Stg 150 : Reduced HY171ndex short risk position by $1.3bn 

101106 to lan16 (from S93mm to $96mm). +$3mm move: 

1) +3mm from Stg 150 

Increase In HY IndeJI short risk positions of $l.lbn (HY14$300mrn, HY15 $250mrnl HY16 $45Dmm, HYl7 

$50mm) 

2) +2mm from Stg 18US 

Increase in 1G9 lOY Index long risk by $6.7bn 

Increase in !G17 SY short risk. position by S3.0bn provides diversification 

3) +lmm from Stg 14EU 

Decrease in MN9 SY Index long risk position by $7.2Sbn 

Decrease in MN Outright Index short positions provide diversification (SlS-S16 S/10Ynet decrease of $77Smm 

4) -3mrn from worst day rolloffs (Sth, 19th and 29m days) 

Dec 21 to JanD§ (from $76mm to $93mmJ - .. $17mm mov~: 

I} Stg 150 $14mm (increased short risk positions across HYl4-HY17 by $2.6Sbn) 

2) Stg 18US $lmm 

3) Stg Z70 $2mm (reduced long risk pas in HYlO 7Y + Price tightening in recent weeks: meant 

that this position delivered positive offset on worst days 

4) Note: 14EU does have a net increase in X016 pas by $260mm but increase in MN16 long risk 

pas by $2.0bn more than offsets the var moves from XO. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSIDDDD148 
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From: Goldman, Irvin J 

Sent: 20 January 2(}12 03:0S 

To! StephanI Keith; Weiland, Peter 

Cc: Macris,. Achilles 0; Martin-ArtDjo, Javier X; Kaflmtgls, Evan 

Subject: Breach of firm var 

All, 

<.--Redacted by the Permanf"nt 

Subcommittee Oft Investigations 

This is the third consecutive breach notice (below) that has gone to Jamie and OC members. We need to 

get 1"1a specific answers to the cause of the breach, how it will be resolved and by when. She requested 

the answers today -Friday and would like AchiHes and Javier to vett the international credit 

explanations. 

Irv 

FilTl1wide 95% 10Q VaR 

. The Firm's 95% 10Q VaR as of cob 0111812012 has increased by $Smm from the prior day's VaR to 

$138mm and has breached the $125mm Firm VaR limit for the third consecutive day . 

. CIO's 95% 10Q VaR as of cob 0111812012 has increased by $7mm from the prior day's VaR to 

$102mm and has breached the $9Smm CIO VaR limit for the third consecutive day. 

o The increase in the Firm's VaR is primarily driven by an overall reduction in diversification benefit 

aCross the Firm and in CIO and MSR 

10Q Externally Disclosed VaR 

The below table shows the 95% lOQ VaR for the current quarter compared with the prior quarter and the 

corresponding quarter of prior year. 

Please contact the MR1v1 External Reporting team with any questions. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0000149 
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From: 

Sent: 

To: 

Martin-Altajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Tue, 24 Jan 2012 10:44:33 GMT 

Weiland, Peter <peter.weiland@jpmchase.com> 

Wilmot, John <JOHN.WILMOT@jpmorgan.com>; Goldman, Irvin J 

<irvin.j.goldman@jpmchase.com> r-_-:=--R-cd-'-<l-cd-b-Y-tb-,-p-.rm-an-.-nt~''''' 

Subject: RE: Credit book Decision Table - Scenario clarification S ........ mitt ..... 1a'''tlplloN 

cc: 

------,----------------------------------------------------------

SUre. Let me know when it suits you I am available today in the afternoon. 

From: Weiland, Peter 

Sent: 23 January 2012 18:10 

To: Martin-Artajol Javier X 

Cc: Wl!mot, John; Go!dman, Irvin] 

Subject: RE: Credit book Decision Table - Scenario clarification 

Hi JavierJohn, !rv, and I spent some time reviewing your decision table this morning. Can we set up a time to discuss with you? And 

probably we should include Keith Stephan and Bruno? 

Thanks 

Pete 

Peter Weiland 1 J.P.Morgan j Chieffnvestment Oftk-e 1270 Park /\ve.! 'if Tel: +1212834 5549 I 'If Cell: +1 •••••• 

peter wei!and@jpmorgan com 

From: Martin~Artajo, Javier X 

Sent: Thursday, January 19, 2012. 9:02. AM 

To: Drew, Inai Wilmot, John 

Cc: Macris, Achilles 0; Weiland, Peter 

Subject: Credit book Decision Table Scenario clarification 

Ina, 

as a follow up from yesterdays conversation regarding the tranche book I would like to further clarify the different scenarios 

and assumptions for each of them _ 

The first scenario is the one discussed when you were in London an is a scenario that we reduce our book to the agreed 

target at year end 2012. of 20.5 Bin but the current model used by QR remains, This would need the path of reduction to be to 

reduce the RWA using a strategy that postions the book for maximum carry and would have high trading costs and a higher 

risk profile so that we could have also a large drawdown > 

The second scenario or Central Scenario discussed with you and John Wilmot is a scenario that we meet the year end target 

by opportunistically reducing the necessary legs and optimilation is used following the current QR mode! guidelines and 

assumes that we get a reduction on the cost of capital using the new VAR . 

The third scenario is posible if we get the new model but we do not get diversification and we would reconsider. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0000152 
1548 

The fourth scenario is our Target scenario and the one we are hoping to implement again by midyear. 

Let me know jf you want to further discuss. 

Best regards 

Javier 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0000153 
1549 

From: Drew, Ina <Ina.Drew@jpmorgan.com> 

Sent: Wed, 25 Jan 2012 21:36:46 GMT 

To: MRM Reporting <mnn.reporting@jpmchase.com>; Weiland, Peter 

<peter.weiland@jpmchase.com>;Macris ... Achilles 0 <achilles.o.macris@jpmorgan.com> 

Goldman, Irvin J <irvin.j.goldman@jpmchase.com>; Doyle, Robin A. 

<Robin.A.Doyle@chase.com>; MRM Firmwide Reporting 

cc: <MRM Finnwide Reporting@jpmorgan.com>; MRM CIO Europe 

<MRM=CIO_EurOpe@restricted.chase.com>; MRM CIO Asia 

<MRM_CIO_Asia@restricted.chase.com>; Intraspect - LlMITS <Intraspect_-

_LlMITS@restricted.chase.com> . 

Subject: RE: ACTIONNEEDED:CIO International-One-offLirnits Approval 

From: MRM Repolting 

Sent: Wednesday, January 25, 2012 4:25 PM 

To: Weiland, Peter; Drew, Ina; MaClis, Achilles 0 

Ce: Goldman, Irvin J; Doyle, Robin A.; MRM Reporting; MRM Firmwide Reporting; MRM 00 Europe; MRM 00 

Asia; Intraspect - UMITS 

Subject: ACTION NEEDED;OO Intemational-On ... off Umits Approval 

PeteJ1na/ Achilles, 

This email is to request for your approval to temporarily increase the foJlowing CIO International Limits 

until Jan!illY.1l>l 2012. 

Proposed One-Off 

LOB Limit Tvpe Current Limit Limit 

CIO - InU - International - Aggl'eg"le 

CIO -Total VaR $IOOmm SIIOmm 

CIO CIO - Int'l - 100 - Credit V AR $95mm $IIOmm 

CIO CIO - Int'J - Aggregate - Credit V AR $10Omm $110mm 

CIO - International - J OQ - Total 

CIO VAR $95mm $1l0mm 

CIO 95% VaR has become elevated as CIO balances credit protection and management of its Basel III 

RWA. In so doing,. CIO has increased its overall credit spread protection (the action taken thus far has 

further contributed to the positive stress benefit in the Credit Crisis (Large Flattening Sell-om for this 

portfolio which has increased from +$L4bn to +$J .6bn) while increasing VaR during the breach period. 

Action has been taken to reduce the VnR ilnd will continue. In addition, CIO has developed an 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0000157 
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improved VaR model for synthetic credit and has been working with MRG to gain approval, which is 

expected to be implemented by the end of January. 

The impact of the newVaR model based on Jan. 18 data will be a reduction of CIO VaR by 44% to 

$S7mm. 

If more information is required, please let us know and we will arrange to provide further details. 

Upon receipt of your approval, the above proposed limits will be effective immediately. 

If you approve of the above limit changes, please reply to all with your approval. Thank you. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000158 
1551 

From: 

Sent: 

To: 

Drew, Ina <Ina.Drew@jpmorgan.com> 

Thu, 08 Mar 201219:16:27 GMT 

Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

cc: 

Macris, Achilles 0 <achilles.o.macriS@jpmorgan.com>; Wilmot, John 

<JOHN.WILMOT@jpmorgan.com>; Goldman, Irvin J <irvinj.goldman@ipmchase.com>; 

Weiland, Peter <peter.weiland@jpmchase.com> 

Subject: Re: CIO CRM results 

Ok, Glad to see a formal process started, Update us as things develop. Thanks. 

From: Martin~Artajo, Javier X 

To: Drew, Ina 

Cc: Macris, Achilles 0; Wijrnot, John; Goldman, Irvin J; Welland, Peter 

Sent: Thu Mar 08 13:19:02 2012 

Subject: RE: 00 CRM resulls 

they agree with us that we need to change both model and inputs as discussed in our SAA session but we have 

topnoritize. 

So, this means that we wi!! have closer numbers to the average CRM of the last three months so we will be 

somewhere below the aggreed number of 36 Bin for overall RWA (they will publish this tonight to us to have a 

sense of the improvement) but not lower than 30 Billion untfl we agree on how the model shouk:f look to modei 

the actual CIO risk since it is significantly diffentfrom the IS • We are not going to do yet with the CRM RWA yet 

what we have done with the VAR that is to challenge the current methodology and have the model changed. It 

would not be done by the end of the quarter for sure. 

regards 

From: Drew t Ina 

Sent: OB Mardl 2012 1B:01 

To: Martin-Artajo, Javier X 

Ce: Macris, Achilles 0; Wilmot Joon; Goldman, Irvin J; Weiland, Peter Subject: Re: 00 CRM resulls 

Wlat does it mean accept numbers for this month. Vv'hat is the rwa result 

From: Martin-Artajo, Javier X 

To: Drew, Ina; Hogan, John J.; Venkatakrishnan, CS 

Ce: Macris, Achilles 0; Weiland, Peter; Goldman, Irvin J; Bacon, Ashley 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000373 
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Sent: Thu Mar 08 12:53:01 2012 

Subject: 00 CRM results 

Ina. 

I just had a meeting with Venkat to agree on the next steps to reconcile our differences regarding the CRM RWA 

In the following way: 

1. We are going to accept current CRM model and its parameters this month and therefore for Q1 and will 

work first on how does this model behave as It is • 

2. In order·to calculate current CRM for all the correlation tram:hes risk and hedges that we have we are going to 

run our CIO portfolio with Venkat's team next week on a daily basis to make sure that we have a more 

systematic analysis behaviour of the model for our own portfolio and compare the results with the previous 

result. 

So we will appoint Ani! Bangia and Pat Hagan to work together on the Quantitative side and on the business 

sid e Bruno Iksil will coordinate on our side with • 

We will compare results at the end of next week and will share the new results . 

regards 

From: Drew, Ina 

Sent: 08 Ma«h 2012 00:33 

To: Venkatakrishnan, CS; Hogan, John J.; Bacon, Ashley; Goldman, Irvin Ji Weiland, Peter 

Cc: Maois, Al:hHles 0; Martin¥Artajo, Javier X 

Subject: Re: 00 CRM results 

I wll! discuss with Javier and Achilles tomorrow to reconcile. Thank you for prioritizing. From what I understand 

there is a difference In view on the undertying model ~ position increase aside. 

From: Venkatakrishnan, CS 

To; Drew, Ina; Hogan, John J.; Baron, Ashfey; Goldmanl Irvin Ji Weiland, Peter 

Sent: WerJ Mar 0719:12:252012 

Subject: Fw: CIO CRM results 

Ina, 

There are two related issues. The first is the $3bn increase in CRM RWA between Jan and Feb, from $3.1bn to 

$6.3bn. The Second is that your group believes that the absolute level of CRM RWA we calculate was high to 

begin with in Jan. The second question requires us to explain our models to the satisfaction of your team. I am in 

London and spoke with Javier today and we will make this an urgent matter. 

Based on our models, though, we believe that the $3bn increase in RWA is entirely explained by a $33bn 

notional increase in short protection {long risk} in your portfolio between Jan and Feb, See table below. 

Confidential Treabnent Requested by J.P. Morgan & Co. JPM-CIO-PSI0000374 
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- - Redacted by dac Permanent 

SubcommiHee on hrvestiaaliom 

Peter Weiland and your mid-office c:;:onfirm this $33bn national increase in long index risk. Further we both agree 

that this position change results i,n a change of about $150mm (a decrea ... e) in 10%CSW. Per our models, a 

roughly 10% capita! charge f$3bn) on this $33bn inQ'ease in risk is reasonable. 

Also, to bE dear, there has been no model change on our end; the change in RWA fortranmeshas hardly' 

changed over the month. . 

I understand that we need to build your confidence in our models themselves but, given our models, we believe 

th"e Increase in RWA is well explained by the build up In your rtsk positions. 

I will call you tomorrow from London to follow up~ but you can reach me at ••••• 

Thanks, 

Venkat 

From: Bangia, Ani! K 

Sent: Wednesday, March 07, 2012 06:35 PM 

To: Venkatakrishnan, CS 

Subject: CIa CRM results 

Standalone CRM 

($MM) 

Jan 1tVr Feb22nd 

AHCIOPos!l.ions 

Inc\exCDS:AJJ.PosiI.jon:; 

IndeJj CDS: Common Positions 

Ifli:le;l: CDS: RoDoff Positions-" 

IndeX CDS: He,. Position.!!-

Index Trnnehe:All P(l-slIiOl'ls 

In~e:t Tranroe~ Common PosJIiol1s 

tnOex Tranche: Rolloff PosiOOns' 

IIlCka Trllnche: New Positlons 

3,154 

2.043 

65\ 

4,G37 

2,814 

1,"" 

1,484 

6,301 

6.22< 

646 

9.$19 

2,S-16 

2,174 

1.416 

Net NotionaJ($MM) 

J8t1 1Bth Feb 22nd POSifJ<JD 

S5,091 

____ "'ea"-','C!!"c. 33,527 

·locl~s 421 Dummy peM TI2ides thaI .... ere remlWed Irtm PCM fef!d {4 CDSllZT lndn CDSI1E~O Tranches} 

Confidential Treatment Requested by J.P. Morgan & Co. 

Pos.JtlonCoun.t 

Ja6l 1Bth Feb 2211' 

25,291 269'.< 

16,833 19,1€ 

15817 

1,016 

6,"", 

7,334 

t.111 

\581 

"" "J,7e 

7,~ 

JPM-CIO-PSI0000375 
1554 

.............. Redacted by the Permanent 

Subcommittee on JlIVe!I~.tiODS 

From: SUltani, Lavine <Lavine.SUrtani@jpmchase.com> 

Sent: Fri, 09 Mar 201221:51:16 GMT 

To: Hogan, John J. <JohnJ.Hogan@jpmorgan.com> 

cc: MRM External Reporting <MRM_Extemal]eporting@jpmchase.com>; Bacon, Ashley 

<Ashley.Bacon@jpmorgan.com>; Doyle, Robin A. <Robin.A.Doyle@chase.com> 

,Subject: RE: Firmwide VaR overlimit 

Understood John. 

Regards, 

la'oline 

lavineSurtani 1 Corporate Market RIsk Reporting! T: 212;270-1369 (midtown); 212-623-5&35 (dO\t.rntawn) ! M:_ 

!me Sl1rtanj@jorochSl'5erom 

From: Hogan, John J. . 

Sent: Frlday, Marth 09, 2012 4:46 PM 

To: Surtanl, Lavine; Bacon, Ashleyi Doyle, Robin A.; GREEN, IAN; Waring, Mid<;: Weilandt Peter 

cc: MRM External Reporting 

Subject: RE: firmwkie VaR overIimlt 

Thanks-I think the memo should come from Ashley and be addressed to Jamie and me with an explanation of why It makes 

sense to increase. Thx, John 

From: Surtani, Lavine 

Sent: Friday, Marm 09, 20124:43 PM 

To: Bacon, Ashley; Doyle, Robin A.; Hogan, John J.; GREEN, IAN; Waring, Mick; Weiland, Peter 

Cc: MRM External Reporting 

Subject: HE: Rrmwide VaR overIlmit 

All, 

We will get the approvals ready for distribution on Monday unless notified otherwise. 

Regards, 

Lavine 

Lavine Surtanll Corporate Market Risk Reporting I T: 212~270-1369 (midtown}; 212~623-6835 (downtown) ! M: •••• L tavine 5t1rtani@ipmrbasernm 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000378 
1555 

Sent: Friday, March 09, 2012 2:01 PM . To: ()Jyle, Robin A.; Hogan, John J.; GREEN, IAN; Waring, Midt; Weiland, Peter Cc SUrtani, Lavine SUbject, Re: Armwlde VoR OIIenlmit 

As discussed, I think that's reasonabler and would not be surprised jf we get there (or indeed go back to 110). I think seeing It 

moving Over these ranges Is not a cause for concern, but we will continue to look into the diversification swings as they 

happen. Thanks 

From: Doyle, Robin A. Sent: Friday, March 09, 2()12 06:29 PM 

To: Bacon, Ashley; Hogan, John J.; GREEN, IAN; Waring, Mlck; Weiland, Peter Cc:: Surtani, La\llne 

SUbject: Annwide VaR overlimTt 

All, 

Spoke with John ... he'd like to raise the limit incrementally .. ,So we are thinking about $150 to start. Can we work with this? If 

yes, Lavine and team will get a memo drafted for approvals. 

let me know. 

Robin 

From: Bacon, Ashley 

Sent: Thursday, March 08, 2012 1:41 PM To: Hogan, John J.; GREEN, IAN; Waring, Mick; Weiland, Peter CC Doyle, Robin A. 

SUbject: Rnnwide VaR overfimit 

Johnj calibrating a new VaR limit for the Finn requires us to take a view on the % of their limit each LOB consumes. 

and how diversified the aggregate portfolio is in the VaR look-back period. Ian created the table below covering this 

space. 

Firmwide diversification has fillIen to llI"Ound 20 % partly on acoount ofelO buying some risk back in the MTM book 

and the IB getting longer of equity delta with less gamma. As always it is hard to pin down diversification changes 

with a full Qnd intuitive explanation. 

Recent average finnwide diversification has been more like 30%, Also CIO is contemplating a possible reduction in 

VaR limit to $7Omil (factored in here, but not yet agreed). I would suggest we set a limit to accommodate 

diversification staying where it is with a 20 point increase in average utilization M so $175mil. 

Ian, Miele,. Pete, please jump in if you disagree. 

Ashley 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-C10-PSI 0000379 
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85 181 174 170 159 128 106 96 

80 170 164 160 150 110 100 90 

75 159 154 150 141 113 94 84 

70 149 144 140 131 105 88 79 

'5 138 .. 130 122 114 98 81 73 

60 128 123 120 113 105 90 75 68 

55 111 113 110 103 96 83 69 62 

53 113 109 106 99 93 80 66 60 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO·PSI 0000380 
1557 

From: Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Sent: Thu, 15 Mar 2012 18:45:25 GMT 

To: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Subject: Update on core 

The divergence increases between crude mid prices and our estimate. Julien will send a small spreasheet 

recording the bread own of the divergence per blocks. 

The ig9 10yrs lags another bp today. The hy market struggles to keep the rally pace with the sp500. 

Rescap curve is now flat at 65pts upfront. The equity tranches are fully impacted now. Yet the hy indices 

keep performing well. 

Since month end, despite rescap event and greece, xover In itraxx and hy in cdx have maintained their 

ratio versus ig rally. That is 4bps tighter for ig17, 5 bps for main s16, 21 bps for xover and 20-25 bps for hy 

( if one adds the loss in rescap that is prices as certain now ie 75cts in price). In that regard, we keep the 

ig9 10 as performing like the market beta adjusted. 

The whole ig9 curve should have outperformed actually if we look at the performance of radian and mbia or 

sfi. This is reflected in the ig9 5yr that has tightened 10bps, but not in ig9 lOyr that has tightened less than 

1 bps by the quotes we receive. What is really puzzling here is that the skew quotes have not changed! The 

cds outperformance and index underperformance should have tightened the skew. 

We look at what we could do the reduce the difference while not growing the positions especially in ig9. 

The solutions are very limited: some main s9 trades could help, some hy trades too but the principal lag is 

where we do not want to add. 

What I do right now is buying 0-3 7yr and 10yr in order to smooth the extinction of the book. This will be 

may be the solution: let the book run off. So I prepare it for this outcome. So far I did not show up in the 

index market. Just testing waters. I may not find size but the trading cost is high, not only the bid ask but 

the almost infinite ability of the dealers to twist their runs. 

Best regards 

Bruno 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000386 
1558 

From: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Sent: Fri, 16 Mar 2012 11:59:31 GMT 

To: Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Subject: RE: trade ideas on core 

Sorry Bruno aboutthe prevIous call, CaHing you now < 

From: IksHt Bruno M 

Sent: 16 March 2012 06:42 

To: Martin-Artajo, Javier X 

Cc: Grout, Julien Gi Hagan, Patrick S 

Subject: trade Ideas on core 

! thought this night that we should consider putting some skew trades on both in ig9 lOyr and itraxx mains910yr: 

we could lock 60cts ov~r good size I think, 

This would maintain the upside on default, improve the carry and basic<llly offset the 10s5 we have now. 

As I mentlonned yesterday, despite the rally in Radian, MBIA and SFl, despite the lag 1n the IG910yr index, the skew has 

barely changed. 

It shows to me a puzzling obstination on dealer side to keep it IJke that. Because this cannot be the result of a HF holding the 

market on its own alone. 

This trade is not perfect of course but ifthe book goes in run-off mode as far as tranches are concerned, that is an interesting 

option. This money is obtained from a downgrade in the liquidity of the portfolio. Yeti it looks a much better option than 

:oJlapsing or unwinding the. trades with the street or any dealer or counterparty in block trades. 

The trades could be booked on a standalone basis from one cash quote, so this would be easy to mark ( with an increased 

issue here I agree). 

The liquidity injection we would operate might also be favorable for us to reduce some tranche linesl especiaUy the 0-310yr 

in that regard. 

As a summary: 

Negatives 

- added dependency on dealers quotes 

- downgraded profile if the book remains a tall risk book in credit derivat!ves 

- slight overload in operations due to the single name booking 

- we may have to increase RWA in the process first hand 

positives 

- we lock a PNL in form of carry forward that offsets the current unrealized loss 

- does not alter the tail profile in terms of defaults upside 

- likely helps us reduce some remaining large positions once we have traded sizes on skew 

- once booked, very simply to mark and maintain, 

allows us to pay the trading costs to set the book for run off mode 

The rea! choice to make is whether the book should be on run-off mode, ie we lightly manage it with a long risk bias: we 

would allow for P&L swings and we would just prepare for default risk looking forward, To be sure, this is the case already but 

~he book is not in run off mode. If the book steps in run-off, the skew trade would make sense because we would not plan to 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000387 
1559 

unwind agressive!y as we did last year, 

Let me know 

Bruno 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000388 
1560 

From: Macris. Achilles 0 <achilles.o.rriacris@jpmotgRD.com> 

Sent! Fli,23Mar20}210:43:S2GMT 

To: Drew~ Ina <InaDrew@jpmorgan.conl> 

Subject: This is not QOOJlDal R • 

FYI·~ 

H's realty strange what is going on.here_ ...... 

Javier and team here feel "surrounded" and blindslded in fenns of methodology etc. I think Ihat we will need 10 intervene and somehow mediate this issue with the 18 and insure- the 

unbiased role of Ashley and Risk management 

Let's please decide and coordinate on our exad course of adion, as this issue is really taking a 

worrisome diredion thai couk:! be erTIbarrassing 10 the firm. 

Clearly, the. IB knows our posl1ions as well as the "checkmate" in terms of capital irealmsnL 

They will certainly lilte to seUle with C!O and close their shori posili,ol1 in IG. 

"1 he. posifive for ClO is that we are long IG when the market is moving tighter and tighter. We 

ha.ve the "right" position on this. Therefore, if we could afford the RWA.lime and gravity wi!! be 

working in our favour. The negative for cia remains the capita! utilization and the unp-redic::tabilify of the capiiat 

utilization, 

The problem with "setHlng" INith the 18 and help closing their shorts, is !.hat Clo will be 

subslantially shori1he market, post seltlernerd. This is not where we I would like us to be in the 

middle of this strong market. 

More in oor meeting 6n 1his. 

Best, 

Achilles 

From; Iksn. Bnmo M 

Sent: 23 Mardi 2Dl2, 09:J7 

To: Martin-Artajo,JavierX 

Subject! Me win try to contact you on your mobile 

He has been approached by IB guyS who wanted 10 know in Ule detail, our position on 1G9. 

they were very specific. He will call you to gl...e more colour. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0000415 
1561 

From: Drew, Ina <lnaDrew@jpmorgan.com> 

Sent: Thu, 05 Ap' 2012 22:08:57 GMT 

To: Dimon, Jamie <jamie.dimon@ipmcnase.com> 

Subjed: Re: CIO 

lryou are referring to the wind down in the ib credit exotics book, it is separate. Achilles and I targeted the CIQ 

tranche and derivative activity as a reduction item (I specified in last bus review) due to the high rwa it draws under 

basle III. We have also had issues with QR that have made the rwa outcome less predictable. However we are working 

with Ashley and Venkat to see IF both the ib and cia positions could be moved out mto the winters fund. 

I have been assessing the trade off between p 1 and TWa for the second quarter. I can go over all the technicals with you 

at any time. J wanted to this week but understood you were on vacation. 

--- Original Message ----

From: Dimon, Jamie 

Sent: Thur;day, April 05, 2012 06:00 PM 

To: Drew, Ina 

SUbject: Re: CIO 

Ok. Send me some info. Also how does it relat orn01 to our wind down credit exotics book? 

--Original Message -----

From: Drew, Ina 

Sent: Thur;day, April 05, 201205:58 PM 

To: Dimon, Jamie; Zubrow, Barry L; Staley, Jcs~ Cutler, Stephen M; Maclin. Todd; Braunstein, Douglas; Erdoes, Mary· 

E; Smith, Gordon; PelOo, Douglas B.; Bisignano, Frank 1; Hogan, John J; Cavanagh, Mike 

Subject: CIO 

I want to update the ope.ro1ing committee on wnat is going on wi1h the credit derivatives book in CIO especially given 

a wsj article which will come out tomorrow. 

One of the activities in cio is a credit derivatives book which was built under Achilles in London at the time of the 

merger. The book has been ex.tremely profitable for the company (circa 2.5 billion) over the last several years. Going 

into the crisis, we used the instrumentation to hedge mortgage risk and credit widening. Recently, in December, the 

book putperformed as it was positionned in for "jump" risk or default risk throughout the summer as a relatively 

inexpensive hedge for fallout from weak markets during the european crisis. The fourth quarter 400 million gain was 

the result of the unexpected american airlines default 

Post December llS the macro scenario was upgraded and our investment activities ttuned pro risk, the book was moved 

into a 10ngpositioR The specific derivative index that was utili;red has not perfonned for a number of reasons. In 

addition the position was not sized or managed vel)' well Hedge funds that have the other side are actively and 

nggressively battling and are using the situation as a forum to attack us on the basjs of violating the Volcker rule 

Having said thllt, we made mistakes here which J run in the process of working through. The drawdown thus far has 

been 500 mil dollars but ne~ to 350 mil since there are other non derivative positions in the same credit book. The 

earnings of the company were not affected in the first quarter since we realjzed gains out of1he 8.5 billion of value 

built up in the securities book. 

John Hogan and his team have been very helpfuL I wanted my partners to be aware of the Sit\l3tioo and I wjl1 answer 

any specific questions at oc monday. 

Have a good holiday, 

Confidential Treatment Requested by J.P, Morgan & Co, JPM-CIO-PSI 0000546 
1562 

From: Iksil, Bruno M <bruno.m.iksiJ@jpmchase.com> 

Sent: Sat, 07 Apr 2012 15:42:11 GMT 

To: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Subject: Re: IMPORTANT 

Totally agreed. Fundamentally they resist this because the whole business mode! in credit derivs becomes obsolete. Now you 

know that jpmorgan was the historical sponsor of this: self regulation, private markets, bilateral contract pure commercial 

rights. If they admit that the index is the reference, then it could and should be traded on an exchange, and the super-senior 

should trade like a bond. Then the banks lose 70pet of their pricing power through the whole credit world. 

From: Martin-Artajo, Javier X 

Sent: Saturday, April 07, 2012 03:23 PM 

To: 1ksll, Bruno M 

Subject: Re: IMPORTANT 

This is really the problem that the hedgefunds have. They can not get out and they are blaming the indexes. J think that 

somebody needs to do some work on this in terms of liquidity because the volumes there as dismal and if it really gets out 

there that only the indexes trade then the whole idea of fair value Ui5 gone. This wi!! tie up with my complain to QR about a 

bottoms up model that is not tradable. Only the indexes. 

J..iritme know jf you agree ... 

From: Iksil, Bruno M 

Sent: Saturday, April 07, 2012 02:58 PM 

To: Martin-Artajo, Javier X 

Subject: Re: IMPORTANT 

The skew has always remained elevated since 2008 on ig9 and 59. The on the run skew is generally biased but comes back to 

~.ero when the index gaps out. October and the crisis in europe has increased the counterparty risk and many european banks 

t\A~;~sfb, db, bnp, sg, bardays, ubs, rbs and smaller players like natixis or calyon exited the skew market. 

Martin-Artajo, Javier X 

Sent: Saturday, April 07, 2012 02:36 PM 

To: Iksil, Bruno M 

Subject: Re: IMPORTANT 

AI.so. let's discuss about the single names. I think that this is all about these guys unable to get singkle names since October 

la.st year probably. 

From: Iksil, Bruno M 

Sent: Saturday, April 07, 2012 02:23 PM 

To: Martin-Artajo, Javier X 

Subject: Re: IMPORTANT 

Yes I was working on it this morning. I wi!1 send you a first batch. Of max downside cases. They all range from -350 to - 750. 2 

stress provide a large upside beyond 1 bin. ProbabHityweighted that comes down to -100m. Yet some scenarios can likely 

make a loss of 300m. It is just that they are uiinJikely in my view. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000571 
1563 

From: Martin~Artajof Javier X 

Sent: Saturday, April 07, 2012 02:18 PM 

To: Iksil, Bruno M 

Subject: IMPORTANT 

'Bruno, 

__ ... Redacted by the Permanent 

SutK:ommittee on Innstigations 

Please confirm that you have seen this email. ! will have a call with Ina and Achilles tomorrow Sunday to brief her on the 

downside risks for Q2 . 

I need you to work on the scenarios that we discussed and be available tomorrow morning to send them to me and discuss.! 

am available from 8am to 10 am or from 12 to 2 PM. All london time. 

Please send me the spreadsheet as soon as you have it either today or early tomorrow morning. 

B~.st regards 

Javier 

f~m: Drew I Ina 

Sent: Friday, April 06, 2012 09:22 PM 

To,: macds@ 

Cc: Martin-Artajo, Javier X 

Subject: Re: Credit 

Ok. Thanks. Maybe we should review what you have sunday. Let me know 

From: macrls@l.III11~" Sent: Friday, April 06, 2012 04:04 PM 

To: Drew, Ina 

Cc: Martin-Artajo, Javier X 

Subject: Re: Credit 

Hi Ina, 

We spoke with Javier at length following our conversation. We will be prepared for the call on Monday .. 

Javier is convinced that our overall economic risk is limited. There is no default event to amplify our losses as the 

same critical names are part of our short in HY and our long in IG. 

Any further draw-down, will be the result of further distortions and marks between the series where we are holding 

large exposures. This clearly needs to be estimated with much more precision. 

I also have no doubt that both time and events are healing our position. I am however unsure on the potential 

magnitude of an "one touch" draw-down for Q2 which is highly dependant on marks. 

Both Javier and Bruno continue to be extremely concerned about the confidentiality around our specific large 

exposures. The press seems to be referring to CIO position size which is different to the overall JPM size on the same 

instruments. Additionally, there were some specific HF's calling our team and trying to get information from both 

front-office and infrastructure personnel (!). 

As you know, I am not regularly giving much credence to such rhetoric. I have nevertheless asked for a surrunary of 

the specifics for your information. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0000572 
1564 

Best, 

Achilles 

From: "Drew, Ina" <lna.Drew@jpmorgan.com> 

__ '* Redacted by the Permanent 

Subcommittee on Investigations 

To: "Macris, Achilles 0" <achil!es.o.macris@ipmorgan.com>; "macris@ •••••••••••••• 

Sent: Friday, 6 April 2012, 17:13 

Subject: Credit 

Jamie and Doug want a full diagnostic monday, I will need it sunday night. More focused on p I than rwa at moment 

as I indicated, I'm not comfortable with the level of analysis so far, I tried to reach you by phone and text. 

This email is confidential and subject to important disclaimers and 

conditions including on offers for the purchase or sale of 

securities, accuracy and completeness of information. viruses, 

confidentiality, legal privilege, and legal entity disclaimers, 

availab1e at http·IIv.rv.'W jpmorgan.com/pages/disclosures/email. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI 0000573 
1565 

From: Braunstcin, Douglas :-nouglas.Braunstein@jpmorgan.com> 

Sent: Mon,09Apr201220:54:51 GMT 

To: Dimon, Jamie <jamie,dimon@jpmchase.com> 

Subject: Follow up 

1. Have dear statement for Joe 

2 Have asked Ina iJnd Wilmot for dear analysis of the positions-maturities, b<llances, spreads (current) 

and normalized 

3. Joe Is proyiding feedbilck to WSJ and Bloomberg 

4. Hild follow up c:aU with Keith Horowitzat Qti; Ben Hel"se. Sarah will "ilve some specific questions We 

should ultimately address on the call 

5. Think we ilre ok for nQw but wi!llet you know if we need you to follow up with ,myane 

Douglas l" Braunstein I Chief Financial Officer I JPMorgan Chase & Co. 

270 Park. Avenue I New York~ NY 10017 ! Tel. 212~622~1020 ! ieFax; 911~464~7S7B 

e-llIail: douglas. braunstein@jplllorgan.com 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000944 
1566 

-----------.., 

__ "" Redacted by the Permanent 

SulH:omrnittee on ktvntiga~ 

From: 

Sent; 

To: 

Wilmo~ John <JOHN.WJJMOT@jprnorgan.com> 

Moo, 09 Apr201221:S2:47 GMT 

Bl1l.unstein. Douglas <Douglas.Braunstein@jprnorgan.com>; Dimon, Jamie 

<jarnie.dimon@jpmchase.com> 

Subject: FW: Series 9 tranche liquidity reserves 

Below is detail r~lative to the liquidity reSl:'fVe taken on the Series 9 credit tranche positions. 1 will forward the related 

notional exposures tomorrow morning as they are not included below and london is closed. John 

John C. Wilmot 1 Chi~ !nvertment Office I @jQhn,wilmotliljpmorjan.com ! iifWork: (11Zj834-5-4:5Z 1 tit Cell: •••• 

6 CREDITTRANCH£ POSmONS IMPACTED 

3 Maturities of ITRAXX Series 9 (5yr, 7yr, lOyr Maturity) 

3 Maturities of COX Investment Grade (Syr, 7yr, 10yr Maturity) 

CREDITTRANCHES LIQUIDITY RESERVE DETAILS 

Total Increase of approximately +$155Million 

RATIONAL~fOR ,ADDITIONAL TRANCHE UQUtDITY RESERVES 

As part of CIO's recurring liquidity review, Credit Index markets (post Series Bl are d~med liquid and are e)(duded from 

CIO's Liquidity Reserve computation. liquidity reserves are taken for tile Series. 6, 7, and 8- Credit Index and Tranches, 

Credit Tranche markets have always been comidered less liquid {compared tD Index markets) and Liquidity reserves are 

therefore computed and t<!ken. However. in the past, the liquidity Reserve associated with thes.e 6 Series~9 Tranche 

positions was not rnken because their markets were deemed sufficiently liquid. The additio'nsl +SlS5Million Liquidity 

Reserve was taken due to the indusion of these 6 Series-9 tranche positions; this reflects the market's reduced liqUidity. 

CAlCULATON METHODOLOGY (DEFINED SElOW) 

liquidity Reserve '" [CS01} X Square Root {Holding Period] X [Spread Volatility} 

IA] CSOl (Credit Spread sensitivity to a lbps change in market spreads relative to Position Size) 

[8) Holding Period (JPM !B suggested maximum 120days used by Cia) 

[C] Spread Volatility (provided by JPM IB VCG; varies by position in capital structure; highestvolatmty for EquitV 

tranches; lowest vo!atl1ity for Super Senior trenches) 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000960 
1567 

From: Hogan, John 1. <JohnJ.Hogan@ipmorgan.com> 

Sent: The, lD Apr 2012 18:59:03 GMT 

__ ::I Redaded by the Permanent 

Subtommittee on Investigations 

To: 

cc: 

Wilmot, John <JOffi'l.\VTI..MOT@jprnorgan.com>;Dlmon, Jamie <jamie.dimon@jpmchase.cam>; 

Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com>; Drew> Ina <InanreW@jpmorgan.com> 

Goldman. Irvin J <irvin,j.goldman@jpmchase,com>;Zubrow, Barry L 

<barry.1.Zllbrow@jpmchase.com> 

S~bject: RE: Materials for FED/OCC Questions 

For tomorrows call, we should have a disC1Jsslon of what we believe the correlation is betlN€en the net $101 bio {and 

$55 bio In tranches.} in long positions vs what we are hedging. Also would like to see a maturity wa~erfu" of the longs 

and shorts. Thanks, John 

From: Wilmot,. John 

Sent; TuesdaYr P.pril la, 2012 1:40 PM 

To: Dimon/.Jamie; BlCluns1:ein, Douglas; Hogan, John j,; Drew, Ina 

Cc: Goldman, IrvIn J 

Subject! FW: Materials for FED/Oce Questions 

Attached below is the data I sent to Joe Sabatini for delivery to the Fed and OCC to answer their two requests from 

yesterday afternoon's call: 

1. Notiona.llongand short risk positions at:ross the credit derivatives book 

2. How does this activity relate to the broader CIa activity 

John 

John C. Wilmot I (hieflrwt".tmentDffia. I @j9tm,wlJmotl!.'jpmorg~ I ~Work: (112) ~3..,.5452.1Iifcell:1I ••• 1 

From: Wilmot. John 

Sent: Tuesday, Apnll0f 2012 1:36 PM 

To: Sabatini, Joseph 

Cc: Goldman. IrvIn J 

SUbject: Materials far FED/OCe Questions 

Joe - here is the information for the Fed and OCC from our can yesterday ClfternlJon. let me know if there are any 

further questlon!>. Thanks. John 

The table below shows major (and total) long and short risk positions in indices· and totals for long and short risk in 

tranches. 

Confidential Treabnent Requested By 

JPMORGAN CHASE & CO. 

Confidential Treatment Requested by J.P. Morgan & Co. 

JPM·CIO 0001050 

JPM-CIO-PSI0001021 
1568 

The note below describes thIs (:redit derivatives activity relative 1-0 the overall CIO activity. 

__ = Redacted by the Permanent 

Subeommittee on Investigations 

The Chief Inllestment Office has utili1:ed the "synthetic credit portfolio," which is a portio-lie of credit derhri3tives, to 

construct a hedge again:s.t other risks on JPMC's bal<lnce sheet. This activity has been part of the CIO portfolio 

construction and risk management since 2007. The related credit derivative instruments offer an efficient means to 

establish protection Bgainst adverse credit scenarios and "stress events". 

This activity is among the key tools utilized by CIG to manage and hedge stress los$ risks. The synthetic credit portfolio 

has benefited the Firm, especially in times of credit market dislocation, sudden spread Widening and if') tn.e occurrence Df 

defaults, which is typically.a catalyst for credit spread widening scenarios. 

In Q3 and Q4'11, Cl0 began to reduce the net stress loss risk profile of the hedges,. as more positive mac.roeconomic 

data in the US and an improving situation In Europe post LTRO merited a reduction to the stress I05S prot~ction o1the 

"synthetic credit portfolio." The book, as a dedicated hedge, continues to be shQrt HY and to provide default 

protection. 

COnfidential Treabnent Requested By 

JPMORGAN CHASE 8. CO. 

Confidential Treabnent Requested by J.P. Morgan & Co. 

JPM-C!O 0001051 

JPM-CIO-PSI 0001022 
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From: Youngwood, Sarah M <sarah.m.youngwood@jpmorgan.com> 

Sent: Tue, 10 Apt201219:10:13 GMT 

To: 

cc: 

Dimon, Jamie <jamie.dimon@jpmchase.com>; Braunstein, Douglas 

<Douglas.Braunstein@jpmorgan.com>; Staley, Jes <jes.staJey@jpmorgan.com>; Drew~ Ina 

<Ina.Drew@jpmorgan.com>;EvangeJisti, Joseph <joseph,evangelisti@jpmchase.com> 

M1Jer) Judith B. <Judith.B.MilJer@jpmorgao.com>; Investor Relations 

<Investor_Relations@restrictcd.chasc.com> 

Subjecr: CIO articles - Calls (7) 

4 more conversations on CIO articles - Betsy Graseck (MS - se!lslde), Kevin Mixon (junIor of Glenn Schorr, Nomuraseltside), Steve Chubak. Gunior of Guy Mos.z:k.owski, BoA - seHside) <lOO Am.r Venkataram<ln AB (buyside). All of them 

understand our CIO activities. JoeJs: s.tatemenb very helpful to the conversations:. I will send a full update later. 

Sarah 

SarahYoun~ood I Managing Director I Head oflnvestcr Relations I JPMorgan Chase Co.! 

270 Park Avenue, New York, NY 10017 ! T: 212 622 6153 I F: 112 270 15481 

Confidential Treatment Requested By 

JPMORGAN CHASE & CO. 

Confidential Treabnent Requested by J.P. Morgan & Co. 

JPM..clO 0001053 

JPM-CIO-PSI0001024 
1571 

Fr1Jm: 

Sent: 

To: 

cc: 

Evange!isti. Joseph <joseph.evangelisti@jpmchase.com> 

Tue, 10 Apr2012 22:22:17 GMT 

Operating Committee <Operating_ Committee@jpmchase.com> 

Youngwood, Sarah M <sarah.m,youngwood@jpinorgan.com>;Horan,Anthony 

<ANTHONYHORAN@chase.com>; Miller, Judith B. <Judith.B.Miller@jpmorgan.com>; Press 

Team 2012 <press_team_2012@restricted.chase.com>; Wilmot, John 

<JOHN.WILMOT@jpmorgan.com>;Radin, Neila <NEILARADIN@chase.com>; Sche" Peter L 

<peter.l.scher@jpmchase.com>; Saracho, Emilio R <emilio.saracho@jpmorgan.com> 

Subject: WSJ tomorrow 

The Wall Street Journal is running a follow~up story tomorrow related to our Cl0 hedging activities. Their lead is going to 

be along the Hnes of "The london Whale, who m<lde waves in January and February, has dived beneath the surface and 

has now gone silent (stopped trading):' They!! also say that hedge funds are in a complex chess match with our firm 

and wCliting for our next move. The story does not seem focused on regulatory issues. 

We provided additional background and on-the"record statements tod.<lY expl.<lining the hedging activities of our C!O and 

putting these activities in the context of our overall asset and !lability management. We .<lIsa said that we now feel that 

our risks art' effectively balanced_ Joe 

Confidential l'reatment Requested By 

jJ:'MORGAN CHASE & CO. 

Confidential Treatment Requested by J.P, Morgan & Co, 

JI'M-CIO 0001113 

JPM-CIO-PSI0001066 
1572 

From; 

Sent: 

To: 

cc: 

Youngwood, Sarah M <sarah.ID,youngwood@jprnorgan.com> 

Wed, 11 Apr201218:56:20 GMT 

Dimon. Jamie <jamie.dimon@jpmchase.com>;Braunstein,Douglas 

<Douglas.Braunstein@jpmorgan.com>; Staley. Jes ejes.staley@jpmorgancom>;Drew,Ina 

<Ina.Drew@jpmorgan.com>;Evangelisti, Joseph <joseph,evangelisti@jpmchase.com> 

Miller. Judith B. <Judith.B.Miller@jpmorgan com>; Investor Relations 

<lnvestor _ Relations@restricted.chBse.com> 

Subject: CIa articles· Calls (9) 

Two calls today. 

Kush Goel- Neuberger (Buyside) 

I've see the articles about CIO. Are you commenting? 

o We have some public statements in the press. We I;an also point you to our puh!k disclosure in the 10K as 

weI! (Note 12l 

What is CIO?!s it really 400 people? Are they based in london? 

o We don't disclose C10 separately 

a CIO is an appropriate size to hedge our structural risk and manage excess liquidity investments 

o London and New York 

Who runs CIO - Who do they report to? 

o Ina Drew; reports to JD 

I've heard they have hired prop traders? Why? 

o We can't comment on specific peopfe. We try to hire the. best people to run this very important function. 

2.BT balance sheet 

Does this run afoul ofVolcker? 

a 00 hedges the structural risk of the firm and prudently invests the Firm's excess liquidity - we don't 

believe Vokker is intended to limit these activities. 

What was the specific credit position discussed in the ankle; where are these derivatives disclosed? 

o AU our trading assets are disclosed in the fin:ancial statements -18 and CIO combined 

o CIO VaR is disclosed in thE:! Market Risk section of the 10K with a brief description of the activities 

o Referred to Joe's quotes 

• "Trades are part of the firm's hedging strategy" 

• JPMorgan holds a ponfolio of IG debt and uses "credit-related instruments" such as derivatives to 

protect against a decline in the value of the holdings 

• "We are balanced" 

Will Doug and Jamie address this on the call? 

o Don't know. This IS a core function of the bank. 1 am sure they wi!! address in Q&A if asked. 

Peter Handy-Sanford Bernstein {SellsJde; works. with John McDonald) 

I am trying to add gr<lnuJilrity to my modeling of Principal Transactions. Can you help me understand your 

disclosure? 

o Helped him understand Jine items (generically; no discussion of performance) 

o Peter was double LOunting IB principal transactions and offsetting with losses in Corporate as he hadn't 

understood our disclosure in Corporate(P£ 

o He now understands our disclosure 

Sarah YoungVVQod J Managing Director! Head of Investor Relations I JPMorgan Chase Co, 

270 Park Avenue, New York,. NY 10017 IT; 212 62261531 F: 212 27015481 

Confidential Treatment Requested By 

JPMORGAN CHASE & CD. 

Confidential Treatment Requested by J.P. Morgan & Co. 

JPM·CIO 0001150 

JPM·CIO·PSI 0001093 
1573 

From: 

Sent: 

To: 

cc; 

Youngwood, Sarah M <sarah.m.youngwood@jpmorgan_com> 

Fri, 13 Apr 2012 17:22:08 GMT 

Dimon, Jamie <jamie,dimon@jpmchase.com>; Braunstein, Douglas 

<Douglas.Braunstein@jpmorgan.com> 

Miller, Judith B. <Judith.B.MiIJer@jpmorgan.com>; Investor Relations 

<Investor _ Relations@restricted,chase.com> 

Subject: IQ12 calls - Buyside and Sellside comments (3) 

We are now getting calls. Tone positive. No questions on CIO. A lot of detailed questions. Continuing to retum calls and 

wl!! keep you posted, 

Glenn schorr {Nomura - Sen~lde} 

General comment5/fel'!dback 

o Stock beaten up because of Europe news over the last few days; creates a new overhang 

o No one has a real problem with your earnin.gs 

o Heard you on growth, expense control, increase in reserve interpreted as conservative 

o No big changes 

o Drop of incremental good feeling from the results as the street expected that performance 

o Quarter was fine 

Are you saying anything different related to capital requirements and share repurchase? 

o Glenn himself was very clear on Jamie's message _. and very comfortable with the answers - tlOwever he 

had heard the question from Investors and wanted to clarify 

When will the high gain on sa!e normillize? On the call, the language was "gain on sale normalizing on a go· 

forwud basis" 

o We noted that on the call, WE? recognized it's outsized this quarter; referred to Investor Day guidance; 

didn't provide specific timing 

Cost of fund increase 

Is there any threshold for when/how YOlJ report high·yleld seconds? 

o Clarified 

We've seen a big rise in trade finance loans. Usually I think of this as more safe and relationship-based. Any 

reason to be concerned with this much growth? 

c Growth l~ 'loy; QoQ slow down; referred to Doug's comments; our growth vp.ry focused on quality 

The !argestfirms were supposed to have living will to July. Does that timeline still hold? 

o We're working on it; we haven't said anything on it 

A.ndrew M<'Irquardt (Evercore - Sellside) 

Feedback on results 

o Better than expected results; show of strength; tilkjng share and weU positioned; results make me feel 

better in an uncertain environment 

o Investors wondering wheth2r stock has legs above $45 price 

• Referred to JamiE's comments on tnt' call, whicll were differentiated between stock price from the 

perspective of intrinsic valuation/investment vs, in the context of oiner capital deployment 

opportunities 

o Thought ClO comments were very helpful; no questions on the topic 

Had asked at Investor day for additional disclosure on NIM {loan details; BoA provide ... ); rejterated ask 

I was surprised by the focus on capital and the s.pec!al dividend? 

o Reiterated Jamie's response 

What has changed in your forward·looking guidance? 

a Went through the comparison of wording vs. last quarter; didn't offer color beyond 

o Referred to comments on the caU on $49B and Nl! 

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Revenues on fees - Anything still left on the WaMu settlement? 

o We noted we have not said, and reminded him this has nothing to do with private label; it relates to the 

actual bankruptcy of the entity 

AIly additional color on the strengt.h in FICe? Is there any guidance? 

o Referenced Doug's commentary on the call 

Why not bring down your reserves in repurchases? 

o Timing; not a trend 

Pa~e of reserve release? 

a Referenced Jamie's comments on the call 

Capltal- Any reason to think there is any change in what you've said before fLe, that you would get to 9.5% by 

2013}? 

o We didn't specify on the cal! 

Can you provide morE' color on investment opportunities? 

Have you received many questions regarding CIO? 

Did you update the flight to quality depOSits number of "'$75B you disclosed at Investor Day? 

o No update provided 

Gerard Cassidy (RBC Capital- Sellside; will be on CNBC this afternoon) 

NIM - Are we to expect the current cost of the long-term debt to stay in the 2.7% range? Is the 2.7% the new 

normal? 

o One time gain in 40; recommended he look at our spreads and maturities. which we'vE' disclosed in our 

lO-K; referred to TruP$ as potential impact (no amount or timing specified; just referred to Doug's 

comments) 

Timing regarding TruPS redemption 

Asked for darifkation on NPls 

What is driving the fant<lstic IOiln growth in AM? 

Why did you increase allocated capital in CB? 

o Growth 

What did Doug Braunstein sayan CNBC related to non-core EOP loans? 

o We pointed him to Investor Day non·core loan growth and run-off analysis 

Have you provided guidance as to where foreclosure-related expense could be this year? 

o Referenced Investor Day Servicing expense walk 

o $3DD-350mm Doug mentioned today was in line with In'Jestor Day 

Is the credit card portfolio seqllential decHne seasonal? Seems like a lower seasonal impact than a year ago 

o We confirmed seasonality; added that sales. volumes are up 

yvithin Corp./PE, Nil seemed to drop signIficantly; can you give s.ome color on the swing? 

o Gave theoretical feedback on drivers of different lines in Corp!PE 

Did yotJ see any change in repurchase demands that give you encouragement that we have reached a peak in 

terms of reserve release? 

o Timing; not a trend 

Safah Youngwood I Mllni.'lging Director! Head of Investor Relations I JPMorglIrl Chllse Co. 

270 Park A'oIenue, New York, NY 10017 ! T: 212522 6153 I F: 212 270 16481 

From: Youngwood, Sarah M 

Sent: Friday, April 13, 2012 11;01 AM 

To: Dimon, Jamlei Braunstein, Douglas 

Cc: MiHer, Judith B.; In'lestor Relations 

Subject: ]Q12 calls Buyside and Sellside comments (2) 

Only one cal! since we finished earnings call. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CfO-PSI 0001136 
1575 

John Balkind (Sandler Q'Nei!! Asset Management - Buyside) 

Wanted clarification on NPL r€porting change 

o We went through it - He understands 

Glenn Schorr and Betsy Graseck have also e-mailed that they wfU want to t .. 11o: but have asked to discuss after Wells call. 

Sarah 

Sarah YOl.Jng~ood j Managing Director I He3d of Investor Relations I JPMor9.3,1 Chase Co. I 

270 Park Avenue, New York, NY 10017 IT: 212 622 51531 F: 2122,70 l6'18! 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0001139 
1576 

From: Youngwood, Sarah M <sarah.m.youngwood@jpmorgan.com> 

Sent: Sat, 14 AprZ01Z 16;00;05 GMT 

To: Dimon, Jamie <jamie.dimoFl@jpmchase.com> 

cc: Braunstein~ Douglas <Douglas.Braunstein@jpmorgan.com>, Warren, Shannon S 

<warreo_shannon@jpmorgan com>; Levy, Douglas S <douglas.sJevy@chase.com> 

Subject: Re: lQ12 calls M Buyside and Sellside comments (6) 

Jamie, 

p6 of supplement, we broke out long-term debt cost by quarter (showing rate gOIng from 2.10% in 3Q11 to 2.15% in 

4Ql1 and 2.71% in lQ12), We didn't have a specific break out or footnote re debt gain in 4Qll.! don't believe we 

mentioned the gain in press release, presentation or script. 

In lQ12, we disclosed page 18 of pres: "Debt-related gain in 4Q11" (as driver of c!"lange in NIM on core NIM page). 

Sarah 

Sarah Youngwood! Head of Investor Relations I JPMorgan Chase & Co. IT: 212 622 6153 I F: 212 270 1648 1 

From: Dimon, Jamie 

Sent: Saturday, April 14, 2012 11:04 AM 

To! Youngwood, Sarah M 

Subject: Re: lQ12 calls ~ Buyslde and Sellside comments (6) 

Did we disclose the fourth qtr hedging benefit in the fourth qtr. Plus. Was it broken out on the nim page 

From: Youngwood, Sarah M 

Sent: friday. April 13, 2012. 07:20 PM 

To: Dimon, Jamie; Braunstein, Douglas 

Cc: Miller, Judith 13.; Investor Relations 

Subject: lQ12 calls - Buyside and Sellside comments (6) 

Doug and Jamie, 

Last batch of calls. Overall, themes have remained consistent. Buys/de and Se!lside positive on the underfying 

performance. Some questioning regarding sustain ability. No concerns re high risk seconds, but a topic of conversation. 

Debt gain in Q4, capital deployment, TruPS and mortgage costs also key themes. Very few questions on C!O (2 came late 

in the day - see below), Only one estimate change so far (Guy Moszkowski ~ BoA); expect most people to work on their 

mod!"'ls over next few days. Research generally positive. 

Dick Bove {Rochdale Securities - SeHside} 

Stock didn't pick up despite good earnings. Issue might be sustainabHity 

o FI strength in the IS might be viewed as seasonal 

o Strong Mortgage income might be buoyed by HARP program 

What are same of the issues you're hearing - China, Spain -what is the overhang as you are seeing? 

Increase in cost of debt? hplained that there was a 4Q hedging benefit which was not repeated in 1Q 

CIO question. Company is attempting to 'make money' from their hedging portfolio? 

o CIO office manages structural risks (FX, Rates, Basis, Credit, etc. .. ) and looks to invest excess liquidity, as 

described by Doug. All consistent with our interpretation of Vokker 

Dlck has been in discussions with Bloomberg to let them know t!"lat he believes that they are inaccurately 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0001200 
1577 

portraying JPM's CIO activities and supporting a group of former employees without trying to take a balanced 

perspective, Dick already wrote a note and is considering: writing a follow-up 

o f didn't comment 

David Hendler - [reditSights, fixed income-focused 

Nice results for the quarter 

Securities gains, is that where the trading would be for eta? If looking i1t BS, where do~s tlO actiYity reside? Is. 

CIO activity actively managed? ' 

Your CDS seem to indicate that the Street is comfortable with CIO story 

Derivative receivables; c<ln you differentiate what is IS and what is C!O/Treasury? 

a No, you cannot 

o The $3706 number is the securities portfolio related to ClO 

Are you too big in certain parts of CDS and that is a risk market we. need to consider. You may have.an issue in 

terms of getting out of your position and it may be your positions are too big 

o We have been operating effectively with this type of size for a while; no specific change; there are iI 

variety of markets/strategies. we can utilize 

You guys do the best job with disclosure; currently, the problem is that yoor C!O activities are not a1l that 

transparent 

Doug was very transparent today regarding the. general strategy in CIO, but his explanations only came after the 

newsartides 

I would love to meet with Ina to talk about this 

I wrote a note that was balanced and Bloomberg took it apart and Quoted me; I don't want you to get the 

wrong impression; my words were taken out of context 

leff Harte and Ted Holnman (Sandler O'Neill) - SeHside 

Feedback/general comments 

a I think your numbers are better than the markets think. j'm not sure what the market is doing. 

o There were a lot of questions about home equity and 16 revenue absent DVA/OJA 

o A lot of competitors are talk.ing <lbout gaining m3rket share in Europe. Jamie has said he isn't seeing this 

o Clients are asking why JPM stock is not up 

Investment Bank 

o Wanted to clarify guidance on comp/revenue 

• Maintain ful! year guidance: 35-40% 

o CPG - Do we k.now the dollar amount of evA on the revenue line? 

• Yes" a gain of $175mm 

Mortgage Banking 

o $200mm servicing cost associated with the settlement - Is this a one~tim2 hit? 

• Yes, if you pull this out, it would be rel<3tive!oy nat QoQ 

o Mortgage origination margins spiked this quarter. The increase WClS a v.ariety of mix-related things; what 

would you highlight? 

• Volumes are strong; we've strategicafly moved to a mix that favors ret.ail branches 

• Pointed him to Investor Day slides for a norma!i~ed MB P&l 

o HARP - Does it help volumes? 

o The rep and warranty reserve - there is a number within the RFS segment and then for the total firm, but 

they're not the same. Where else would this be found? 

• Amounts related to Bear/EMC 

• The repurchase reserve relates primarily to the agencies; we've maintained our guidance for 

1055e5 at $350mm +/-

Card Services & Auto 

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o Revenue yield in credit card dropped; due to seasonally that is not unusual; how much of this is due to 

the current spread en ..... ironment versus seasonality? 

Corporate/PE 

o Reyenue If I take out PE and the WaMu settlement, how should 1 think about non-PE results 

I $200mm +/_ quarterly net income guidance 

Buyback 

o What Isee in the supplement doesn't match what Doug mentioned 

• What you see is the total repurchases on a settlement date basis for the quarter 

• We settled some trades that were done last year in the quarter; Doug talking about total buybacks 

under the new authorization 

o Are you limited when you can engage in a buyback? 

Tom Alonso (Macquarie- Sells/de) 

General comments/feedback 

o Stock has had good run to date; expected pullback 

o Tone of the caU was slightly more cautious than expected given earnings performance 

• Surprised by the magnitude of reserve release for RFS this quarter 

a Surprised by the queostion raised on special dividends 

• Reiterated Jamie's response 

o Concerned about loan growth overall 

• Discussed trends in CB and high!i€hted our higher capital allocation in January 

Additional color on FleC? Is trend sustainable? 

o Referenced Doug's commentary 

Clarified the approximately $450mm shares bought back Was YTD and not incremental to disclosure in 

supplement 

Vivek Juneja (JPMorgan - Sells:ide) 

Issued a report on home equity risks yesterday 

Regarding disclosure, what's different about the Junior liens that were not moved? 

o Those that moved to NPL bucket are behind seriously delinquent (nonpE'fforming) firsts 

o Regulators required this m010le in the disdosure 

Mentioned that WFC reclassified aU HE that was behind a delinquent first 

WFC call- Someone mentioned JPM expecteod 55% loss em these. 15 this true? 

o Pointed him to the Investor Day slide re high-risk seconds 

Jim MItchell {Buckingham Research - Sellside} 

The upside In trading was good 

Good earnings, doesn't seem like people WE're listening» Europe concerns seem to have brought the market 

down 

Given the noise in the debt yield this quarter, how should 1 think about a normal debt yield? 

o 4Q11 was lower because of the debt item that was mentioned on the cal! 

Why is your mortgage compensation ratio higher? 

o Mix change toward retail originations which have higher cos.ts, but also higher ma.rgins 

What is the Mortgageo default cost run rate? 

o We had $200mm of incremental servicing costs: associated with the settlement and other mattE'rS 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0001202 
1579 

Matt Burnell - Wells Fargo - Se!!slde (email) 

Requested public information that the regulators issued on the home equity NPl accounting treatment 

o Referred to acc document http://www.occ.gov/news-jssuances/news-releases/20121nr-ia-2012-15a.pdf 

Anu Venkataraman (Amance Bernstein - Buyside) 

Special dividend clarification - is Jamie against a special dividend? 

a We are not starved for opportunities to use our excess capital. We have a number of options and do not 

believe a special dividend is an attractive option reliiltive to other more accretive uses of capita! 

Litigation reserves - what is the contingency that would require such a high level of provisioning? 

o We cannot spedfical!y comment on any specific litigation. These are big numbers but we are being 

conservative and feel comfortable with how well reserved we are being. 

Dan Bitar (MSD Capital- Buyside) 

• What are your thoughts around full-year comp for the IB? 

a Expect camp to be in the range of 35%-40% 

• Your mortgage revenue spreads seem to above normal. What is the normal rate? 

o Referred to Investor DaV 

• Your capital allocated was up at many of your businesses 

o We discussed the updated allocated capital at Investor Day 

o Capital decisions are based on longer-term needs of the business 

High -risk seconds cheJnge in methodology. Can you explain? 

• Why were credit card e.xpenses up 'YoY? 

a As we noted, this was related to an expense related to a non core product we are exiting. 

• Why did loan growth increase in AM? 

Why is compensation up in Corporate? 

o Normal first quarter accrual for FICA 

o Increased headcount 

.. Are you done with your litigation? Seemed that way when Doug was speaking on the cal! 

o Referred to Doug's comments 

• What caused the increase in LTD yield? 

o We had a debt-related benefit in the fourth quarter 

Rob Hertz (Oppenheimer - Buyside) 

Can't believe how people are reacting to home equity (HE) 

Also believe Europe is ruling the day; don't know how Spanish banks plan to recapitalize 

o ! suspect people are aware of the next steps in Spain and how dire their real estate situation is. I don't 

know where this money is going to come from. Spain might become another Ireland 

o Thought lamie's analogy to an accordion was appropri;,te 

Can you review the HE information with me? 

Pri DaSilva - Credit Suisse 

Trying to understand our litigation reserves 

o We only disclose the expense; not the reserves 

Calls pending 

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1, Voicemail into K8W (David Konrad), David higllligllts "change in regulatory guidance and increase in NPls" in 

one of Ilis report without a dear explanation. He didn't cal! us but I reached out to offer an explanation of the 

reporting change and point out our disclosure. 

2, Marty Mosby - Retumf'.d call; no vokemaH 

5lIrah Youngwood I Managmg Director! Head of Investor Relations! JPMorgan Chase Co, I 

270 Park Avenue, New York,' NY 10017 IT: 212 522 5153 I F; 212 270 16481 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0001204 
1581 

From: Iksil. Bruno M <bruno.m-iksil@jpmchase.com> 

Senl: Mon, 30 Jan 2012 21 :12:38 GMT 

To: Martin-Artajo. Javier X <javier.x.martin-artajo@ipmorgan.com> 

Subject: core credit 

ok they really push against our positions here everywhere. there is more pain to come in HY too: a lot of capital 

comes back into basis and skew trades. I can see a bad scenario here where spreads widen and guys do not go 

long risk but make basis arbs with a bearish view on weak names. Here we should stop adding and take full 

pain: Isee SOm coming in fG9 as I mention ned and another SOm in HY. thisls really the street moving pieces but 

there is not position in the book that stands out as it is balanced. So that requires a lot of trades and I think we 

would just add to the pain here. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI 0001226 
1582 

From: Martin-Artajo, Javier X <javierxmartin-artajo@jpmorgan.com> 

Sent: 11m, 22Dec 2011 11:16:11 GMT 

To: 

cc: 

Iksil, Bruno M <bruno.m,iksi1@jpmchase.com>; Hagan, Patrick S 

<patricks.hagan@jpmorgan.com> 

Grout, Julien G <julien.g.grout@jpmchase.com>; Patel, Samir R 

<samir.r.patel@jpmorgan.com> 

Subject: RE: urgent ----- : Rwa 

What kind of numbers can we reduce. What is posible to reduce? 

We need a number around 13 Bin since we can reduce 2 Bin in CLO's and Bank names 

I have just put a list of posib!e reductions. Can we be more specific and write your own estimates for End of Ql 

2012 ? 

Model reduction OR CRM (15% acknoledged 

already) 

Model reduction OR VAR 

Model Reduction QR Stress 

Reduction for duration shortening 

Book Optimization 

regards 

From: Iksil, Bruno M 

Sent: 22 December 2011 06:46 

To: macris@ Martin-Artajo, Javier X 

Subject: Re: urgent ----- : Rwa 

4 

2 

__ & Redlded by the Perm ..... t 

Subcommittee on hn'estiptiOftI 

I received it. For what 1 need to provide a due: I would need Julien to be in the loop and/( most of all) what kind 

of rwa measure we refer to and possibly data out of it. We can reduce it by simply selling protection but then 

the pnl volatility will increase potentially and the group diversification will be reduced. 

Now what we are doing today is: 

I-flattening the profile on the medium sized default scenarios, say if we have 5-10 defaults, because here we 

have some leverage in the capital structure that creates great gains ( as you saw) on surprise defaults but 

generate theoretical draw downs (typical 19 model flaw) accretive to rwa. 

2- reducing some of the main carry and convexity generators ( namely long term equity tranches where we are 

long risk). This mitigates a bit the point 1- with regards to the upside on the first default of "AMR" type 

3- we are reducing the largest index notionals in investment grade indices and the net long risk in cdx hy9 hyl0 

series that went to balance the short risk we had on hy113yr that expired in december. 

All this should reduce any kind of rwa, be it QR or our own measure. Yet I have to say I work in the blind for QR 

measure. 

We will keep doing that in Q1 and it should provide good results although I receive no update, so (again) iUs 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0001227 
1583 

difficult to project much. I target the reduction ofthe largest notionals and the largest leverage through the 

monitor I showed in one Tuesday meeting so that! am almost sure the reduction in TWa appears no matter 

which mode! people want to use, Now, with no data and no update, I cannot predict the moment when the 

reduction will show. So far, I pay the bid-ask in the market ( estimated cost likely to have been ISO-250m this 

year) but I try to av~id bad trades in RV terms, Volatility this year provided good opportunities to get interesting 

rvtrades that partly balanced the execution cost, 

The next stage! think is that next year some very large exposures. will naturally expire and s.ame for 2013.1 

understand that we look for a steep reduction end ql next year: this may be do~ab!e if for example we have a 

default in investment grade. Now, ifthat happens I will simply sacrifice the gain to exit the positions accordingly. 

By "sacrifice" ! mean that! wifllock at best SOpct of the potential and not re-build it. That can provide a very 

effcicient way to reduce rwa. Otherwise, we can hope for low volatility and the we will shrink as we did this year 

but the problems of timing and data and model will remain. 

Best regards 

Bruno 

From: macris@b~nternet.com 

Sent: Thursday, December 22, 2011 05:39 AM 

To: Martin-Artajo, Javier X; Giovannetti, Alison C 

Cc: Iksil, Bruno M 

Subject: urgent ---- : Rwa 

I (IrJ 11) the Permanent 

:)uuwmmittee on Investigations 

FYI -- please confirm this is received and that we can coordinate a response this morning. -- thanks 

--- Forwarded Message ~---

From: "Drew, Ina" <lna.Drew@Jpmorgan.com> 

To: "Ma;,;rti.n-.A.rt.aj~o" Jiia,Vi~er .. x~", <Javier.x.martin-artajo@jpmorgan.com>;"macris@! •••••• <macJis<g; I 

Ce: "Wilmot, John" <JOHN'vvILMOT@jpmorgan.com> 

Sent: Thursday, 22 December 2011,2:55 

Subject: Rwa 

We are running an additional rwa reduction scenario. Can u send John and I a scenario whereby the 

tranche book and other trading assets are reduced by an incremental 15 bil in the first quarter? Not a 

stress scenario, so assuming normal (whatever that is now - not year end) liquidity. PIs list by trading 

strategy, ie: credit tranche, other trading positions, with cost estimate - (background: trying to work 

with ccar submission for firm that is acceptable for an increased buyback plan). Need in early ny 

morning -

This email is confidenti al and subj ect to important disclaimers and 

conditions including on offers for the purchase or sale of 

securities, accuracy and completeness of information, viruses, 

confidentiality, legal privilege, and legal entity disclaimers, 

available at http://www.jpmorgan.comlpages/disclosures/email. 

Confidential Treatment Requested by J,P. Morgan & Co. JPM-GIO-PSI 0001228 
1584 

From: Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Sent: Mon, 19 Mar 2012 11:44:53 GMT 

To: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

CC: Grout, Julien G <julien.g.grout@jpmchase.com> 

Subject: Core Book analysis and proposed strategy 

Book position 

- The book has: positive carry! P&l upside on defaults and positive convexity jf spreads gap wider. It is relatively neutral 

directionally overall at current market spread levels> 

~ To obtain this profile, the book receives the forward credit spreads. When markets are caught in squeeze like this 

one, the P&L volatility can become very large: this is what is happening since the beginning of this year in COX IG9 and 

Main ITRAXX S9 series. The hit amounts to 5-10 Bps lag in those forwards versus the SO-60Bps rally, 

- The book incurred a loss of 100m usd IN us hy from KODAK default and RESCAP almost certain default: this 

weakness have been corrected now and offers decent upside in any new default in HY indices 

Market behaviour 

- The cox IG9 and ITRAXX Main 59 are the series where index tranches still trade. This is where the street owns some 

protection especially in the longer tenors for capita! relief reason and uncertainty about the timing of defaults. 

- some large Hedge funds have some Hskew trades H where they buy protection on the series 9 10yr indices versus the 

single names 

~in the rally, those series {where the book is long risk and the street is short risk) have lagged consistently: by trading 

and trying to correct the lag, we could retrieve 1~2bps but then we met strong resistance either with size or bid-ask 

widening. 

- this year the tranche market depth has vanished: we can trade but small size each time with an appetite from 

dealers to load protection on the longest tenors. 

-in US HY, in addition to the 2 defaults, we face a flattening trend advertized by dealers saying that either we have 

defaults or we rally: either ways, the curve flattens and we have a steepener on. 

- as a summary, the book is a very visible player and holds a trade that the street wants to have now: ie a protection 

against unpredictable defaults. At the same time, they still own their "no default" trades from last year. So the street 

systematically steepens the series 9 curves and maintain the longest tenors wider than anything else. 

Proposed strategy: let the P&L fluctuate while not defending, just maintaining the upside on defaults over time 

-COX IG and lTRAXX MAIN: over the neKt 18 months 

buy back the protection in 0-3 10yr to reverse the profile { 3Bln in main, 6bln in IG} 

~ buy some 0-3 in 7yrtenors ( Ibln main~2 bin in IG) 

- sell protection over time on widenings to maintain the carry (S~10 Bin Main and IG) 

- COX US HY : over the next 18 months 

- put flatteners on in HY14-hylS~hyI6~hy17 series while we own the protection on the Syr now 

-let the longs in HYI0~hyll series live as they have lost already 18 names out of 100 and look safer than hy 14 

to hy17 series 

P&L possible range: the loss is likely to range between 100m to 300m 

• main reason is the CDX IG91ag ( 2-3bps or lOO-150m) 

- second next is COX HY: the hit is another 100m spread within the tranche and index bid-ask. Typical here; you 

cannot really trade but the mid does not change. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001234 
1585 

- third is Main itraxx: the curve in 59 steepened by Sbps pushing the forward back up while the other curves 

steepened 1 bp in the rally. The hit here is 80~100m. 

~ the estimated bid-ask on the book grossly amounts to SOOm all~in ( 200m for IG, 100m for Itraxx main, 200m for CDX 

HY). 

Conclusion 

- the book has very useful features and should be maintained with its upside on defaults as much as possible. 

~ the market is very small now and we are too visible with likely some of our trades creating a concern among dealers 

: this affects us both in the bid-ask cost and the Mark_To_market because the street owns the long term protection to 

cover their legacy, Ie tlno default" trades mostly held in form of steepeners and long risk in short term equity tranches. 

~ there is a trap that is building: if we limit the Mark-To_Market we risk increasing the notionals further and weaken 

our position versus the rest of the market. One solution would be to let the book be really long risk, yet this would not 

be in a liquid market and may increase the P&L noise especially in corrections. 

- the solution proposed amounts to be longer risk and letthe book expire carrying the upside on default: I think we 

own here a very good position for a size that is also significant. This would involve some mechanical trading, ie buy 

protection on 10yr equity tranches, put flatteners in HY 14-17 and SELL protection on spread wdidening. 

The PNL breakdwon and bid-ask analysis wi!! come soon after. Julien is on it. 

Bruno 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001235 
1586 

From: Drew, Ina <Ina.Drew@jpmorgan.com> 

Sent: Tue, 20 Mar 2012 23:59:59 'GMT 

To: Macris, Achilles 0 <achilles.o.macris@jpmorgan.com> 

Subject: Wed call 

Achilles 

_ _ Redaded by die Permaneat 

SubrommittH on IllVesticaCion!l 

Javier briefed me this morning on the credit book. He sounded quite nervous. Let's discuss on our weekly 

call. The full briefing is later in the morning but I want to understand the course of action from you . 

••••••••••••••••••• 1 believe John communicated but there is still activity. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001236 
1587 

From: 

Sent: 

Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Thu, 29 Mar 2012 21:18:08 GMT 

To: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Subject: First draft of the presentation 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0001247 
1588 

lVllN:!(lljNO.:) ON'! 3.l¥!I1l:Jd _J"U:)llllS 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0001248 
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Credit Book: summary 

1- the beta adjusted moves 

2- the Method 

- case of a 1x1 hy vs IG position: illusions with spreads and bp measure sensitivities - the book remains neutral x% CS01 : implications 

1- if IG9 lags, the book becomes long risk, because we are long risk in IG9 

2- jf HY decompresses, the book becomes short risk, because we are short risk in HY 

- Look at beta adjusted moves on history: the whole story is about compression and decompression 

- breakdown the risk from beta factors 

1- the book has a directional bias, but next it is all about expected loss changes ( mixing 

MTM) 

2- the beta neutral book breaks into 3 -parts: 

a- decompression trade ie HY vs IG on the rUn 

c - equity tranche slope 

3- the findings: ta'llet YTD at ·750M 

- the book is huge: 95Bln IG9 and 38Bln S9 fwds , decompression (8M bp in HY or 25Bln, 2.3M in Xav

- Decompression worked very well and only starting: total gain ytd of 600M (60Bp Xaver, 60bps in HY

we captured 12°/(l decompression out of a move of 18% 

- Series9 lag is overwhelming: total loss YTO is 1.5bln (22bps in IG9 fwds and main S9) 

- directionality -60M and carry 40M (with no roll down). total 100m 

-defaults ( Kodak and Rescap) cost are estimated at 100M total 

- 0-3 equity slopes cost a total 200M . 50M in itraxx (2pts) and 150M in COX JG (5pts) 

-New trades: gain 200M 

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Credit Book: Trading activity: positions and new trades 

Rationale for the positions increase: 

1- cover the HY downside on some defaults, prepare for IG tightening, stay market neutral to minimize RWA 

2- started by selling IG9 5yr and 89 5yr . the curve steepened and the forwards moved up 

3- sold 89 and IG9 5x10 to limit the P&L !lit 

4- defended the P&L at Month end while the decompression kept going and increased the underperformance of S9 series 

itraxx Block AU trades Start Jan Book Start Feb Book Start March Book CurreMain OTR Xaver 3.700 -2,479,033,784 -3,756,756.757 -3,283,783,784 -4,884,371,622 -6

MainOTR IG 4.500 10,599,246,667 16,062,222,222 14,040,000,000 20,883,402,222 26

S9 Fwd 4.300 15,534,528,571 20,497,375,000 27,746,375,000 33,398,625,000 38

5yr IG OTR eq 4.500 14,844,105,079 19,586,380,556 26,513,202,778 31,914,241,667 36

Net 5yr OTR 4.500 22,472,525,079 -4,116,619,444 6,190,069,444 14,082,350,556 20

COX block AU trades Start Jan Book Start Feb Book Start March Book Curre

HY OTR 4.100 -12,027,013,171 -7,246,905,439 -7,695,056,537 -14,662,635,805 -19

IGOTR 5.000 52,269,399,240 31,495,051,038 33,442,715,708 63,723,815,208 83

Hyotr 4.100 -2,550,011,220 -8,555,429,927 -11,325,839,805 -11,224,162,976 -11

HY10-11 2.435 4,293,653,388 14,405,446,694 19,070,202,546 18,899,001,314 18

IG9 fwd 4.500 39,888,688,889 54,651,951,114 75,029,095,559 94,017,484,44B 94

IGOTR 5.000 -35,899,820,000 -49,186,756,003 -67,526,186,003 -84,615,736,003 -85

Net IG OTR 5.000 12,061,510,760 -20,135,375,035 -5,227,009,705 -8,934,809,205 -8

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pore Credit Book: BP sensitivities and Directionality of the book 

As spreads tightened the IG9 and S9 1 Oyr saw their duration increase while all other legs had a shrinking duration 

1- this created an increase on the expected loss of the long risk that was amplified with the forward exposure 

2- the decompression created a long risk that was covered with a short fisk in HY as the market rallied ( Var minimization) 

3- this long risk exposure should have been maintained: this would have triggered an increase in RWA and Var 

4- the decompression trade in HY and Xaver was never large enough due to the legacy because we had to increase the 

position to defend the P&L hit without being able to stay long risk ( due to RWA & Var constraints) 

the decompression in 89 (around 25%))lave induced a natural increase of long risk circa 10Bln long risk in main and 

2561n long risK in IG 

CSOl All trades o Start Jan Book Start Feb Book Start March Book 

Main OTR Xover -917,243 -1,390,000 ·1.215,000 -1,807,218 

MainOTR !G 4,769,661 7,228,000 6,318,000 9,397,531 

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89 Fwd 6,679,847 8,813,871 11,930,941 14,361,409 

5yr IG OTR eq 6,679,847 8,813,871 11,930,941 14,361,409 

0 

Net 5y.-OTR 10,112,636 -1,852,479 2,785,531 6,337,058 

0 

CD block All trades Start Jan Book Start Feb Book Start March Book 

HY OTR -4,931,075 -2,971,231 -3,154,973 -6,011,661 

IGOTR 26,134,700 15,747,526 16,721,356 31,661,906 

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Hyotr ·1,045,505 -3,507,726 -4,643,594 -4,601,907 

HY10-11 1,045,505 3,507,726 4,643,594 4,601,907 

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IG9 fwd 17,949,910 24,593,376 33,763,093 42,307,666 

IGOTR ·17,949,910 -24,593,376 -33,763,093 -42,307,666 

Net IG OTR 6,030,755 -10,067,668 ·2,613,505 -4,467,405 

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Credit Book: P&L explain 

Positives +1020M USD 

Decompression +560M USD 

HYoffthe run + 200M USD 

Carry + 150M USD 

New trades + 110M USD 

Feb 

Book TOTALS Itraxx Block 

Xaver/main ratio 

S9fwd ratio 

Tranche P&L 

New trades P&L 

directional 

TOTALS 

IG block 

HY/IG ratio HY off ther un vs on the run 

IG9 Fwd 

Tranche P&L 

New Trade P&L 

directional 

Defaults 

Negatives ·1820M USD 

Steepening S9 and IG9 ,1000M USD 

Defaults • 150M USD 

Duration effect • 450M USD 

Equity tranche steepening - -220M USD 

March Current Book TOTALS 

88,516,208 ·12,239,142 ·180,141,486 .103,864,420 

0 

58,799,595 44,189,466 57,852,908 160,841,968 

,52,805,736 ·122,108,870 ·242,054,127 416,968,733 

20,000,000 ·20,000,000 ·50,000,000 ·50,000,000 

50,000,000 20,000,000 0 70,000,000 

12,522,349 65,680,263 54,059,733 132,262,345 

TOTALS 

.118,638,384 -71,133,553 ·524,044,348 .713,816,284 

89,015,888 120,496,700 199,004,093 408,516,681 

181,036,597 56,597,893 ·34,187,79£ 203,446,695 

·340,643,952 ·544,970,101 ·955,540,745 

·35,000,000 ·70,000,000 ,65,000,000 ·170,000,000 

20,000,000 20,000,000 0 40,000,000 

-33,046,916 -28,301,454 ,28,890,544 -90,238,914 

·100,000,000 ·50,000,000 ·150,000,000 

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Core Credit Book: Series 9 steepening explanation: the forwards have lagged 

40bps market rally by 22 bps .... 

COX IG9 Spread compressio spread 0310112012 spread 2710312012 Duration chge Spread chge Duration adjusted Beta ad' USI Durl 

5yr 48% 132 68 ·23,00% 64 90,90 92,3 

7yr 37% 140 88 ·14,00% 52 57.80 51.5 

10yr 26% 149 111 2,000% 38 37,51 29,3 

On the run 5yr 32% 121 82 ·9,00% 39 40,98 41.0 S9 forward 22% 152 118 26,00% 34 26,06 19,6 

IG15 35% 111 72 ·12,00% 39 41.94 46,5 

Main S9 Spread compressio spread 0310112012 spread 2710312012 Duration chge Spread chge Duration adjusted Beta adjusl Dur1 

5yr 48% 170 89 -21.00% 81 101.37 79,5 

7yr 34% 189 124 -9,00% 65 69.42 45,0 

10yr 26% 195 145 20,000% 50 43,97 26,3 

On the run 5yr 34% 173 115 0,04 58 56,69 40,0 

S9 forward 22% 206 160 36,00% 46 30,54 16,9 

Component Itraxx Main S9 COX IG 9 

10yr underperiormance 8 Bp 1 Bp 

Steepening 4 Bp 4 Bp 

Duration effect 4Bp 10 Bp 

Beta adjustment 8 Bp 7 Bp 

Total 24 Bp 228p 

-------------

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Credit Book: Analysis of the IG9 performance 

IG9 can be proxied as a normallG index of 117 names and 5 HY Names (MBIA, RADIAN, ISTAR, SPRINT, RR Donnelley): 

-The 5 names behaved like the whole HY market: they underperform the IG market and steepened a lot 

- Their move relative to the rest of IG indices allows to explain most of the lag in IG9 curve but not all 

- Yet 5yr IG9 outperformed by 3Bps, 7yr outperformed by 4 bps while 10yr underperformed by 2 Bps: the net 

P&L impact is -100M USC 

5yr compression spread 03/01/2012 spread 27J03/2012 Duration ch e --spread ch e !nde£eq b-p ------Index based theo 

COXIGS 61% 132 68 -23.00% 64 64.00 64.0 0

RON 60% 31.00% 12.48% 18.5% 15.1B 18.82% 0

MBIA 28% 16.00% 11.49% 4.5% 3.70 9.71%- 4

SPRINT 63% 5.80% 2.17% IGtlghtening 3.6% 2.98 3.52% 0

RRO 59% 4.09% 1.68% 55.00% 2.4% 1.9B 2.48% w 0

SFI 73% 12.62% 3.40% slmul 9.2% 7.56 7.66% 1

% Index loss 55% 44% 51% 55.04% 31.39 3

17 r compressIon s read 0310112012 s read 27/03/2012 Duration c e S read ch e Index eq bp index based theo 

COXIGS 40% 140 88 ·14.00% 52 52.00 52.0 2

RON 34% 52.00% 34.50% 17.5% 14.34 20.94% - 2

MBIA 14% 36.00% 31.00% 5.0% 4.10 14.49%- 7

SPRINT 14% 21.00% 18.00% IG tightening 3.0% 2.46 8,46"'1Q - 4

RRO 20% 15.00% 12.00% 45.00% 3.0% 2.46 6.04% 2

SFI 12% 26.00% 23.00% simul 3.0% 2.46 10,47%- 6

% Index loss 21% 31% 41% 35.12% 23.36 23.

10yr compressIon spread 03/01/2012 spread 27/03/2012 Duration chge Spread chge Index eq bp index based theo 

CDXIG9 26% 149 111 2.000% 38 37.51 2S.1 5

RON 26% 66.00% 49.00% 17.0% 13.93 16.65% 0MBiA 10% 51.00% 46.00% 5.0% 4.10 12.86% - 6

SPRINT 1% 36.50% 36.00% IG tightening 0.5'% 0.41 9.21% 7

RRO 3% 30.00% 29.00% 33.00% 1.0% 0.82 7.57% - 5

SFI 19% 38.50% 31.00% slmul 7.5% 6.15 9.71%- 1.

% Index loss 14% 23% 27% 19.26 20.

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Credit Book: The devil in the details 

1-The steepening of the IG9 HY names was more aggressive than the whole 

HY market: this result in an underperformance of 80M USD 

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Core Credit Book: Summary 

1- the Book has been missing an extra 35M CS01 : this is a cost opportunity of 1.2 Bin due 10 Ihe 40 bps rally in IG 

this long risk shows naturally in the spread tightening and with the coming expiry of the short term S9 l

it triggers a an increase in stress IRC·RWA across the board it we maintain the book b

2· the need to reduce VAR - RWA and stay within the CS01 limit prevented the book from being long risk enough 

- as we boughl proleclion on HY in the rally, we kepllhe 10%CS01 neulrallo slightly bull 

- the slight bullish bias was dwarfed by the exposure in the forwards that kept increasing to protect the P

3- Thus a decompression trade was put on in order to remain market neutral, but it increased the CS01 very fast 

as a result a decompression trade built up both in Xaver and Main: it is a good trade that performed we

-yet, seiling more protection in IG to balance the protection we bought in HY put us close to the CS01 lim

4- The long risk exposure would likely have missed Ihe first 15 bps and Ihe realistic P&L miss is ralher 800M USD 

- despite the conviction on the rally in IG spreads, we needed to sel! 10Btn in main and 30Bln in IG ideall

is a significant bullish bet 

- in early February and early March, when spreads widened back, the book would likely have suffered a 

loss of up to 200M each time: this was not an acceptable P&L noise .... So the long would have been 

implemented slowly an'{'Nay 

5- carrying this long risk exposure would have triggered some brutal pal swings of 100·200 in early February and Marc

- the book was aiming at fine tuning the P&L noise while reducing the risks and the notionals on opportun

- the losses coming from the IG forwards were already wHd, so we waited before being outright long risk 

the noise would just increase more 

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Credit Book: Storyboard 

1- Starting point initially the book kept deleveraging in January reducing the shorts in series 9 5yr, removing the short ri

adding short risk in HY. The aim was to create some options on the book as in 2011 to reduce aggressively on opportun

2- Mission. balance the book. : 

a-it was slightly long risk since the 15th of January 

b-some protection on HY was bought to reduce the loss on some HY defaults like Kodak and rescap 

c- put some decompresslon trade to go long IG and neutralize the cost of carrying the protection in HY 

3- Execution . it went all bad .. 

- the forward spreads started underperforming and this created a residual long risk exposure that had to b

covered to reduce the Var and RWA 

.,. the nationals in series 9 were too large and the loss was way larger than the small directional gain (Jan 

Feb) 

- The decompression in HY and Xaver sped up in March and this put the book short risk and worsened th

the forwards 

4- What Happened? 

5- Plan 

- January. tried to reduce the short in the IG9 and S9 5yr but this pushed the forwards up and the potenti

already 400M. We reported a loss of 130M USD YTD 

- February: tried to cover the HY downside risk to default and added to IG9 and Sg forwards in order to c

the P&L loss as decompression kept going. We reported a loss of 220M USD YTD 

-March' the nationals increased in forward position uselessly and loss accelerated to incredibly high leve

move was too fast and painful. 

put the book to sleep: to stop flagging our moves to the market 

- maintain a long risk bias with on the run IG indices to keep a good carry in front of the upside on default

- buy up to 581n protection in IG9 0-3 10yr and 2.581n Main 59 10yr 0-3 to flatten the future default profile 

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1- The reduction of the 5yr lG9 and S9 early in January turned out to be a bad move: 

- initially, se!l5 yr On a roll basis vs on the run IG indices allowed to reduce the short, improve the carry, 

the sensitivity of the book towards flattening and pre-empt a tightening in IG spreads without increasing 

- the market players quickly steepened the S9 curves starting the underperformance of the forwards: be

the slight long risk bias was insufficient to cover the 1055, we added back some flatteners to correct the h

2- The KOdak default triggered a second wrong move: 

- The loss was 50M and we started covering the risk in February by selling HY14-HY17 indices that cont

MBIA, Radian, MGIC, ISTAR given that RESCAP risk to default was growing. 

• However, by selling those series and targeting the "mortgage & insurance" related names, we aggravat

underperformance of the IG9 forwards because they contain MalA, Radian and ISTAR 

- As a result, those names underperformed the whole market. Thus the decompression trade worked but 

forward especially underperformed in the rally and this is where the main long risk of the book is. 

3- The Xover I Main decompression trade,. 

- Due to the need to contain the RWA-Var complex, we sold protection on main while buying protectlon in 

- This was a way to profit from either a recovery in Europe IG space without 

- The decompression in HY and Xover sped up in March and this put the book short risk and worsened th

the forwards 

4- What would have happened if none of these bad moves were initiated? 

- The decompression would have happened anyway and the forward underperformance may have been 

smaller or down 750. All these mistakes induced an increase in the forward pOSitions to contain the P&L 

-If the book had gone long risk fully, the Var would have increased and the RWA as well: likely 10-15 Bi

-The carry would have improved and the book would have had wice a weekly drawdown of 200M 

J
1599 

From: Achilles Macris '1 ••••••••• 

Sent: Wed, 04 Jan 2012 06:57:54 GMT 

_ - Redacted b)' the Permanent 

Subcommittee on Investigations 

To: 'Martin-Artajo, JavierX' <javier.x.martin-artajo@jpmorgan.com> 

Subject: FW: R W A reduction for Core Credit - scenario analysis summary 

Did you see this? 

From: Giovannetti, Alison C [maitto:alison.c.giovannetti@ipmorgan.com] 

Sent: 03 January 2012 17:27 

To: Martin-Artajo, Javier X 

Cc: Macris, Achilles 0; macris@btinternet.com 

Subject: FW: RWA reduction for Core Credit - scenario analysis summary 

Hi Javier, 

Left you a voicemail, can you give me a call +44 207 325 8025. 

Thanks 

Alison 

From: Wilmot, John 

Sent: 03 January 2012 15:37 

To: Giovannetti, Alison C 

Subject: FW: RWA reduction for Core Credit - scenario analysis summary 

We need to close the loop on cost of reducing another $5bn in RWA from the tranche book (to $15bn by 

YE2012, gradual reduction over the year). Ina, Javier and 1 weren't able to discuss this slide specifically as it was 

sent after our Jast call. If you Can give me an estimate by EOD that would be helpful. Thanks. 

John C. 'Mlmot I Chief Investment Office I @ jDhn.w'i[mot®jpmorgan.C<lm I 'iii Work: (111} 834-5451 ! 'if Cell: (917} 664~1690 

From: Grout, Julien G 

Sent: Thursday, December 29, 201110:58 AM 

To: Drew, Ina; Wilmot, John; Martin-Artajo, Javier X 

Cc: Iksil, Bruno M 

Subject: RWA reducton for Core Credit - scenario analysis summary 

Hi - please find attached a grid for the Core credit 800k RWA reduction scenarios. Please note that we will not 

be able to make any sensible and efficient work on RWA for the core book without any 'marginals' numbers 

produced by QR. Currently any major reduction will lead to a very high cost though proportional reducing. 

Julien 

This email is confidential and subj ect to important disclaimers and conditions including on offers for the 

purchase or sale of securities, accuracy and completeness ofinfonnation, viruses, confidentiality, legal 

privilege, and legal entity disclaimers, available at http://www.jpmorgan.comipagesldisclosureslemaiL 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001259 
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CORE Credit RWA Reduction Scenarios - Summar

RWA Reduction $28 $58 $78 $10

Target 

-Reduction of long dated 

equity long 

• Same trades (as on the Proposed -IG9 roll -Short CDX HY (old and left) 24.5% proportional 35% prop

Execution • 11 % proportional reduction reduct

new series) 

reduction 

• the desk is currently 

implementing those 

Execution Cost $101M $273M $362M $516

Carry Give up -$134M if starting 01 ·$133M if st

$90M if starting 012012 2012 -$93M if starting 01 2012 201

(FY 2012) -$123M if starting 02 -$70M if starting 02 2012 -$100M if st

2012 201

Default Profile -CDX.HY: +$32M -CDX.HY: +$28M -CDX.HY: ($198M) -CDX.HY: 

-CDX.lG: +$219M -CDX.IG: +$195M ·CDX.IG: +$166M -CDX.lG: +

(first default) -iTraxx: +S207M -iTraxx: +$184M -iTraxx : +$168M -iTraxx: +

Default Profile -CDX.HY: +$25M .CDX.HY: +$22M -CDX.HY: ($39M) -CDX.HY: 

-CDX.IG: +$229M -CDX.IG: +$204M -CDX.lG: +$228M -CDX.lG: +

(second default) -iTraxx: +$225M -iTraxx: +$200M -iTraxx: +$229M -iTraxx: +

............. 

-
1601 

From: Drew, Ina <Ina.Drew@jpmorgan.com> 

Sent: Sat, 07 Apr 2.012. 16:40:15 GMT 

To: Goldman, Irvin J <irvin.j.goldman@jpmchase.com>; Wilmot, John 

<JOHN.WILMOT@jpmorgan.com> 

Subject: Fw: Sunday call 

I am going a deep dive tomorrow in prep for a review with doug!jamie 

••.•• _ ... " ••• 'iiiiiiiij. -- From: macrjs@~ 

Sent: Saturday, April 07, 2012 02:50 AM 

To: Drew, Ina 

Cc: Martin-Artajol Javier Xi Adam, PhHlipa C 

Subject: Sunday call 

I am changing my flight to return to London Sunday early morning GMT -- any time is fine for me. 

How about Sunday 14.00 EST·· 19.00 GMT? 

Javier we can take the call together from my flat if you like 

From: "Drew, Ina" <lna.Drew@jpmorgan.com> 

To: "Martin-Artajo, Javier X" <javierxmartin-artajo@jpmorgan.com>; "macris@ ••••••••••••• 

Sent: Saturday, 7 April 2012, 1 :56 

Subject: Re: Credit 

Give me a time sunday that works for you. 

From: Martin-ArtaJo, Javier X 

Sent: Friday, April 06, 2.0

11

12

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P.M. To; Drew, Ina; macris@ 

Subject: Re: Credit 

Will do , Thank you 

From: Drew, Ina 

Sent; Friday;;;,~AiP'~iI~Oi6',2~Olj2 09:22 PM To: macriS@j 

Cc: Martin~Artajo, Javier X 

Subject: Re: Credit 

Ok. 1nanks, Maybe we should rcvie\v what you have sunday. Let me know 

From: macris@;"'IIIjl~~ Sent: Friday, April 06, 2012 04:04 PM 

To; Drew, Ina 

Cc: Martin~Artajo, Javier X 

Subject: Re: Credit 

Hi Ina, 

__ = Redaded by the Penn anent 

Subcommittee on Investigations 

We spoke with Javier at length following our conversation. We will be prepared for the call on Monday .. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0001582 
1602 

Javier is convinced that our overall economic risk is limited. There is no default event to amplify our losses as the 

same critical names are part of our short in HY and our long in IO. 

Any further draw-down, will be the result of further distortions and marks between the series where we are holding 

large exposures. This clearly needs to be estimated with much more precision. 

I also have no doubt that both time and events are heating our position. I am however unsure on the potential 

magnitude of an "one touch" draw-down for Q2 which is highly dependant on marks. 

Both Javier and Bruno continue to be extremely concerned about the confidentiality around our spe~jfic large 

exposures. The press seems to be referring to CIa position size which is different to the overall JPM size on the same 

instruments. Additionally, there were some specific HF's calling our team and trying to get information from both 

front-office and infrastructure personnel (!). 

As you know, I am not regularly giving much credence to such rhetoric. I have nevertheless asked for a summary of 

the specifics for your information. 

Best, 

Achilles 

FrDm: "Drew, Ina" <-lna.Drew@jpmorgan.com> 

To: "Macris. Achilles Oil <achHles.o macris@jpmorgan.com>;"macris@) ••••••••••••• 

Sent: Friday, 6 April 2012,17:13 

Subject: Credit 

Jamie and Doug want a fun diagnostic monday. I will need it sunday night. More focused on p 1 than rwa at moment 

as I indicated. I'm not comfortable with the level of analysis so far. I tried to reach you by phone and text. 

This email is confidential and subject to important disclaimers and 

conditions including on offers for the purchase or sale of 

securities, accuracy and completeness of information, viruses, 

confidentiality, legal privilege, and legal entity disclaimers, 

available at bttp';/www jpmQrgan comlpagesldjscJosures/eroaiI. 

Confidential Treatment Requested by J.P. Morgan & Co. 

__ "" Redacted by the Permanent 

Subtomrnittee on InvestigatioftS 

JPM-CIO-PSI 0001583 
1603 

From: Martin-Altajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Sent: Mon, 09 Apr 2012 11:49:16 GMT 

To: macris@ Drew, Ina <Ina.Drew@jpmorgan.com> 

Subject: One point about yesterdays call 

Ina I 

When you asked last week about what we needed to do in the Core Book I forgot to mention yesterday 

that the book as it is is stable and does not need to be rebalanced unless there is a credit event. So at this 

pOint with all major risks balanced the book as it is we do not need to trade in the market for a few months 

Regards 

Confidential Treatment Requested by J.P. Morgan & Co. 

- Rrdatted by the Permanent 

Subcommittee on Investigations 

JPM-CIO-PSI 0001645 
1604 

From: Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com> 

Sent: Tue, 10 Apr 2012 18:49:24 GMT 

To: Alvelo, Alexandra X <alexandra.alvelo@jpmorgan.com> 

Subject: FW: 8:30am Calls Set up for Wednesday and Thursday 

Must do 

Douglas L. Braunstein I Chief Financial Officer I JPMorgan Chase & Co. 

270 Park Avenue I New York, NY 1BB17 i Tel. 212-622-1820 ! leFax: 917-464-7578 

e-mail: dQueJ as braunstein@iproocgao com 

From: Drew, Ina Sent: Tuesday, April la, 2012 2:19 PM 

To: Dimon, Jamie; Braunstein, Douglas; Zubrow, Barry l; Hogan, John J.; Staley, Jes; Macrls, Achilles 0 

Cc: Serpico, Gina; Wilmot, John; Goldman, Irvin J 

Subject: 8:30am Calls Set up for Wednesday and Thursday 

I am setting up a call on Wed and Thurs (we will continue Monday or as needed) for this groupto get updates on the Credit 

Book and make sure we are all up to date. 1 want to make sure that we are responding appropriately to all of the deliverables 

and questions. We can also report back on our individual discussion with regulators, analysts, press etc. Gina wlll contact 

your admins and set up a dial in from my office. If you can cal! In or come that would be helpful. 

Thank you for your help and support. 

Ina 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0001719 
1605 

From: Iksil, Bruno M <bruno.m.iksil@jpmchase.com> 

Sent: Wed, 22 Feb 2012 12:14:48 GMT 

To: Martin-Artajo, Javier X <javier.x.martin-artajo@jpmorgan.com>; Perryman, Andrew X 

<andrew.perryman@jpmorgan.com>; berner, andy x <andy.x.berner@jpmchase.com> 

Subject: core credit latest version 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001784 
1606 

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iii 

Confidential Treatment Requested by J.P. Morgan & Co. 

H'11N30IJNO:) ON1i 3J't'/I.!/:ld All:JlrJJS 

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Credit book YTD story 

The book is using the remaining liquid tranche markets to receive 5yr into 1yr forward spread

The Core credit book was up 350M in 2011 ( up 2.1 Bin since 2007) 

The loss YTD 2012 mostly from off the runs underperformance vs on the run indices 

End 01 2012: be

1 Main& 1 IG 

off the runs forward

end 01 2012. centr

off the runs forwards 

Revert - No IG 

01 2012 : Wo

adverse HY 

off the runs forwards 

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Credit book Main feature: carry-convexity- default exposure all positive! 

Negatives? : some HY 10-11 specifics, off-the-run to on-the-run basis MTM 

The book conveys a daily positive carry of 1M$ to 1.5M$ , provides upside on gap risk, ups

index based defaults ( alliG series both COX and Itraxx from series 9 to on 16) and some U

indices 

The book would lose money on some US HY specific defaults (30-40M$ per name) or on m

markets ( curve steepening and no spread volatility) 

The Core book will trade on the bullish side (risk wise) given the positive convexity and the 

outlook .... 

The potential P&L recovery until Oec2012 is estimated at : 500M$ ( out of other trading gain

III Carry ( 40M$ per month) : 350M$ 

Ill! Defaul! gains vs losses :150M$ 

(conservative assumptionsO : 6 "adverse" default and 1 "favorable" default in Main, IG and HY) 

6 Adverse default in Hy10 and hy11 serie would cost circa 100M$ ( 15M$ on average p

1 default in Itraxx Main would bring in 70-100M$ 

- 1 defaul! in IG9 would bring in 70M$ 

- 1 default in HY14-hy17 would bring 50-100M$ 

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Annexes 

Annex 1 : P&L drill down analysis Annex 2: Forward credit spreads, rationale and carry 

Annex 3 : default exposure analysis Annex 4 : main bullet points end of January 2012 

Annex 5 : CDX 10 9 " skew story" beneath the current underperformance 

Annex 6 : The need for hedging interest rate exposure on forward credit spreads Annex 7 : core versus Tactical: same view but different implementations 

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Annex 1 : Credit book YTD P&L history: tactical and Core ( 10-20 times larger) 

P&L move in opposite directions 

Investment strategy should be 

Up 200m YTD at leasl 

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annex 1 : Credit book: "new investment" P&L history breakdown: COX IG9 had 

un expected behaviour .... The rest of the book has performed in line ... 
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annex 1 : Credit book Risk management history 

whole book history 

1,000,000,000 , 10,000,000 

BOO,OOO,OOO [':,,::,;;:::.-,,( ".!tCA:,;:& :,'c,:; .c:; ';'"",;,;;;;.,,J 5,000,000 

600,000,000 

400,000,000 

200,000,000 

-10,000,000 

-15,000,000 

-200,000,000 

Sum 

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-{l00,000,000 ""-...... "-_'-' ..... ..... -25,000,000 

book was 

early as 

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annex 1 :The series 9 forward spreads underperiormance YTO 2012 ..... stab;.:l..ce. __

now I IG9 tend to 

30 .... \> , 

25 

20 

10 

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beta adjusted IG9 

............... IG9 5into1 f'Nd 

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annex 1 : The HY11-1 0 series kept underperforming Hy14-17 

100 r-:::.'" ",.A. 

beta adjusted HY performance in BP 

KODAK has file

bankruptcy. the HY 

flattens while the HY 

rally 

710 prepare a Bey RESCAP . P& 

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. 60'

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i--- DJ CDX.NA.HY 100 Series 1

I JPMorgan CDS Spread Mid 

I DJ CDX.NA.HY 100 Series 1

___ Mid 

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·200 

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Xover started outperforming .. 

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Annex 1 : P&L summery yrO Feb 22nd 2012 

Core P&L 

Blocks 

Whole Co 

Main 

CDXIG CDXHY 

carry 

New tradE 

HY Xover E 

CDXIG9 n 

Main S9 rc 

Jan 31st Feb 22nd P&L on feb I 

-140 -210 

90 140 

110 60 

-340 -410 

50 80 

220 280 

-31'a -380 

-160 \ -200 

60 \ 10 

\ 

150M of gains come from the lon91 

Risk trades done at start of the year I 

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10 

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annex 2 :The opportunity on the credit forward curve ..... The forward yields have b

changed since 05 .. The IG9 is the right spot despite the 5 risky names 

1.00 2.00 3.00 

Curves 5yr spot and 5x5 fwd 2005 versus today The 5x5 fw

4,00 5.00 6.00 7.00 

11 

in 2005 

____ 

------- higher than 

IG9

• TSY curve 2005 

• lG on the run curve 2005 

TSY curve today 

-linear (TSY curve ZOOS) 

-linear{lGontheruncUfve200

- Linear (TSY curve today) 

8.00 

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yields, forward credit spread start 

compressing since last summer 

14-Jan-04 28-May-OS 10-0ct.06 22-Feb-Oa 

Forward yields 

-TSY

200 

-fwr

150 100 

-IGs

50 

06-Jul-09 lB··Nov-l0 Ol-Apr-12 14·Aug-13 

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Liquidity spreads 

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AIlIG spreads 

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pace Beta a

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150 

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28-May-OS 06-Jul-09 

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expected loss = hard loss + MTM Loss 

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carry 

Block gross carry fwd roll down 

itraxx 500,276 1,152,241 

cdxig 891,954 1,900,639 

cdx hy -825,139 -1,628,535 

GotaI-c-····· - 1,424,345] 

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ICAESAREnt 26m 

Clear Channel 266 -295 

Realogy 266 -320 

Sabre 266 ___ 

MGIC 76 36,480.000 

Aleatal USA 76 36,480.000 

SuperVa!ue 144 64,800.000 

Dean Food 266 109.060,000 

Toys R Us 266 111,720,000 

ALLY 266 66,500,000 

sonnt 2661 -155 49,950,000 

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40% 

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75.00% 70.000"/0 70.00% 

85.00% 23.00% 55.00% 

65.00% 20.00% 45.00% 

30.00% 65.00% 16.50% 35.00% 

33,00% 65.00% 16.00% 32.00% 

35,100,000 38.00% 65.00% 12.00% 27.00% to

18,850,000 38,00% 65.00% 12.00% 27.00% • 

64,600,000 48.00% 85.00% 17.00% 37.0Q"/o 

57,000,000 48.00% 75.00% 12.00% 27.00% 

100,800,000 45.00% 70.00% 10.000;.) 25.00% 

159,600,000 41.00% 60.00% 7,00% 19.00% 

159,600,000 42.00% 60.00% 6.00% 18.00% 

106,400,000 25.00% 40.00% 4.50% 15.00% to

72,150,000 45.00% 85.00% 8.50% 20.00% 4

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steep but consistent. .. Hy14 to hy16 anticipate 1 to 4 more defaults than HY8 to hy1

spread vs T current curve and forward curve post 

kodak and RES CAP 

700.0 

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Name 

Hellenic Telecommunications Organization Norske Sk.ogindustrier ASA 

Ono Finance 1/ PLC 

Scandinav;an Airlines System Denmark-No 

ConvaTec Healthcare E SA 

A!catel-LucenUFrance 

Wind Acquisition Finance SA 

lneos Group Holdings Ltd 

Societe Air France 

M-real QYJ 

Fiat SpA Portugal Telecom International Finance BV Melia Hotels International SA 

C1R-Compagnie Industriali Riunite SpA 

Dixons Retail PLC 

Grohe Holding GmbH 

EDP - Energias de Portugal SA 

Cod ere Finance Luxembourg SA 

Fiat Industrial SpA 

Ardagh Packaging Finance Pic 

Stena AS 

Sunrise Communications Holdings SA 

UPC Holding BY 

International Consolidated Airlines Group S 

NXP BV f NXP Funding LLC 

TUIAG 

Wgt Eqty Thr 

2 HTO GA 2 NSG NO 2 8143340Z 10 2 SAIR 5S 2 01210700 LX 2 ALU FP 2 8420224Z LX 26623ZLN 2 394859Z FP 

2 MRLBV FH 

2 F 1M 

21332ZNA 2 MELSM 2 CIRIM 

2 OXNS LN 

23394ZGR 2 EOP PL 

2 3533037Z LX 

2 FilM 

201211010 LN 2 1081Z SS 

2 0209438Z LX 

2 3590264Z NA 2 lAG LN 

2 2 TUll GR 

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Corp Tkr 5 YrCDS Tkr Spread 

HTOGA COTE1E5 2060.655 

NSINO CT.l52336 1645.506 

ONOSM CT.l58298 1216.146 

5AS CSAS1E5 1197.871 

CONVAT CY088818 1064.562 

ALUFP CALC1E5 1052.06' 

WINOIM CT355118 999.053 

INEGRP CT.l58901 947.272 

AFFP CAFR1E5 914.876 

MESSA CMES1E5 901.23 

FIAT CFlAT1E5 842.967 

PORTEL CPORT1E5 842.537 

SOLSM CSOL1E5 822.764 

CIRIM CCIRllE5 788.349 

OXNSLN COIX1E5 760.833 

GROHE CGR01E5 757.834 

ELEPOR CEPOR1E5 756.258 

COOERE CX398261 752.044 

FilM CY079380 727.107 

ARGIO CY088950 694.4 

STENA CT761604 679.891 

SUNCOM CY088862 674.456 

UPCB CT352145 644.488 

IAGLN CBAB1E5 638.451 

NXPI CX404642 631.31 

TUIGR CTUllE5 606.042 

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SpA 0.8 FNC 1M 

8anca Monte dei Paschi di Siena SpA 0.8 BMPS 1M 

Telecom ttalia SpA 0.8m1M 

UniCredit SpA 0.8 UCG 1M 

Lafarge SA 0.8 LG FP Renault SA O.B RNO FP Intesa Sanpaolo SpA 0.8 ISP 1M 

Continental AG 0.8 CONGR 

T elefonica SA 0.8lEF SM 

Banco Bilbao Vizcaya Argentaria SA O.B BBVA SM 

Assicurazioni Generalj SpA 0.8 G 1M 

Banco Santander SA 0.8 SAN SM Royal Bank of Scotland PLCfThe 0.8 2783Z LN 

ThyssenKrupp AG 0.8 TKA GR 

Societe Generale SA 0.8 GLE FP 

Deutsche Lufthansa AG 0.8 LHA GR 

19 

842.537 

760.833! 

"i56.25a 

FNCIM CFMEC1E5 511.458 

MONTE CBMP1E5 399.833 

lll1M Cll1M1E5 392.238' 

UCGIM CUNI1E5 335.833 

LGFP CLAFS1E5 324.6671 

RENAUL CREN1E5 323.473' 

ISPIM CBCI1E5 317.5. 

CONGR CCONT1E5 313.009 

lELEFO CTLF01E5 291.365 

BBVASM CBBV1E5 278.701 

ASSGEN CASS1E5 278.333 

SANTAN CBSH1E5 276.167, 

RBS CRBS1E5 275.667' 

TKAGR CTHYS1E5 262.208 

SOCGEN CSOC1E5 262.167 

LHAGR CLUFT1E5 261.51 

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annex 3 :US risky names COX IG series 9 

Name Wgt Eqty Tkr 

Radian Group Inc 0.8 RON US 

MBIA Insurance Corp 0.8 16302Z US 

Sprint Nextel Corp 0.8 SUS 

iStar Financial Inc 0.8 SFIUS 

RR Oonnelley & Sons Co 0.8 RROUS 

Jones Group Inc/The 0.8 JNY US 

International Lease Finance Corp 0.8 0067543Q US 

Liz Claiborne Inc 0.8 LIZ US 

PulteGroup Inc 0.8 PHM US 

Computer Sciences Corp 0.8 CSC US 

JC Penney Co Inc 0.8 JCP US 

Gannett Co Inc 0.8 GCIUS 

LennarCorp 0.8 LEN US 

American International Group Inc 0.8 AIG US Alcoa Inc 0.8 MUS 

20 

Corp Tkr 5 Yr COS Tkr Spread 

RON CRON1U5 1993.395 

MBI CMBIN1U5 1278.682 

S CT357422 871.194 

SFI CT351304 819.876 

RRO CX359760 778.621 

JNY CJNY1U5 518.773 

AIG CILFC1U5 476.877 

LIZ CLlZ1U5 381.787 

PHM CPHM1U5 379.518 

CSC CCCS1U5 360.08 

JCP CJCP1U5 337.314 

GCI CGCl1U5 317.665 

LEN CLEN1U5 302.542 

AIG CAIG1U5 297.043 

M CM1U5 291.697 

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The book receives the forward 5 into 1 yr credit spread in IG and rolls down the US HY curve 

Ill! CIO opted to receive the forwards on IG series 9 and HY series 10-11 in order to use the liquid tra

markets 

!II The tranches allowed to create positive convexity in spread volatility and jump to defaults ( AMR) 

Ill! Each bucket ( Itraxx Main, COX IG, COX HY) has been beta hedged with its respective on the run 

RWA reduction actiQns 

IIll The natural volatility and P&L noise of the Forward positions was reduced in 2011 by beta hedgin

bucket (Var optimisation) 

Ill! The "carry- roll down" of the forward positions was used to finance upside on systemic and idiosy

with tranche positions. The term structure on equity tranches and indices was the best opportunity 

ill With an updated data on detailed RWA scenarios (Last update was in March 2011) a further mat

reduction is possible at minimum cost for 2012. 

The Skew and basis theme: main source of P&L noise 2012 YTD 

iii CIO sells protection on the S9 long term index when correlation desks-HF-dealers buy protection 

this is the only liquid access to protection on risky and well distributed names. CIO would benefit 

those names defaulted ... 

m The owners of this protection got short squeezed and act to limit the tightening of the S9 series 

III The filing of KODAK in US HY did not stop the rally in HY but made our long risks under-perform 

22 J.P.Morga
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The main P&L driver YTD was the underperformance Beta adjusted of the series 9 forw

III The largest loss comes from the best performer of the 3 buckets, ie COX IG9 ( implied L

150M USD) 

III The second loss comes from the US HY position: the HY market outperformed IG while 

have a decompression trade ( implied loss 100MUSD) and the filing of KODAK generate

another 50M USD drawdown 

11/ The Itraxx position is lagging but not materially ( 40M USD Loss). The interest rate hedg

another 20MUSD . 

, The main positive P&L contributors are carry and New trade 

ill CIO sold protection in IG on the run series with a bullish view ( gain 200M) 

.. The carry of the book YTD is estimated positive 50MUSD 

The Skew and basis theme: cia owns the liquidity and the exit for the protection buye

l1li If the names default, the SKEW trades will look to unwind, ie sell protection on IG9 10yr 

will collapse the tG9 forwards ( same applies to iTraxx S9 series) 

II If the spreads tighten further and the liquidity in the cash market comes, the Skew will tig

and the skew arbs will also look to unwind, ie sell the protection in IG9 10yr. ( same appl

iTraxx S9 series) 

III In both case, CIO can expect to gain 300-400M protection owners look for a way out. 

II! Further drawdown is possible as the credit spreads keep squeezing and protection owne

S9 IG indices look to hedge their short risk. 

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start expiry T 

IG95yr 03/0212012 20/12/2012 0.891667 0.93% 

CDS 4x1 20103/2013 20103/2017 4.058333 1.306% Simul Price diff mid point 

IG910yr 02102/201220/12/2017 5.966667 1.22% 1.31% 0.55% Nid slope 

ig903/17 03/02/2012 20103/2017 5.2 1.24% target duration 

FWD ig9 20103/2017 20/12/2017 0.763889 1.80% simul slope 

slope 4x1 02102/2012 20103/2017 5.202778 12.26791 15.34 

Trading cost 

loss bid loss ask trading ccT simul ig9 actual indslope cost actual s

index 7.18% 7.63% 0.44% 5.202778 0.51% 0.18% 14.10% 1.044% 

2.920833 Loss bid Loss ask implied bid implied off' duration Do rate 

0.19% 7,18% 7.63% 1.27% 1.35% 5.657473 5.878542 1% 

5.583333 

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III The dealers state that the IG9 1 Oyr trades 10-15 bps tight to the single names, among which you find 

60% full upfront) MBIA (45"10 full Upfront) SFI (70% full upfront) RRDonnelley (33%upfront) and spri

upfront). These 5 names weight 25% of the whole loss of the index and an estimated 35-40% of the 

trading cost. 

iii The high dispersion level of the index (which fair value is around 130-140 bps in any case) creates di

as it turns out, if one looks at the skew in IG9 10yr it quotes 65cts-75cts (or 12-15bps index equivalen

computes the average running from the components, on gets to HOBps ( for an official quote around 

index hence an apparent 48bps "basis"). But the price quote is in upfront with totally matched coupon

reason is found in the presence of those 5 names above. Because they could really default any day n

interesting in the running. 

II!! So I wanted to compute the price in upfront of the basis from the single names. Yet the 5yr CDS matu

March 2017 while the IG9 1 Oyr matures in December 2017. So I need curves and a forward analysis 

the extended maturity of the IG9 10yr. Here I got (from the mid of the 5yr CDS) that the index should 

133 while the index was 121 mid. This is equivalent to 67cts in upfront. Interestingly CSFF and BARC

BOA send quotes on the ig9 10yr skew like 65-80cts. So I am on track. Now BNP states on and on th

value of the index is like 40 bps away from market price. 

iii What this suggests if that those dealers offer a free entry ticket to the skew trade ie, they incentivise i

sell them the skew ie sell protection on single names to buy protection on the index. 

ill Then I looked at what it would cost to trade a slope or a forward spread like IG9 1 Oyr vs IG9 5yr ( ma

dec2012). I assumed that the IG9 5yr having only 11 months to live cannot be far from the single nam

equivalent. Now, there is almost no quote on the 1 yr cds except for the riskiest names. I looked then 

the cost to trade the 5yr alone and the ig95yr vs IG9 10yr one for one in single names: the cost for 

10yr alone is 51ct. The cost to trade the forward is 104cts. The index itself as such costs 15cts. So, th

arb" reflects merely the cost for anyone to neutralize an index exposure with single names. This mean

anyone entering the skew trade at say 65cts is likely to lose money if he tries remove it piece by piece 

CDS and 15cts in index on perfect exec). He is to lose money if one tries to wedge the baiiilMilh

III Only a spread compression and a dramatic improvement in liquidity would improve the quotes such th

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.. Now, some players, aware of the trap that is here, simply buy the index protectionon IG

1 Oyr and sell protection on the on-the-run to leverage a cheap protection on the 5 widest names

Here they lock in say 70cts from ig9 and give up say 25cts ( 6bps) ie saVe say 45cts on the inde

120 names) for 5 names or approx 10-11% in upfront for a group that has on average 45% full 

upfront. Given that the recovery can be assumed to be 30% (total loss of 70%) they mostly 

improve the reward if all those names file: instead of making 25% ( 70%-45%) they would mak

35% , ie 10% more. 

iii Now, if the market rallies and names do not the odds are not so good: becau

they pay this protection and will need to lock a skew trade at one stage. If we just assume there 

no in 6 months, they will likely lose 10pts ( CDS will roll down and tighten). More they m

have to sell back some CDS ( 4pts cost to trade the pack). The only cheap way out is to sell ba

the IG9 10yr. Now, because the index is a high beta one to the on-the-run index, a rally like the 

one we see is hurting them if only because of the PV effect related to the tightening. 

!II I need to produce the charts displaying the curves I know. But I will only be able to simulate wh

the curve should look like. Because only the 5yr really trades. Comes the roll in March, June an

September this year, the forward extrapolation will weigh less and less and the chance is that n

defaults in the pack will tighten the skew. Here the skew guys will try to exit and pressure the 

leveraged short guys to exit too. The trade we have is perfect in that regard because we will ha

the leg all these guys need. 

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Recently the forward credit yields have tightened with a high beta to the 5yr TSY y

\ 

V"'1.137ilx+3.6601 

R''''O.6826 

5yr tsy yld vs IG Fwd since Ap ril2010 

1.5 

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broader historical picture shows almost no correlation between 5yr TSY and forward credit 

Syr tsy yld vs IG Fwd yld since 2005 

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Annex 7 : Tactical and Core .. Same views, different implementations 

1. Core and Tactical views: monetary policy creates carry incentives but is dangerous g

bonds 

iii Receive IG forwards vs on the run, roll down HY curve vs on the runs 

III target upside on defaults- maintain positive convexity 

iii Maintain a short risk in bond futures for fear the govt market cracks 

2. Different implementations: core focus on credit only, tactical uses equity options 

111 Core source positive gamma from long term equity tranches and index flatteners 

IB Tactical sources gamma and vega from equity markets 

III Core P&L suffers from its size, credit only exposure and bearish bias ( no drawdown allII! Tactical P&L suffers from temporary regime shifts but is less liquidity dependent in rallie

3. Positive and negatives 

III Positive for core: core target liquidity traps 

III Positive for tactical: tactical is more daily event driven and not dependent on liquidity fig

I!li Profiles are different: 

- size: Core is downsizing while tactical is stable and much smaller 

Carry: Core is not meant to carry positively while tactical may within its drawdown 

Strategy: core targets medium-long term disagreements with markets while tactic

opportunistically exogenous events. 

29 J.P.
1636 

From: 

Sent: 

Macris, Achilles 0 <achilles.o.macris@jpmorgan.com> 

Thu, 08 Mar 2012 11:39:34 GMT 

To: Martin-Altajo, Javier X <javier.x.martin-artajo@jpmorgan.com> 

Subject: FIN: CIO CRM results 

what is going on here? 

From: Drew, Ina sent: 08 March 2012 00:29 

To: Maois, Adlilles 0; Martin-Artajo, Javier X 

Cc: Goldman, Irvin J; Weiland, Peter 

Subject: Fw: 00 CRM results 

Not consistant with your take. Let's discuss thurs. 

From: Venkatakrishnan, CS 

To: Drew, Ina; Hogan, John J.; Baron, Ashley; Goldman, Irvin J; Weiland, Peter 

sent: Wed Mar 07 19:12:25 2012 

Subject: Fw: 00 CRM results 

Ina, 

_ - Rtdatltd by tbe Ptrmanent 

SabcommiUet on J."estiCltioDI 

There are two related issues. The first is the $3bn increase in CRM RWA between Jan and Feb, from $3.1bn to $6.3bn. The 

second is that your group believes that the absolute level of CRM RWA we calculate was high to begin with in Jan. The second 

question requires us to explain our models to the satisfaction of your team. ! am in london and spoke with Javier today and 

we will make this an urgent matter. 

Based on our models, though, we believe that the $3bn increase in RWA is entirely explained by a $33bn notional increase in 

sh~rt protection (long risk.) in your portfolio between Jan and Feb, See table below. 

~eter Weiland and your mid~office confirm this S33bn notional increase in long index risk. Further we both agree that this 

position change results in a change of about $150mm (a decrease) in lO%CSW, Per our models, a roughly 10% capital charge 

($3bn) on this $33bn increase in risk is reasonable. 

Also, to be clear, there has been no mode! change on our end; the change in RWA fortranches has hardly changed over the 

month, 

! understand that we need to build your confidence in our models themselves but, given our models, we believe the increase 

in RWA is well explained by the build up in your risk positions. 

I will call you tomorrow from London to follow up, but you can reach me at ••••• 

Thanks, 

Venkat 

From: Bangia, Ani! K 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0001815 
1637 

Sent: Wednesday, March 07, 201206:35 PM 

To: Venkatakrishnan, CS 

Subject: 00 CRM results 

standalone CRM 

($MM) 

Jan 18th Feb 22nd 

All CIO Positions 3,154 6,301 

lndel( CDS, AI! Positions 2,043 6,224 

Index CDS: Common Positions 651 646 

Index CDS: Rolloff Positions· ,4,037 

Net 

Notional(SMM) 

Jan 18th Feb 2200 Position 

Increase 

55,091 , 

Index CDS: New Positions 9t57.9 aii,618' 33,!;27 Index Tranche: All Positions 2,814 2,818 

I ndex Tranche: Common Positions 1,972 2,174 

Index Trandle: RoUoH Positions" 1.484 

Index Tranche: New Positions 1,416 

~ Includes 421 Dummy PCM Trades that were removed from PCM feed (4 CDS1227 Index CDSI190 

Tranches) 

Confidential Treatment Requested by J.P. Morgan & Co. 

Poeltlon Count 

Jan 18th Feb 22nd Count 

25,291 26,927 Increase 

16,833 19,160 

15817 15817 

1,016 

3,343 2.327 

8,445 7,756 

7,334 7,334 

1.111 

424 

JPM-CIO-PSI 0001816 
1638 

IIrUM - elIn \'OU read th below draft: alld let me kl'lOW If V!)II itirl'i! Iw th~ pQlnn -thlnkwe ~eed te let lavler <II' board w/thl5 befo:>,e_lend eutformllillmit request 

F_~~ 

s..t: 161'dlrua1y 2012 11:09 

To:weiland,1'eIl!r 

CI:: LeoP.,.larletX; OIaom<t,SameerX 

Subjcl:RE: OO~Q-ed!tsprud 8P\Ifimltbrad'l-talD2J09/2012 

Since mkHallu8ryCIO hn been in brelKh 01 ItS Ilobll abpY timll!<, IIr)wen primarill' by ~~Ition ~harlllel in the tranthe bOQk 

Tht. ",b~metllodology add. the "bpv ,eMltMt!.. 01 1111 the credit produ<u,unlldJu,Io!d far COf<eJalloM . .o.s IG ilnd HY ~oslt"ns haw b"" IIIded In January (with I hedae ratio aI roughly 5~ltllenet obpv 

~rl"ts~l>O:<Itl~nu,"bel""entlloughonabeta-lidjuste-dbilSl1thebookll,elilthreJvfl3>t. 

M.rht RII-k is current"" rev'ewing aU l,mllJ. alld most ij~lywjjj rem.,.,.. t~ obpv limit to be replaced w'th a ~et 01 (red«·...,read·wlden'nc ICSW) l'mit> to belU!r reflect I:he '<10k mIlle pert/Ol., In material 

marke1IT>1NH Unlilthe new hmlt\ life Imolemented ...... wUl propoJl! I one...tf to:>t~ ,,-,bp\', UP to $1Omm. al "'" find that the stren lind c.w measures are mnreapp,oprl3>te indlnto" at the nu; oflhe 

poltfo!lo 

M YIl" tan see below - the CSIIPV musure 'o'S. 1m!. CSWshO'>l's that the book lias bHn rnKl~abll' bll3nttd dn~lte the headline bpvlooUrlg much longer, Tills Is Mttlle C4$4! lome ~ CSW ",liU~, 1$ the 

Pilf.llelr\!l3>tM! stlltu 01 sap" haw the efft" oj steepll! .... nc1he already YII'I"ltd lbpin, credit (,,~,lIen(e ,"a~s ku.<es look hlillher when compafed with the l[)Pc meal...-e This tin be '"II <learry in 

ce>m~'''',," of the SO'!' CSW mn$~re 'o'S the l.lt£e FIatre:nHlI S~1otf I Cfed~ Crisis scelliOrJoP&L. ""hid! slm~late, more realIStic (I.e. fllttenln,) cllrwdvnamb 'n the large {clrCll SOt6) ... lIoff. T~ book, In thk 

"'''', be!>efit'!. II""'''' ttt. In (tIX!G, long forward ,;s~" Ich",,~d "'" flatteller positions, I.e tile well !Ins for the IG Watl!1lle.!" the larCe fI3ttenln, ... ltotl i1-100mm >'1. ·lbn", tile 5IM ~rallel moloO! 

+05 .... +065 MI$...o.lSbn 

-19 vs ·1.39 DItI~.31m 

+149 'o'S ~188 OIff$<04bn 

·18 vs -0.18 OmS_Ibn 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO·PSI0001826 
1639 

I CONFIDENTIAL TREATMENT REQUESTED BY J.P. CHASE&CO. JPM-CIO·PSI0001827 
1640 

rno:o -ffi.65 DiffS..o.15bn 

rTXMN ·19 'IIi ·1.39 DIff$-(I.3bn 

~14B 'IIi +1.S8 DIff$-ffi.4bn 

·18 'tIi .{I.IS DIff$+lbn 

ff'Gfft!Well .... (I,~ 

5efwt:15Febr>.wy20122l:39 

Ta:S!ephan,Kdtl 

Cc:la,JanetX 

Subject: FW; CO G.lobaI D-ed!t ~ BPV limit ~d'>- COO 02/09/2012 

ilowabQ.utthi!.1 MaybeVDllt<lnfil;ta!"odaddyourBf1Iph~lfyout/t"k!t ..... ouldl>e!p 

Sine" mkJ.J:llnuary 00 hu ~n" bruth oIlts glob~1 ",bpvUmll5, drt.oen prlmar~ by po1ttion thanK" In !he tranct'le booL 

The csbpvmmodology adds the csbpvwntltMtleso1 aU the crfillt products, unitdjuswdto! oorrelatlons. Ai IG and tiy podt~oshaye been ~dtd In Jinuarv ("11th a hedje ,atlO ~ roulh~ 5~1 the oetcsbpv 

pr!nts.~numt..'r.ot!nth"ughon.bII!t ... adjur.tedblsll.thebook ... elariwlVna! 

Mlrket Rbk II (urrenttyreY'lewlnS aU IImlU Inll most lkely ..... m .emo'" \I.e al>pv limit to boo replace<l wfth a set '" ~re<lINpftllMl"wldenl ... {OW! 11",1to to bo!tte, "flea me rld'of tlte pa~()I" In m~terl.\l 

mllf~etm"""'$. I)ntll the n_ ~mlt:o 11ft Impltmentfil_ wijlll-'Op~, "ne·off t01lte obpy, u we f,n<l t!1l1 !Murau .nd trw mnSule. are moreap~opr'-~ l!"odlum!s 01 the ,lstol. the portrollo. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0001828 
1641 

PnefWtJllnd 

~b:1IIIil 

From: HUsiPI,Sy!!l 5 

s.nt:~,~13,20Ul:»PH 

TCI:I.J!e,laot!tX;St2pIlaI:I,I<e.'ttI;O't>.liltII,II'.a~K;XiDng,ec 

O::l'IRHaONA:I'IRM~~1lII 

S&!bjed: ao Global Cr1!dIt spud BPI{ i~ bfudI. COB 02lU9/lOU 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

_ - Redaded by tbe Permllnut 

SubeommittH on Investigations 

JPM-CIO-Pst 0001829 
1642 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM'(:IO·PSI0001830 
1643 

Rep,d!;, 

"This email isconfidentla!8Ild!WbjeeltOlmportantdlsc!almmardeondIUammcludingonoOmforthe?JfcM&eorsllle .. foecunlles.ac.cunlcy II:Ild compielerJe5li ofmfCll'Tllltlon, ~, 

coofidenl.ahty, legal pnvdl:~, 8lId Icpl eruity dlsc:Jaimcn. aV\lllable.1 hllp/lwww jpmorgan comlpllicsfdIJO:olosun:5Iemll1! 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI0001831 
1644 

From' MRM Re:portul& <mrm.reportillg@JPmci:lo.secom> 

Thu,19Jan2012005207GMT 

DJJlIOn. JamIe <)lImle dllTlor>@lJpmehuecom>, Hogan. Jolul J <J\llul J HOglln@Jpmorgalloom>,Zubrow, Barry L <b!I1T)' I zubro\Iw'@Jpmcl>asc:.eom> 

Staley, Jes <;es staley@JPtIlorgancom>,Doyle, Rllhm A <RoblIl.A DoylefgletwC" ~m>, Wellard, ~er <pcIer _daoo(~ch8!l'!, IX"">. I'.lft,\\', 1l1li <Ifill Drew@JplOOf8ancnm>; 

Baron, Ashley <:Ash~y Baeon@Jpmorga".wm>, 'David B U>WlJIIIn' <'1MCEA.F;X. 

_OoCORPEXCHANGE_OU=EXCHANGE+20ADMlNlSTRATlVE+20GROUP+20+28FYD1BQHF23SPDLT+29_CN=RECIPlENTS_CN"'DlIVid+2Eb+2Elowman@ipmdwseeom>. 

Warin8" Mid:. <Mio:.k. Waring@jpmorganoom>, Lochtefeld, Thomu A <tholl1/lu.kx:~[eld@jpmorgan.com>; Sunmi, Lavme <1Avwe SUl'tlIlli@Ipmchascrom>; Toechio, Samanlllll 

X~)( toccluo@!pmorga:l-oom>;Goodell,SarahN<wah.n.&otdell@lpmorganrom>. SreckOV1C, Steven <:stcven.#ccko\llC@Jpmorgan.rom.>;McCaffrey,ulII'eDA 

<lauren II mccaffrey@jpmorgancom>;MRMBuslnessReportIl'll:l <M'RM_BusUleSS_Rep<)l1l11g@lpmchase.com>,MRM Repo."l'Il! Qnrm.~portlIli!@rpmchaie wm>, lntnspeel. 

LIMITS <!ntraspecC"_UMITS@restricted.chueoom> 

Subject; IPMC 95% 10C! VIIR· Lumt EII«'SflOn NDiIfiCltJOn(COBs 1/16112 ard 1/17112) 

The Hrm'$ 9S% 100 'hR breoached Iu S12Smm Hml\IOf tho:> oecond ronseclltl .... ~ on January 17" 2012 

Th~ br~aell 10 Va!! for (ob January 16~ was primanly drt.lM 17'1 an o .... rall <edllCtlon '" dl.,.ersl:robon benefIt acro~ the Form as "'en itS positIOn than«lOS In both tht 18 (Global fX· lIIeruse 1/1 stunt EUR IR bpv; 

GCG· In~'ea.5l' In long oil della) and CIO (inc:ruu' In net credit pfolectlot\ posh"", InsynthlOtkcr~dlt within CID EM£A1 

8ladberYyMelodty: 

'mm 

COl )'aA Umlt 

1/11/2012 132.9 12S.O 

1/16/2012 126S 12S.0 

:ONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0005264 
1645 

• I . 
1646 

-
1647 

I 

l Id 

II I 
1648 
1649 

.. 

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1650 
1651 
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1653 

From: Weiland, Peter <peter.weiland@jpmchase.com> 

Sent: Sat, 12 May 2012 00:21:37 GMT 

To: Hogan, John 1. <John.JHogan@jpmorgan.com>; Goldman, Irvin J 

<irvinj.goldman@jpmchase.com>; Bacon, Ashley <Ashley.Bacon@jpmorgan.com> 

CC: Drew, Ina <Ina.Drew@jpmorgan.com> 

Subject: RE: NON IB VaR Bandbreak Summary Report - COB 4/3012012 

VaR bandbreaks can have several causes, and there are two in particular that are contributing to Cia's recent 

band breaks in synthetic credit. Generally speaking when using a VaR at 95 percentile, we should expect to see a band 

break about once every twenty days, or once per month. 

1) VaR method. During 2H2011 CIO developed a new VaR methodology ("WestEnd VaR"). It was approved by the 

Mode! Review Group (MRG) and implemented on January 26, 2012. Very recently, as MRG was brought in to 

review models in cia generally, it was determined that the VaR implemented on January 26 was not 

implemented as tested and had flaws. On May 10 cia reverted back to its former VaR method ("BC VaR"). 

period. 

One of the flaws detected in the West End VaR was a damping of volatility caused in the cleansing of time series. 

As a result the VaRs have been understated. In the chart below we show the band breaks against both the 

WestEnd VaR and the BC VaR. 

We see five band breaks from the WestEnd VaR and two bandbreaks from the BC VaR during the March~Aprii 

2) Volatility. Because VaR is calculated based on one year of observed market data, band breaks can occur at 

greater frequency than the statistics would suggest when entering a period of locally higher volatility. The 

recent drivers of C!O's synthetic credit P/l are relative value exposures induding curve, compression 

{relationship between investment grade and high yield spreads}, and basis between on~the~run and off-the-run 

indexes. 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO. JPM-CIO-PSI0007884 
1654 

In looking at the volatility of the relative value relationships we have not seen any systematic increase that 

would lead to more frequent band breaks, but the move on April 10 was a 4SD move in iTraxx curve. 

Conclusion: Using the Be VaR rather than the WestEnd VaR we find that the bandbreak frequency drops to expected 

levels. Also, the largest P!L day shows up on the Tuesday after Easter (Apr 10), the first business day after a four day 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0007885 
1655 

weekend in London, so that day compresses four market data days. That also happens to be the weekend that the press 

began reporting on the JPMorgan credit derivatives position, which we believe contributed to the market moves. 

Peter Weiland 

Tel: +12128345549 

Mob: +1914 434 8719 

From: Hogan, John J. 

Sent: Thursday, May 10, 2012 5:58 PM 

To: Goldman, Irvin J; Bacon, Ashley; Weiland, Peter 

Cc: Drew, Ina 

Subject: Re: NON IS VaR Bandbreak Summary Report - COS 413012012 

Irv/Pete, 

I'd like a comprehensive response of this by tomorrow please. 

john 

From: Hogan, John J. 

Sent: Thursday, May 10, 2012 10:23 AM 

To: Goldman, Irvin J; Bacon, Ashley; Weilandt Peter 

Subject: Fw: NON IS VaR Bandbreak Summary Report - COB 4130/2012 

Let's discuss 

From: Roder(Regulator), Glenn 

Sent: Thursday, May 10, 2012 10:20 AM 

To: Hogan, John J.; Drew, Ina 

Subject: FW: NON IB VaR Bandbreak Summary Report - COS 4/30/2012 

Attached is an example of a recent VaR bandbreak for cia that I mentioned during our meeting yesterday. I 

believe bandbreaks for cia occurred 8 times during April. Please explain the reason for this bandbreak, as 

weI! as the reason for the other occurrences during April. 

Thank you. 

Glenn 

From: Market Risk Management - Reporting 

Sent: Wednesday, May 02, 2012 S:42 PM 

To: Doyle, Robin A.; Surtani, Lavine; Bacon, Ashley; Tocchio, Samantha X; Weiland, Peter; Venkatakrishnan, CS; Man, 

George 1<6; Stephan, Keith; Yew, Patricia; GREEN, IAN; Roder(Regulator), Glenn; MRM External Reporting 

Ce: Intraspect - VAR Bandbreaks 

Subject: NON IS VaR Bandbreak Summary Report - COB 4/30/2012 

Please find attached the Non IB VaR Bandbreak Summary Report for cob 4/30/2012: 

Downside VaR; CIO - 218.1mm Loss, 88.6mm VaR, 129.5mm Break 

CIO EMEA - 220.Omm Loss, 87.5mm VaR, 132.5mm Break 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0007886 
1656 

Upside VaR (HedgeViilR): None 

Please find attached the Non 18 VaR Bandbreak SUmmary Clean Pnl Report for cob 4/30/2012, noting that Clean Pnl is currently 

being provided only by the ClO and PB. 

Dpwnslde VaR: C!O - 220.0mm loss, 88.6mm VaR, 131.3mm Bn~:ak 

CIO EMEA - 219.0mm Loss, 87.Smm VaR, 131.Smm Break 

Upside VaR (HedgeVaR): None 

JPMC Internal Use Only 

«VAR_Band_Break_Summary_Non_IB_20120430-

xls.zip» 

Please contact MRM External Reporting team with any questions. 

This infonnation is confidential and proprietary. and disclosure or distribution of the information to any person without the prior 

written consent of JPMorgan is prohibited. Any Bank Examiner or Financial Services Regulatory Examiner to whom JPMorgan has 

furnished lhis information may disclose the information to any other employees of a bank regulatory or financial services regulatory 

authority who have a need to know the information or as required by law. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0007887 
1657 

From: Man:in-Artajo, Javier X <javier,x.martin.anajo@jpmorgan.com> 

Sent: Thu, 08 Mar 2012 17:53;01 GMT 

To: Drew, Ina <lna.Drew@jpmorgan.com>;Hogan,lohnJ.<John 1.Hogan@jpmorgancom>; 

Venkatakrishnan, CS <cs.venkatakrishnan@jpmorgan.com> 

Macris, Achilles 0 <achilles.o.macris@jpmorgancom>; Weiland, Peter 

CC: <peter.weiland@jpmchase.com>; Goldman, Irvin J <irvin.j.goJdman@jpmchase.com>; Bacon, Ashley 

<Ashley Bacon@jpmorgan.com> 

Subje<'t: CIO CRM results 

Ina, 

! just had a meeting with lJenkat to agree on the next steps to reconcile OtJr differences regarding the CRM RWA in the following way: 

t We are going to accept current CRM model and its parameters this month and therefore for Q1 and will work first on how does this model behave as it is . 

2. In order to calculate current CRM for aU the correlation tranches risk and hedges that we have we are going to run our CIa portfolio with Venkat's team next 

week on a daily basis to make sure that we have a more systematic analysiS behaviour of tne model for our own portfolio and compare the results with the 

previous result 

So we will appoint Ani! Bangia and Pat Hasan to work together on the Quantitative side and on the business side Bruno Iksil wi!! coordinate on our side with . 

We will compare results at the end of next week and will share the new results . 

FI:'Om: Drew, Ina Sent: 08 March 2012 00:33 To: Venkatakrlshnan, CS; Hogan, Jotln ].; Bacon, Ashley: Goldman, Irvin Ji Weiland, Peter 

Cc: MaCris, Achilles 0; Martin-Art!jO, JaVIer X 

Subject: Re: 00 CRM results 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO·PSI 0008773 
1658 

-- lleDdedb)'IIN~ ... rnl 

-s.e.a. ............. lIligIU" '" 

I win discuss with Javier and Achilles lomorrcrwto reconcile. Thank you for prioritizillg. From wflat I undelSl.and there is a difference in view on the underlying 

model- position increase aside. 

From; Yenkatakrist1l'lan, CS 

To: Drew, Ina; Hogan, JohnJ.; Bacon, Ashley; Goldman, Irvin J; Weiland, Peter 

Sent: Woo Mar 0719:12:252012 

Subject; fw: ao CRM results 

Ina, 

There are two related issues. The first is the $3bn increase in CRM RWA between 1.10 and Feb, from S3.1bn to $6.3bn. The second is that your group beHeves 

that the absolute leve! of CRM RWA we c:akulate was high to begin with in Jan. The second question requires us to explain our models to the satisfaction {If your 

team. I am in london and spoke with Javier today and we wi!! make this an urgent matter. 

Based on our models, though, we believe that the 53bn increase in RWA is entirely explained bv a $33bn notional increase in short protection (long risk) in your 

portfolio between Jan and Feb. See table below. 

Peter WeHand and your mid-office confirm this $33bn notional increase in long index risk. Further we both agree that this position change results in a change of 

about $1SOmm (a decrease) in lO%CSW. Per our models, a roughlv 10% capital charge (S3bn) on this $33bn increase in risk is reasonable. 

Also, to be dear, there has been no model change on our end; the change in RWA for tranche~ has hardly changed over the mon.th. 

! understand that we need to build your confidence in our models themse)v!;!s but, given our models, we believe the increase in RWA is well explained by the 

!Juildupinyourriskposition.s. 

I will call you tomorrow from london tofoHow up, but you can reach me att •••• 

Thanks, 

Venkat 

From: Bangia, Anll K 

Sent: WOOnesday, Mardi 07, 2012 06:35 PM 

To: Yen"""takrishnan, CS 

Subject: ao CRM resorts 

:ONADENTlAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO·PSI0008774 
1659 

Ir!dtr~ CDS' AU POIIi!!Qns. 

lndool(CDS' Common POIIlIIons 

If!C1tl(CDS:RGIoIIPQI\I1~' 

lndool(CDS:N_~ 

InCIexTr....::I'Ie.AHPaslIiona 

lndt!lC.Trllf!Cha Com!lltlll?oelIloI'Ia 

!1ldtol(Trtlncl'le RQDotIPOlllOono.' 

1IlC1uTr~.N_Poaiho"" 

2,043 e,22~ 

'" "~'4,OI1"'" ~'!I'."" 

2,81~ 

Len 

, .... 2,819 

2,174 

~ :ill1':33;527:-

• lroch.da ~21 Oummy PCM T~thlll_t f.mo.....:llrom PCM h, .. d {4 CDsaz7 IllCIelC. COSJ190 Tr.rw;h ... ) 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO, 

,.. . .., 

16.833 19,160 

1J11B 

,,,.,, 2.327 

'''' 7,758 

1,"" 1,"" 

JPM.{;IO·PSI 0008775 
1660 

From: 

Sent: 

Goldman, Irvin J <irvin.j.goldman@jpmchase.com> 

Mon, 07 May 2012 18:30:01 GMT 

To: 

Bates, Paul T <paul.t.bates@jpmchase.com>; lewis, Phil <phiLlewis@jpmorgan.com>; Weiland, Peter 

<peter.weiland@jpmchase.com>; Enfield, Keith <Keith.Enfield@jpmorgan.com>; Hughes, Jason LON 

<Jason.lDN.Hughes@jpmorgan.com>;Grout,Julien G <julien.g.grout@jpmchase.com>;Stephan, Keith 

<keith.stephan@jpmorgan.com> 

CC: Bacon, Ashley <Ashley.Bacon@jpmorgan.com> 

Subject: RE: CIa Credit Collateral djfferences as of COB Friday 4th 

This needs to go to CS Venkatakrishnan for the Daily Report 

From: Bates, Paul T 

Sent: Monday, May 07,20122:16 PM 

To: lewis, Phil; Goldman, Irvin J; Weiland, Peter; Enfield, Keith; Hughes, Jason LDN; Grout, Julien G; Stephan, Keith 

Subject: CIO Credit Collateral differences as of COB Frtday 4th 

CIO Credit Collateral differences as of COB Friday 4th 

Total difference between Cia and the counterparties is now $203mm vs. $194mm prior day. 

largest Counterparty Difference: Morgan Stanley is now $61mm V5. $57mm prior day. 

Largest Instrument Difference: Itraxx MN 509 lOY 22~100 is now $24mm vs, $34rnm on the prior day. 

Difference by counterparty: 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO·PSI0008878 
1661 

BarrvLZubrcw 

Execulive VIce Pre"ildent 

Corporate ~nd ~elulatory Affairs 

February 13,2012 

By electronic submission 

Department of the Treasury 

Office of Domestic Finance 

1500 Pennsylvania Avenue NW 

Washington, DC 20520 

JPMORG.\!\ CH,\SE & Co. 

Securities and Exchange Commission 

100 F Street NE 

Washington, DC 20549 

Board of Governo ... of the Federal Reserve 

System 

Office of the Comptroller of the Currency 

250 E Street SW 

20" Street and Constitution Avenue NW 

Washington, DC 20551 

Federal Deposit Insurance Corporation 

550 17th Street NW 

Washington, DC 20429 

Washington, DC 20219 

Re: Comment Letter on the Notice of Proposed Rulemaking implementing Section 

619 of the Dodd-Frank WaU Slreet Reform and Consumer ProteCtion Act 

Ladies and Gentlemen: 

JPMorgan Chase & Co. appreciates the opportunity to comment on the joint notice of 

proposed rulemakingl issued by your agencies to implement section 619 of the Dodd-Frank 

Wall Street Reform and Consumer Protection Ac~ also known as the Voleker Rule. 

Overview 

Our company is affected by the proposed rule in numerous wayS. Through JPMorgan Cbase 

Bank, N.A., J.P. f,j:organ Securities LLC and other affiliates, we engage in marlcet making in a 

wide range of securities and derivatives; through the various legal entities that comprise l.P. 

Morgan ~et Management, we offer investment solutions-to our clients through funds and 

other products; and at the corporate level, our Chief Investment Office is responsible for 

making investments to hedge the structural risks of ow balance sheet on a consolidated basis.2 

1 76 Fed. Reg.. 68846 (November 7, 2011). 

2 We Yrill r:efer to jPMorgan Chase & CO, and all its subsidiaries collectively in this lecter as "JPMorgan," Dr the 

''Firm.'' 

JPMo'l3n ~II! &.(0.210 Parle Avenue. New York. NY 10017·2014 

Te+ephCJm!; 211·17CJ..D59].*fiC!llmOe,212·270-7J.ZO 

bilrryJ.lubrow@jprn~.Q1fTl 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0013270 
1662 

In each of these areas, we believe that the proposed rule would have serious, adverse effects 

on our ability to manage our risks and address the needs of our clients, and on market 

liquidity and economic growth. While the proposed rule would require us to eliminate pure 

proprietary tnlding and limit our hedge fund and private equity fund investing, we believe 

those intended effects will have significantly less impact on the Finn than the indirect and 

unintended effects on mElI'ket making, asset-liability management and asset management for 

customers. 

Section 619 does not prohibit most risk taking by banking entities. Risk taking is ne<essary 

for us to help American businesses finance and manage economic growth. Rather. the statute 

by its terms prohibits a particular category of risk taking that its drafters determined was not 

appropriste for banking entities. That type of risk taking is short-tenn speculative risk taking, 

either directly through certain types of proprietary tnlding or indirectly by means of investing 

in private equity or hedge funds. Other areas where banking entities take risk - even 

significant risk, for example, by making loans - are not covered by the statute, and do not 

D~ to rely on its exceptions to continue. 

We have two core concerns with how the proposed rule has interpreted the statute. 

First, it has in some areas twned the statute's narrow prohibition into a more general 

prohibition on risk taking, and put banking entities in the position of having to rely on 

ambiguous or incomplete exceptions to the proposed rule in order to continue some of their 

core functions. Thus, the proposed definition oftnlding account, which is part and parcel of 

the definition of proprietary tnlding, would appear to apply to many types oftnlding and 

asset-liability management activities beyond just those focuSed on short-tenn price 

movements. The statute clearly focuses on hedge funds and private equity funds, and a study 

by the Financial Stability Oversight Council' warns against the potential impact of a more 

expansiVe definition. Nonetheless, the proposed rule broadens the statutory definition to· 

encompass securitization structures. potentially all non-U.S. funds sponsored by or invested in 

by U.S. banking entities, including the foreign equivalents of U.S. mutual funds, and almost 

all wholly owned subsidiaries. 

Second, the proposed rule appears to take the view that blUlking entities. their customers. and 

the economy must pay almost any price in order to ensure absolute certainty that there can 

never be an instance of prohibited proprietary tnlding. The proposed rule appears to presume 

that banking enti ties will camouflage prohibited proprietary tnlding to evade the rule, and that 

extraordinary efforts are necessary to prevent this behavior. 

We believe that the statute mandates a very different approach. The statute clearly sets forth 

Congressional intent as to how it is to be implemented. The statute directs the FSOC to study 

and make recommendations to the agencies on implementation so as to: 

) "Study &: Recommendatio~ on Probibitions on ProprielaCy Trading &; Certain RelatiollShips with Hedge 

Funds & Priwte Equity Funds," Financial Stability Oversight Council (Jamwy 2011) (the "FSOC Study"). 

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• promote and enhance the safety and soundness of banking entities; 

• minimize the risk that banking entities wiU engage in unsafe and unsound activities; 

• limit the inappropriate transfer of Federal subsidies from banks to unregliiated entities; 

• reduce conflicts of interest; 

• limit activities that have caused undue risk or loss.4 

We believe thst all of these policy goals could be addressed by a final rule thst imposes 

dramatically fewer costs to liquidity, market efficiency and safety and soundness than the Doe 

proposed. There are numerous other laws establish~ to serve many of the same purposeseverything from margin requirements to Sectioo 23A of the Federal Reserve Acl to 

concentration limits to risk-based deposit insurance premiums. The sarne goals appear to 

"have motivated these laws, yet none of them have been implemented through an intrusive 

compliance regime and with a resulting chill on legitimate economic activity. 

The concerns we express are not unique to our Firm or even to the banking industry. We have 

heard them from our clients, including businesses, asset managers, and foreign nations - aU of 

which see the proposed rule as impairing their ability to fund themselves and manage their 

risks. The agencies are not recwired by section 619 to impose these costs, and we urge them 

to revisit the proposed IUle with them more firmly in mind. 

We acknowledge .the serious challenges thst ihe agencies face in implementing the statute. 

For example, the issues with the proposed restrictio~s on fund activity derive from 8 core 

problem: Congress did not define with any precision what constitutes a "hedge fund" or a 

''private equity" fund. We believe thst the proposed IUle makes matters worse by increasing 

rather than decreasing the scope of the term "covered fund," and by unnecessarily exporting 

these problems to overseas funds and bank subsidiaries. Similarly, as detailed below, 

distinguishing proprietary trading from market making is difficult, particularly with respect to 

market making in illiquid instruments. We believe that a prohibition on bright-line 

proprietary trading, as set forth in the FSOC study, 5 would have been a good solution, and 

consistent with the statute. However, once the regulators determined that 8 bro8der~ more 

quantitative emorcement regime was needed, imy such regime would, as 8 consequence, be 

necessarily complex, and our comment does not fault the complexity in this part of the rule. 

Rather, we focus 00 how certain aspects of the regime are particularly likely to chill 

legitimate market making and impose needless costs. Finally, in its unduly constrained 

approach to asset-liability managemen~ the proposed rule may undermine banking entities' 

safety and soundness. 

4 Section 619(bXl). The section Illso provides guidance on accommodation of insurance compaoies and 

divestiture of assets that are not relewnt here, 

$ ~ FSOC Study at pages 27~2B. 

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The Volcker Rule is made far more damaging by the fact that no other country has adopted 

anything like it. Capilal markets are global, and a typical institutional client has relationships 

with multiple banks, many of which are foreign banks; U.S. financial banking entities, 

therefore, will suffer competitively from the Volcker Rule. Furthermore, U.S. companies that 

lack the ability to fund themselves in overseas markets should not be put at a disadvantage to 

foreign companies that can access markets where the liquidity providers are not suhject to !he 

Volcker Rule and, therefore, are more liquid and efficient. 

The Finn supports comments on the proposed rule being submitted by the Securities Industry 

and Financial Markets Association, The Clearing House Association, the American 

Securitization Forum, the Loan Syndications & Trading Association and the Int.cmational 

Swaps and Derivatives Association. Those comments detail numerous issues created by the 

proposed rule, and how many of its cOmponents appear to conflict with the language and 

purpose of the statute, and impose high costs on banks, their customers, financial markets and 

the economy as a whole. In this comment letter, we will not replicate all those points but 

rather focus on some and provide examples from our own experience to highlight major 

concerns about the proposal. 

We do believe that the extraordinary complexity of the proposa~ the hUndreds of questions 

asked in the preamble, and the breadth and depth of proposed changes the agencies are likely 

to receive mean that the next version of the rule should and iikely will differ materially from 

the first Accordingly, we believe that those parts of the proposed rule that have elicited the 

most comment, and presumably will have undergone the most change, should be repuhlished 

for comment to ensure that efforts to fix one problem have not created another. While we 

recognize that the statute will take effect in July regardless of the statUs of the rulemaking, we 

believe that both regulated entities and the agencies have experience implementing statutes 

without a complexrulemaking to guide them, and could do so in this case. We believe that 

the FSOC's definition of bright-line proprietary tn\ding could be adapted as the basis for an· 

interim rule with respect to that aspect of the rule. With regard to funds, an interim final rule 

could identify those types of funds that are clearly traditional hedge funds or priVB!e equity 

funds while seeking further comment on any new definition that expands the definition to 

categories of "similar funds." 

tntimately, we believe that the statute is so flawed that it will be impossible to implement in a 

way that does not impose unacceptable costs on our economy and financial system. Other 

regulatory and supervisory actions, as well 8S seculBr industry refonns - including 

extraordinarily high capilal, liquidity and other requirements related to derivatives and other 

trading assets; improved underwriting standards; and pennanent ChBllges to the securitization 

landscape - impose more than sufficient restraints on the types of risk taking that are the 

Volcker rule's focus. 

We note that !he statute and proposed rule permit proprietary trading in U.S. Government 

securities, presumably hecause of. belief that trading in those securities benefits !heir 

liquidity and reduces the cost to their issuer, the U.S. Gpvernment Foreign nations are now 

4 

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seeking a parallel exemption from the rule, citing precisely those reasons and expressing 

concern about what restrictions on trading will mean for the liquidity and pricing of their 

securities. U.S. companies are expressing the same concern with respect to their securities, 

further highlighting the potentially significant cost of the statute. 

Those concerns highlight the exlrBordinary difficulties of proscribing proprietary IrBding 

while protecting client-driven and risk-mitigating trading activities. Nevertheless~ we do not 

propose to debate the merits of the underlying statute in this letter. Instead, our comments 

focus on the potential implications of the proposed rule for our client franchises and ris:k 

management activities. 

Our letter covers some general comments and then is divided into three main sections: 

• First, a discussion that the market-making-related permitted activity is drafted too 

narrowly. and would deprive markets of valuable liquidity. 

• Second, a discussion that the proposed definition of covered fund exceeds the statutory 

mandate by applying its restrictions abroad, and would thereby do urmecessary barm 

to the competitiveness of U.S. firms and investors. 

• Third, • discussion that • combination of provisions could impair the ability of 

banking entities to engage in asset-liability management, including liquidity risk 

management, and an exemption for asset-liability management is therefore necessary 

to safeguard adverse effects on safety and soundness. 

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TABLE OF CONTENTS 

~ 

1. General comments .............................. .,. . .............................................................................. 7 

A. Trading Acwunt ..•.•.........•.................................................•.....................................•.............. 7 

B. Supervisory Implementation ..........................•......................................•..........................•...... 8 

C. Need for Phased Implementation ................................ , ..........•...................•.......................•... 8 

11. Proprietary Trading and Investment Banking Activities ............................................................... 10 

A. Market Making ...................................................................................................................... 13 

B. Risk·Mitigating Hedging Pennitted Activity ........................................................................ 23 

C. The Exlrll!erritorial Application of the Volcker Rule Would Create Competitive 

Disadvantages among U.S. Finns ....................................................................... , .................. 26 

D. Govenn:nent Obligations Permitted Activity ......................................................................... 27 

E. Commodity Forwards Should Not be Included in the Final Rule ......................................... 28 

F. Lc""' ........................................................................... , ........... " ............................................ 29 

G. The Proposed Definition of Covered Funds Would Disrupt Certain Lending Activity ........ 31 

H. Repurcbase and Reverse Repurcbose Agreement> ................................................................ 34 

I. The Statute', Exceptions Apply to All Activities It COvcrs .................................................. 35 

1. Compliance Prognun ............................................................................................................. 35 

m. Funds and Asset Management Activities ...................................................................................... 36 

A. ForoignFunds ........................................................................................................................ 37 

B. Corporate Bunds .................................................................................................................... 47 

C. Public Welf"'" Investment> Abroad ...................................................................................... 49 

N. Asset·Liability Management ......................................................................................................... 50 

A. Asset~Liability Management is 8 Foundation ofSllfety and Soundness ... " .......................... 50 

B. Many ALM Activities Would be Captured by !be Defutition of Trading AcCount .............. 52 

C. Deficiencies in the Risk Mitigation Hedging Exemption ...................................................... 54 

D. Inapplicable Elements of the rusk Mitigation Hedging Exemption ...................................... 59 

B. The Liquidity Management Exclusion .. ., ............................................................................. 61 

F. Alternative approacb ............................................................................................................. 63 

AppenQix A - Compliance Program for Foreign Funds 

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L General Comments 

A. Trading Account 

The statute defines proprietary trnding as "engaging as a principal for the trading account of 

the banking entity or nonbank financial company supervised by the Board in any transaction 

to purchase or sell, or otherwise BaJUire or dispose 04 any security, any "derivative, any 

contract of sale of a commodity for future delivery, any option on any such security, 

derivative~ or contrBct, or any other security or financial instrument that the appropriate 

[regulatoJli] may ... detennine ... 6 Thi8 definition would seem to ban a wide range oftisk 

taking by bBDking entities. The definition is significantly and necessarily narrowed, however1 

by its reference to "trading account," which is in tum defined as comprising "any account 

used for acquiring or taking positioDs in [covered instruments] ... principally for the purpose 

of selling iD the near term (or otherwise with the intent to resell in order to profit from short~ 

tenD price movements)'" or other accounts that the agencie.oro may by rule decide to cover. 

Thus, the definition of "trading accounr' is where Congress actually made clear what it'meant 

by proprietary trading. And Congress made clear th.t it viewed proprietary trnding as having 

in all cases a focus on esming profit from short-term price movements. It thereby' , 

distinguished impermissible proprietary trading from longer term investment activity and 

.... t-liability management The proposed rule defines "trading account" by reference to three 

separate tests:. ,purpose test (which tracks the statute and includes a rebuttable presumption 

that any position held for less than 60 days was taken with short-term trading intent); a market 

risk Capital test (which subsiantially incorporates the definition of a "trading book" under 

proposed B .. el capitiiJ rules); and a status test (if the activity requires registration as. dealer 

then the status testis fulfilled). If any one of the three tests is satisfied, the particular account 

will be a tnlding account (unless one of the three exceptions set forth within the trBding 

account definition applies). 

The preamble to the proposed rule indicates that the agencies added the market risk capital 

test on the assumption that its coverage was effectively the same as the purpose test. and to 

reinforce consistency between the proposed rule and the market risk capital rules, and to 

"eliminate the potential for inconsistency or regulatory arbitrage:~ We believe, however, that 

the proposed market risk capital test does capture additional types of trading that are not 

within the purpose test, and types of trading that clearly should be permissible. The status test 

does as well. Accordingly. we suggest the agencies revert to the statutory definition.9 

, Section 619(b)(4). 

, S",tion 619(hX6). 

• ~ proposed rule at page 68859. 

9 1fthe agencies do wish to proceed with II separate market risk capital test, they would need to reopen Ibis 

rulemaking in order to resolve what would otherwise appear 10 be significant proceduraJ issues. Not only has &he 

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B. Supervisory Implementation 

The statute creates a supervisory role for five separate regulators. The proposed rule suggests 

no means by which the supervisory efforts of those agencies should be coordinated. As the 

statute notes, inconsistent application or implementation ofreguJations could create 

competitive advantages and disadvantages among entities affected by its terms.IO 

This jurisdictional ambiguity is n.ot simply an awkward issue for the agencies, but rather, if 

permitted to C()ntinue in the final rule and its implementation, it will also be a significant 

problem for markets. The proposed rule already vests extraordinary discretion in the 

regulators, and makes it very difficult for a banking entity to know whether trading will be 

considered pemtissible (wbether as market making, underwriting, asset-liability management 

Or otherwise) or impermi .. ible as proprietary trading. mterpretations are likely to vary over 

time, and one examiner at an agency may take 8 different view from another. Political 

considerations may change views of wbat is pemtissible. A whole additional layer of 

uncertainiy is added, though, if the same trading unit at a given banking entity is subject to 

interpretation by examiners at all\ultitude of agencies. A trader at a national bank subsidiary 

ofa bank holding company that register.las a swap desler faces the prospect of having a 

vague and politically cbarged rule Interpreted by four different agencies for purposes ofbis or her trading. . 

We recommend that before this rule is finalized; the agencies adopt and seek comment on a 

protocoifor supervision arid enforcement that ensures that a given banking entity will mce 

one set of rules', andthat different bailli:iDg entities will mee the same sef of rules. 'Failure to 

do so win result in even greater chiDing oflegitimate trading, and even greater damage to 

market liquidity, fiinding for u.s. businesses,and economic activity. . 

We are less concerned with who makes !he rules here than with the consistency of the 

application of those rules, though we believe that because these restrictions have safety and 

soundness as their primary focus, the banking regulators would seem to have the most 

relevant experience as well as having"f:be examin$lion resources. 

C. Need for Phased Implemenbltion 

Rogardless of bow the final rule turns out, it will be a shock to the U.S. financial system; as 

banking entitias will need to take e)<traordinary measures to attempt to implement it, counsel 

traders on what is permitted and what is not, and establish a cumbersome compliance regime. 

Both banking entities and regulators win need to learn how as many as seventeen metries 

work when used, for the first time, to distinguish government-approved trading from 

proposed rule bert. not provided notice as to how that tesl would expand the statutory deflDition, the mllfket risk 

capital test is eurrently only a proposed rule, and is subject to cbaoge. ~ proposed Nle at page 68859; RislcBased Capital Ouldclin .. : Market Risk, 76 Fed. Reg. 1890 (J"","l' 11, 2011). 

10 ~ S .. riOD 619(b)(2)(B)(iD. 

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government-prohibited trading. The risk posed to the U.S. economy by a hurried 

implementation of the VoIc.ker Rule is significant. We encourage: the agencies to adopt 8. 

gradual approach to implementation of the final rule. In particular: 

• The agencies should use the initial conformance period to develop a complete 

understanding of the nmge of activities conducted by banking entities that require the 

assumption of principal risk and how those activities are distinguishable from prohibited 

proprietary trading. The initial conformance period should he used exclusively to collect 

and analyze data concerning those activities and bright-~ne proprietary trading activities 

and to develop appropriate quantitative tools to test for compliance with the proprietary 

trading prohibition ~ the ex.piration of the initial confonnance period. 

• The following sentence should be removed from the final rule because it has created 

considerabl~ confilsion as to the availabi~ty of the initial conformance period faT banking 

entities to conform their activities to the statute a,nd appears at odds with the Board's 

Confonnance Rule: 

The agencies expect a banking entity to fully conform all investments and activities to 

the requirements of the proposed rule as soon as practicable within the conformance 

periods ... 

• The final rule should require banking entities to use reasonable efforts to begin fumiabing 

metries as of the first s:nnivemaryofthe effective date and state that the provision of such 

reports during the initial conformance period is without prejudice to the ability of a finn to 

rely on the full initial conformance period with respect to its activitieS. 

The sole recommendation of the recent GAO study on proprietary-trading was that regulators 

should collect and review more comprehensive infonnation on the nature and volume of 

activities potentially covered by the SUltute in order to ensure that it is implemented 

effectively." The initial conformance period ill an opportunity for agencies to adopt a 

heuristic approach not solely with respect to tho quantitative measurements in Appendix A to 

the proposed rule, but with respect to implementation of the statute as a whole. We encouregc 

the agencies to use the initial confo11D8I1ce period for that pwpose. 

The proposed rule has created considerable confusion concerning the initial confonnance 

period. AB ~ proposed rule notes more than once? the pwpose of the initial confOrDlm:'ce 

II ~ GAO Report to Congressional Committees, "Proprietary Trading - Regulators Win Need More 

Comprehensive Information to Fully Monitor Compliance with New Rescrictioo8 When rmplemented;~ July 

2011 (the "GAO Studyj rIn order CO improve their abiliry to track and effectively implement the new 

restrictions on proprietary trading and hedge fund and private equity fund investments,. we recommend thai the 

CbairpersoD ofPSOC direct the Office of Finaneial Researt:h. or work with the stiffs of the Commodiry Futures 

Trading Commission. FDIC; Federal Rt=Serve; DeC, and SEC, or both, to coUecl and review more 

comprehensive informatioo on the nature and volume of activities that could potentially be cov~ by the act j. 

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period is to give marleets and banking entities an opportunity to adjust to the statute. The 

purpose of the Board's ConfunnanceRule, which took effect on April I, 2011," was to 

impl~ment the C?Qnformance peri~. While the proposed rule states that the Board is not 

proposing any substantive changes to >the Soard's Confonnaoce Rule, such a substantive 

change is arguably made by the statement that the agencies expect a firm to fully conform all 

investments and activities to any final rule as scpn 8S pmcticable within the conformance 

periods. No such statement is made or implied in the Board'. Conformance Rule. 

Furthermon:, to the extent that the statement implies that a firm may not be.permitted to rely 

on the full initial conformance period, it appears inconsistent with Congressional intent. 

Any ve"ion of the compliance program outlined in the proposed rule would n:qUire a 

significant systems build-oUl We believe thet (ew, if any, banking entities could have 

complered that build-out by the effective date even if the final mle had been issued in October 

2011, as reqwred by the statute. The statement iniposes an unreatistic and, given the 

existence of the initial conformance period, unnecessary burden on banking entities. We 

agn:e, however, with the statement in the proposed rule that the metries can only be usefully 

identified and employed after a process of substantial public comment, practical experience, 

and revision. We believe that a full year's worth of data would be sufficient to allow the 

agencies· to refine the suite of metricS, 

n. Proprietary Trading and IlIv .. lment Banking A<llvities 

Regulated banking entities are by mdhe largest providers of mlIrket:-malcing serVices. The 

existence of a robust, competitive field of such entities willing to provide liquidity is essential 

to create secondary market. support for inv...unents like corporate and municipal bonda. The 

statute haa created conaidarable tmcortainty about the marleet-making'related services thet 

these entities can continue to provide. Further, while the statute clearly identifies the 

promotion of safety and SOtmdn ..... one of its primary objectives and specifically protects 

market-making-relared activities, the proposed rule appe ... more heavily focused on the 

prospect of banking entities hiding prohibited behavior. Consequently, it proposes to operate 

wit!> a disruptive level of granularity and fails to provide banking entities with a sufficiently 

clear path to compH_e .. We believe tha~ if implemented as drafted, the proposed mle could 

have a chilling effec! on the provision of liquidity by market makers that, in turn, would 

impair capital fonnation. Our principal concerns and recommendations concerning the 

market-making-relared aspects of the proposed rule, each of which is described in more detail 

below, can be swnmarized as follows: 

• The final rule should establish a n:buttable presumption that if the metries required by the 

rule demonstrate that a business is a market~making business then the business in question 

is in compliance with the final rule. 

11 ~ Conformance Period for Entities Engaged in Prohibited ProprictBly Tnding or Private Equity Fund or 

Hedge Fund Activities. 16 Fed. Reg. 8265 (February 14.2011). 

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• The proposed rule regarding market-making should not rely on bard-<:oded criteria; 

instead, some of the criteria included in the proposed rule should be moved to an appendix 

as guidaoce to banking entities on bow to distinguish permitted markei-making-related 

activities from prohibited proprietary trading. 

• Metrics should be applied at a less gnmular level, with longer observation periods, a 

frequency that more closely reflects typical banking operations and more statistically 

appropriate calculation periods. For some metrics, the proposed implementation set out in 

the proposed rule is dramatically more difficult than necessary, and will yield negligibly 

more insight than a less burdensome version. 

• While the statute very clearly permi~ the purchase, sale, acquisition or disposition of 

securities and other instruments in connection with market-making~related activities, the 

proposed rule appears to permit only transactions that are, themselves, market making. 

We believe that this fails to give full effect to Congressional intent with respect to the 

protection of cri.tical aspects of a market maker's activities, such as certahl arbitrage 

activities." 

• The proposed rule puts WlDecessary restrictions On intetdealer trading, which is an 

important component of market making. The agencies should make clear that, 'whether or 

not conducted on an organized trading facility or exchange, intetdealer trading driven by 

. liquidity needs is market-making-related activity and is permi!!ed. The agencies should 

clarify that the nature of the trading relationship determines whether an activity is marketmaking-related, not the characteristics of the parties to the transaction. 

• Presently, the proposed rule does not properly accommodate i~portant client-driven 

structured transactions. The final rilie should recognize th.8.t these transactions are an 

important element of a banking entity's role and are related to its market-making 

activities. 

• The proposed rule splits exemptions between the prohibition against proprietary trading 

and the prohibition against investing in covered funds in a manner that WBS not intended 

by the statute. As a result, we would be unable to engage in: CU8~mer-driven underwriting 

and market maldng activity with respect to assets such as collateralized loan Obligation 

equity and certain exchange-traded fund securities because such assets are treated as 

covered funds under the proposed rule. 

• The agencies should not apply the final rule to commodity tbrward and foreign exchange 

products that clearly have a commercial. and not strictly financial, pwpose. 

• The proposed rule's proposed definition ofuresident of the United States" would create 

competitive inequalities overseas among u.s. hanking entities and should be amended to 

reflect the terms of the SEC's Regulation S so that the term '~tesident of the United States" 

does not include any agency or brancb of a U.S. person located outside the United States 

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if the agency or branch operates for valid business reasons, is engaged in the business of 

banking and is subject to substantive banking regulation in the jurisdiction where located. 

We have concems about aspects of the proposed rule other thaa market-making that we 

believe would impair the ability of JPMorgaa to provide its clients investment banking 

services. These concerns, all of which, again, we address in greater d~tail below, can be 

summarized as follows: 

• Similar to our proposed treatment of the ·criteria for the market~making exemption., the 

proposed rule regarding risk-mitigating hedging should not rely on hard-<ioded criteria, 

but rather a number of the criteria should be addressed exclusively in an appendix where 

they would provide guidance that the agencies would apply to help distinguish permitted 

risk mitigating hedging activities from prohibited proprietary trading. 

• The final rule should clearly permit banking entities to continue to use ali risk 

management tools currently available to them, including scenario hedges. The proposed 

rule should be revised to make clear that scenario hedges are within the stope of the 

hedging permitted activity. 

• The proposed rule does not clarify the status of intra-group trading activity - which firms 

freqUently use for a variety of risk management, legal, tax 8D~ regulatory reason. - and 

therefore leaves unclear whether it is permissible. The final rule should take proper 

account of intra-group trat\Sactions by considering the economic effect ofserie. of related 

transactions, not juSt individual transactions, on a banking entitY group as a whole. 

• The documentation burden associated with Section _.5( c) of the proposed rule is 

unnecessarily disruptive. It should be applied at a less granular level and should not be 

applied to trading desks that exist to hedge risks assumed hy other trading desks. 

• The definition of covered fund set out in the proposed rule could cause the disappearance 

of certain securitization activities, resulting in a material reduction in credit for a wide 

range of industrial, commercial and service-sector entities. As drafted, we believe the 

definition exceed, the requirements of the statute aad fails to take proper account of the 

FSOC's recommendations ODd the rule of construction set out in Section 13(g)(2) of the 

statute, 

• The government obligations permitted activity should be explmded to include derivatives 

referencing government obligations because a· failure to do so will inadvertently affect 

liquidity in government ohligations themselves. In order to preserve liquidity in the bonds 

issued hy other sovereign entities, it should also be expanded to iriclude trading that is 

otherwise permitted by law in the obligations of all foreign governments that are 

comparable in credit quality to the United States. 

• The definition of trading account should be limited to a purpose test as required by the 

statute. The presumption that any account used to acquire or take a covered financial 

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position I:h.at is held for sixty days or Jess is a trading account position exceeds 

congressional intent and should be removed from the final rule. 

• The agencies should give further consideration to the meaning of the term "loan," At 

present. it throws into question the treatment of certa.in market~standard means of 

transferring the risk associated with loans, We believe that there clearly are circumstances 

under which debt securities should be considered to be within the phrase "extension of 

credit" in the definition of loan and that the rule should leave room for the issue to be 

addressed on a case-by-case basis. 

• The exclusion for repurchase agreements should be extended to encompass all 

transactio.Q,S that are analogous to extensions of credit and are not based on expected or 

anticipated movements i~ asset prices. 

A. MArket Making 

1. The Essence of Market Making 

The essence ora market maker's job is to provide liquidity by quoting prices to customers and 

then to respond intelligently to the risks acquired when customers act on the quoted prices. A 

single trade will typically expose the market maker to multiple risks, and the successful 

market milker is oDe who makes the right choices about which risks to prioritize addressing, 

in what sequence, and with which instruments, The optimal choices are the ones that 

minimize the volatility of his or her portfolio while maximizing the amount of bid -offer 

spread captured over time. Market making thus necessarily involves risk mitigation rather 

than risk elimination. The proposed rule introduces significant uncertainty into this 

optimization process and risks diminishing the willingness of market makers to provide 

liquidity. 

Regulated banking entities and broker-dealers are by far the largest providers of marketmaking-related services. The existence ofa robus~ competitive field ofbanking entities 

willing to provide liqnidity is essential to creating secondary market support for investments 

like corporate and municipal bonds. Without the predictable source ofseconmuy market 

liquidity that market makers provide, the risks of bond ownership would increase, causing 

investors to raise borrowing costs to issuers. That. in tum, would seriously impair capital 

fonnation. 

In essence, the distinction between prohibited proprietary trading and the core capitaiwraising 

functions of the U.S. financial markets now rests on the agencies' interpretation of the words 

"designed," "reasonably expected,n and "neaf tenn," Given the vital importance of the 

distinction, the choices that regulators make in implementing the Statute are critical. While 

the proposed rule represents. good faith effort to resolve the uncertainty generated by the 

starute, its approach to supervision could reduce the willingness of finns to make markets. N; 

we note in the introduction, in its directions to the FSOC, ,the statute clearly identified the 

promotion of safety and soundness as one of its primary objectives. At the sarne time, it 

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specifically recognized that some market~making~related.a,ctivities were not in conflict with 

this objective and should be protected. The proposed rule instead focuses heavily on the 

possibility of firms "hiding" prohibited behavior or mischaracterizing activities to evade the 

statute and is insufficiently focused on the safety and soundness of firms and the financial 

markets more broadly. What follows in this section of the letter is a discussion of the 

principal issues that we believe should be addressed in order to minimize the adverse effects 

of the proposal on market-making-related activities. 

2. Liquidity Substitution and the Shadow Banking System 

A few observe .. have suggested that, while the statute may redoce the ability of banking 

entities to provide liquidity, that effect may be offset by an increase in market participation by 

non-regulated firms. We believe this argument is misplaced for two reasons. First, the statute 

provides a clear exemption for market-making activities by banking entities rather than 

directing the agencies to consider alternative providers of that service. Second, and more 

fundamentallY, market realities make it highly unlikely that non-regulated entities would have 

the incentive or resources to serve as dependable market makers at narrow spreads, 

particularly in volatile markets when such services are most necessary. Such a suggestion 

ignores lessons from recent financial crises and greatly underestimates the impo~ce of 

housing critical financial services within the regulated banking sector. 

One important lesson is that procyclicalliquidity is not a substitute for through-the-cycle 

liquidity. We view our market-making business as part ofanovepill franchise that includes' 

commercial banking, lending and underwriting relationships. High-frequency tnders and 

hedge funds play an important role in financial markets, but their business models dn not 

require the development or maintenance of such relationships. As such, we believe that their 

willingness and ability to accept risk to support clients dnring periods of market stress (when, 

as we note above, a market maker's services are of the greatest value) will naturally be mQre 

limited than those of a banking entity. 

Market making is optimally located within financial institutions that are subject to close 

prudential supervision. The minimum capital requirements to which banking entities are 

subject cps:ure that. even in stressed D1$Ikets. they have sufficient capital to participate 

actively in market making. Also, banlci.og entities typically have access to diversified sources 

of fund.i:Q.g that iillow them to assume less li'quid and more volatile positions from clients with 

greater confidence. By contnst, non-regulated financial market participants are typically very 

thinly capitalized and have limited, jf any. access to tmditional capital markets. Furthermore. 

managing the complexity associated with large portfolios of lightly ntismatched "leftover" 

risk over long periods of time and in all market conditions, which is a critical clement of a 

market-maker's role, requires access to capital and risk management infrastructure that is only 

found in banking entities. As events like the collapse of Long Term Capital Management and 

othe .. have demonstrated, market events like unexpectedly high margin calls threaten the 

viability of highly leveraged or lightly capitalized market acto .. with complex portfolios of 

offsetting positions. 

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Also. many non~regul8ted entities operate a business model that depends on executing 8 high 

volume of intra -day transactions and ending the trading day without any risk position at all. 

Even a small increase in execution uncertainty or operational risk can lead such an entity to 

exit a marl<et. The "flash crash" of May 6, 20 I 0 clearly demonstrates the destabilizing effect 

ofsucb contingent liquidity. 

We expect that, however it may be implemented, the statute win reduce liquidity. That 

impact will lead to a widening of bid -offer spreads that will attract non-regulated entities, at 

least tempomrlly. But we eneourage the agencies to recognize that the business model of 

non-regulated entities means that any commitment to providing liquidity is likely to prove 

limited, high in cost, and fickle. 

3. The Definition of Trading ACcount 

As noted above, the proposed definition of trading ,ccount is broader than the statutory 

definition. . 

In a later section, we describe how the proposed market risk capital !<;'It would explllid the 

statute 10 cover asset-liability management functions that should be p.nnissible, and why it 

should be eliminated. Here we f""us on three edditional issues: (I) why the registration test 

should also be eliminated; (2) why the 6O-<iay presumption is counterfactual and shotild be 

eliminated; and (3) how, in one w'y, the proposed rule expands the pmpose test unwisely. 

RegistraJion Test 

The inclusion of the registration test in the final rule would create significant uncertainty 

about the scope of the proprietllry trading prohibition. The test .pp .... 10 overl.p entirely 

with the purpose test and, as such, is redundant. Further, the final rule will apply globally. In 

the course of preparing for the implementation of the final rule, it is hecoming clear th.t, in 

certain jurisdictions, it is difficult 10 conclude with certainty whether frequent long-term 

investing activity gives rise to a local dealer registration requirement In cases where it docs. 

the registration test would make activity th.t lacks short-term trading intent subject to the 

statute's prohibitions. SiDce that would exceed Congressional intent, the registration test 

should be removed from the proposed rule completely. 

Presumption 

Although it is described in the proposed rule as being intended to "simplify" and to provide 

"greater clarity and guidance," the rebuttable presumption set out in the proposed rule that any 

covered financial position held for sixty d.ys orloss is • trading account position 13 (the 

"sixty-<i.y presumption") is an expanaion of the proprietary trading prohibition set out in the 

statute. Nothing in the statute requires or implies a requirement for such a rebuttable 

13 ~ proposed rule Section _.3(bX2)(ii), 

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presumption and there should be no such presumption in the final rule. The sixty-day 

presumption only increases the uncertainty surrounding the proprietary trading prohibition. It 

is far from clear what evidence would suffice to rebut the presumption. Also, the inclusion of 

the sixty-day presumption highlights confusing inconsistencies in the agencies' approach to 

the definition of trading account In relation to the market risk rules test, when looking for 

guidaoce with respect to the phrase "short-term," the proposed rule refers to the FASB ASC 

Master Glossary definition of "trading" which notes that "near-term" for purposes of 

classifYing trading activities is "generally measured in hours and days rather than months or 

years." We find that inconsistent with a rebuttable presumption that a position held for two 

months was acquired with short-term trading intent. The proposed rule itself, at footnote 102, 

also appears to note the inconsistency.14 

Purpo~e Test 

While we generally support reverting to the statutory purpose test as the sole definition of 

trading account, we are concerned about the statement that a trading account ''Would also 

include a derivative, commod#y future, or other position that, regardless of the term of that 

position, is subject to the exchange of short-term variation margin through which the banking 

entity intends to benefit from short~term price mov~ents.nu Decisions about the interv~ at 

which collateral should be taken frOID C01Ji,terparties are taken by credit risk manage ... , not 

traders. Thcy reflect credit risk appetite, not trading intent. . Regularly takingcollaieral to 

mitigate the crc~it risk associated with a' financial transaction simply is not an indicator of 

short-term trading intent, and the statement should be deleted. It should be noted that Title 

VII of the Dodd-Prank Act will require certain firms to take collateral from their 

counterparties on a daily basis in respect of swap and security-based swap transactions 

whether or not they actually want to do so. Since that collateral posting is mandatory, it says 

nothing at .Uabout intent. lfle(\ in the final rule, the statement may cause banking entities to 

alter otharwise prUdent risk management practices to conform to the final rule. That would 

run contrary to the stated purpose of the statute IlIJd constitute a clear case of the cost of a rule 

outweighing its benefit. 

4. The Proposed Rule Should Not Rely ori Hard-Coded Criteria 

Because ofits multiple overlapping parts, the proposed rule does not provide regulated 

entities a clear path towards compliance. For market making to continue in its current form, 

I" ~ proposed rule at foolnotc 102: ''See FASB ASe Mas:ter Glossary definition or"tl1ldiog." Although 

§_.3(bX2)(ii) of the proposed rule lIicludes a rebuttable pres.wnption that au ac<:ount used to acquire or take 

certain covered financial positions that are beld for 60 days or less is a trading account, the agencies Dote that 

U.S. GAAP does ROt include a presumption that secwitiea sold witbin 60 days of acquisition wen: heJd for tho 

purpose ohel1ing tbe:m in the near term." 

15 ~ propOsed.rule at P88e 68858 .. The pUlpOSCI test also mcludes covered fioancial positions acquired or fBkcp 

principally for the purpose of benefitting from actual or expected sborHenn price movements.. 

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as the statute clearly intended, finns should have a way of knowing whether the activities they 

are conducting will or will not qualify for the exception. 

For example, Section _.4{b)(2)(vi) of the proposed rule requires finns to conduct their 

market making·related activities in a manner consistent with Appendix B to the proposed rule. 

However, Appendix B provides that consistency with Appendix B is insufficient and also 

requires compliance with an of Section _.4{b). In places, Appendix B and Section _.4{b) 

address the same topic, and it is unclear wbether compliance with Appendix B also constitutes 

compliance with the corresponding criterion in SectioD 4(b). If it does, it is cUmcult to see 

why there is a separate criterion in Section _.4(b) at all If it does not, it is unclear what 

additional compliance steps are required. . Addressing the subject matter of Section 

_.4{b)(2)(ii), (iii), (iv), (v) and (vii) of the proposed rule only in Appendix B would resolve 

the confusion that presently exists in the architecture. 

The proposed rule proposes to apply seventeen memes daily at a variety of points in the 

firm's trading hierarchy. Also, Appendix B to the proposed rule is a multi-page description of 

the distinctions between pennitted market-making-related activities and prohibited proprietary 

t.r8ding that notes frequently bow facts and circumstances can cause a genuine market~making 

busineSs to resemhle a proprietary trading business. Because of its use of bard -coded criteria 

in the proposed rule itself, as the proposed rule is presontly constructed, a trading desk that 

has all of the anatomical properties of a market-making business," that consistently yields 

satisfactory results with respect to the preponderance of the seventeen metrics and that 

operates its business consistent with Appendix B cao still be told that its activities are 

prohibited proprietary trading because, for example,it held itself out on a regular basis when 

it sbould have held itself out on a continuous basis. That is clearly the wrong result and 

would be avoided if the subject matter of Sec\ion -C..4{b )(2)(;;), (iii), (iv), (v) and (vii) of the 

proposed rule were addressed only in Appendix B. That would allow the agencies greater 

flexibility as it would ensure that "facts and circumstances" can be factored into regulatory < 

decisions. In a rule intended to address a variety of products and all market conditions, that 

flexibility is essential to proper supervision. 

S. The Proposed Rule GQes beyond the Statute to P!lll!cribe "Market-Making Related .. 

Activities 

The statute very clearly pennits the purchase, sale, acquisition or disposition of securities and 

other instruments in connection with market-making-related activities:. As the agencies are 

aware. the word Urelatedn was specifically added during the House-Senate conference 

process. In places. however. the proposed rule appears to read this word out of the statute, 

For example, the proposed rule states: 

16 For ex.ample, the business employs sales staff that cover clients. i.uues research to clients, delivers pricing runs 

to clients and is considered by the Street and by clients to be a market-making business. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013286 
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a trading desk or other organizational unit of a banking entity that is engaged wholly 

or principaUy in arbitrage trading with Don-customers would not meet the tenns of the 

proposed rule's market making exemption. 17 

While some types of arbitrage trading might properly be considered speculative, others clearly 

relate to customer needs and should be seen as a part of a finn's market-making-reJated 

activities. Corporate bond exchange-traded funds 'provide a useful example of the latter. 

Exchange:traded funds are a low-cost means by which investors, often individuals, are able to 

participate efficiently in markets that would otherwise be closed to them. For the product to 

work, two cooditions must be met: the .underlying bonda must be tradable and liquid, and 

market participants must be willing to execute arbitrage transactions between the exchangetraded fund and the underlying bonda. The corporate bond exchange-traded fund market 

could not continue to function as it does without that arbitrage activity; supply ~d demand 

furees would cause the exchange-traded fund to diverge from fair value and distort its 

performance. The liquidity on the underlying bonda is provided by corporate bond market 

makers. For an exchange-traded fund market .. maker, the ability to optimize various sources 

ofliquidity, including the underlying corporate bond marke~ is an impnrtant factor in the 

efficiency thot drives the exchange-traded fund's low friction costs. But the exchange-traded 

fund market-maker's portfolio construct might at times have the appearance of an arbitrage 

slIategy. Often, as a matter of organizational efficiency,' finns will restrict that strategy to 

certain 'specific individual tiaders within the market-making organization, who may 

sometimes be referred to as a "desk." The propnsed rule apparently would not allow such a 

desk to rely on the market-maiclng-reiateil exception. We believe that this is inconsistent with 

the statute and unwise as a matter of policy. . 

Also, in ord.~ to minimize risk management costs, firms commonly organize their marketmaking activities so that risks delivered to client-facing desks are aggregated and passed by 

means ofintemal transactions to a single utility desk. The aggregated client-dclivered risk is 

then hedged in aggregate and, optically, can bear some of the chamcteri,tics ofarllitrage. 

Such activity is a direCf function of a firm's market~making operations, Wld we encourage the 

agencies to recognize it as permitted marlcet~making-rela1ed behavior. 

6. The Proposed Rule Creates Considerable Doubt about the Status of jpterdealer Trading 

Actiyitv 

Interdealer trading is a vital compnnent of market making, as pennitted under the statute. 

Accordingly, we suggest the agencies clarify that the nature of the trading relationship 

determines whether an activity is markct-making-related. not the characteristics of the parties 

to the transaction. 

In its discussion of the Customer-Facing Trade Ratio, the propnsed rule notes that 

17 Sg, proposed nde at page 68871. 

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A broker-dea1er, swap dealer, or security-based swap dealer, any other entity engaged 

in market making-related activities, or any affiliate thereof may be considered a 

customer of the tnl(lin~ unit for these purposes if the covered banking entity treats that 

entity as a customer ... 8 

We regard that comment as a recognition of the important fact that there is a significant 

amount of interdealer trading activity where one dealer is acting as the customer of another. 

We also agree with the direction of the following comment made in the proposed rule: 

activities by ... a person that primarily takes liquidity on an organized trading facility or 

exchange, rather than provides llquidi7' would not qualify for the lll8Jket-malcing 

exemption under the proposed rule ... 1 

Wbether or not conducted on an organized trading facility or exchange, trading activity that 

has as its primary driver the provi.ion ofliquidity is market-making-relat&d activity and 

should .be permitted. We see no distinction in this regard between anonymous exchangetraded traosactiort.s and over-the-counter tI:ansactions where the identity of the cOWlterparties 

is disclosed. 

A particularly vivid example of why the agencies should clarify the status of interdealer 

activity is the direct market in cwrency options. The market is c~ed "direct" because it is 

entirely bUateral and is neither intermediated by inter-dealer brokers nor executed on any 

organized trading facility. The currency options.market is a global, 24-hoUr, 6-day-per-week 

markeL Following the decades-<>ld conventions of .the foreign exchange spot 1ll8Jket, firms 

provide two-way prices to "'!Ch other in that rmUket on demand. This informal agreement to 

quote two-sided prices to other marltet makers is an essential feature of being a market maker 

in the global currency options markeL Wben one market maker provides pricing to another in that market, it considers the market maker 10 which it provides the pricing to be a customer. 

Access to that interdealer liquidity is essential to allow finns to develop the risk inventory 

needed to satisfy demand in their market-making franchises and 10 manage risks delivered to 

them by their non-dealer customers. At present, there is considerable confusion in the 

industry about whether the agencies view this activity as prohibited. We strongly recommend 

that the' agencies clear up that confusion in "the fmaI rule. 

7. The Ptoposed Rule Undervalues the Metrics 

The proposed rule notes consistently that the metrics are designed for "identifying trading 

activity that warrants additional scrutiny." They are equally well designed for identifying 

trading activity that warrants n'o further scrutiny. While we agree that no single metric can' 

serve as a dispositive 1001 for identifying probibited proprietary trading, we submit that if. 

business routinely passes over a dozen metric tests designed to determine whether it is a 

!I Proposed rule at page 68960, 

!9 Proposed rule at page 68872. 

Confidential Treatment Requested by J.P. Morgan & Co. 

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JPM-CIO-PSI 0013288 
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rnarket~making business, the need for further inquiry into the nature of the business is 

significantly reduced and maybe superfluous. The final rule should provide that where a firm 

has establis/led an internal compliance program with respect to a business and the metrics that 

are run by the firm demonstrate that the business is a market~making business, the business 

should benefit from a rebuttable presumption that it is in compliance with the final rule. 

8. The Metrics Require Ch@Pges to Reduce Impact on Liquidity and Decrease 

Implementation Burden 

Levelo/Reporting. The proposed rule requires banking entities to calculate and report 

metrics at points in the organizational hierarchy down to the trading desk level. The choice of 

level at which to apply metrics is an extremely important one: while too hlgh a level may 

cause smoothing of results, too Iowa level will routinely generate false positives. The 

opportunity to explain the fuets and circumstances surrounding false positive· mitigates the 

harm, but not enough: knowing· that individual decisions will require explanation will 

seriously chill des~ble capital commitment by maIket makers. That chllling effect will be 

magnified at the worst possible times since the incidence of false positives will increase in 

distressed market conditions, when a market maker's services are of the greatest value. 

The propoied ·rUle ·couldsafely be less granular and still be effective. At JPMorgan, the most 

senior level of trading risk management is referred to as the Investment Bank Risk 

Committee, ·or mRC; and meets·weekly to disCuss the Firm's trading risks. The heads of all 

the tmding"busmesseS are represented at these meetings, and positions ~e discussed at a level 

of granullirity that appropriafely reflects the materiality of the risk. We believe that the 

metrics should not be applied below the level at whlcb data is routinely reviewed by senior 

management at these mRC meetings. For example, Bt JPMorgan, the tradingbwiriess level 

would be Credit Trading orlnstitutional Equity as opposed to a sub-level within each· business 

- e.g., North American Credit Trading. 

Frequency 0/ Reporting. The proposed rUle proposes monthly reporting of metrics. WIDle 

the agencies should retain the ability to request more frequent reporting on.an exception basis 

and firms should be required to investigate anomalies as they arise, the routine reporting 

frequency should be quarterly. Monthly reporting is too frequent because of the complexity 

·of the process that surrounds the generation of regulatory reports. Before sueb reports are 

submitted to regulators, they are subjected to trader, compliance, risk~manager and senior 

managem~t reviews. That process is time consuming and, as B result, such reports are 

generally produced only on a quarterly basis. 

Calculation periods. Simillll'ly, thirty.day and sixty.<Jay calculation periods are too short for 

some of the proposed measurements. A thirty·day calculation period will typicaliy capture 

only 22 trading day>!. For statistical calculations, a sample set of22 data points is just too 

small and creates an unnecessarily high degree of measurement Wlcertainty. To maximize 

their usefulness, the calculation period should be one calendar quarter (typically 63 trading 

day>!) for each of the following proposed quantitative measurements: 

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• Volatility of Comprehensive Profit and Loss and Volatility of Portfolio Profit and Loss; 

• Comprehensive Profit and Loss to Volatility Ratio and Portfolio Profit aod Loss to 

Volatility Ratio; 

• Skewness of Portfolio Profit and Loss and Kurtosis of Portfolio Profit and Loss; aod 

• Spread Profit and Loss. 

Utility of the Metrics. Some of the metrics are completely new; they are not currently in 

widespread USe in the industry. Two metrics in this category are Inventory Risk Thrnover and 

Spread Profit and Loss. While eacb is potentiaUy useful in concept, the proposed 

implementation set out in the proposed rule is dramatically more difficult than necessary and 

wiu yield negligibly more insight than a less burdensome ve'iion of the test. 

The Inventory Risk Turnover metric sbould focus only on the principal measure of directional 

risk for the subject portfolio. One of the core functions of a mark:et~ma.k:er is to warehouse 

certain secondary risks, which is essential to the proper functioning of most markets. The 

purpose of an inventory tumnver measure is to compare the amount of risk that il marleet 

rosker retains to the size of the marleet marker's client frenchise. A typical securities lnlding 

desk wiU lnIdemany securities, and many desks will InIde both derivatives and securities. 

The proposed role's proposal to require firms to compute risk turnover in relation to all of the 

regularly produced risk sensitivities of all instruments within the relevant portfolio would 

require risk turnover to be calculated for ten or more risk sensitivities in some businesses"and 

is excessive. 

We believe that focusing only on the principal measure of directional risk strikes the right 

balance between prscticality and relevance. Any concern that focusing only on that principal 

measure will encourage the warehOUSing of outsize positions in" other risks should be 

mitigated by the application of other measurements (especially profit and loss volatility 

metrics and the Comprehensive Profit and Loss Attribution metric) that should effectively 

identify other risk concentrations. In addition, the more exotic the risk, the greater the 

difference in measurement methodology.cross funis. Requiring inventory risk turnover to be 

measured against more than the principal measure of directional risk will mske it far more 

challenging for the agencies to manage horizontal reviews and~ as such, to maintain a level 

playing field among firms. 

With respect to the Spread Profit and Loss metric, the End of Day Spread Proxy is sufficient 

and should be used for aU ... et classes. Using the prevailing bid-ask or similar spread at the 

rime the purcbase or sale is completed is far more onerous than is necessnry to distinguish 

position-related revenue from spread-x:e1ated revenue. It will yield meaningless results in 

institutional markets where clients have significant bargaining power (which descnoes most 

markets for the institutions most sffected by the s_te) because, in those markets, it would be 

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perfectly reasonable for a firm to record the most recently traded price as the midmarket price. 

In that situation, the Spread Profit and Loss would be zero, producing B metric "failure" in all 

cases. 

The End of Day Spread Proxy relies on processes that finns generally already have in place in 

response to industry-wide demand for accurate end-of-day valuations. It is much more 

objective than the proposed approach because it i. subject to far greatencrutiny by third 

parties. Correctly, the proposed rule notes the need for market makers to manage retained 

principal riok effectively. Balancing riok in order to be able to quote to clients is an essential 

element of B trading business that is designed to satisfy near term customer demand. For the 

most liquid asset classes. the proposed approach will cause market makers who successfully 

manage intra-day fluctuations in client demand to appear to be trading with "a simple 

expectation of future price appreciation,'.20 leading to defensive pricing behavior and a 

reduction in market liquidity. While it could be argued thst our proposed approach would 

allow. proprietary trading desk with an intra-day trading mandate to appear to have only 

spread~relB.ted revenue/I·any such business wou1d fail a simple review of its mandate and setM 

up and would almost certainly produce profit and loss volatility numbers inconsistent with 8 

market-making business. 

With respect to the Cu$tomer-Facing Trade Ratio. we believe that the metric should not be 

based on trade counting; instead it should be a riok-based normalization. similar to the 

Inventory Risk Turnover metric. The proposed approach introduces the possibility of 

nonsensical results. For· example,. a corporate customermigh\ execute a multi-\)illion dollar 

hedge of its foreign currency exposure by buying a foreign currency put option in the FX 

Options 1I1BIket. The maricet-:-maker may, ~ong other approacbes, "'call ouf' in the interbank 

market and exit the position in much smaller pieces. The result would be to have one 

customer trade and, perhaps. ten or more dealer trades. simply because each of the interbank 

trades is smaller. 

Further, as the agencies acknowledge,ll Stress VaR is not in regular use' for dBy-to-day risk 

management. For Basel purposes. Stress VaR will be calculated only at the highest level of 

the firm, and computing it at a more granl!lar level creates a significant implementation 

burden as well as Problems in tenns of comparability arid relevance of results. More 

importantly, as a measur~ that conveys no infonnation about intent or proportionality between 

the risk assumed aod client demands. it provides little relevant information about a banking 

7G ~proposed.ruJe8tpa.ge68871, 

II If a proprietary trading busiDess had an inm..day trading mandate it would always end the tnlding day with a 

nat position. If the mid~roarket value of its trades wen: only determined at cod or day then all of the revenue: 

would go into the spn:ad category. tmlting the appearaooc of compliance even though the activity is clearly 

prohibited, 

21 ~ proposed rule: at 688B7, 

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entity's compliance with the statute. We therefore believe that Stress VaR should be removed 

from the list of required memes. 

Inapplicability to Mset-Liability Management 

The metrics proposed would no~ in any farro, be useful in distinguishing valid asset-liability 

management from proprietary trading. We discuss this in detail below, under "Asset-Liability 

Man~gement ., 

9. Solution-Driven Transactions 

We are concerned tha~ generally, the proposed rule does not appear to acknowledge the more 

structured, client-driven transactions that banking eiJ.tities routinely enter into with their client 

base. Such transactions (which are often referred to as "solution" transactions) arc 

increasingly driven by client financing needs, but may also.be driven by risk management 

considerations. For example, B transaction may be designed to'provide a 'predictable source of 

funding for a client's regulatory capital needs or to provide structured protection to a client on 

its loan or securities portfolios. Our goal is either to give the client indirect access to cheaper 

soun:es of funding or assume risks from the client that we then distribute to the maikel. 

Typically, the client-facing transaction is relatively structured and we hedge or offset the risk 

assumed using a combination of transaction. executed through our maiket-making desks. This 

activity is related to our market-making franchises and therefore permissible under the statute. 

Banking entities are by far the largest provider of these solution-driven products. We are 

concerned that the trading on behalf of custom .... permitted activity is not sufficiently broad 

to permit this activity and that a narrow interpretation oftbe requirement to hold oneself out 

"on a reguJar or continuous basis" would preclude reliance on the'market':'making permitted 

activity in connection with these client~driven transactions. We suggest the agencies make 

clear in the final rule tha~ for this pwpose, a banking entity meets. reqnirement to hold itself 

out if it markets structured transactions to its client base and stands ready to enter into such 

transactions with them even though transactions may occur on a relatively infrequent basis. 

B. Risk.Mitigating Hedging Permitted Activity 

We discuss in detail below the application of the exception for risk-mitigating hedging to 

lPMorgaI)'s corporate asset·liability management function. It is within that function, rather 

than within our investment bank, that we hedge the structural risks of the company's balance 

sheet In this section, we discuss how the risk-mitigating hedging exception applies to 

hedging within our investment bank. As the proposed rule acknowledges, hedging i. a vital 

part of market ma1cing, because it allows maiket maken; to manage the ptfucipal risk they 

must incur to petfonn the function. In several ways, the proposed rule would make bedging 

more difficult 

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L The Proposed Rule Should Not Rely on Hard-Coded Criteria 

The criteria in Section _.S(b) of the proposed rule should be factors to be considered when 

distinguishing prohibited proprietaIy trading from hedging, not tests that must be satisfied in 

every case in order to qualify for the hedging pennitted activity. For example, we are 

concerned that even if all other requirements of the hedging section are satisfied, a transaction 

is not a bOllSe unless it is contemplated by the written policies established by the firm 

pursuant to subpart D. That limits the ability of the firm to hedge unanticipated risks quickly. 

The hedging permitted activity set out in the proposed rule is much narrower than the 

discussion of the hedging permitted activity in the preamble. For example, the preamble 

states that acticipatory hedging is permitted in certain circumstances but the text of the 

proposed rule itself makes no reference to anticipatory hedging." The mismatch between the 

discussion in the preamble and the hard.ocoded criteria in the proposed rule generates 

considerable uncertainty. Removing hard-coded criteria from the proposed rule would help to 

resolve that uncertainty. 

If the criteria in Section _.5(b) in the hedging section of the proposed rule were removed .and 

the subject matter of those provisions were addressed instead in an appendix to the proposed 

rule analogous to Appendix B, the agencies would be able to take facts and circumstances.into 

accoUDt throughout the supervisory process, ~ we note above, .we be!ieve that is essential tq 

the proper supervision of complex financial markets. 

2. The Importance of Scenario Hedging 

While most rial< management is designed to address reasonably foreseeable risks, risk 

managers also routinely consider so-called "tail risks;" remote, bUI potentially devastating 

movements in a portfolio of assets that can fonow events like the collaps,e of a major financial 

institution or the insolvency of a-highly leveraged sovereign entity •. A:3 the agencies are 

aW8I'e, banking entities routinely stress test their balance sbeets against sucb outlying 

scenarios and many banking entities are currently engaged in stress tests concerning 

macroeconomic and financial market scenarios mandated by the Federal Reserve to ensure 

that institutions have robust, forward-looking capital plannin~ processes.24 Typically, 

scenario hedges are not dictated by individWll trading desks. In fact, it is common for 

1J ~ page 68875 offtte proposed rule and contrast it with Section _.5(b)(2Xii) oflhe proposed rule. 

1-4 ~ peden) Reserve press release November 22, 2011 at 

bttp;//www federatreserye govtne,uyMWpresSlbqeg/201II 122a.btm. 

U Since most scenario hedges are established at higher lev~1s of organization within banking entitie$. they would 

be subject to the additional docurncDtation requirements set out in Section _ S(c) of the proposed rute. Also. 

scenario hedges have a clearly identifiable risk and profit-and-Ioss profile. They should be identifiable using 

V8Jue-at~Risk and Stress VaR and VIR Excecdance and reveDue metrics. Consequently. supervisors win have 

ample opportunity to require bBDking entities to explain the facts and cireUln5tances surrounding these trades. 

24 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013293 
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individual trading desks to be unaware that sucb hedges have been established because 

awareness might change behavior in a manner that undermines the value of the hedge. 

A position sbould qualiry as a hedge if it is reasonably correlated to a specific risk or the 

banking entity can reasonably demonstrate through its stress testing program that the position 

reduces its tail risks. At inception, the conelation between a chosen hedge and a given tail 

risk may be relatively loose. Section _.5(b)(2)(iii) of the proposed rule requires that the 

hedging transaction be "reasonably conelated, based upon the facts and circumstances of the 

underlying and hedgjng positions and the risks and liquidity of those positions, to the risk or 

risks the purchase or sale is intended to hedge or otherwise mitigate," We believe that this 

requirement may be too narrow to permit scenario bed~ing 8!ld, as such, could deprive 

banking entities of an important risk management tool. 6 

3. Inlra-groun activity 

Generally, the proposed rule does not edeqUBtely discuSs intra-group trading activity and 

therefore leaves unclear wbether i.t is pennissible .. For a variety of risk management, legal. 

tax and regulatory reasons, banking entities frequently use booking vebicle, that do not face 

external counterparties except to support the trading or bedgjng activities of other group 

members. For example, a bedge fund derivative transaction entered into by a U.S. banking 

entity v"th a non-U.S. custOmer may be hedged by means of an offiletting transaction between 

the banking entity and a non-U.S. affiliate of the banking entity that buys hedge fund sbares 

as its hedge for the offiletting transaction., That combination of transactions provides the 

group, as B whole; with an efficient hedge to the customer~facing transaction. The proposed 

rule is drafted as though the same entity always executes both the risk-generating transaction 

and the hedge. The final rule sbould clearly allow banking entities to consider exempt group. 

of transactions entered into by different group members if they are connected and in aggregate 

act as a hedge for specific risks faced by one or more members of the graup.1:7 

4. Documentation of Maera Hedges 

The proposed rule appears to underestimate the frequency with which hedges are established 

by Il supervisor or risk manager responsible far"mare than one trading desk. We believe that 

the requirement for contemporaneous documentation sbould epply only to hedges executed 

one level or bigher above the level desaibed in the example contained in foomote 161 in the 

proposed rule. That is, the documentation requirement should apply only to hedges that are 

loS, We also address these iSSUe::!! in the ABsct~Uabi1i!y Maoagement section oftbis letter below. 

27 Another example of the propollCCl rule's faihn to rec.ognize intn..group activity appears in relation to the 

markeHnakiog permit~ activity. In many cases,. mere booking entities arc able to rely on intn-group 

exemptions under local law and do not can}' dealer registrations.. Sioce the proposed rule makes such 

registration an absolute condition. it woLlid be impossible for such entities to rely on the market making 

ex-emption, 

25 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013294 
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established by the manager of a person responsible for more than one desk or by more senior 

managemenl No additional documentation of a hedge transaction should be required at or 

below the level described in foomote 161 as long as the hedge in question is contemplated by 

the hedging policies and procedures maintained by the relevant business in compliance with 

Subpart D. Otherwise. the administrative burden associated with the proposed rule would be 

significant to the point of interrupting normal !reding operations. That. in tum. may cause 

banking entities to become exposed to greater risks. It should also be noted that these hedges 

will be subject to testing using memes and, as such, will be subject to review by the agencies. 

The mandate of certain desks is to hedge the risks generated by other desks. Such risk 

management desks should not be subject to the documentation requirements with respect to 

their trading activity at all. We believe that it is incorrect to consider such desks to be "at a 

level of organization that is different than the level of organization eStablishing ... the [risk 

genemting transaction)." The two typically sit at the same level within an organization and 

lJIpically have separate management reporting lines. If such desks were subject to the 

documentation requirements, their daily trading operations would be materially affected 

because they would be required to separately document the pwpose of every !rede executed. 

The final rule should make clear that such desks are not subject to the documentation 

requirements. 

C.' The Extraterritorial Application of the Volcker RnLe Would Create Competitive 

Disadvantages among U.s;Flrms 

The definitiOl; of "resident of the United States" contained in the proposed rule creates 

competitive inequalities among U.S. banking entities that operate overseas. As dmfted. the 

proposed rulepmce; U.S. banks thet operate overseas through branches at a disadvantage to 

U.S. banking' entities thet operate ov","eas tIuough subsidiaries. To avoid these inequalities, 

the definition oC"resident of the United States" should be conformed to the definition of U.S. 

person contained in the SEC's Regulation S. 

Many U.S. banks conduct activities in covered financial positions from their overseas 

branches. Such activities are lJIpically heavily regulated locally. For example, the London 

branch of JPMorgan Chase Bank, N.A. is • "resident of the United States." It is regulated by 

the UK Finaocial Services Authority. However,'along-establishedU.K. subsidiary ofa U.S. 

firm is not captured by any clause of the "resident of the United States" definition. & such, 

in their dealings with a branch, overseas entities must take into account the possible 

application of the Voleker Rule to their transactions, bu~ in their dealings with. subsidiary, 

they do, not. Consequently, overseas entities are more likely to want to deal with subaidiaries 

than branches. We see no policy justification for the competitive disadvantage at which 

JPMorgan Chase Bank, NA. would be placed - certainly no justification relating to the 

subject of the statute. 

The inclusion offoreigu branches of U.S. banks within the definition of "resident of the 

United States" in combination with the proposed rule's definition of derivative, may adversely 

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Confidential Treatment RequesLed by J,P, Morgan & Co. JPM-CIO-PSI 0013295 
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impact tIading in U.S. Government debt obligations by foreign investors in a manner that 

clearly was not intended by Congress. Although the Treasury Secretary has proposed to 

exclude foreign exchange swaps and forwards from regulation as swaps for most purposes28• 

the proposed rule proposes to include sucb products within the definition of derivative. 

Foreign exchange swaps and forwards are the means by which foreign investors convert local 

currencies into U.S. dollars so that they can purchase U.S. Government debt obligations. AP, 

such, liquidity in those products affects liquidity in U.S. Government debt obligations. Those 

products are very often executed with overseas branches of U.S. banks. If foreign exchange 

swaps and forwards _remain covered financial products under the final rule and those overseas 

branches of U.S. banks are residents of the United States, then foreign investors wiU .have to 

assess the proposed rule's implications when they trade in those products with such local 

branches. That, we believe, may reduce liquidity in those products and tha~ in turn, may 

reduce liquidity in U.S. Government debt obligations. 

The agencies note that the definition of "resident of the United States" in the proposed rule is 

similar but not identical to the definition of U.S. pe"on for pUIposes of the SEC's Regnlation 

S. AP, it relates to bank branches, the definition shou.ld be identical. The full provisions of the 

U.S. person definition ofRegnlation S should be added to the proposed rule so that the term 

resident of the United States doeS not include any agency or branch of a U.S. peI>On located 

outside the United States if: 

(i) the agency or bC8.Dch operates for valid business reasons; and 

(ii) the agency or branch is engaged in the business of banking and is subject to 

substantive banking regulation in the jurisdiction where located. 

D. Government Obligations Permitted Activity 

We refer the agencies to the letter dated Februery 10, 2012 submitted by JPMorgan, Wells 

Fargo Bank, N.A., Deutsche Bank AG, New York Branch, RBC Capital Markets, LLC and 

Soci6tt! G6n6I>le, New York Branch, in which we convey our concerns about the impact of 

the proposed rule on the marlcel for municipalsectirities that do not fall within the scope of 

government obligations permitted activity and the impact of the proposed rule on the tender 

option bond markets. We believe that the government obligations permitted activity i. also 

too narrow in oertain other key respects. Our other principal concerns and recommendations 

can be summarized as follows: 

• The permitted activity should be expanded to include derivatives referencing government 

obligations. 

11 ~ Determination of Foreign Exchange Swaps and Foreign Exchange Forwards Under the Commodity 

Exchange Ac~ 76 Fod. Reg. 25774 (May 5, 2011). 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013296 
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• The government obligations permitted activity should be expanded to include trading that 

is otherwise permitted by law in the obligations of aU foreign governments that are 

comparable in credit quality to the United States. 

Presently, the government obligations permitted activity addresses only direct holdings of 

government obligations, As a pmctical matter, it is rare for tmding desks to trade only a cash 

instrument; trading desks that trade in government obligations routinely trade also in futures, 

options and swaps referencing government obligations. Subjecting trading in those 

instruments to the prohibitioDll of the statute could liiDit the ability of banking entities to 

position themselves efficiently and to hedge government obligatioru;. That, in tum, would 

reduce tradiJ)g in the ·government obligations themselves and,. therefore~ undermine 

Congressional intent with respect to the government obligations permitted activity. Since 

trading in futures, options and swaps on government obligations is ess~tial to trading in the 

government obligations themselvcs, we believe that the agencies should exercise discretion 

under l3(d)(I)(l) of the statute to complete the government obligations permitted activity by 

extending it to such instruments. 

As noted above, we share the concerns of certain forei~ governments that the proposed rule 

would reduce liquidity in non~U.S. government bonds. ' We believe that, as a matter of 

comity and in order to ensure that iiquidity in foreign government securities is maintained,. the 

government obligations permitted activity should be expanded to encompass the debt of all 

foreign governments that bav,e a credit quality comparable to the U.S. At a minimum, the 

agencies should make clear that all of a fum's activities that are necessary or reasonably 

incidental to its acting as a primary dealer in a fureign government's debt securities are 

protected by the market-making-related permitted activity. Such activities may require. firm 

to assume positions in such debt securities even in circumstances where nearMtenn demand is 

entirely unpredictable. 

E. Commodity Forw,rds Should Not be Included In the Final Rule. 

The statute does not expressly encompass forward contracts in nonfinancial commodities 

("Commodity Forwarda''). 'Certain agencies bave noted that Commodity Forwards are 

commercial merchandising transactions, whose primary purpose.is to transfer ownCTSbip ofa 

commodity.'" The Department of the Treasury has noted that they are more similar to 

funding instruments, such as repurchase agreements.'1 Although CotDrnodity Forwards are 

2Il ~ Letter from ChanceUor of the Exchequer, George Osborne. to Chairman Bemaoke. dated Jaouary23, 20J2 

("I am concerned that the regulations could have a signifiC8.llt adverse impact on so ... ereign debt markets, . ,',), 

30 ~joint SEC and CFTC release "Further Dermition of Swap. Security~Bued Swap. and Security-Based 

Swap Agreement; Mixed Swaps; Security-Based Swap Agreement Recordkecpiog" (76 Fed Reg. No. 99, May 

23,2011). 

31 S« Detennination of Foreign Exchange SWllPS and Foreign Exchange Forwards Under the Commodity 

Excru.ngc Acl, 76 Fed. Reg. 25774 (May 5, 2011). 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO·PSI 0013297 
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excluded from the definitions of the tenns "swap~' and I<security~based swap" in the 

derivatives-related provision of the Dodd-Frank ACt,'2 the agencies propose to exercise their 

discretion to expand the statute to encompass those instruments by including them within the 

Title VI definition ofa "derivative." We believe that there is ample evidence that commercial 

agreements such as Commodity Forwards should not be considered "financial instruments" as 

that tenn is used in Section (b)(4) of the statute and, as such. should not be made subject to 

the restrictions of the statute. However it may be implemented, the statute will, to some 

extent, impair liquidity in every asset class that it touches. This liquidity concern is made 

particularly acute by the lack of certainty cwrendy surrounding the meaning of the tenn 

"spot" in relation to commodities where standard delivery periods can extend to weeks and 

perhaps even months, As we discuss further below, we have very similar concerns and 

comments with respect to the proposal to extend the reach of the statute to foreign exchange 

forwards and foreign exchange swaps. We strongly encoumge the agencies to refrain from 

extending the statute to asset classes that are clearly commercial, as opposed to stricdy 

financial, in nature, 

F. Loans 

While we support the exclusion of loans from the proprietary ttading prohibition and the other 

provisions of the proposed rule directed at protecting thaloan markets, we believe that the 

proposed rule does not go far enough in certain respects. Our principal concerns can be 

summarized as follows: 

• The final rule should make clear that the primary means of transferring interests in loans 

are not within the scope of the rule. 

• We believe that there clearly are circumstances under which debt securities should be 

considered to be within the phrase "ex tension of credit" in the definition oflo8IJ and that 

the rule should leave room for the issue to be addressed on a case-by-case basis. 

• The fioal rule should make clear that covered financial positions that are acquired by • 

firm 88 Q result of a default under a debt previously contracted in good faith are not subject 

to the proprietary trading prohibition. 

• The loan securitization exemption is too narrow to allow banking entities to acquire or 

retain an ownership interest in a typical loan securitization vehicle, a coUareraJized loan 

obligation. As such, they do not successfully implement the rule of construction under 

section IJ(g)(2) of the statute. 

The purchase and sale oCleans are outside the scope of the proprietary trading prohibition. 

Assignments and participations are the principal means used by lenders to transfer interests in 

)l ~ section 721 (adding a new plUBgmpb 47{B)(ii) to the Commodity Exchange Act), 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI 0013298 
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loan, (and commilments to make loans). A loan participation is a traditional banking product 

used as an wtemative to an assignment, typically in circumstances where consent to an 

assignment is unavailable. A loan participation is a transfer or acquisition of a lender's 

economic interest in a loan that places the participant in the same risk position as an owner of 

a portion of the loan. However, although for many pwposes (including accounting pwpose,) 

Ibe originating banking entities and the participant treal the participation as a sale of the loan 

to the participant, the "lender of record" does nol change. Given the nature and purpose of a 

loan participation we believe that the agencies intend to treat loan participations as a loan for 

pwpo,es of Section _.3(b)(3)(ii) of the proposed rule. We believe however that the 

following text in the proposed rule should be clarified to avoid any ambiguity on this point: 

The reference in § .:.....3(b)(3)(ii) to a position that is, ralber than a position !bat is in, a 

loan .. .is intended to capture only the purchase and sale of these instruments 

themselves. 

The proposed rule questions whether the definition ofloan should exclude a security. We 

note below how such an exclusion would undennine the value of the loan securitization 

exemption. It would also canse diaruption in markets where security-based products like 

variable funding notes are used in place of loans. Like repurchase agreements, while such 

products are legally distinguishable from loaDs, they operate in economic substance as loans, 

and are not based on expected or anticipated movements in asset prices. As with abnost all of 

the subject matter of the proposed rule, a generalized approach to the meaning"ofthe phrase 

Uextension of credit'~ in the definition of loan would have unintended consequences. We 

encourage the agencies to Use the initial conformance period to develop a comprehensive 

understanding of the policy and practical implications of a blanket" exclusion of securities 

from !bat phrase and to work with the industry to develop an approach to the issue that 

accommodates both the breadth of the statute's proprietary trading prohibition and the need to 

preserve important sources of credit for U.S. and international businesses. 

Despite the exclusion of loans, leriding activity will be reduced by the statute unless the final 

rule excludes from Ibe proprietary trading prohibition all covered financial positions acquired 

by a finn in the ordinary comse of collecting a debt previously contracted. Without that 

exclusion, banking entities will be less willing to extend loans against collateral in the form of 

covered financial .positions or to extend loans to distressed companies which may result in the 

lender receiving covered financial positions in lieu of the debt previously contracted in a 

bankruptcy proceeding. We note that the proposed rule proposes to apply such an exclusion to 

the prohibition on covered funds activities. We slrQngly support that proposal and believe that 

it clearly should be applied in respect of the proprietary trading prohibition as well. 

The loan securitization exemption set out in Section _.13( d) of the proposed rule (the "loan 

securitization exernption'1 dOes not reflect the terms of typical loan securitizations. Even the 

most typical loan securitization vehicles, collateralized loan obligations, wil~ from time to 

time, OMl assets other than those listed in the loan securitization exemption. For example, 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013299 
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subscription proceeds and proceeds from the repayment of 10WlS are commonly held in high 

quality assets such as Treasury securities, highly rated commercial paper or U.S. dollar cash 

until such time as they are applied, for example, to acquire loans. Also, like firms, 

collateralized loan obligations may receive assets other thao loans in the course of collecting a 

debt previously contmcted in good faith. It should also be noted that almost no collateralized 

loan obligations owns credit exposure exclusively in the form of loans; virtually all of such 

securitizations also pennit a holding of corporate bonds or of bonds issued by other 

collateralized loan obligations. Although they may represent a small percentage of the overall 

assets of the structure, such "bond buckets" are an essential element of the SlIUcture because 

they allow the structure to access Credit assets at times when appropriate assets in the form of 

loans are temporarily unavailable. Collateralized loan obligations are an imp6r!lmt part of the 

loan markets. There will be almoSt no occasion on which it will be possible for a banking 

entity to rely on the loan securitization exemption in relation to a collateralized loan 

obligation. Consequently, the loan securitization exemption does not (even partially) give 

effect to the rule of construction undersection 13(g)(2) of the statute (the "securitization 

exclusion"i1 in that respect We recommend that the agencies revise the loan securitization 

exemption to refloct the terms of market-standard collateralized loan obligation tmnsactioos. 

G. The Proposed Definition of Covered FUnd. Would Disrupt Certain Lending 

Activity 

We discuss in a separate section below several ways in which the definition of covered funds 

is overbroad with respect to our asset~management bUSiness, but note here additiona1 issues 

that arise in the tmding context The proposed rule encompasses certain securitization 

vehicles and could result in the disappearance of a number of beneficial securitization 

activities altogether. That, in twn, would materially reduce the availability of credit for a 

wide range of industrial. commercial and service-sector entities. As draft~ we believe the 

definition exceeds the requirements of the statute and fails to take proper account of the 

securitization exclusion. The final rule should exempt securitization issuers that rely on the 

exemptions cOntained in Sections 3(cXI) and 3(c)(7) of the Investment Company Act, sucb as 

asset-backed commercial paper conduits (" ABCP Conduits',),34 from the definition of covered 

fund 

n Wbiclt pro'lidea that nothillg in the statute is to be "constl'UCd to limit or restrict the ability of a banking entity . 

• < to sell or secwitiz.e loans . .. " 

)4 An ABCP Conduit is a special pwpose entity. often established by a firn\ which issues Il!sd-batked 

commercial paper to fund such ABCr Conduit'!. activities. ABCP Conduits provide financing to customen of 

the firm by providing suured 101lQl to special purpose eot.ities established by CWitomcr.l, or by purchasing assetbacked securities issued by specia1 purpose entities c:stabJi,bcd by customers. In order to facilitate the ABCP 

Conduit's iQuaoec of asset-backed coounen:::ia1 paper. the fum that establishes the ABCP Conduit provides 

liquidity facilities tQ the conduit to pro'lide funds for the timely rc:paymcat ofcomrncrcia1 paper. and frequently 

provides additional credit enbancement to the conduit, often in the form of • letter of credit ABCP Conduits ale 

prominent examples of securitization vehicles that woold be considem:l "Covered Funds" under the proposed 

rule, because tbey typically rely on the exemptions contained in Section 3(cXl) or 3(c)(7) ofllle Investment 

Company Act. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013300 
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Firms are involved in securitization transactions in various capacities. In addition to 

securitizing their own loans, for example, they arrange and underwrite securitization 

tmnsactiODS for their customers, provide liquidity facilities and credit enhancement to 

securitization vehicles, establish and admi1tister vehicles such as ABCP Conduits to provide 

financing to their customers, and provide such fin80cing directly to customers through the 

dir""t purchase of asset-backed securities. Certain securitizationB "",' able to rely on 

exemptions from the Investment Company Act other than those contamed in Se<:tions 3(c)(I) 

and 3(c)(7) of that Ac~ but many securitizations, such as ABCP Conduits, would be 

investment companies but for those exemptions and, as such, wo,lld.meet the definition ofa 

covered fund under the proposed rule. Precluding banking entities from engsging in activities 

that bave long been recognizad as permissible activities for banking entities, and that are vital 

to the normal functioning of the securitization markets, will have an. extremely signifi,cant and 

negative impa.ct on the securitization markets and on.the ability of banking entities and other 

companies to provide credit to their customers. 

Because Congress qnderstood the important role that securitization plays in. the provision of 

credit to consumers and companies, it included the secwitization exclusion in the statute. If 

the definitioll of covered fund set out·in.the proPQlled rule is ""optedj.nthe finaJ rule then the 

finaJ rule will re.trict the ability of banking entities to sell or securitize loans and the final rule 

will Dot give effect to the securitization exclusion. 

The proposed rule suggests that the agencies consider themselves bound by the statute to treat 

all entities that rely on the exemptions contained in Se<:tions 3(cXV and 3(c)(7) of the . 

Investment CompanyAct as' hedge funds or private equity funds. We believe that the 

agencies are not so bound and, in f.~ could have defined hedge funds and private equity 

fundS without ",terence to those exemptions at aU. Under the statute, thc>terms hedge fund 

and private equity fund are definc>d to'mean an issuer that would be an investment company 

under those exemptions or such similar funds as the agencies may, by rule,.<Jetermine. The 

proposed rule suggests that the agencies interpreted an."or" in s<>ction (h)(2) of the statute as 

an "and," resulting in the overly broad definition of covered fund contained in the proposed 

rule. We believe that the agencies haVe the statutory flexibility to adopt a definition ofhc>dge 

fund and private equity fund that encompasses only those entiti ... that are recognized in the 

market place as such ~d that excludes entities, such as sec:uri~on vehicles. that are clearly 

distinguiahable from hedge funds and private equity funds. In fact, the securitization 

exclusion explicitly directed the agencies to avoid adopting roles that would limit or restrict 

the ability of banking entities to sell or securitize loans. 

lS ~ proposed nde at page 68897: '"'The proposed rule follows the $Co~ of the statutory dofinition by covering 

an issuer only irit would be an invesbnent company, 8$ defined in the Investment Company Act, but/or section 

3(0)(1) or 3(0)(7) of thaI Ace» 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013301 
1693 

As is true for collateralized loan obligations, the loan securitization exemption is too narrow 

to be of sufficient value in the broader securitization context as it applies only to issuers of 

asset·backed securities whose assets are solely composed of "loan5" and certain other assets. 

This fails to recognize that secwitization issuers commonly hold assets such as liquidity 

facilities, credit enhancement. and highly liquid investments or cash in their collection 

accounts. NO,tably. it also appears that the agencies are interpreting the definition of "loan" 

quite narrowly, as the preamble indicates that the agencies do not view that defiriition to 

include ~setwbacked secwities. However, securitization vehicles routinely purchase ass~tw 

backed secwities and other financial interests that bave long been viewed by banking entities 

and the agencies as simply an alternative means by which banking entities provide financing 

to their customen. . 

The risk retention exemption also has been drafted too narrowly to be of use in implementing 

the secwitization exclUsion, as it limits the amount of a finn~s interest to the minimum risk 

retention requirements of new Section 15G of the Exchange Act and the rules adopted 

thereunder (the "Risk Retention Rules''). However, the Risk Retention Rules acknowledge 

that a secwitizer may be required to maintain risk in excess of the minimum specified in. those 

rules due to the demand of investors, other rules (including Article 122. of the European 

Union Capital Requirements Directive), or in order to avoid breaching the minimum risk 

retention rules due'to fluctuations in the underlying asset pool. 

Furthermore, even if an ~ntity is able to rely on the loan securitization.exemption or the. risk 

retention exemption as they appear in,the proposed rule. '8 fixm that,spoos9rs, manages or, 

advises a aecwitization issuer would be prohibited by the so-called Super 23A provisions set 

out in Section 16 of the proposed rule from entering into "covered traI)S!Ictions" with that . 

issuer. That would prevent many banking entities from providing the liquiditji facilities and 

credit enhancement that investors in the asSeI-backed aecwities require. If such enhancements 

are not provided then the secwitization simply is not viable. The end result ofaUofthese 

provisions is that the sale and secwitizations of loans will have been HlIlited or restricted by 

the rules that give effect to the statute, contrary to the clear intent of the securiti~on 

exclusion.36 

While we recognize that the agencies could retain the loan securitization exemption aDd the 

risk retention ex~ption and attempt to revise those exemptions to addresS concerns raised by 

participants in the securitization markets, we believe that it would be extremely ditlicult to 

modify those provisions in 8 way that would give full effect to the secwitization exclusion. 

The FSOC Study clearly recommended th.t the agencies carefully evaluate the ClIllge of funds 

)6 We note that we an: not providing the agencies with an exhaustive'list of all pt'Ob~ that the proposed ruJe 

po1JCS to securitization vehicles, 8.!J we bcliew that the mosl efficient and effective way for the agencies to 

address these problems is to exctude sceuritization vehi"lcs from the dermition of covered fund. For B more 

complete list of scc.UritizatiOD related issues, the ageacies should ~fcr to COlIU'lletlt lelter3 draft.cd bY various 

ioduslry groUPs.. in particular, the comment letters suhmitted by the Anlcrican Securitization Forum and SIFMA 

with respect to Volcker Rule provisions that impact securitization. 

33 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0013302 
1694 

and other vehicles that rely on the exclusions contained in$ection 3(c)(I) or 3(c)(7) of the 

Investment Company Act)7 We encourage the agencies to revisit the approach taken in the 

proposed rule to ensure thet the approach taken in the final rule doe. not inadvertently limit 

the availability of credit by unnecessarily and inappropriately limiting the ability of banking 

entities to engage in securitization activities. 

H. Repurchase and Reverse R~purchase Agreements 

We agree repurchase or reverse rep~ch~e agreements sh~uld not be considered trading 

account instruJIlents. We also agree with the statement that, in substance. such transactions 

operate much like· a secured loan. and are not based on expected or anticipated movements in 

asset prices. However, we believe that the proposed rule should have gone further and 

extended the treatment given to repurchase and reverse repurchase agreements to all 

transactions that a fum can reasonably demonstrate are not based on expected or anticipated 

movements in asset prices and tbiit, notwithsianding their legal characterization, operate in 

economic substance as a finanting transaction. 

Severnl types of transactions with legal characteristics thet distinguish them from loans are 

analogous to extensions of credit and are not based on expected. or anticipated mpvements. in 

asset prices. Total rate of retum swaps where the firm is fully hedged by holding the asset 

thet is the subject of the swap i. an example. In such mides, the economic interest of the firm 

is limited to the value of a financing leg that is typically a floating tate of interest plus It 

spread. A foreign exchange 'swap is a' further example. Ali the Departmeilt of the Treasury 

noted in its proposed Deterrirlnatlon 'of Foreign ExchangeSwaps and Foreign Exchange 

Forwards under the Commodity Exchange Act" (the "proposed FX determination") foreign 

exchange swap. are "predominantly used as short-term funding inatrumentS similar to 

repUIChase agreements". A1though'the proposed FX determination treats thein differently," 

precisely the same can be said fur =cy sWaps. Cummcy swaps ate CUITeIltly the primary 

source of U.S. dollar funding fur Eilropean entities that fund naturally in cum but also have a 

need for U.S. doUan to fund theu- operations. ,Given tp.e CWTent econtin1ic crisis in Europe, 

many of such entities are unable to access the U.S. dollar-<lenominated commercial paper 

market and the currency swap market (also referred to in this context as the basi. swap 

market) has become the funding source of last resort. Importantly, a determination that these 

31 §9. FSOC Study at page 62. We support comments being submitted by SIFMA regarding an exclusion for 

securitizatioD vehicles from the definition or covered fund as 'MIll as a similar exclusion tor other invesbneot 

vehicles that might rely on the exemptions contained in Sections 3(c)(1) and 3(c)(7) but that are bot in the nature 

ofa hedge fund or private equity fimd. 

II ~ Determination of Foreign EJtchaDge Swaps and Foreigo Excbange Forwards Under the Commodity 

Exch"'ge Act, 76 Feci, Reg 25774 (May S, 2011). 

39 AJthough the proposed FX determination treats them differenUy. fo~ign exchange swaps and cunmcy swaps. 

are DOt materially different in (bis respect Both are~ in c:ss:ence, funding trBnsactions, Curmttly. it is tnarlcet 

practice to ib'Uc1urc these funding:lJ1U18actioblJ U currency Jwaps, 

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types of transactions are not subject to the Volcker Rule's prohibitions would not affect their 

status under, for example, the securities laws or the Commodity Exchange Act Total rate of 

rerum swaps_ transactions and currency swap transactions would remain heavily regulated as 

security-based swaps and swaps, respectively. Foreign exchange swaps would remain subject 

to the CFTC·s new trade-reporting requirements, enhanced anti-evasion authority, and 

strengthened business-conduct standards fOT swaps dealers and major swap participants: 

L The Sialule's Exceptions Apply to AU Activities It Covers 

We support the letter submitted by three law firms, which makes clear that .U exceptions 

contained in the statute unambiguously a,gply to all types of conduct covered by the statute, 

whether it be trading or fund owneQhip. 

This point is important. For example, as we note above. many stnlctured finance vehicles rely 

on tho exemptions contained in sections 3(c)(1) and 3(c)(7) of the Investmenl Company Act 

and, as such, would be covered funds as that term is presently defined in the proposed rule. 

Ai; the proposed rule is presently structured, the market-making permitted activity affords an 

exemption from the prohibition against proprietary trading, bUI affords no exemption fnim the 

prohibition against acquiring or retaining an ownership interest in covered funds. Ai; a result, 

We would be unable to engage in customer-driven underwriting and market making activity 

with respect to assets such as cnUateralized loan obligation equity, European exChange-traded 

fund securitieS and securities issued by U.S.-exChange traded funds that are commodity 

pools. 

J. Compliance Program 

We support the Clear statements in the proposed rule permitting a banking entity to establish a 

compliance program on an enterprise.wide basis when practical,"l We believe that 

coordination - and) when appropriate, consistency - across trading units-will be essential to 

the effective and efficient implementation of a complianoe program on this scale. As 

currently proposed, bowever, the non-metric aspects of the compliance program are too 

granular, would be uncecessarily duplicative. and would disrupt trading activities. The 

proposed rule should be revised to permit greater flexibility in the level ofth. organization at 

which certain policies and procedures are implemented. We see Iin:tited benefit to 

implementing and maintaining separate written poJici~ and procedures for each trading unit, 

and believe that it win be counterproductive for policies and procedures to be so granular. 

Indeed, this manner of documentation and maintenance will likely reduce the clarity and 

4Q ~ Memorandum from CJeary Gottlieb Steen & Hami1toD, Davis Polk & Wardwell. and Su1liWtl & 

Cromwel~ January 23, 2012. 

'I 'Unless specifically stat.ed, our comments on the compliance requirement!! focus on the DOD-metriC aspect! of 

the enhanced prognun required under Section _.20(c)(l) oftbc proposed rule, 

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accuracy of the message to ttaders, IUld increase the likelihood of unintended inconsistencies 

between the numerous, duplicative compliance framework documents. 

More specifically, the proposed rule's inflexible requirement that certain policies and 

procedures exist for each trading unit will ultimately detract from banking entities' ability to 

maintain a coordinated, organization-wide compliance program for at least three reasons. 

First, our experience suggests that it is counterproductive to implement policies or procedures 

on sucb a granular level bocause it creates 8 false. and potentially hazardous, implication that 

the policies or procedures in question cover every possible scenario that may be encountered 

bya trading unit and therefore can be relied upon as an all-inclusive "cbecklist" Because no 

policy or procedure can anticipate or address every situation that may create an opportunity 

for misconduct, policies and procedures should be drafted with some level of generality to 

take account of the unexpected'and ensure that ttaders consult with their internal complilUlce 

officers when fact-specific questions arise. 

Second, the proposed rule', policy and procedure framework encoumges box-checking for 

each. trading.uni~ rather than internal compliance best practices ~t BIC refined and enhanced 

over time. If there is uniformity and consistency Bcross trading units from 8 compliance 

P""Pective - as th"F" will be among many closely-related trading units - those units would 

benefit from consolidated policies and procedures, This promotes, for example, trading units 

replicating lessons leamC?d by one another ~ a developing Compliance program. As iong as 

they cover all eiriployees in applicable Il'l\ding units, the level at which these policies are 

implemented should be left to the discretion of the banking entity with those policies and 

procedures subject to ongoing review by the Board. 

Finally, the proposed rule's requirement that policies IUld procedures be implemented on a 

trading unit level will broadly disrupt trading activities given the extensive work required of 

business management in documenting and maintaining policies that. meaningfully reflect each 

trading unit's business and each trader's book. For this reasoD, the proposed rule's granular 

implementation and infonnation requirements also threaten to conflate the distinct roles of 

business management and compliance in a man.ner that undennines the essential 

independence of the compliance fimctiop. and detracts from the core mission of that function. 

m. Funds and Asset Management Activities 

J.P. Morgan Asset Management ("JPMAM'1, with assets under supervision of approXimately 

$1.9 trillion and assets under nianagement ofapproximately $1.3 trillion (as of December 31, 

2011), is a global leader in investment management JPMAM's customers include institutions, 

retail investors and high-net worth individuals in every major market throughout the world 

JPMAM offers investment management services globally, including in equities, fixed income, 

real assets, alternatives and liquidity products, 

Below, we highlight three sigllificanl concerns with the proposed rule: (I) the impact on our 

asset management business of the definitions ofUcovered fund" and "banking entity" as they 

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relate to JPMAM and other U.S. institutions' foreign funds and asset management activities 

outside the United SllItes;" (2) the potential negative impact on corporate bonds held by our 

customers; ~d (3) limitations on the ability of banking entities, like JPMorgan, to continue to 

make investments through funds that are designed to promote the public welfare both in and 

outside the United States.41 

A. Foreign Funds 

The Volcker Rule prohibits banking entities from acquiring or retaining an ownership interest 

in., or sponsoring, hedge funds or private equity funds. The Volcker Rule generslly defines 

"hedge funds" and ~'private equity funds" as issuers that would be investment'companiest as 

defined in the Investment Company Act of 1940 (the "Investment Company Act")," but for 

Section 3(c)(l) or 3(c)(7) of the Investment Company Act. The Volcker Rule on its fiIce also 

permits the agencies, in their discretion., to designate as "covered funds" additional funds that 

are "similar" to "hedge funds" and "private equity funds" such thaI they would be covered by 

the Volcker Rule'. Jimillltion •. 45 Pursuant to this authority, the agencies have expanded the 

definition of covered fund in the proposed rule to include "[ alny issuer, as defined in section 

2(a)(22) of the [Investment Company Actl, that is organized or offered outside of the United 

SllItes that would be a covered fund as defined in (Section _.lO(b)(l)(i), (ti) or (iv) of the 

proposed rule], were it organized or offered under the laws, or offered to one or more 

residents, of the United States or of one or more States ... :: (such provision, the "Foreign 

Fuods Designation")." 

1. Foreign Funds as "Covered Fuo4s" 

As currently drafted, the Foreign Fuods Designation could be read to require banking entities 

to engage in two inquiries: first, were the foreign fund hypothetically organized in the United 

SllItes, would it need to rely on Section 3(c)(I) Dr 3(c)(7) and second, were the foreign fund 

42 This sectiOD of our tetter specifically addresses {i) Questions 214 and 225 in the preamble to the proposed rule 

requesting COllll'Oebt on whether cntitiea arc captured by the proposed definition of coven:d fund that do oot 

appear to be appropriate and whether the designation ofccl'1llin foreign fUoda under ScctioD_.IO(bXl)(iii) of 

the proposed rule comctJy dc$crfbes entitles that should be "coveml fimcb" and (il) Question 8 in the 

pmunble requesting comment 00 whether ao exp~ Qcl:usion from the definition of "banking entity" .should 

be made for mutual funds and ~ rcgistcrtd invcsmtent companies that are not struclUn:~ as BffiHates of 

banking entities for BHC Act purposes. 

"1 This section of our lcUer specifically addresses Question 276 lo.the preamble to the proposed rule requesting 

comment on wbether tho proposed rule effcctively implemeoa the public welfare investment exemption under 

lhe VoJckcr Rule. . 

4. is U.S.C, § 80a·1 s.lsg, 

., 12 U.S.C. § 1851(11)(2). 

~6 Section _,IO(b)(l)(m) oftbc proposed rule. 

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hypothetically offered to U.S. residents, would it need to rely on Section 3(cXl) or 3(cX7). 

Under one plausible reading, an affinnative answer to either of these inquiries would result in 

the foreign fund being a "covered fund .... The first inquiry is problematic because it requires 

banking entities to analyze their foreign funds through the leas of the Investment Company 

Act. This is a potentially impossible inquiry because foreilf,' funds, eveo regulated and 

publicly offered foreign funds, such as E.U.-based UCITS, 1 are slructured to comply with 

their own homlXOuntry regulatory schemes that may not be consisteot with the requirements 

of the Investment Company Act that would permit such funds to satisfy either the registration 

requirement under the Investment Company Act or a Investment Company Act registration 

exemption, other than Section 3( c)(l) or 3( c )(7). Even if a foreign fund theoretically were 

able to conclude that, ifit were organized in the United States, it would not need to rely on 

Section 3(cXI) or 3(cX7), the second inquiry could be read to capture virtually all regulated 

and publicly offered foreign funds because the Investment Company Act prohibits a foreignorganized fund from making a public offering in the United States without the SEC', 

approval." Such a foreign fund, by administrative interpretation, is permitted to use the 

jurisdictional means of the United States to malee an offering to U.S. residents only if it 

complies with the limitations set forth in Section 3(cXI) or 3(c)(7), as ifit were organized in 

the United States. Consequently, as currently drafted, the Foreign Funds Designation could 

be read to designate virtually all foreign funds, even regulated and publicly offered foreign 

funds, as covered funds. 

2. Application to JPMAM: StatutorY Definition' Intent of Congress' Intent Dfthe Agencies 

JPMAM offern registered mutual funds and other fund products in. the United.Slates os well as 

anologous funds outside the United Slates (such os UCITS). Indeed, JPMAM offern nearly 

800 funds in Europe, Latin America ""d Asia, with nearly $300 billion in ossela under 

managemen~ the groat majority of which ore funds that are similar to U.S. mutual funds. For 

example, JPMAM is the lorgest sponsor of Luxembourg-based UCITS, with approximately 

300 funds and $240 billion of ossets under monagemen~ and the largest sponsor ofU.K. 

investment trusts, with more than 22 funds and approximately $10 billion of ossets under 

management Those two categories (UCITS and UK Investment Trusts) account for more 

than 80% of JPMAM's assets under management in foreign funds; Revenues associated with. 

those foreign fund operations ore significant contributors to JPMAM's overall success. 

Under the Volcker Rule and the proposed rule, JPMAM's U.S. mutual fund complex would 

not be covered by the Volcker Rule because those funds ore registered pursuant to the 

Investment Company Act and, thus, are not within the defi~ition of covered fund. However, 

as discussed above, virtually all of JPMAM's publicly offered foreign funds 'that are subject to 

a non-U.S. regolatory scheme, including UCITS, ore at risk of being deemed to be covered 

41 Undertaking ror Collective Invesbnent in Transferable Securities.. 

"15 U.S.C. § Wa-1(d). 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0013307 
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funds under one plausible reading of the proposed rule, notwithstanding that those foreign 

funds are, in many cases, mirror images of their counterparts in the United States, and are 

neither "similar" to funds that must rely on either Section 3(cXI) or 3(c)(7) nor resemble 

traditional hedge funds or private equity funds. In light of this potential result and other 

considerations, JPMAM believes that, unless clarified, the proposed rule's treatment of 

foreign funds is Dot consistent with the statute, Congressional intent49 or the recommendations 

made by the FSOC on the Voleker Rule.'" 

It is clear from the sIatute that the agencies are authorized to expand the statutory definition of 

covered fund only to capture funds that are "similar" to bedge funds or private equity funds of 

the type described in Section _.IO(bXIXi) (i.e., funds that, among other things, must rely on 

Section 3(cXI) or 3(c)(7) of the lnveslIIient Company Act, and, therefore, by definition, 

cannot engage in a public offering). A similar fund, therefore. sbould be a fund that, at the 

very least, is both unregulated and privately placed. Hedge funds and private equity funds as 

commonly understood also typically do not provide frequent liquidity for investors 

(redemptions are often subject to lock-up periods and lengthy notice periods prior to 

redemption). Funds that provide for regular liquidity to investo"', in our view, are not similar 

to traditional hedge funds and private equity funds. Given the nature of the statutory direction 

to cover onlY similar funds, we believe that the current treatment of foreign funds may not 

have been the result intended by the agencies in drafting the Foreign Funds Designation. 

We believe that the agencies intended the Foreign Funds Designation to capture traditional 

bedge funds and private equity funds that are organized or offered outside the United Slates 

(and thus do not need to rely on Section 3(cXI) or 3(cX7) of the Investment Company Act)." 

Indeed, the preamble to the proposed rule slates that the Foreign Funds Designation was 

"proposed to include as 'similar funds' •.. the foreign equivalent of any entity identified as a 

'covered fund' ... [because] they are generally managed and structured similar to a covered 

49 Congress intended to n:strict bankil;Jg entitiC3 from retaining ownership interests in tntditional bedge funds; &.nd 

privalt equity I\mds (s Himes-Fnmk Colloquy, I I I Congo R",. H5226 (daily cd. June 30, 2010) (.ta'emenl> 

of Reps. Himes aud FranI<». 

so The: PSOC recommended that the agencies expand ~ coverage of the Volcker Rule to funds lbat "engage in 

the activities or ba~ the characteriltics or. ~ private equity fund or hedge fund" ~ FSOC Study at 

62 (emphasi3 added). 

51 Because tile statutory text of the VolckcrRule relics on the Section 3(eXl) BOO 3(cX7) exemptions in the 

Investment Company Act to define "hedge funds" Bod "private equity fimds,"l\md3 that lie oot ~ (or 

able) to regjster under &he Investment COlDpldly Aet, because. for example, they ~ organized and offered 

outside the Uni(e(l Slates and do not use U.S. jurisdictional IIlCBnS, would appear DOl eo be covCRd by the 

Voleker Rule even irlhosc funds ~ the foreign equivalents or traditional hedge funds and privalc equity 

fulIdi. Covmge of!be Volek .. Rul., in f"'~ should apply comparably to equivalent U.S. hodge fimd. SlId 

private equity funds and DOn-U.S. hedge funds a.od private equity funds. As discussed.infm. we believe that in 

order to apply this principle of equivalent treatment, however, the definition of covered fund in the proposed 

rule needs to be modified. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO·PSI 0013308 
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fund ... .'''2 AlthOUgh we agree that the definition of covered fund should include ltaditional 

bedge fund. and private equity funds organized or offered outside the United States, the 

Foreign Funds Designation, as currently drafted, could he read to capture foreign funds that 

are Dot the "'foreign equivalent' of covered funds" and BJ'C not "managed and structured 

similar to a covered fund." The Foreign Funds Designation should set forth clear and 

objective criteria that investment management finns. like JPMAM, can apply to their range of 

foreign funds to determine, with efficiency and certainty, whether any of their foreign funds 

are covered funds. 

3. Recommendstion 

Capturing the foreign equivalents of hedge funds and private equity funds as commonly 

understood does not require the Foreign Funds Designation to he structured in the manner 

proposed." The proposed draft of the Foreign Funds Designation could be corrected most 

simply by exempting frOIl) the definition of covered fund any foreign fund that is publicly 

offered because, as noted above, a publicly offered fund is not similar to a ttaditional hedge 

fund or private equity fund and could no~ by definition, rely on Section 3(cXI) or 3(c)(7) of 

the Investment Company Act if it were offered in the United States. In the event the agoncies 

do not find this simple solution apceptable, lPMAM recommends that the agencies adopt a 

mOre tailored approach to the Foreign Funds Designation designed to capture bedge funds and 

private equity funds as commonly undenitood and to treat analogous U.s. and foreign funds 

similarly. Such an approach should allow JPMAM and other U.S. financial institutions to 

continue to offer regulated and publicly offered funds outside the United States, as they 

currently do, and to compete in this business with other international V.S. and non-U.S. a.sset 

management firms. Below, we have proposed a revision of the Foreign Funds Designation 

tha~ we believe, accomplishes this goal. 

In order to implement the clear statutory language of the Voleker Rule and the intent of 

Congress, we believe Section _.IO(b)(I)(iii) of the proposed rule should be modified to read 

as follows: 

"(iii) Any issuer, as defined in section 2(.X22) of the Investment Company Act of 

1940 (15 U.S.C. 800-2(a)(22)), that satisfies each of the following conditions: 

52 ~ proposed rule at page 68897. 

5) AI. the egeocies noted in the preamble to the proposed rum, Section n~: '1A]ny rule DllJSt also presesve che 

ability of a banking entity .. ,to effectively deJiver ita. clients the types of finaoc:ial services that section] 3 

expressly protects and permits. These: client-oriented :financial services, which include ... traditiooal asset 

management services. are important to the U.S. financial markeiS and participants in those market8, and the 

agencies have endeavored to develop a proposed rule that does not undWy constnUn banking ootitic! in their 

efforts to safely provide such services" ~ proposed rule at page 68849. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013309 
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(A) The issuer is an investment company, as defined in the Investment Company 

Act of 1940 (15 U.S.C. 80.·3); 

(B) The issuer is organized outside the United States and ownership interests in the 

issuer are offered outside the United States; 

(C) If the issuer were organized in the United States but not registered under the 

Investment Company Act ofl940 (15 U.S.C. 80.·1 eq~.). and ownership interests in 

the issuer were offered in the United States, the issue-; would not be able to rely on any 

exemption from registration other than Section 3( c)( I) or 3 (c)(7) of the Investment 

CompllilY Act of 1940 (15 U.S.C. 80a·3(c)(I) or (7»; 

(D) The issuer cannot satisfY each of the following criteria: 

(1) The issuer is registered pursuant to, or regulated under, the laws of a qualified 

jurisdiction;}4 

(2) Ownership interests in the issuer were sold in a public offering or series of 

related public offerings'-s in one or more qualified jurisdictions, or the issuer is being 

organized for the purpose of selling its ownership interests in a public offering or a 

series of related public offerings in one or more qualified jurisdictions, provided that 

no offering will be considered a ''public offering" pursuant to this clause (2) if: (i) 

such offering could be made pursuant to Section 4(2) of the Securities Act of 1933 (15 

U.S.C; 77D(2» if it were conducted in the United States; or (ii) the ownership interests 

sold in such offering or series of related offerings are listed on one or more securities 

$4 Section _.2 of the proposed rule would be amended 10 include a new definition for "qualifiedjurisdictiOD," as 

foUoWB: 

(9) Qualifiedjurisdiction means: 

(i) AIJy jurisdictiOD in which a designated offshore securities market. as defined 10 RegulatiOD S, 

exists; 

(li) Any jwiadiction that has a securities co;D1miss.ion that bas; eDtereci into B bilateral MemOrandum of 

UnderstaDdiog din:::ctJy with the SEC regarding enforcement coopention; 

(iii) AIJy jurisdiction that bas a securities commission that is a signatQl}' to the International 

Organizatloa ofSccuriaes Commissions Multilateral Memorandum ofUnderstallding; and 

(iv) AIJy othec jurisdiction designated as a "qualified jurisdiction" by the Board, in consultation with 

the other federal banking agencies, the SEC, and !he CITC. 

$.S We believe it is appropriate 10 reference the standard (or public offering in thejurisdictioD ofthe-off.crin& 

recognizing that the U.S. standard may oot fit within tbe h:gaJ framework in some jurisdictions outside the 

United States. Our proposed rule does use Ute U.S. standard for a private offering undec Seption 4(2) of the 

Securities Act of 1933 in ordec 10 definewbat~mn be a public offering. This. aJongwith the requirement 

that the offering be conducted pursuant to the laws of a qualified jurisdiction, sbou1d allay any concerns the 

agencies may have regarding the offering standards for foreign funds that would not be covered fi.lQds. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM·CIO·PSI0013310 
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exchanges and less than 50 percent of the ownership interests in the issuer were sold in 

such ofTerings;S6 and 

(3) (i) The issuer provides at least weekly liquidity to its investors and calculates, at 

least weekly, a net asset value, or its equivalent, which is made available to current 

and potential investors; or (ii) ownership interests in the issuer are listed on a 

securities exchange regulated punruant to the laws of a qualified jurisdiction; 

; and 

(E) Substantially all of the ownership interests in the issuer are not sold to another 

issuer that is Dot 8 covered fund.'oS1 

In addition, with respect to monitoring and enforcement, we bave considered what 

compliance program and recordkeeping requirements could be implemented to ensure that the 

agencies have a view into banking entities' foreign fund activities in order to monitor 

compliance with our proposal. We propose that the agencies amend Appendix C, Section II 

of the proposed rule by adding a new Subsection C, which we set forth in Appendix A to this 

letter. 

4. Advantages 

Our recommendation has several advantages over the Foreign Funds Designation, as currently 

drafted. FiIlI~ we believe that the set of chanscteristics described under subporagraph D are 

key features of regulated and publicly. offered foreign. funds that could not be .. tisfied bya 

traditional hedge fund or private equity fund - certainly a fund with those characteristics 

could not rely on Section 3(cXl) or 3(c)(7) of the Investment Compsny Act ifit were 

organized in the United States. This approach will give the proposed rule sufficient breadth to 

cover any foreign funds that are truly hedge funds or private equity funds, while allowing 

banking entities to eontinue to offer tiaditionalasset management products to their customers 

outside the United States. As Ii result, for purposes of coverage under the Voleker Rule, 

analogous U.S. and foreign funds would be treated comparably. 

Second, the modification is fully consistent with the discretion given to the agencies on the 

face of the statute to determine whether, and bow, to designate "similar funds," and does Dot 

)6 Our proposed requirement that at least.50 pcrcen1 of the ownenhip iOterests in lllistcd fund be sold in a public 

offering or series of re1ated offerings is designed to prevent a banking entity &om using B nominal listing to 

satisfy the "listing requirement." 

S1 Subsection E is intended to aUow ~ entities to eontiouc to sponsor fund!! that are part of II fund of funds 

structure, Some IPMAM funds arc! organized to be sold almost exclusively to fund of funds.. Because I.bc:se 

fun~ typically could not meet the public offcriog criteria of Section _.1 O(bX1Xiii)(D)(lJ) of our propoiCd 

definition.. these funds. would be "oovered funds" eveo though they are being sold almost exclusively through a 

fund of funds thllt is not a covered fUnd. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013311 
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require the agencies to rely on Section 13(d)(I)(J) of the BHC Act, which authorizes the 

agencies to exempt activities from the limitations of the Volcker Rule that would promote and 

protect the safety and soundness of the banking entity and the financial stability of the United 

States.'8 Ratber than create exceptions to an overbroad definition. we believe the better 

approach is to craft a more tailored, yet still robust, definition of covered fund and to address 

any concerns regarding gaps it: and when, they are identified.59 The agencies will retain the 

ability to amend the definition of covered fund and to designate additional "similar" funds as 

covered funds and, if necessary, could also pursue anti~evasion actions pursuant to the statute. 

Finally, this approach ensures that funds that will not be covered by the Volcker Rule are 

subject to an acceptable level of regulation. To that end, our recommendation provides that a 

foreign issuer that is not covered by the Voleker Rule be regulated under the laws ofa 

"qualified jurisdiction." Although the agencies could define qualified jurisdiction using any 

criteria they deem appropriate, we recommend· that the agencies define qualified jurisdiction 

as follows: (I ) any jurisdiction in which a designated offshore Oecurities market, as defined in 

Regulation S, exists;" (2) any jurisdiction thai has a securities commission that has entered 

into a bilateral Memorandum of Understanding directly with the SEC regarding enforcement 

cooperation; (3) any jurisdiction that-has a securities commission that is a signatory to the 

International Organization of Securities Commissions Multilateral Memorandum of 

Understanding"; and (4) any other jurisdiction so designoited by the Board, in consultation 

• Although Qu .. tion 223 in the p=blelO !he proposod rule suggests Section·lJ(d)(IX1) migbi b. Used to 

addmss issues of overbreadth, and aItbough we BUpport the use of Section J3(dXl)(1) wheRl appropriate, use of 

Ibis authority is not ncicessary or appropriate in this coIiwl . 

5P Question 223 isJso suggests definicg a covered fund hy.determiningwhetbc:r a-flmd satisfies anyone oCa Jist of 

cbaracteristica. Given the broad lin of ~tics identified in the question and the fa.;:t that the agencia 

suggested that meeting ODe oftbe obaracteristics wouJd make a fund a "covered fund," \\"C believe that such an 

approacb, as proposed, would have a similar oVerbroad effect of covering funds that BlC no~ similar to 

tnditional hedge funds or privalC equity furida. For example, "BenS securities and other assets sbort" was listed 

in Question 223 as orie of the hedge Curid and private equity fund chlU"llcteristies. Many registered U,S. mutual 

fuoda, including several funds advi~ by JPM~. enp,ge in some shorting stratc.gies as a compoocnt oCtbe 

fi,md', ovcta118tmtegy (u..long-ahod fimds and 13000 funds). Although registered D?utual funds that 

employ shorting strategies do not meet many oftbe other cbarac:teristics Jlsted and, of course, arc DOt 

''traditional'' bc:dge funds and private equity fu:nds, Ql1c.stioD 223 seems to sUggcsC- that thl!!)' wou1d be "covered 

funds." 

60 Rule 902(b) of Regulation S (17 C.F.R. § 230.902(b». Attributes cons.idered by the SEC in determining 

wbich foreign secwities markets are designated include: organiZation undel' foreign taw, association with a 

generally recognized community of brokers. dealers. banks, or other professio~ intemiediaries with an 

establisbed opcntting history, oversight by a governmental or ~tC~latory body, OVCl'Sight!rtaodards $et by 

an existing body of law, reportina: of securities transactions on al"Cglilar basis to a governmental or selr~ 

regulatory body. B .system for exchange of price quotations through common communications media and an 

organized cJc:!lnmce and settlement system. Id. 

61 The IntcrnatioDB.I Organization ofSecwities Commissions ("IOSCO',) is a multilateral international 

organizatiOD of securities regulators. IOSeO memben have resolved to, among other lbingB, (1) cooperate 

together to promote bigh standards of regulation in order to maintain jon. efficient Bod sound markets; (2) 

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with the other federal banking agencies, the SEC, and the CFTC. Our recommended 

approach to the defmition of qualified jurisdiction references existing, objective standards that 

would avoid the need to create' new designations and would ensure the robustness of the 

regulatory scheme applicable to foreign funds that are not covered by the Volcker Rule.61 

5. Consequences 

If the Foreign Funds Designation were not modified, in order to engage in the asset 

management business internationally, JPMAM and other banking entities would need to 

conform their non-U.S. activities with respect to funds that are not commonly Understood to 

be hedge funds or private equity funds to the limitations contained in the proposed rule. The 

limitations in Section _.11 (which include. among other things, limitations on name sharing. 

ownership of interests in funds and employee investments in funds) and Section_.16 

(limitations on a banking entity's entering into covered transactions with covered funds) 

would impose significani costs on JPMAM and other banking entities. without any real 

regulatory benefit For example. the prohibition that a covered fund not share the same name 

as the ban!cing entity may. depending on the fund's legal structure snd applicable regulation, 

require a shareholder vote and may, in fact, raise issues under 8pplicshle law in certain 

jurisdictions that require the fund name,to be clear and not misleading." The 3% per.fund 

ownernhip limit woUld need to be monitored by.hanking entities on. continuous h8.iis 

because many of the Captured funds provide daily liquidity to investors. TIiat requirement 

will force banking entities to sell interests in funds thet may be the equivalent of U.S. mutual 

funds iCon" single dsy, \1)" bankinll entity's position exceeds the 3% limit solely because 

other investors have redeemed. Furthermore. iffue proposed rule were not' modified, banking 

entities could be required to deduct the amount of their interest in foreign funds from the 

calculation of their Tier 1 capital." The prohibitions contained in Section _.16 (Ibe so-called 

"Super 23A" provision) would forte large fund complexes, like ours, to cease having an 

exehange iDformatiOrt on,lbeir respective experiences in Older ~ promote the development of domestic 

&CaUitics marbtl; (3) unite their efforts to establish staodards IlIld an effcc::tivc surveillance of in1emationsl 

securitica transactions; and (4) provide murual lWiistance to promote the integrity of the markets by a rigorous 

application ofiotematiooa.l standards and by cffi)d:ive enfon::cmcnt against offeDSCS. JQSCO's "Objecti~ and 

Principle! ofS«ruritics Regulation" .is the bcuchmark ltaodud ror securitiea re~lat.oB ODd one of Iho ~ve 

by standards for :6nanciaJ stability lUi ncognized by the Financial Stability Board ~ U.S. Securiti'esllOO 

Bxchange Commission, "SEC Participation in JDtcmatiOnal Organizations" 

httJ>·/iwww see.goy/aboutloffices/oia sbtmn, 

62. We also believe that such IlIl approach would not implicate fOR"ign policy considcrations lhat, although within 

the agencies' authority to IllJderta.kc. may be time consuming. 

6J ~ Yo. ReguiatioD 15(9) oftbe OK. Open End IDvestmeo~ Company Regulations. Among the factors thai 

Ihe U.K:s Financial Services Authority CODiidcn in determining whether B fund name is "'undesirable or 

misleading" is wbcthu the fund name -might mislead invcStors into thinking tbat persons other than the 

autborized fund manager arc respoDSibJe for the authorized fUnd," 

6'1 Section _.l2(d) oftbe proposed rule. 

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affiliated entity serve as the fund's custodian or engage in principal trades on bebalfofthe 

fund, both ofwhicb services are permitted under non-U.S. law and, with respect to an affiliate 

providing custodial services to a fund, is also permitted under the Investment Company Act 

for JPMAM's U.S. mutual funds. The cumulative effect of those burdens and the long time 

period required to satisfy the Section _.11 and Section _.16 requirements could prevent 

JPMAM and other banking entities from launching new retail products in the existing fund 

families for a considerable time period after the Volcker Rule's effective date. Although 

banking entities have been on notice since July 2010 that traditional hedge funds and private 

equity funds would be subject to the Volcker Rule, it could not have been anticipated that 

regulated retail funds such as UCITS could become covered funds. 

Even if it were possible to comply wiil! the limitations and prohibitions mentioned 'above, 

those restrictions, and the additional costs associated with compliance, wou1d pl&.ce JPMAM 

at a competitive disadvantage to U.S. and non-U.S. asset managers that are not subject to the 

Volcker Rule and that are not required to modify their asset management businesses. We do 

not believe that this was the result intended by the agencies in formulating the Foreign Funds 

Designation and it was not the result intended by Congress. 

6. Defmition of "Banking Entity" 

Under the Voleker Rule and the proposed rule, ''banking entity" means, in relevant part, "any 

insured depository institution ... and any affiliate or subsidi8!)l of [BI'\ insured depository 

institution).~,6j The terms uaffllia~" and subsidiaty"' are defined by reference to the: very 

broad definitions of those terms under the BHC Act. 

In the preamble to the proposed rule, the agencies noted that [mitual funds, including 

registered investment companies, are structured such that they ~ not affiliates ~r subsidiaries 

of banking entities under the BHC Act and thus, would notthernselves b. banking entities 

UDder the Volcker Rule.66 There is, however, no provision in the proposed rule that explicitly 

carves out mutual funds and other registered investrilent companies from the definition of 

banking entity. Question 8 inquires Whether the agencies should make such an express 

exclusion from the defiDition of banking entity in the proposed rule. 

Although we agree that, as a general matter, registered investment companies are not,. and 

should no~ be considered affiliatea or subsidiaries of the banking entities that orgamze, 

sponsor, invest in, adVise or manage them, we support the clarification of,this point in the 

proposed ruJe. If such an approach were adopted. we recommend that the express exclusion 

be made broed enough to also exclude foreign funds that are analogous to registered 

investment companies. There is no regUlatory reasOn that analogous U.S. and foreign funds 

65 Section 13(h)(1) of the SHe Act and Scction_.2(e) of the proposed rotc, respectively. 

66 ~ proposed rulc at page 6&856. 

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should be treated differenUy in this respect We believe that the following modification to the 

definition of banking enritywould be consistent with the agencies' proposition Ilnd would 

appropriately tailor the exclusion. Section _.2( e X 4) would read: 

"(4) Any affiliate or subsidiary described in paragraph (I), (2), or (3) 'ofthis 

sectioD, other than Iln affiliate or subsidiary that is: 

(i) A covered fund that is organized, offered and held by a banking entity pursuant 

to § _:11 and in accordance with the provisions of subpart C of this part, including 

the provisions governing relationships between a covered fund and a banking entity; 

(ii) An entity that is controlled by a covered fund described in paragraph (eX4)(i) of 

this section; or 

(iii) An issuer, as defitied in section 2(a)(22) of the hivestment Company Act of 

1940 (15 U.S.C. 8oa-2(a)(22)), that is 

(A) A registered investment company under the hiveslment Company Act of 1940 

(15 U.S.C. 80a-8); or 

(B) Organized outside the United Slates and is not a covered fund PWlluant to 

section_,IO(b)(I)(!ilj:,67 . . 

We believe thl!t this approach would address a concern we have raised throughout this letier 

reganling the equivalent treatment of U.S. and foreign funds. Our proposal is intended only 

to ensure that registered investment companies and foreign funds are not. included in .the 

definition of''banking entity" and does not discuSs oth~ concerns that the proposed definitidn 

of ''banking entity'~ ntises, which we expect other comment letters will address. 

7. Conclusion ReMing Foreign Funds and Banking Entities 

The foregoing i. intended to bring attention to the effect that the Foreign Funds Designation 

and the proposed rule', definition of banking entity would have OIl the internation.t asset 

management activities of U.S. banldng entities, such as IPMAM. We know that other 

commenters1 such as SIFMA of'which we have been an active member, will raise similar 

concerns to those we have raised in this letter. SIFMA's approach to these concerns, which 

we generally support, may be broader thaD. the tailored solutions we have recommended. To 

the extent that the agencies accept some o:r all of these broader recommendations; we believe 

such recommendations should opply to foreign funds to the extent appropriate. We also join 

in full support of SlFMA's positions on other aspects of the Volcker Rule that focus on the 

covered funds portion of the proposed rule. 

61 This refers to Section _.1 O(bXIXiii) of Ute proposed nile as revised pursuant to our recommendation above. 

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We firmly believe that any rulemaking by the agencies should reflect Congress' intent that the 

limitations of the Volcker Rule extend only to funds similar to traditional bedge funds and 

private equity funds because Congress would not have intended that analogous U.S. and 

foreign funds be treated differently. In addition to implementing that inten~ we believe that 

the agencies should consider the economic and organizational impact of the proposed rule on 

both the U.S. and non-U.S. operations of banking entities and weigh that against discernible 

regulatory benefits. We believe that the aspects of the proposed rule discussed in this letter 

would have negative economic and organizational effects on the international asset 

management activities of U.S. banking entities, including lPMAM, with little regulatory 

benefit We believe our tailored recommendations would minimize negative impacts while 

ensuring a robust regulatory scheme that is consistent with the statute and Congress' intent 

B. Corporate Bonds 

JPMAM oversees more thao $800 billion in fixed income assets on bebalf of its customers. 

Given our active presence on behalf of our customers in the fixed income markets, we are 

concerned that the proposed role, as currently drafted, could reduce the value of our 

customers' current investments in corporate bonds and inhibit our customers' ability to access 

the corporate bond market in the future. While we bave described these concerns from the 

perspective 'of JPMorgan's market makers above, we believe it is imporlsnt to highlight the 

serious concerns we have regarding the effect of the proposed rule from the perspective of our 

asset management business. We focus in particular on the impact on the corporate hood 

market. 

I. The Coroorate Bond Marke! 

COIpOrate hoods are inherently les~liquid than equities because corporate bonds are traded 

over the counter (that is, directly between two parties, rather than through an exchange). 

Moreover, issuers of oorporate bonds often have multiple bond issues outstanding with 

smaller or older issues (which are often described as "off-the-run', having less liquidity than 

more recent or larger issues (wbich are often described as "on-the-run"), which have greater 

liquidity. 

Liquidity in the corporate bond market has generally declined since 2007, with trading 

becoming increasingly concentrated in a smaller number of issuers over this time period.68 

6.1 From January 1;2011 to September 30. 2011, approximately 5% oftbe totaJnumber ofissutrS in the U.S. 

investment gmdc corPorate bond uniVCll'SO accounted for 50"10 ofl:r8ding volumellccording to MarketAxess.data. 

Trading bas also iDcrea:siagly fbcuscd on larger issues. In the 6", three: q~ of20tl, tumover(on an 

annualU:Cd ba,vis) in issues greater than $1 bil1ioa was approximately l.lx versUs owy appro.#matcly O.8x in 

2006. By contraJt, hn"novec(on an annu~ized basis) in issues berween 1250 and $500 million h8s declined from 

approximately 0.65x in 2006 to approximately O.5x in the rust three quarten of2011. Similar trends were also 

observed in issue &izcs 0[$500 ~ $750 rrullioD and $750 million to $1 billion (BarclaY' Capital, U.s. Credit 

Alpha, November 18. 20J I. at 6.Figurc 5). Tl'1!.ding volume in older securities bas shown a s.im.ilarpatteru of 

decline (ld. at 7. Figure 7). 

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Our customers' portfolios include both on-the-run and off-tbe-run securities, and, as a result 

or decreased liquidity, our customers have experienced increased transaction costs associated 

with purchases or sales in all issues. Maturity restrictions, investor preferences and 

transaction costs make it impmctical and often impossible for customers to concentrate their 

holdings only in on-the-run issues and simply holding the off-the-run investments to maturity 

may not be possible for some customers who may need to sell off-the-nm issues based on, for 

example, cash flow requirements, pension obligations or asset allocation shifts. 

As market makers, securities dealers facilitate trading in both on-the-run and off-tbe-nm 

corporate bond issues, among other securities. by standing ready to buy and sell. In a very 

liquid marke~ such as.equity securities, mar~et makers are able to sell securities they buy. and 

buy securities they need to sell, quickly and easily. Corporate bond marlcets and fixed income 

markets in general are by their nature (e.g., multiple different issues from a single issuer) less 

liquid than other maricets, and market makers thererore must buy and hold securities in their 

inventory longer than in other markets. Thus. the market for otl'-tbe-run issues has led market 

makers to hold securities in their inventory for longer time periods. 

2. Restrictions on Market Makjng 

Unless. the.liDl!l rule very clearly pennits the type of inventory management activity thst.we 

describe above, marlcetmskers simply will not be able to provide the type of intermediation 

services (hal underpin oertain sc<:tol1l of the corporate bond market. A restrictive approach to 

inventory holding periods, in combination with the uncertainty associated with the phrase 

''reasonably expected near tenn demands" would, we believe, significantly decrease the 

liquidity of the corporate bond market because it would result in market makers heing less 

willing to transact in securities thst they are not confident they can dispose of quickly. The 

situation is only worsened by·the requirement ill the proposed rule that market making 

activities be udesigned to genemte revenues from fees, commissions, bid/ask spreads or other 

income not attn"butable to .. . [a]pprec.iation in the value of covered financial positions it 

holds ..• . :.t.o Given the sometimes significant holding periods for less liquid issues in the 

corporate bond mar.k:et; market makers often do generate revenues based on the appreciation 

in value ora security. 

3. Restrictions in the Context ofother Regulatory Developments 

The effective date of the Volcker Rule coincides with the implementation of other regulatory 

measures that may also reduce liquidity ill the corpom.te bond market. Specifically, Basel ill 

risk~weighted asset calculations will change the economics of positioning corporate bond 

inventories. Additionally, for European banks which may be evaluating tho risk weighted 

asset impact of selected capital markets activities in connection with meeting the European 

Bank Association's capital requirements based on ''Basel 11.5" calculations, the requirement 

to comply with the Volcker Rule when trading with U.S. counterparties outside of the United 

" Seclion _.4(bX2)(v) of tile proposed rule .. 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013317 
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States wuld be significant enough to support a decision to reduce their market making 

activities. Fewer active market makers will further pressure the pricing BIld liquidity of 

corporate bonds. In tight of this, we think it is important that the proposed rule be modified 

so that it does not exacerbate the pressure on the liquidity of this market. 

4. Effect on Our Customers 

We believe that the proposed rule, if not modified, will result in significantly decreased 

liquidity in the corporate bond market for .our customers and other institutional and indiVidual 

investors. This markedly lower level of liquidity will result in BIl immediate negative impact 

\0 the value of securities currently held by invesloI1l, based on the liquidity premium, and will 

result in increased transaction costs for future transactions in these securities.70 In revising 

the proposed rule, we urge the agencies to consider the impact of the proposed rule on 

investors in less liquid mark:ets, such as corporate bonds, who rely on market makers to ensure 

an available, functioDing market. 

c. Public Welfare Investment1 Abroad 

We believe it is important that the proposed rule treat analogous U.S. and non-U.S. activities 

and investments similarly. The proposed rule implements the statutory exemption71 from the 

restrictions of the Voleker Rule with respect to investments in small business investment 

companies ("SBICs''), investments "designed primarily to promote the public welfare, of the 

type permitted under [12 U.S.C. § 24(Eleventh)], and certain investments that are qualified 

rehabilitation expenditures, .. il 

We urge the agencies to clarify in the final rules that the exemption also extends to those 

investments"~ permitted under [12 U.S.C. 24(Eleventh)]" made outside the United 

States, including through U.S. and non-U.S. funds."' 

'XI A recent study by Oliver W)'Dl8D has estimated that investors could sutTer a $90-315 billion mad:~h;marlcet 

los.:s cau.sod by 8 repricing of the liquidity pmniwn, 85 well as an additional $}4 billion of higher transaction 

costs going forward (Oliver W)'IIWl, Volcker Impact Aoal)'3is December 11,2011). 

" 12 U.S.C. ISSI(d)(E). 

n $cctiO[] _13(0) ofthc proposed rule. 

n Our tetter Bddresses only this narrow concern ~ng the proposed rule's implementation oftbe statutory 

exemption for SBles and other public welfare invcstme~ts. We expect other commenlerS will address 

additional conc:ems.including with respect to the proposed rulc's application of "Super 23A" to SBICs despite 

their being exempted from the definitioD of"covcm:l fund," 

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1. Impact Investing 

Many banking entities, including J.P. Morgan, have developed investment strategies to assist 

in the market of impact. investing- that is, investing with the intent to generate a reasonable 

rate of financial return, while also benefitting low- and moderate income communities both in 

the United States and around the world. Although the emergence and growth of the impact 

investment market is a worldwide trend, currently, a majority of the investable opportunities 

lie in the emerging markets. U.S. governmental agencies, including U.S. Agency for 

International Development and the Overseas Private InveSlment ~orporation, suppert those 

efforts~ recognizing that such oversees impact investments help advance"U.S. foreign policy 

interests and promote international d~elopment. 

2. Clarification Needed 

We believe that the proper implementation of the statutory text, and indeed the proper 

interpretation of the proposed rule, requires that the exemption for public welfare investments 

extend to such inveslments made outaide the United States. The statutory and regulatory 

phrasing, "of the type," conveys that this exemption should be inte'1'reted broadly and that 12 

U.S.C. § 24(Eleventh) merely provides an example of, but does not circumscribe, the type of 

investments permitted under this exemption. As Senator Merkley noted, the exemption ''is 

flexible enough to permit the regulators to include other similar low-risk investmenta with a 

public welfare pllIpOse."" A con1nlry reading would mske the-words "of the type" 

SUperflUDUS. We believe the age-ncies should confirm this inteIpretation in the final rules oed 

mske clear that the reference to 12 U.S.C. § 24 is not intended to limit permissible public 

welfare investments to investments in the United States. 

A bankiug entity should be permitted to conduct impact investing outside the United States 

thmugb funds, so long as the banking e-ntity can demonstrate that such invesbuents made by 

the fund advance a public welfare pllIpOse "of the type" (i.e., analogous to) investments 

permitted by 12 U.S.C. § 24(Eleventh). We believe this inte'1'retation ia required by the 

statutory text and is consistent with congressional intent, and we suggest the agencies make 

this clear in the finsl rules. 

IV. Asset-LiabiUty MAnagement 

A. Asset-Liability Management is a Foundation of Safety and Soundness 

For large, complex banking institutions, asset~liabilitymanagement ("ALM") is ont: of the 

foundations of bank safety and soundness and is integral to the stability of the U.S. and global 

financial systems. 

" Merldey·Levin Colloquy, 156 CONGo Roc. 55894 (d.ily ed. July 15,2010) (sl ..... entorS ... M"ldey). 

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Indeed, the growing regulatory focus on stress tests for large banking institutions, including 

JPMorgan, such as the Comprehensive Capital Analysis and Review process. clearly 

demonstrates the central importance of a prudent and well-managed ALM function. If stress 

tests are designed to diagnose potential s.rety and soundness problems in the event of 

potential market or economic shocks, prompt ALM actions are required as the prescription for 

limiting the risks that stress testing identifies. 

In its study on the Voleker Rule, the FSOC recognized the importance of these issues and 

clearly concluded that the Voleker Rule sbould not prohibit ALM activities. In its guidance, 

the FSOC stated: "All commercial banks, regardless of size, conduct ALM that helps the 

institution mBDBge to • desired interest iate and liquidity risk profile. This study recognizes 

that A.LM: activities are clearly intended to be permitted activities, and are an important risk 

mitigation tool.,,7S 

The proposed rule, however, expands the scope of the Dodd-FrOOk Act and therefore bring< 

within its prohibitions ALM activities that are imP.Ortant aids to safety and soundness. Oddly, 

while the FSOC study recommended an exemption that included both assot-Iiability J!!ll! 

liquidity risk managemen~ for much the same reasons, Ibe proposed rule iocluded only the 

latter. The result is that Ibe proposed ruI. seems to have been written wilb traditional dealer 

and market~making trading activity in mind, and creat~ serious problems for legitimate ALM 

activity. 

As currently structured, many ALM activities should be permissible under lb. proposed rule, 

because they pass Ibe purpose test and would not'be booked in a "niarket risk capital trading" 

book. Another group of ALM activitiea will be permissible to the extent Ibey fsU within the 

exclusion provided in the proposed rule for bonafide 'jli~idity management'l activities---

although, as discussed further below, liquidity management is only one smsU part of a 

banking insti:bJtion's overall ALM activities, and the exclusion is so narrow in scope and 

restrictive in operation that it would not even pennit manybonajlde liquidity mBDBgemeot 

activities, thus making the exclusion unwodca.ble even for this narrow subset of ALM 

activities. Finally, while some ALM sctivities may be permitted by the proposed rule under its 

exception for "risk-mitigating hedging" activities, many legitimate, useful ALM sctivities will 

not, because that exception, Q3 noted above. does Dot appear to have been drafted with ALM 

in mind, is subject to too many restrictive conditions, and is thus too narrow. Accordingly, 

while certain AIM activities will be permissible, equally valid ALM activities - allbougb 

they are not speculative in nature, or entered ioto principally for "the pUl]lOse of nesr term 

resale or otherwise with the intent to resell in order to profit from short~term price 

movements"- could nonetheless be deemed, or even presumed to be, prohibited proprietary 

trading. 

We believe that the final rule should provide for an explicit exclusion for ALM. activities, 

which would be broad enough to include the proper range of liquidity mBDBgement activities. 

Like the current exclusion for liquidity management activities, the exclusion for bona jlde 

7S ~FSOCStudyatpage47. 

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ALM activities would be conditioned on appropriate requirements that ensure such activities 

will not be used to evade the statutory prohibition on proprietary trading. 

B. Many ALM Activities Would be Captured by tbe Definition of Trading Account 

While many securities utilized in asset-liability management are accounted for as availabJefor-sale C'AFS',) securities, many other traditional and long~stablished ALM activities often 

involve the use of instruments that would be required to be accounted for in the market risli 

capital trading account of the entity, thereby meeting the market risk capital test of the 

proposed rule. In addition, some of these ALM activities may require, in order to manage the 

relevant risks effectively, the exiting of a position within 60 days, thereby falling within the 

purpose test of the proposed rule. 

The need to exit positions quickly arises because the structural risks of the firm are constantly 

changing due to the dynamic nature of the asset and liability flows and the impact of changing 

interest rates. The chmge in market value sensitivity (or udrift") of certain assets and 

liabilities requires continuous hedging of the structural risk book, which is often best managed 

through the use of securities or derivatives accounted for in the market risk capital trading 

accoun~ or by entering and exiting a position within 60 days. Thus, unless the banking entity 

were able to determine that the risk mitigating exemption or the liquidity management 

exclusion applied, these activities would be deemed-or even presumed to be - propnety 

trading. For example: 

• One of the most traditional roles of the ALM 'function is to manage the banking entity's 

eainings at risk- that is, the risk that changes in interest mles will affect ,in dim.rent ways 

the value of the firm's liabilities and 'lSSets, such as its deposits and loan portfolio. 

Banking.entities must also manage the mismatches in the maturity profiles of their aSsets 

and liabilities, and generally do.so through use of their; invesbnent secwities portfolio, 

thereby adding more assets to their balance sheets. Hedging'strategies to protect the 

banking entity's resultant net interest income and interest rate margins from interest rate 

and yield curve changes, as well as foreign exchange fluctuations. include the use of 

options and derivatives that must be' booked in the market risk capital trading" account. 

Furthermore, because these derivatives are hedging the interest rate volatility arising from 

continuous balance sheet changes, they often settle within 60 days. 

• A banking entity must manage the value of its mortgage servicing right asse~ a right to 

service mortgages it originates or purchases, and one of the most volatile, and interest rate 

sensitive, assets on its balance sheet :In order to protect the value of the mortgage 

servicing right asset, the fum must manage the interest rate risk by using, among other 

instruments~ interest rate swaps. These swaps would be booked in the market risk capital 

trading account and because of the volatility associated with this asset. such interest rate 

swaps are often settled within 60 days. 

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• Because the AFS investment securities portfolio of a banking entity is generally held for a 

long-term time horizon. it is often necessary manage the credit risk: associated with these 

securities. To do so, the banking entity may buy protection in the credit default swap 

markets. The credit default swap is likely to be included in the entity's market risk capital 

trading account, and because of volatility in markets at any given point in time that is 

giving rise to the credit concerns of the underlying credit, these credit default swap 

positions may be settled within 60 days. 

• Finally, a new type ofvoJatility may be introduced to a finn's balance sheet as a result of 

the proposed capital rules under Basel ill, which require capital to be held against certain 

positions in the Other Comprehensive Income ("Ocr') Account (a component of 

stockholde .. equity)." In order to protect the bonking entity's capital position from the 

excessive volatility that could arise in OCI from movements in interest rates or changes in 

the credit spreads, the finn may choose to hedge such volatility through the use of options, 

swaps, or other non-AFS instruments. Derivatives used as part of these hedging 

transactions will be booked in the market risk capital trading account and, because of the 

type of volatility they are hedging, may settle within 60 deys. 

In the above examples, derivatives trades that may be settled within 60 deys are being used 

for prodent asset-liability management purposes. Under the statutory language, a "trading 

account" comprising the short-term derivatives descnoed above and used to maDage the 

banking entity's risks is !l2l covered, as the purpose of <Bch of the trades is to protect the finn 

from movements in interest rate, changes in credit conditions, or other market risks affecting 

the value o~ one of the firm·s assets or liabilities; the purpose is not to profit from short-term. 

price movemeDts. Nonetheless, under the proposed rule, because of their short-tenn nature, 

these positions are presumed to be prohibited proprietary trading. This presumption is 

counterfactua!, and the outcome under the proposed rule is inconsistent with the statute. 

Furthermore, as discussed below, the use of these strategies may riot sci the benefit of the risk 

mitigstion excePtion or the liquidity management exclusion of the proposed rule because of 

the limited nature and restrictive coDditions set forth in such exceptions. Thus, the ability of a 

banking entity to manage the structural risk of its balance sheet would be adversely and 

improperly affected. 

We also note that while we believe the market risk capital test will cover some of these valid 

AIM strategies (and some hedging strategies employed in our investment bank), we actually 

do not know, because the market risk rules under Basel U.5 have not been finalized. In this 

regard, it is particularly difficult to determine the application of these market risk rules to the 

Voleker Rule proposed rule as: (I) many banking entities, including the Firm, are still very 

much in the process of analyzing the proposed market risk rules in order to determine which 

types of assets and liabilities would be deemed to be ''trading positions" and what types of 

76 We mongly OpPOse this proposal for other reasons. ~ Letter of The Clearing House Association, dated 

October 27. 2011. http://www tbeclearinghouse org/index.html?f:073030. 

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positions would be deemed to ~ "covered positions" under the proposed rules, and thus it is 

not possible at this time to determine bow ALM activities will be impacted by the interplay of 

these two sets of proposed rules; (2) it is not certain when the proposed market risk rules wi!! 

become final, and thus, under which set of "market risk capital" tests a banking entity will be 

subject at the time the Volcker Rule proposed rule become final; and (3) the types of 

documentation and compliance regimes nec~sary to establish compliance with the proposed 

rules may differ depending upon which set of proposed market risk capital tests is in effect at 

the time the Volcker Rule proposed rule becomes effective. 

C. . Delidencies in the Risk Mitigation Hedglng Exemption 

The statute contains an exemption for risk-mitigating hedging activity, and some ALM 

activity would qualify fur that exemption. However, the exemption appears to contemplate 

the type of hedging that occurs when a market intermediary enters into transactions to bedge 

its risk with customers or to meet 8nticipated demands of customers. In contrast, management 

of balance sheet and other risk requires extensive forecasting and stress tests so that the ALM 

function can position its portfolios to manage against anticipated risks. Thus) as currently 

drafted. the exemption would fail to protect--or, to much the same effect. leave in doubt the 

protection of-numerous legitimate ALM hedging activities. The same is true with respect to 

bedging done in our investment bank at 8 mo~ micro level. 

I. The conditions necessary to satisfy the exemption are too restrictive 

As further illustrated below, the exemption for urisk mitigating hedging" is too restrictive and 

would not enable the broad range of actions that are required to mausge the full complement 

of risks associated with a firm's balance sheel 

(i) "actions in connection with and related to." The proposed rule contains language 

indicating that a risk-mitigating hedge may only b. used to mitigate risks to which the firm is 

Blreadyexposed. Anticipatory hedges are permisaible only when the hedge is "established 

slightly before the banking entity beeomes exposed to the underlying risk." But appropriate 

risk mitigation activities often require that bedges be placed when it is likely that the firm will 

be exposed to the risk. The purpose of stress tests is to inform the firm about risks to which it 

may become exposed, and it is prudent for the firm, based upon that information, to take riskmitigating actioos. Further, it is impossible for any lirm to perfectly anticipate the market 

moves that may adversely affect the entity's assets and liabilities. Thus, no mater how 

sophisticated the stress tests or ALM analysis; flexibility is required with respect to the timing 

of the establishment of the bedges. In addition, depending on the size. scale and complexity 

of a particular institution's positions relative to the depth and liquidity of the underlying 

instruments' markets, safety and soundness considerations may require that the finn establish 

the positions over a period of time so that-such transactions do not disrupt the markets. 

(ii) "reasonably co,.,.elated." The proposed rule requires that a hedging transaction be 

"reasonably correlated" to the risk being hedged and provides that if the hedge and related 

position ''would result in the banking entity earning appreciably more profits on the hedge 

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than it stood to lose on the related position," the bedge would likely to be deemed a 

proprietary trade. 

These requirements could disqualify numerous legitimate hedging activities, as there are 

several reasons why B banking entity may eam appreciably more on a hedge position than it 

stands to lose on the related position-and ye~ Dot be engaged in prohibited proprietary 

trading. 

First, AIM positions may create profits that would not be offse~ at least in an immediate 

profit-and-Ioss contex~ by losses in the underlying risk position. For example, derivative 

hedge positions may be marked to market (thereby creating P&L impact through the income 

statement), while the underlying position, such as a loan, is booked using accrual accounting 

(and thus would not give rise to a contemporaneous, offsetting P&L effect). 

SecoD~ precise correlations amongst and across different asset classes ~ed in asset~1iability 

management are difficult to detenrune. For example, the excess structural liability sensitivity 

arising from customer deposits creates a need for asset sensitivity on the balance sheeL A 

traditional ALM strategy to bedge such liability sensitivity is to purchase AFS investment 

securities. In these instances, 88 the chamcteristics of the hedge instrument are somewhat 

different than those of the underlying position, the hedge will react somewhat differeatly than 

the underlying position to the same market conditions and hence, generally, but Dot 

necessarily precisely, correlate to the '\Dlderlying risk. 

Third, mainte!lllll"" of correlations at both the initiation and at the close of a hedging strategy 

may not be possible due to the fluid and convex nature of the balance shee~ as well.s the 

liquidity ofth. market As noted above, depending on the size, scale and complexity of the 

positions being established or unwound, flexibility is needed so the hedge or its unwind does 

not adversely affect the safety and soundness of the banking institution nor disrupt the 

markets. During these periods, therefore, high correlations wiU be more difficult to maintain. 

Once again, this condition for the hedging exception appears to have been drafted with trading 

desks in mind, where both sides of a hedge are marked to market It is a poor fit with ALM. 

(iii) "significant exposures that were not a/ready present." The propose4 rule requires that 

the hedging transaction not give rise to "significant exposures that were not already present" 

in the underlying position. 

The proposed rule gives over-hedging as an example of prohibited proprietary trading. But 

in the ALM conu:x~ the inability to accurately forecast future outtomes requires that there be 

adequate flexibility for the estimation of -and hedging in respect of -<luch estimated future 

structural risks. In addition, as the probability of certain market and economic outcomes 

chElDges over time, the over or .under hedging measurement will change relative to the 

underlying risk position. 

Separately, and as importantly, asset-liability management strategies may often use 

instruments that will expose the banking entity to a risk that is itself not present in the 

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underlying position - and, thus give rise to an exposure "that was not already present." In the 

exampJe noted above, the use of an investment securities portfolio to manage the structural 

risk arising from customer deposits gives rise to basis risk.. 

2. ALM activities that were crucial during the financial crisis would have been epdangered 

by the proposed rule. 

Below are severn! examples of asset-liability hedging strategies employed by JPMorgan 

during the crisis that enabled it to suceessfully deal with the market, credit, interest rate, aod 

liquidity risks that arose dUring that period. Some of these activities ·could be deemed 

prohibited proprietary trading under the proposed rule, aod would not seem to fall within the 

risk-mitigating hedging exception: 

Hedging the volah"lity and interest rate risk o/the mortgage serYicing right asset: In the days 

preceding Lehmao's Chapter 11 filing on September 15, 2008," review of IPMorgan'. 

mortgage servicing right asset indicated that it was at significant riSk for loss of value under 

some of the Firm~s risk scenarios. Because the mortgage servicing right is very interest rate 

sensitive, a spike in volatility from falling rates would have -increased the convexity of the 

mortgage servicing right asset and reaulted in the Firm ending up with a large open, 

unhedged, riSk position. Also; a counterparty default, even taking into consideration the 

collateral held by the Firm to mitigate the counterparty risk, would have deprived the Firm of 

the benefit of option positions previously entered·into"as protection. Accordingly) in 

anticipation of a possible counterparty default, the Firm determined it would be prudent to 

purchase additional options, in excess of its then open risk positions, in order to protect the 

Firm against "wrong way" market and counterparty risk. After the events about which we 

were concerned actually occurred, the Firm sold the excess coverage, which resulted in gains 

for the Firm. 

Under the proposed rule, this activity could likely have been deemed prohibited proprietary 

trading (as the derivatives involved in the bedging strategy were booked in the market riSk 

capital. trading book) and may not have ljualified as hedging because (1) the actions taken 

were forward looking and anticipatory nature; (2) the purchase of additional hedges could 

have been deemed over-hedging; and (3) the gains realized upon the unwind of the hedges 

could have been deemed "appreciably more profits on the hedge than [we 1 stood to lo.e on 

the related position." 

Managing credit risk by use oJuse oj credit derivatives: Leading into aod thtougbout th,e 

crisis, the Firm. closely monitored its credit portfolio to assess how" the market events that 

were unfolding might affect its balance sheet and .tructural risks. Analysis indicated early 

stress conditions in the credit marke~ and" we were therefore concerned that more serious and 

accelerated underlying credit deterioration was occurring in the short term than was genern!1y 

reflected in market prices. (TIie general market view was reflected in the high-yield credit 

spread curve which was, at the beginning of the crisis, very steep, indicating that that the 

market believed that compaoies would likely Dot default in the sbort-term, but that severe 

credit los.....:.es were more likely to occur in the long term as the crisis continued in dumtion.) 

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To pro~ect the Firm against credit losses that, based on its analysis, the Finn perceived were 

possible to occur in the near term, the Firm's ALM team used credit derivatives to purchase 

protection on high yield credit default swap indices with short term maturities and to sell 

protection On high yield credit default swap indices with longer-terin maturities--in effect, 

taking a bigh yield curve flattening position in the credit derivatives market This slnltegy 

resulted in the Firm recognizing some gains as near~term default risks increased. The gains 

recognized on these derivatives strategies offset in part the losses that occurred on credit 

assets held by the Fi!lll. 

Under the proposed rule, this activity could bave been deemed prohibited proprietary trading. 

The derivatives used in the hedging strategy were booked ih the market risk capital trading 

a<:<;ount and may not have qualified as hedging because: (1) the aCtions taken were forwardlooking and anticipatory; (2) the Firm's purchases of the credit derivatives may not bave been 

deemed ''reasonably correlated" with the underlying risk, as different instruments were used 

to effect the bedging '''''tegy than the assets giving rise to the risk; and (3) the gains realized 

upon the unwind of the hedges could have been determined to be larger than the . 

countervailing risks. 

Managing depo~il inflows by purchasing highly liquid securities: ru the crisis unfolded, 

JPMorganexperianced an unprecedented inflow of deposits (more than $100 billion) 

reflecting a flight to quality. The Firm wss faced with determining bow to invest this excess 

cash, and how to earn a sufficient.rate ofretum on these deposits'in lin extremely low-rate 

environment, so that it could pay interest on these funds without losing money--:.<>r needing to 

tum its customers away, wbich not only would havebaeII bad business for US but destabilizing 

for the system. The Finn took severalaetions: it lent the excess funds in the inter-bank 

marke4 thereby belping to reciICulate available liquidity to other financial institutions. But it 

also invested in both long-term anI! short-term highly liquid investmeIlt gIlIde secorities in 

order to obtain 8 rate ofretum sufficient to protect the Firm from compressing margins on its 

deposit bsse. Although the preponderance of the securities purchased were booked ss AFS 

securities, mllny of the shorter .. term securities were booked in the Firm's market risk capital 

trading account. The purchase ofshorter-tenn securities was necessary. because the Finn was 

not sure how sticky (or long term in nature) some of these deposits would be, lind wanted to 

avoid an assei-liability mismatch. And some AFS secorities were purchased and sold within 

60 days as a prudent hedging response to tho dynamic nature of the cosh flows, and in order 

to manage the fluidjty of the cash flows and the interest rate volatility and sensitivities such 

cash flows were creating. Use of this strategy enabled the Finn to protect itself against losses, 

helped its clients earn interest on the funds they bad deposited with the Firm and recycled 

funds back into the wholesale rnBrketll. 

Under the proposed rule, some components of this slnllegy could have been considered (or 

presumed to ba) prohibited proprietary trading. Some securities were booked in the market 

risk <spital trading account (or purchased and sold within 60 dsys), and would not have 

qualified ss hedging because (1) the Finn's purchases might bave been deemed to be a: bedge 

that gave rise to a ''risk that was not already present" On the Firm's balance sheet; (2) the 

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Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013326 
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hedge securities may not bave been deemed a hedge that "reasonably correlated" with the 

underlying risk (not only for the reason noted before, but also because the pace of the 

purchases or sales of hedge securities may not have matched precisely the pace of deposit 

inflows and outflows) and (3) the Firm's eventual sale of such securities resulted in gains that 

could have been considered outsized to the risk being hedged (in part because that risk could 

Dot be quantified). 

Managing the value of the Finn's assets and liabilities by purchasing expanded types of 

investment securities: By early 2009, it had become apparent that additional AIM action was 

required. The credit environment bad deteriorated further, and the Firm's management was 

forecasting a si~ificant economic slowdown that was likely to lead to a lower interest rate 

envimnme.D;l In addition to the significant influx of deposits. the Firm was e.xperieocing, the 

Firm's management was predicting lower. loan demand, resulting in a si~ficant stru~turaI 

balance sheet mismatch between lISSets and liabilities. In anticipation of these conditions, the 

Firm's ALM team undertook an evaluation of the Firm's investment securities portfOljo and 

determined it would be prudent to increase the size ijIld duration of the portfolio, as well as to 

increase diversification of the portfolio. Thus, in addition to agencyMBS securities, which 

were the securities traditionally held by the investment securities portfolio, AIM activities 

expanded in scope to include other highly liqwd securities. Bu~ as the.market dislocation 

associated with the crisis increased and cn:dit spreads continued to widen, the portfolio was 

further expanded to include other loiHlf-the-capital structure securities an&certain types of 

atructured <:cedi! products to bring the asset-liability sensitivity of the Film more in balance. 

This increased purehasing continued over several quarters of 2009. While the,preponderance 

of the securities purchased were booked as AFS securities, the expanded strategy also 

involved the' purchase of certain securities and derivatives that werebooked in the Firm's 

market rlsk<>lpitai treding account and, as a prudent response to the volatility in the credit 

markets, sometimes necessitated the purchase and sale, within 60 days, of AFS securities. 

This ""tive -' and proactive-positioning of the Firm's AIM portfulio during the period 

enabled the Firm to manage successfully a balance sheet that was experiencing significant 

changes in volumes in its assets.and liabilities with resulting interest rate volatility and 

. sensitivity, and provided the Firm with 8 partial hedge against the changing mBl'ket value of 

the Firm's balance sheet. 

Under the proposed rule, some aspects of this strategy could have been prohibited, for 

hasicaUy the same reasons described with respect to other strategies. As these examples 

demonstmte, JPMorgan's ALM activities during the crisis involved pro-active managem~t of 

the risks associated with its balance sheet Many of these acuons needed to be taken quicldy, 

while many others required significant purchases or sales of securities over a period of time -

as large purchases or sales needed to be managed in a way that was consistent with safety and 

SOWldnesS and without dislocating markets. 

The actions taken by the Firm's AIM team led to significact changes over the two.ye": 

period in the size, maturity profile, and composition of the Firm's investment securities 

portfolio. AU of these actions, irrespective of whether the securities and instruments 

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purchased and sold were accounted for as AFS investment securities or· booked in the market 

risk capital trading accoun~ were effected in order to protect the value of the assets and 

liabilities on the Finn's balance shee~ and not for the purpose ofeaming profit from shortterm price movements. Under the proposed rule, it is at best unclear whether we could take 

similar actions to protect ourselves in the future. Thus, many of the most prudent, useful and 

successful strategies utilized by the Firm during the crisis could bave been prohibited under 

the proposed rule. As discussed below, we believe there- are more appropriate ways to ensure 

a prudent and effective operation of an ALM functio~ while at the same time ensuring 

sufficient safeguanls are in place so that the statutory prohibition on proprietary trading set 

forth in the Yolcker Rule is not evaded. 

D. Inappllcable Elements of the Risk Mitigation Hedging Exemption 

I. The Metrics Requited to be Applied are Meaningless When Applied to Legitimate ALM Activities 

The proposed rule requires five metries to be applied to "risk mitigating hedging activities;" 

accordingly, under the proposed rule, ALM transactions that are booked in the ""tity's market 

risk capital trading account would be subject to these metrics. These measures include V AR. 

Stress Y AR, V AR Exceedeoce, Risk Factor Sensitivities, aod rusk Position Limits. It is true 

that V AR and these other metries amused by the Firm in respect of the portion of the AIM 

portfolio which is marked-to-market However, the purpo;e for sucb tests is,to enable the 

Firm to understand the poteotialloss that could be incurred by these positions as a result of 

immediate changes in marl<~ rates - but not to determine the efficacy of the AIM bedging 

activity. And, while asset-liability risk management does use risk metor sensitivities and risk 

position limits in managing the risks associated with the portfolio, these metries likewise do 

not belp distinguish ALM activities from probibited proprietary trading activities. 

Accordingly, while these mettics are used in risk management, they BI'C of no use in 

distinguishing valid risk mitigating bedging activities from prohibited proprietary trading. 

Most signilicanUy, the application of the Y AR-based measures to .. sets held by an ALM 

function would be extremely misleading. This is because many of the liabiliti .. being 

managed, such as depOsita, BI'C not marked to mlU'kot but, rather, are accounted for on an 

accrual basis. This accounting asymmetry means that while the V AR~b8Sed metries will 

capture the changes in value of the ALM position, these memes will not reflect the offsetting 

risk in the underlying sInlctural bslance sbeet of the company-in essence, the V AR-based 

metric will be messuring only one side of the equation, not both. Accordingly, V AR 

measures will not gauge the extent to which the ALM position is actually offsetting the risk it 

is bedging. This accounting asymmetry renders the application of these metries to AIM 

activities meaningless for Volcker Rule purposes. 

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2: The "Simultaneous Documentation" Requirement Is Overly Onerous and Not Necessary to 

Distinguish ProPrietary Trading from Legitimate AIM Activities 

The heavy documentation requirements for risk mitigating hedging activities are unrealistic 

and the requirement for contemporaneous documentation is unworkable. The proposed rule 

requires that for any risk miti~tion hedging transactions "estahlished at a level of 

organization that is different than the level of organization" establishing the positions, the 

entity must document "at the time" of the transaction (I) the purpose of that bedge 

transaction; (2) the positions the bedge is designed to reduce; and (3) the level ofthe 

organization that is establisbing the bedge. 

The significant documentation requirement impnsed on the AIM function-whicb, by 

definition, is carried out on a desk that is different from ille market-making desks giving rise 

to the risk or the oper1lting business that is giving rise to the underlying credit or structural 

liability risk-means that ALM functions will defacto be subject to the unworksble 

documentation requirements of the proposed rule. Because the ALM function looks at the 

balance sheet in a macro, holistic way, determinations as to hedging strategies are generally 

developed by an investment committee that determines what risks the entity is being expnsed 

to, and how best and how much to bedge them. The person executing the bedging pnsition 

on behalfofthe AIM function may not know the precise origin of the risk being bedged at 

the time of hedge execution. The unworkebility of the documentation requirement becomes 

even more extreme in the context of necessary anticipatory hedging. Because bedging is 

dynamic and needa to be responsive to market conditions, the requirements that such 

documentation be Ucontemporaneous with" the establishment of the hedge, and that there be 

detailed documentation identifying the exact positions - or even pnrtfolios of pnsitions - that 

are intended to be hedged could inadvertently delay managers from establishing the very 

hedges required to maintain safety and soundness. This tenSion wiU be particularly acute 

during volatile market conditions - precisely when safety and soundness and market stability 

argue for quick action. 

Further, it is unclear what benefits these additional documentation requirements provide, and 

how they would differ from or be supplemental to the policies JlDd procedures that are already 

employed by a fum's ALM function. It is Dot clear that the appropriate and already robust 

policies and procedures that are in place in a fum's AIM function do not suffice. Because 

ALM functions should be given the same deference and latitude that the propnsed rule 

accords the liquidity management function (at least in respect of the documenIBtion 

requirements applicable to both activities), there is no reason that the documentation 

conditions that the proposed rule deems sufficient for liquidity management should not 

likewise be deemed sufficient and appropriate for transactions executed in furtherance of 

bona fide ALM activities. 

In summary, given the restrictive and unworkable conditions required to be met for the ''risk 

mitigating hedging" exemption of the proposed rule, it will be impossible for risk managers 

to know at the outset what may be deemed exempted and what may DOt. This attendant 

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uncertainty wiU chiU the taking of appropriate actions and impair the exercise of this 

important function. thereby undermining a crucial safety and soundness function, often at 

times when it is most required. 

E. The Liquidity Management Exclusion 

While the proposed rule properly excludes liquidity management activities from the definition 

of trading account (thereby acknowledging that these activities are not for the pUIpO.e of 

selling in the near teon or with the intent to resell in order to profit from short-term price 

movements), it nonetheles, fails to fully implement the FSOC', finding that liquidity 

management activities must fall outside the Volcker Rule's definition of proprietary trading. 

That is because the proposed rule has so narrowly circumscribed the scope of excluded "bona 

fide liqoidity management" activities that only a fraction of a fum', liqoidity management 

activities win qualifY for this treatment and, thus, the remainder could be prohibited by the 

Volcker Rule as impermissible proprietary trading. This result cannot be intended. 

In particular, the funowing conditions that must be met in order to obtain the benefit of the 

exclusion present serious obstacles to effecting a legitimate and prudent liquidity management 

function: 

(i) "near-term ".fUnding needs: Prudent liqoidity management is ll'sp<lnsible for ensuring 

that the entity is abie to meet its commitments notonly over the "short term" - but also over 

"medium'tenn" and "longer-time" horizons. In fact, the banking regulators' 2010 

Interagency Policy Statement on Funding and Liquidiiy Risk Management ("Liquidity Risk 

Policy")". reqoires firms to "ensure that tJieir vulnerabilities.to changing liquidity needs. and 

liqoidity capacities are appropriately assessed within meaningful time horizons, including 

intra-dey. dey-to-day. short-term weekly and monthlyhorizcns. medium-term horizons of up 

to one year~ and longer~term liquidity needs of one year or more.u78 

The consequeoce---wbich we believe must be unintended--ofthis near teon requirement is to 

label any Iiqoidity cushion of Iiqoid securities held by the fum in excess of its ''near-term'' 

funding needs as prohibited proprietary trading. That i. because under the proposed rule only . 

the portion of the liquidity cushion that would meet a firm's 'near term" funding needs will 

qoalifY for the liquidity management exclusion; the balance of the ,ecurities held as part of 

the liquidity cushion (which genera1ly would be securities held in .. market risk capita! trading 

aocount) could be deemed prolubited proprietary trading. The result will be to limit prudent 

liquidity management practices and likely result in making banking entities less safe and less 

sound and the U.S. and global financial systems more vulnerable to liqoidity stresses. 

77 "Interageocy Policy StatI;ment on Funding and Liquidity Risk Management" Office oflhe Compb"OUer oftbe 

Currency; Board of Oovemo"n of Ihe Federal R.cserve Sy9.tml; Federal Deposit Insurance CoIpOntioo; otrKe oC 

Thrift Supervision; and National Credit Union Administration. Fed Reg. Vol. 75. No. 54, 13656, Mart:h 22. 

lOlD. 

1t llI. at 13663, 

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(ii) positions be "highly" liquid: It i. imprudent for all of a fum's liquidity management 

positions to be invested only in bighly liquid securities because prudent liquidity management 

requires appropriate asset allocation. Finns often invest their surplus fimds in commercial 

paper, certificates of deposit, short-term IOEmS, interbank deposits, Fed Funds and other 

similar Instruments of creditworthy issuers, because these instruments, used in varying 

amounts at v8.rying times, provide liquidity managers with the necessary flexibility to address 

the changing liquidity profile of the firm. Prohibiting the use of these types of instruments 

would be inappropriate for several reasons. 

First, the liquidity of instruments changes from time to time in response to. market conditions 

and thus, determining whether an instrument is highly liquid or merely liquid will be a facts 

and circumstances d·etennination, depending on market conditions at any given paint in time. 

Second, banking entities' investment in commercial paper, short~term.loans. interbank 

deposits and other similar products is an important way to recirculate available liquidity to 

help provide funding to others. Thus, prohibiting bllnldng entities from investing their excess 

liquidity into these instruments would be detrimental to the safety and soundness of the entire 

banking system. Third,liquidity is not 'indicative of whether the purpose ofa trade is shorttenn profit - and thus, it i, not clear why or bow this requirement furthers the intended 

purpose of the Volcker Rule. 

(iii) positions not give riset~ "appreciab'le profits ": The fact that a particular investment 

bears a higher rate ofretum than another does not convert the purpose of that investment 

from proper liqUidity management to impOrinissible proprietary trading. In addition, 

concluding whether any particular liquidity management transaction creates impermissible 

"appreciable" profits is so subjeetive and uncertain a determination that it will only inhibit 

and impair the pr~per management of this iniportap.t function. 

(iv) "speci/ically ... authorize ... the circumstances in which the particular instrument may or 

must be used." Liquidity management is a dynamic process. never more so than during 

periods of stress. It is 8 process that, by definition, requires continuous measurement and 

monitoring---<Uld being able to take steps quickly to address any funding gaps (that is, any 

gap' between the timing of liquidity sources and liquidity uaea). Bee.uae of the on-going 

nature of the reviews routinely performed by tha funetion, and the breadth of the instruments 

taken into considemtion depending on market and economic conditions at any point in time. 

requiring that the liquidity plan specifically detail the circumstances in wbich • particular 

instrument is to be used is too constrictive a condition to permit the proper functioning of 8 

bona fide liquidity management function. 

In summary, many bonafide liquidity management activities would not be permitted under 

the proposed Nle's exclusion. The restrictions will not permit the function to operate within a > 

framework that is flexible enough to allow banking entities to manage their liquidity risks in 

prudent ways. As • result, the exclusion as currently set forth in the proposed rule could 

undermine banking entities' safety and soundness. 

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F. Alternative approach 

The final rule should establish an exclusion from the definition of trading account for bona 

fide asset liability management, which would include and enC<lmpass bona fide liquidity 

management. Like the currently proposed exclusion for bonafide liqoidity management, the 

ALM exclusion would be conditioned on meeting several criteria that are consistent, and in 

some instances go further than, those already included in the proposed rule. Such an exclusion 

is fully consistent with the language, purposes and history of the statute. 

We therefore propose that there be an exclusion for any transaction effected for bonafide 

asset-liability management done in accordance with a firm's documented ALM policy that: 

• Authorizes the particular instruments to be used for ALM and liqoidity purposes, and 

describes the types circumstances under which such instruments would generally be 

expected to be used; 

• Authorizes the hedging strategies for use in ALM activities or for addressing the 

liquidity needs of the firm as the macroeconomic and market environments change; 

• Requires thai any transaction contemplated and authorized by the plan be principally for 

the purpose of managing the. balance sheet exposwes and liquidity risks of the C<lvered 

finn, and not principally for the puipose of short-tenD resale, beoelit.ting from actual or 

expected short-tenn price movements, realizing short-tenn arbitrage profits, or hedging a 

position taken for such short-tenn purposes; 

• Requires that the ALM and Iiqoidity portfolios he managed within appropriate controls 

documented in the ALM policy; 

• Limits any positions ~en for AIM or liquidity purposes to amounts that are consistent 

with the firm's balance sheet management and liquidity needs as defined in the ALM policy; . 

• Is consistent with all applicable regulatory guidance regarding 8$set-liability and liquidity 

management; 

• Is approved by the finn's board of directors; 

• Requires that the compensation arrangements of p""ons performing the ALM and 

liquidity management activities be designed so as not to reward proprietary risk taking; 

• Requires that the flfTll shall have established a C<lmpliance and audit regime designed to 

ensure compliance with the rule; and 

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• Requires that the management of the ALM and liquidity management function (including 

its employees and officers) be separate from the primary dealer and market-making 

trading functiona. 

UDder this construct, the agencies would have considerable asSUI'BDce that AIM functions 

were being properly conducted, but financial institutions would retain the crucially important 

flexibility to manage their risks in appropriate and prudent ways. That is because under a 

properly organized, managed and supervised ALM function it would be difficult-if not 

impossibl~for a ,J;:roprietary trndiog desk or function to be secreted or camouflaged within 

an ALM function. Fi",~ and foremos~ because the ALM function is grounded In managing 

the structural riales of the enterprise, the banking entity would need to be able to demonstrate 

that eacb of the ALM strntegies it undertook was in response to the results of stress tests or 

internal analysis conducted by the firm of its. balance sheet risks. Each desk effecting ALM 

bedging strntegios would need to be able to demonstrate how its activities are supervised, aild 

th.t its transactions were within the defined mandates and·limits eStablisbed by its mimagenrwho likewise would need to be able to demonstrnte that those mandates and limits were 

directed by and were part of the ALM strntegy established by the firm's ALM ioanOgemenl 

ALM management would need to be able to demonstrate that the instruments and strategieS 

utilized by the various bedging personnel were established by it and were part of the written 

ALM plan and procedures, and that all of the ALM activities were reported to and monitofed 

by the entity's independent risk management function. The entity would need to be able to 

demonstrate that the written plan and procedures were authorized by the entity's board of 

directors, and that its internal risk, compliance and audit personnel, independent of the ALM 

function, had performed adequate monitoring and testing of such processes and procedures to 

establish that the activities were in fuct in compliance with the plan. And, as a further . 

disinoentive to proprietary trading occurring within the ALM function, the persons effecting 

ALM transactions would not be compensated to do so. Lastly, and not insignificantly, the 

banking entity would also know that its ALM activities are subject to regulatory examination 

and review. Thus, we believe the exemption would require that there exist within the AIM 

function managerial and superviSOI}' structures to ensure that the function is being properly 

performed and appropriately controlled. 

By proposing this exclusion we do not suggest that ALM activities be exempt from 

examination on safety and soundness grounds. Rather, as stated. above, we fully expect robust 

examination and supervision to continue in the future. As noted in the introduction, we also 

note that drsconian capital requirements on all trndiog positiona, including those beld for 

ALM purposes, are already a potent safety and soundness guarantee, as well as unfortunately 

a disincentive to engage in the activity. 

79 We acknowledge it is a.lways possible that a rogue trader situation can occur--but,. as we note in the. 

Overview, there appCIUS no justification to promulgate B mle that presumes from the outset that covered entities 

would intentionally work to evade Ihe< rule. 

64 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO·PSI 0013333 
1725 

We thank the agencies for their consideration of our comments. If you have 

any questions, please do not hesitate to can me at 212-270-0593. 

Sincerely, 

~' 

.~./ ... 

Barry L. Zubrow 

Executive Vice President 

65 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013334 
1726 

AopendixA 

Compliance Program for Foreign Fu.nds 

Appendix C, Section II of the proposed rule would be amended to add a new Subsection C, as 

follows: 

C. Foreign Fund Activities or Investments 

A covered banking entity must establish, maintain and enforce written policies 

and procedures that are reasonably designed to documen~ describe, and monitor the covered 

banking entity's sponsorship activities with respect to, or investments in, funds organized and 

offered outside the United States (such funds, "foreign funds"), as follows: 

Analvsis of Foreign Funds: The covered banking entity's policieS and procedures 

must specify how each foreign fund that the covered banking entity sponsors, organizes and 

offers, or in which the covered banking entity invests, will be analyzed to determine whether 

such foreign fund is a covered fund pursuant to § _.1O(b)(1). Such policies and procedures 

must provide that such analysis be appropriately documented and reported to management of the 

covered banking entity. To the extent that a foreign fund is determined not to be a covered fund, 

the following compliance progrnm elements will apply. 

Records Regarding Foreign Funds that are not Covered Funds: For foreign funds 

that arc not covered funds and that the covered banking entity sponsors, organizes and offers, or 

in which the covered banking entity invests, the covered banking entity's written policies and 

procedures must specify that the covered banking entity maintain records that are sufficient to 

identify, .. applicable: 

• A description of each foreign fund (e.g., prospectus). 

• For each foreign fund, a record that notes the basis upon which the cov~ 

banking entity baa determined that the foreign fund is not a covered fund pursuant 

to § _.IO(bXl)(iii), including the following elements: 

o jurisdiction of organization; 

o jurisdiction ofregistr8tion or regulation; 

o each jurisdiction in which a public offering of the foreign fund's 

ownership interests has been made, or is intended to be made. and, with 

respect to funds that are publicly offered and listed on a foreign securities 

exchange, the perce.nt of the foreign fund's ownership interests 

represented by such listing, or that are intended to be represented by such 

listing; 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013335 
1727 

o how frequently investors are permined to redeem their ownership interests 

and how frequently a Det asset value. or its equivalent, is calculated; and 

o the securities exchange'upon which the foreign fund·s ownership interests 

are listed 

• The nature of the covered banking entity's sponsorship activities with respect to 

each foreign fund; and 

• The date and amount of C;8ch investment by the covered banking entity in each 

foreign fund. 

Ongoing Compliance of Investments in Foreign Funds that are not Covered 

~: The covered banking entity's policies and procedures must specify bow each fureign 

fund in which a banking entity maintains an ownership interest will be reviewed regularly to 

determine whether such foreign fund has become a covered fund pursuant to § _.lO(b)(I). With 

""'peel to foreign funda that are later determined to be covered fonda, the covered banking 

entity's policies and procedurea must also specify how the banking entity will ensure 

investment! in such foreign fonda will be brought into compliance with § _.11 and the other 

provisions of Part [ 1, as applicable. 

Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0013336 
1728 

JPMORGAN CHASE & CO. 

MINUTES 

MEETING O'-THE RISK POLlCY CO'\iMITTEE 

March 20, 2012 

Risk PoUcy Committee Others Present 

James S. Crown. Chairman 

David M. Cote 

Ellen Y. Futter 

Ashley Decon 

Douglas L. Braunstein 

Paul Campton 

Donna Dellosso 

Robin Doyle 

L"Drcw 

Mary Ellen Egbert 

Irvin J. Goldlnan 

Margaret M. Hannum 

10hn J. Hogan 

Daniel McDonagh 

Patrick McKenna 

Samuel T. Ramsey 

Donna Reina 

Stcinar Zinke 

Barry L. Zubrow 

Gregory A. Beer, SeLTctary 

Mr. CrO''rll convened the meeting at 7:30 HID. The meeting Cflrnmenced with Committee mcmbcrs~ Ms. 

Doyle. Ms. Egbert a..,"1d l\.fs. Hannum and Messrs. Braunstein, Hogan} McKen.:.i.a, Ramsey, Zinke, 

Zubrow, and Baer in attendance. Mr. Hogan then introduced new members ofthe Risk MUrulgcrncnt 

Team: Donna Dellosso, Patrick McKenna and Steinar Zinke to the Committee. 

The minutes ofthemeeling on January 17.2012 were approved. 

Redacted 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN & CO. JPM-CIO-PSI0013563 
1729 

Redacted 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN & CO. JPM-CIO-PSI0013564 
1730 

Redacted 

Market Risk Um!t. 

. Mr· .Bacon updated ,the. COmmittee 8~MarketRisk limits.: 

Redacted . Redacted'" 

:~--: .. " .. ".".": _ .... " - . --" - - - - - -- - - - -."." .. " .. '--.":.-.".:_-.: '.: .. _. _ .. _ .. _.... _. _ _ _ ; The CIe VaR limit was raised temporarily in anticipation ofQR's 

approval ofth. mortgage prepayment model leveraged by 'he MSR and SPG', mOrlgag. related 

portfolios. The C]O Risk Committee reviews levelland Level 2 limits lor each business on a 

mont'>ly basis. He stated that tbe position c."anges in the second half of2011 resulted in VaR 

,~iversifiealjoD benefittrenoing !ower(hig!1er \faR) .,ith Jirnits'",chansed and nlana!!ed DlOTe ti$htly:., 

Following discussion, Mr, Bacon left the meeting. 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN & CO, JPM-CIO-PSI0013565 
1731 

Redacted 

CIOR.vlew 

Ms. Drew and Mr. Goldman provided Ii review 011 CIO. TIley discussed the structural risk summary 

noting that t.lte strudural risk net.1iabiiity position projected by WBs continues to grow driven by 

modest asset growth, continued deposit inflows, long term debt issuance and retained earnings, Ms. 

Drew noted that the structural investment portfolio allocation trending toward 50% rates, 50% senior 

credit. Subject to capital ratios, the Cl0 wilt continue a portfolio rotation into ser.lor top of the capital 

structure credit. Ms. Drew described. how rising or falling mterest rates would affect the company, and 

bow CIO manages that risk. In response to a que.,tion from Mr. Cote, 'he ,,-qd Mr. Goldman describe<! 

the behavior of core deposits and how !bey ere man.ge<!. 

Adjournment 

There being 00 f!.utheT busincss~ the meeting \Va~ adjourned. '"/.-··-7 

~;/}j:;;!;; ';;£;2< ... , ..... 

Gregory A. Boer, Secretary 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN & CO. JPM-CIO-PSI0013566 
1732 

Risk Management 

General Market Discussion 

JPMORGAN CHASE & Co. 

Confidential 

Directors Risk Policy Committee 

March 20,2012 

Th<&'~ c.oniaoM...rtSI!rre end confodenhal 1it!anc:IIII.,lormsl'''!lS<JCh(ho! any"n .. ""'" ,,,,,,,,,,yes ~moYPU'C'- and se~JPMorg8n Ctw", .. lleCum_ onlyduf"'O!IooI_ petIOd'" 1M! f~ 

qUllilfll1y __ ntscl"'''''<IQ$ 

TI1IS INFO~MATION IS CONl'lDENTIAl ANO PROPRIETJi.!I:,(, AND DISCLOSURE OR DISTRIi'lUnON OF TH£ INFORMATION TO ANY PERSON WITHOl1TTHE PRIOR WRIITENCONSENT OF 

JPMORGAN:S PROHIBITEO ANY BANI( E)(AMINER TO \'!IHOMJPMORGAN HAS FURNISHEO THIS INFORMATION MAY OISCLOSE THE INI'ORMATION TOANY OTHER EMPLOYEES OF A 

BANI( REGULATORY AUTHORi'rr WHO HAVE A NEED TO KNOW THE INFORMATION OR AS REOUIRED BY LAW 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & co. JPM.cIO·PSI0013890 
1733 

Topics for Discussion 

Wholesale - 30 Minutes 

Investment Bank (lB) 

• Executive Summary 

• EuroStress 

• Underwriting Scorecards 

Commercial Bank (CB) 

• Executive Summary 

• Underwriting Scorecards 

As.set Management (AM) 

• Executive Summary 

• Key Risk Topic· Money Mar1<.et Funds 

• Underwriting Scorecard 

Treasury & Securities ServIces (T&SS) 

• Executive Summary 

Chief Investment OffIce (CIO) 

• Executive Summary 

JPMORGA:-..I CHASE &CO. 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

COnfidential 

Consumer- 15 Minutes 

Consumer 

• Executive Summary 

• 30-149 Day Non-Credit Impaired De1inquency 

• Net Charg~Ofts 

• Underwriting Scorecards 

• Card Services 

• Auto Finance 

• Mortgage Banking 

• Business Banking 

Exhlblf:J 

• Treasury & Securities Services 

• Selected Key Product Metrics 

• OperationalLosses_ Full Year2011 

• C~it Risk Profile 

• Consumer 

• Eamings Estimare 

• Card ServrCes Ove:Mew 

• Auto Finance Ove:I"Ioriew 

• Mortgage Banking OWMeW 

• Business Banking O'IPI"Ioriew 

JPM-CIO-PSI0013891 
1734 

Ch;e{ Investment Office Risk: 

Executive Summary 

finandal Summary [Manasement View] 

JPMOR.GA:-' CHA.~r;&CU. 

:ONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

t---by ... ,........ I -50_._ .. _ip_ 

Key Risk Topics 

Confidential 

• Structural risk position remains short rates and long credit 

spreads 

• Integration of AFS securities portfolio into firmwide stress 

framework (reflected in table below). 

Ct8cit15J)1'l18dIl1_tmenb 

F,rm DoE (nctudl!!s credit) 

" 

JPM.cIQ-PSI 0013903 
1735 

From: Bacon, Ashley 

Sent: Sun,06 May 2012 20:57:24 GMT 

To: Venkatakrishnan, CS <cs.venkatakrishnan@jpmorgan.com> 

Subject: Re: CIO Credit Collateral differences as of COB Thursday 3rd 

Yes ~ would be a good addition 

From: Venkatakrishnan, CS 

Sent: Sunday, May 06,201209:55 PM 

To: Bacon, Ashley 

Subject: Fw: ao Credit Collateral differences as of COB Thul5day 3rd 

Shouldn't this be on daily risk report? 

From: Bates, Paul T 

Sent: Sunday, May 05, 2012 04:46 PM 

To: Dimon, Jamie; Braunstein, Douglas; Hogan, John J.; Drew, Ina 

Cc: O'Rahilly, Rob; Bacon, Ashley; Venkatakrishnan, CS; Vigneron, Olivier X; Macris, Achilles 0; Martin-Artajo, Javier X; 

Wilmot, John 

Subject: ao Cred~ Collateral differences as of COB Thul5day 3rd 

CIO Credit Collateral differences as of COB Thursday 3rd 

Total difference between CIO and the counterparties is now $'194mm vs, $182mm prior day, 

Largest Counter party Difference: Morgan Stanley is now $57mm vs, $55mm prior day, 

largest Instrument Difference: Itraxx MN S0910Y 22·100 is now $34mm vs. $38mm on the prior day. 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI0014195 
1736 

From: Bates, Paul T <paul.t.bates@jpmchase,com> 

Sent: Tue,08 MaV Z012 18:18:01 GMT 

To: 

cc: 

Dimon, Jamie <jamie.dimon@jpmchase,cam>;Braunstein, Douglas <Douglas,Braunstein@jpmorgan,com>; 

Hogan, John J. <John.J.Hogan@jpmargan.com>; Drew, Ina <lna,Drew@jpmargan.com> 

O'Rahilly, Rob <Rob,ORahilly@jpmorgan.com>; Bacon, Ashley <Ashlev.Bacon@jpmorgan.com>; 

Venkatakrishnan, CS <cs.venkatakrishnan@jpmorgan.com>;Vigneron,OlivierX 

<olivier,lI;,vigneron@jpmorgan,com>; Macris, Achilles 0 <al;hilles,o.macris@jpmorgan.com>; Martin~Artajo, 

Javier X <javier.x.martin~artajo@jpmorgan.com>; Wilmot, John <.JOHN.WllMOT@jpmorgan,com> 

Subject: CIO Credit Collateral differences as of COB Monday 7th 

ClO Credit Collateral differences as of COB Monday 7th 

Total difference between cia and the counterparties is now SZ12mm vs, $203mm prior day. 

Largest Counterparty Difference: Morgan Stanley is at $61mm - unchanged. 

Largest Instrument Difference: Itraxx MN S09 lOY 22·100 is now S27mm vs, S24mm on the prior day. 

Difference by counter party: 

Top ten differences by instrument: 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI0014779 
1737 

From: Youngwood, Sarah M <sarah.m.youngwood@jpmorgan.com> 

Sent: Thu, 10 May 2012 22:35:32 GMT 

Dimon, Jamie <jamie.dimon@jpmchase.com>; Braunstein. Douglas 

<Douglas.Braunstein@jpmorgan.com>; Drew, Ina <Ina.Drew@jpmorgan.com>; Staley, Jes 

To: <jes.staley@jpmorgan.com>; Cutler, Stephen M <stephen.m.cutler@jpmorgan.com>; Evangelisti, 

Joseph <joseph.evangelisti@jpmchase.com>; Lemkau, Kristin C <Kristin.Lemkau@jpmorgan.com>; 

Miller, Judith B. <Judith.B.Miller@jpmorgan.com> 

CC: Investor Relations <Investor _ Relations@restricted.chase.com> 

Subject: 10Q call- Buyside and sellside comments (I) 

See below re first few calls. 

Brennan Hawken - UBS - SelJside 

Matt O'Connor said it all on the call when he mentioned this is not really a huge number is it stays there 

• Very commendable; the call was very transparent, above board, and something that you would expect JPM to 

do 

• The market is reacting somewhat strongly 

• You will work your way out of it 

Keith Horowitz - Citi - Sellside 

Feedback - There's more going on here; "There are bad apples here." People are incented to make money and 

take risk" 

• I think everyone appreciates you organizing a call 

Mike Mayo - CLSA - Sellside 

• What did Jamie mean when he said the 1055 "could be volatile?" Is it $1B more? 

Is AOCI recognized in equity? Is 

• Any impact on your capital plans? 

• What is the purpose of the investment portfolio? 

Big issue/question: who was watching the CIO? Doesn't internal audit monitor this? CIO size? Volcker? Asset 

Management 

• Thank you for organizing the call 

Matt O'Connor, Michael Carrier and Oavld Ho - Deutsche Bank - Sellslde 

How big is the synthetic credit book you are trying to unwind? Is the synthetic book included in the investment 

securities portfolio? How big overall is the CIO book? Are there numbers in the press that are reasonable? 

• Where would the synthetic credit book show up on the consolidated balance sheet in trading assets? 15 it under 

derivatives receivables? 

• Is all of your goodwill in the Corporate segment? 

Pretty big confidence blow for the best risk manager; very puzzling 

• We may have to amend our FICC forecasts. Movements in credit spreads don't seem material, so to get tripped 

up now is surprising 

• Were there any accounting changes? 

• When I speak to clients, and they ask, "What got worse since after the quarter?" I'd say Europe, but what else 

got worse? What basket did you have? Using broad indexes, it just doesn't add up 

• "Scary thing" -I worry about if this could create a global issue 

How fast can you get out? 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P, MORGAN CHASE & CO. JPM-CIO-PSI0014783 
1738 

• You didn't do a call when you had a $2.5B litigation loss; ; I'm not worried about your earnings or book value, 

but I do worry about the message it sends 

Beth Schulte - Capital- BUY5ide 

• "Bravo, thank you for hosting the call" 

• What e)l;actly was the transaction that caused the problem? 

What event triggered the realization that the hedging was not working? 

• When Jamie said you had a synthetic credit strategy to hedge your overall credit risk, what does that mean in 

laymen terms? Rather than sell-off the pieces, did you layover additional strategy? 

Based on what Jamie said on the quarter, have you used up, as of 1Q12, any of the buybacks? 

Sarah Youngwood! Managing Director I Head of Il'1vestor Relations I JPMorgan Chase Co. I 

270 Park Avenue, New York, NY 10017 I T: 212 622 6153 I F: 21227016481 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0014784 
1739 

From: 

Sent: 

Coomb-es, He-ma S <hema.s.coombes@jpmchase.com> 

Thu, 10 May 201118:03:05 GMT 

To! Dimon, Jamie <j2lmie,dlmon@jpmcllas.e,cQm>;Braunstein, Douglas <Douglas,Braunsteln@ljpmorgan,com>; 

Hogan, John 1 <JohnJ.Hogan@llpmorgan,com>; Drew, Ina <lna,Drew@jpmorgan,com> 

cc: 

O'Rahilly, Rob <Rob.ORahlUy@jpmorgan.com>; Bacon. Aslltey <AshJey,Bacon@jpmorgan.com>; 

Venkatakrlsllnan. CS <cs.venQtakrishnan@Jpmorgaruom>;Vlgneron,Ollvierx 

<onvier.x.vtgneron@ljpmorgan,com>; Macrls, Achilles 0 <achllles.o.macrls@jpmorgan.com>; Manln-ArtaJo. 

Javier X <javier .x.martin~artajo@jpmorgan.com>; Wilmot, John <JOHN.WILMOT@jpmorgan,com>; leWI$, Phil 

<phil.lewis@ljpmorgan.com> 

SUbJect: 00 Credit Collateral differences as of COB Wednesday 9tll May 

00 Credit CoIlat~1 dtfferences as of COB Wednesday 9'" May 

Total difference between CIO and the counterpartles Is now $120mm \I'S, $l44mm prior day 

larg~t Counterparty Difference: Morgan Stanley CapttalServices is at $S8mm - up from $S4mm 

largest Instrument Difference: rTRAXX MN S0910V 22~lOO is now $2Omm vs, $13mm on the prior day 

·Please note; DeuUC"~ Bank AG is on a one day lag and showirtg the am May ZOlZ 

Olfference by coun~nv! 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0014797 
1740 

From: Youngwood, Sarah M <sarah.m.youngwood@jpmorgan.com> 

Sent: Fri, II May 2012 23:32:02 GMT 

To: 

Dimon,. Jamie <jamie.dimon@jpmchase,com>; Braunstein, Douglas 

<Douglas.Braunstein@jpmorgan.com>; Drew, Ina <lna.Drew@jpmorgan.com>; Staley, Ies 

<jes.staley@jpmorgan.com>; Cutler, Stephen M <stephen.m.cutler@jpmorgan.com>, Cavanagh, 

Mike <mike.cavanagh@jpmchase.com>; Evangelisti, Joseph <joseph.evangelisti@jpmchase.com>; 

Lemkau, Kristin C <Kristin.Lemkau@jpmorgan.com>; Miller, Judith B. 

<Judith.B.Miller@jpmorgan.com> 

CC: Investor Relations <Investor _Relations@restricted.chase.com> 

SUbject: IO-Q call - Buyside and sellside comments (6) 

last series of calls this afternoon. We will summarize the key themes/questions over the week~end and will send the 

updated analyst targets/consensus information. 

Andrew Marquardt - Evercore Partners - Sellside 

• What was the timeline? 

• When did you change VaR model? 

• What would have happened if we had not changed the VaR model? 

Would this change in strategy have happened had there not been a change in the new VaR model? 

• Has the VaR model materially changed over the years? What is the process for the VaR model to change? Who is 

involved and how does it work? 

• Have you already taken some action to help protect yourself from further loss (locked in loss)? It sounds like it's 

a little bit of action to lock in some potential losses and some market~to~market? Is that correct? 

.. How much additional collateral would you need to post if there was a downgrade? What is the other potential 

impact of downgrades? 

Jamie seems to be almost inviting/welcoming c:rititism/ additional scrutiny. Can we translate that in a high level 

of confidence that it is indeed an isolated issue? Is that a stretch? Am I reading into that too much? 

• Can you comment on SEC/Fed/rating agency reactions? 

• I was surprised at the reaction in the market today. Your goodwill is wen earned. One incident should not raise 

the question of the risk management systemically because it is part of the business - it's a buying opportunity 

• I have heard both sides today from investors 

Chris Kawasaki - Alliance Bernstein - Buyslde 

• Can you tel! me how large the trades are? 

Will we get that detail? 

• Any formal investigations? 

John Starkling - Prospector Partners - Buyside 

• Please explain the impact of a rating downgrade 

• What are the triggers and how much collateral would you have to post? 

Alex Hesse 

It was obviously a big surprise 

• S&P and FITCH reactions and comments - What is it going to do with the buyback? They are assuming 75% 

buyback in the a~ 12 months - You are very dose to edge. How much do you care about their rating? 

If you were downgraded by S&P you would lose your short·term rating 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0014803 
1741 

I know you can't tell me the exact positions but I think it's important to get a sense for potential sizing/loss 

impact 

• How confident do you feel that the losses are within the reasonable range of expectation going forward? 

I just hope you can put out something over time that convinces people that this isolated 

If this can happen to you it can happen to others 

• One could make the case that all the other banks could be down 

My point is it is very hard to grasp, anything you can put out over time that shows that we aren't hiring any 

more people or we're getting rid of the bad apples 

• The reaction yesterday was bifurcated: you didn't do a call for the litigation expense. It is either: "You have high 

ethical standards and you apologize profusely for it, but this is isolated and contained" or "There are rea! issues" 

• If we are in limbo until earnings call- the worse thing is - people will always assume the worse - people will put 

you in the penalty box 

Executing on your buyback would be the strongest signal you can bring to the market at this time 

Sarah Youngwood I Managing Director I Head of Investor Relations I JPMorgan Chase Co, I 

270 Park Avenue, New York, NY 10017 IT: 2126226153 I F: 21227016481 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0014804 
1742 

From: Youngwood, Sarah M <sarah.m.youngwood@jprnorgan.com> 

Sent: Fri,11May201220:12:07GMT 

Dimon, Jamie <jamie,dimon@jpmchase.com>; Braunstein, Douglas 

<Douglas.Braunstein@jpmorgan.com>; Drew, Ina <Ina.Drew@jpmorgan.com>; Staley, Jes 

To: <jes.staley@jpmorgan.com>; Cutler, Stephen M <stephen.m.cutler@jprnorgan.com>; Evangelisti, 

Joseph <joseph.evangelisti@jprnchase.com>; Lemkau, Kristin C <Kristin.Lemkau@jpmorgan.com>; 

Miller, Judith B. <Judith.B.Miller@jprnorgan.com> 

CC: Investor Relations <Investor _Relations@restricted.chase.com> 

Subject: 10.Q call· Buy,ide and sellside comments (5) 

Tone has changed. See below. 

John Coffev - Wellington - Buyside 

• Why did you feel compelled to disdose this now? 

How do we get comfortable with the dollar around? Jamie said $lB a more 

How could the newspapers know about this before Jamie knew about this? 

• What can you tell us differently at the end of this quarter that you told us yesterday? It will take some time I'm 

assuming to get out of these positions. How will you be able to give us any more details at the end of the 

quarter? 

• The specialist believe they know what you have; why didn't you share more information with your shareholders 

How are the people in the office of the cia compensated? There is some concern this is a prop trade as opposed 

to actual hedging 

• Can buy back stock today? 

Beth 5ch ulte - Capital World - Buyside 

The general assumption by the Street is that you were net short CDS on these trades; if you say you were 

hedging credit tail risk, how can you be net short CDS? That is inconsistent. Was being short CDS an overlay on 

another position as you tried to lower the other position? 

• The anger from shareholders is that how did this ''Whale" guy get so large? Where was the supervision? 

• We asked when we met with cia team in November and asked VaR related questions. Is the VaR in the IB now 

going to increase as well? 

• What changes are going to be made in risk management? What controls have been tightened specifically? (PM 

at Capital wrote to Beth that he was "interested in taking advantage in buying the stock" but needs to know the 

answer tQ these questions) 

• What has occurred in the credit market in the last 6 weeks that would make you change your hedge and result 

in such large losses? 

How do you come to us with a number when the whole world knows what trades you need to get out of? Can't 

this cause higher losses for you? 

There are people that are happy that the person who has done so well now has a black eye; people want to 

make money off of your mistakes 

Do you think at some point you will come out and describe the exact trade, the people who have been fired and 

specifically what happened? 

Does Jamie read the Zero Hedge Blog? Jamie should know this; Zero Hedge has outlined everything. He should 

have read it 6 weeks ago and wa!ked overto Bruno and asked what is going on? 

• When Jamie said he "should have been paying more attention" to the stories what does he mean? 

I know corrective action will be taken, but also know that you don't pay Ina $lSmm a year to just hedge deposit 

risk. There are a lot offancy things going on in cia 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO. JPM·ClO·PSI0014833 
1743 

• Would like to have a cal! with Doug 

AleK Popa - Capital Research - Suyslde 

• Would !ike to try to have a call with Doug; have a very high opinion of JPM and would like it to stay like that 

• Was the mistake how the reduction of the hedge was done? 

• It sounds like you are saying, we have a big BS, we can hold onto these things but what I fail to understand is 

why not lock in the loss? Already marked it so why not take the loss and move on? 

• What personal changes are being prompted as a result? 

Appreciate Jamie being transparent but to another extent S2B is not a big deal, the bigger deal is the VaR, risk 

model etc. But why have this cal! now? Why not wait? 

• What was the difference between the two VaR models? Is this something the regulators will examine? 

• The share price is now dose to TBV, how should I think about that in terms of buybacks? What did Jamie mean 

when he said "I believe SOH? Can they revisit the situation and change their views? 

Does the fact that you had to revise your Base! III ratio and this 20bps impact change your views on buybacks? 

Once you runoff this portfolio, does the 20bps come back? 

• Would the regulators change the way they approach their RWA and VaR model as a result of this? Did they 

approve the current models? 

Nikhlll Uppal- BlackRock - Buvslde 

• Why did the VaR number go up so much around the model change? 

• The new model was only something you put in place this year? Are these the same models you use for dient~ 

facing stuff or unique models for CIO? 

Do the CIO activities fall into your CRO office? Does your CRO office monitor these activities? 

Is the S2B a mark-to-market hit or a sold position hit? 

Did Jamie say the $IB impact is from the sale or from market fluctuations? 

In theory, shouldn't there be a gain somewhere else within the organization? 

• Was the reduction of the hedge what was poorly monitored? 

Is ClO's revenue allocated across the businesses? Does any of the revenue or hedging activities affect the other 

lOBs? Do the hedging activities all stay within CIO? 

lansdowne - Pete Davies and Marc Rubinstein - Buyside 

• Could you have disclosed this before? We were looking for updated information a week ago when we called you 

• What was the timeline around this? 

Frustration is that this story was in the newspaper and all the hedge funds have been trading against you; seems 

slightly unfair that the shareholders are the last people to know about this 

• You have the best information and are supposedly more competent and it seems as jf those that had less 

information and are less competent knew more then you did and reached the right condusions before you did; 

is JPMorgan an incompetent firm? 

We need an explanation of what happened and how the whole situation came about; it's one thing to say we 

did a bad job but we don't understand how the monitoring could have been so bad 

• What is Jamie doing internally at the moment? Seems like we are being left with a dear admission of the 

mistake without anything really tangible 

• Worried about managerial transmission in-terms of actions 

Do you get the impression internally what the loss number will be? 

Is there a sense of panic going on? 

• Clearly a credibility setback yesterday. How are you planning to get the credibility back? 

• What is the attitude of senior management right now? 

• I would like to speak with Jamie or Doug for 5-10 minutes;ju5t want to hear them sounding calm; would be very 

reassuring; in next week or two, when dust settles 

For what's it worth, we bought more stock this afternoon 

Greg Anderson - UBS - Buyside 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0014834 
1744 

• Was it a hedge you put on for tail·risk that you were trying to reduce? 

• When did this start? 

• Why did you switch to the new model? What was the problem with the new model? 

• What gives you comfort in terms of the $IB loss? 

From a practical stand point, the sooner this can be resolved, the better. Assuming you can't get out of the 

position in an economic way anytime soon, correct? 

• Scared me when Jamie said poorly monitored. What does this mean and how tan you change things to make 

sure this doesn't happen again? 

• Was he referring to the Whale article when he said this was related to the Bloomberg article? 

• Can you continue with buybacks? 

• Surprised on how the stock has acted; guess stock is going to be cheaper for Jamie to buy it back 

Craig Peskin - Highfield, - Buy,lde 

• Why the decision to host a call yesterday and disclose the loss? Could have-offset the losses with your gains 

Not tonvinced that you had to give corporate guidance with a call; do you still think it is the right decision? 

• Concern is that the damage to the intrinsic value of the business is small but the real risk is in regulatory change; 

you have seen levin's statement and the Barney Frank e·mail; people in Washington are very worried about this 

and how Volcker may turn out now as a result 

• Thought Jamie came across weI! and forthright but the problem is when you whip yourself on a public 

conference call, there are a lot of great one-liners that will be on the front page; no points for being forthright 

Buybacks - are you allowed to be in the market today? Do you need to get approval from the fed to confirm 

that you can? Is there a risk they can call you and say stop the stock buy backs? 

• What would the disclosure requirements be if you received the call to stop the buybacks? 

• What are you allowed to buy? 25% of the last average daily volume of the !ast 4 weeks? 

Philip Nicosia & Virge Trotter - Manning & Napier - Buyside 

• What was the reason for having the synthetic credit portfolio in plate? Was this designed to decrease your 

credit exposure? 

• Where you trying to synthetically increase you credit exposure to increase your margin? 

How do you decide how much to hedge? When do you decide to increase or decrease the hedge? Is one person 

making the decision? A committee making the dedsion? 

• What has changed going forward to prevent this from happening again? 

How do we think about this going forward? 

Do you expect the firm to spin off or sell of any your businesses if Volcker comes out as it's currently written? 

Vyas Bhagyashree - Credit Capital Research Technologies - Buyside 

Was this loss associated with a book in london? Why is the location of the book a sensitive matter? 

Is the cIa a global office and the book a global book? 

Does the regulators rules in NY apply to positions held overseas? There's no reason for us to think they were 

unaware of the size of this position correct? 

• What did the CIO-related loss stem from? A hedge position or a prop trade? 

How would you define Jamie's statement on this being related to the bloom berg article "yes, in part"? 

Does the CIO report direcly to Jamie? So he is the ultimate sueprvisor? Was there someone in the middle of the 

chain? How big is the CIO office? 

• Why is the newspapers saying that the trades were put on it london referencing US securities? 

John McDonald - Sanford Bernstein - Sellside 

• What is driving the loss and potential future losses? Have you sold the positions? 

• What do you mean by reducing the hedge? Why did you want to reduce it if was fine for years? 

Did the reduction of the hedge drive the losses? 

• Why even say $lB (additional losses) if it could be more? 

• Should we be prepared for volatility in the Corporate and other sector only? 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0014835 
1745 

• Over the past couple years, were the successfull investments of cia enhancing JPM's profitability, including in 

the LOBs? What is the potential impact of potential changes in C10 on JPM profitabilitiy and LOB profitability? 

• Are there restrictions for what a bank ClO can invest in? Are there limits for what your Cia can buy and can't 

buy? 

• Is synthetic credit used as a hedge for the usual investments or the loan book? Usual investments don't really 

have a lot of credit risk 

• What is the connection with hedging credit across the company and loan losses? Don't loan loss reserves protect 

against credit exposure? 

• Did the faulty process of reducing the hedge cause the losses? 

• The possibility of having swings in volatility, is that due to repOSitioning? 

• What are the ramifications in terms of people? How high up does this go? 

Does the cia report into Jamie? 

• Can you still do buybacks? Did you hear from the Fed? Any change in what you can do? If that changes, you 

should be transparent about it. 

• Why did the Basel ratio change? Was the impact ofVaR through RWA? 

Andrew Marquardt - EVercore - Sellside 

Is there a way to ringfence how big the synthetic portfolio really is? 

How do people get comfertable externallv that there aren't additional such exposures? 

When your review Is completed, will you be able to share things with us? 

• Are there now going to be new invistigations informal, or otherwise, by the Fed and SEC? 

How long has this strategy been going on? How meaningful has it been to net income? 

• Are there benefits from CIO in other bUSiness lines? 

How much of the prior guidance was related tothis activity? 

It could be an incremental $lB? What was meant? 

Is this a closed position or mark·to·market? 

Is the goal to be repositioned by the end of the vear? 

• Are vou now going back to your old model? 

Bill Rubin - Blackrock - Buy.lde (e·mall) 

• The word "unanalyzable" is being used Quite a bit over last night and this morning. Not good for stock valuation. 

Hope there's data and commentary forthcoming to remove this stigma 

Bryn Jones - Rathbone Brothers - Fixed income buyslde (e~matl) 

• Oh dear! Now a big trading mistake, Brand damage from both should not be underestimated. Even ifthey are 

not or are related 

Confidentially, we pulled gbplSm from JPM gbp liquidity fund today. Just be aware that this is reallv damaging 

for what was a well respected brand in London, These two events so dose together have meant we are 

retrenching from JPM for now 

We have left the FI execution credit line open for now but broker debit balances and limits with JPM/JPM 

Cazenove are being reviewed dosely 

Sarah Young ..... ood ! Managing Director I Head of Inve::;tor Relations IlPMorgan Chase Co. 

no Park. Avenue, New York, NY 10017 ! T: 212 622 6153! F: 21227016481 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0014836 
1746 

From: Julien G Grout <julien.g.grout@jpmchase.com> 

Sent: Mon,16Apr201219:07:20GMT 

To: LIDS BURA Y A <LBURA Y A@I;BRUNOIKSIL<BIKSIL2@ ••••• 

BRUNO IKSIL <bruno.m.iksil@jpmorgan.com> 

Subject: CIO Core Credit P&L Predict [16 Apr]: -$31,405k (dly) -$1,094,24Ik (ytd) 

Daily P&L: -$31,404,839 

YTD P&L: -$1,094,241,016 

Daily P&L($) YTD P&L($) 

Europe Financials -5,628,778 -71,320,986 

Redacted By 

Permanent Subcommittee on Investigations 

Europe High Grade -19,839,115 -274,986,812 

Redacted By 

Permanent Subcommittee on Investigations 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO. JPM-CIO-PSI0017022 
1747 

~~ ~Redacted By 

Permanent Subcommittee on Investigations 

US High Grade -44,314,724 -263,652,745 

Redacted By 

Permane!'t Subcommittee on Investigations 

US HY & LCDX -3,020,177 67,802,277 

Redacted By 

Permanent Subcommittee on Investigations 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

-'" Rtdaded by tbe Pe~aaeDt 

Subcommittee on Jan.tie.dons 

JPM-CIO-PSI 0017023 
1748 

Redacted By 

. Permanent Subcommittee on Investigations 

US ABX I T ABX -464 .28,492 

Redacted By 

Permanent Subcommittee on Investigations 

New Investments 40,448,702 .508,400,670 

Redacted By 

Permanent Subcommittee on Investigations 

Dead Books (Core) 95 2,344 

Redacted By 

Permanent Subcommittee on Investigations 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO. 

--'" Redacted by tbe Pennanent 

SubtommiUee on fnvtstigations 

JPM·CIO·PSI 0017024 
1749 

Redacted By 

Pennanent Subcommittee on Investigations 

WashbookiCosts 0 0 

ICE Washbook 0 0 

Explanatory P&L (in $1000s): 

Name Total Diretnl Tranche Carry IR Nrr Adjust FX 

Redacted By 

Permanent Subcommittee on Investigations 

Close COD 

MAIN 142 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

--.: Redacted by the Pfrmanent 

Subcommittef on Jnvestigatiom 

JPM-CIO-PSI0017025 
1750 

XaVER 682 +2.0 

FINSEN 248 +6.0 

FIN SUB 401 +9.0 

SOVXO 

CDXIG 100.5 +LO 

CDX HY 95.8125 -0.125 

LCDX 102.375 

PnL Comment: 

11 Index curves: no change today in CDX.IG9 and iTraxx.Main S9 5110 curves. No PnL impact 

1 bis! CDXHY index curves flattened - Rescap related - +8bp, loss -13M 

21 Compression: much smaller moves today. iTraxxXover decompressing a tad (+2bp, +6M); CDXHY 

compressing -Ubp (-11M) 

31 Directionality: CDX.IG is +lbp wider (-5M). FINSUB are widening +9bp (-6M). 

Market Comment: 

Positive signs start to appear since Jamie and Doug1s comments on Friday: 

The market has stopped going against our positions in an aggressive way, We have not seen the positions 

trading against us since Apr 10 and we have seen since Friday encouraging signs. The fair value of CD X IG 9 

( 5Yr) maturity versus its components has started to widen. This suggests that small hedge funds are 

unwinding profits on their positions and the IG 9 Index has stopped steepening. The adverse market moves have 

probably staned to reverse but we need further evidence on this as we do not see yet the effect on the marks that 

we are getting. There are signs of unwinds going our way but only in small size. There is finally selling interest 

on IG 9 5Yr, though not significant to reverse our loss but significant for the first time since the beginning of 

April and specially since our loss on Apr 10 . 

Unrelated to our overall strategy there is a sman idiosyncratic smaIl move in a position that is costing us a small 

loss related to Rescap . 

Late Friday, Ally Financial announced they would not extend the unsecured credit facility to RES CAP past 

May the 14th. The markets implied that RES CAP would likely default in May It is mostly noise around the 

likely default of Res cap on the High Yield single names and CIa is impacted mostly on the equity tranche and 

recover the loss on the rest of the capital structure. the 10-15 tranches lose as expected and the 15-25 and 25-35 

balance the loss. However, the CDX.HY index market, containing RESCAP, outperformed marginally the 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO. JPM-CIO-PSI 0017026 
1751 

CDXIG space (1.5bps), and flattened (8bps) causing a small idiosyncratic loss of 24M. 

No trade today. 

16-Apr-12 

13-Apr-I2 

12-Apr-12 

II-Apr-12 

IO-Apr-12 

04-Apr-12 

03-Apr·12 

02-Apr-12 

02.Apr-12 

30-Mar-12 

iTraxx.Main S 17 Jun 17 

142 

142 

134 

140.5 

143 

131 

128 

123 

123.25 

123.25 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0017027 
1752 

From: Evangelisti, Joseph <joseph.evangelisti@jpmchase.com> 

Sent: Tue, 10 Apr 201214:47:14 GMT 

To: 

cc: 

Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com>; Hogan, John J 

<JohnJ.Hogan@jpmorgan.com> 

Zubrow, Barry L <barry.l.zubrow@jpmchase.com>; A1velo, Alexandra X 

<aiexandra.alvelo@jpmorgan.com>; Dimon, Jamie <jamie,dimon@jpmchase.com> 

Subject: WSJ call 

Doug and JohnWe are scheduled for a backgrounder with the Wall Street Journal this morning at 11:30 am regarding the CIO. I'll join 

you, and we'll arrange a dial-in number. Participants may indude: 

Dan Fitzpatrick: cOllers JPMC 

Greg Zuckerman: hedge fund reporter; wrote original story 

Katie Burne: Dow Jones reporter, co-wrote original story 

Francesco Guerrera; C Section Editor 

Colin Barr: Finance editor 

Thanks, joe 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0017427 
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From: 

Sent: 

To: 

Youngwood, Sarah M <sarah.m.youngwood@jplDorgan.com> 

Fri, 11 May 201203:01:13 GMT 

Dimon, Jamie <jamie.dirnon@jpmchase.com>; Braunstein, Douglas 

<Douglas.Braunstein@jpmorgan.com>;Drew, Ina <Ina.Drew@jpmorgan.com>; Staley, Jes 

<je •. staley@jpmorgan.com>; Cutler, Stephen M <stephen.m.cutler@jpmorgan.com>;Evangelisti, 

Joseph <joseph.evangelisti@jpmchase.com>; Lemkau, Kristin C <Kristin.Lemkau@jpmorgan.com>; 

Miller, Judith B. <Judith.B.Miller@jpmorgan.com> 

CC: Investor Relations <Investor _ Relations@restricted.chase.com> 

Subject: RE: IO-Q call- Buy.ide and sellside comments (3) 

All, 

Here are a few comments/themes regarding teday's calls. 

Overall tone was constructive. Anaiysts and investors appreciated Jamie's comments and the follow~up 

conversations. A lot of warm and positive comments (a few questioned the need for a call but overwhelming 

majority thought that was the right thing to do) 

• Our messages seem to be generally well understood 

• Financial impact not perceived as an issue by the Street 

Major concern around the impact on Volcker 

• Questions around broader risk management issues, regulatory impact, VaR changes and impact on our share 

repurchases 

A few people trying to precisely reconstruct what happened and to understand how losses in context of 

"generally benign" credit environment; I didn't go beyond Jamie's comments 

Regards, 

Sarah 

Sarah Youngwood! Managmg Director I Head of Investor Relations! JPMorgan Chase Co, 

270 Park A ... enue, New York, NY 10017 I T: 212 622 6153 I F: 212 270 164BI 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO, JPM-CIO-PSI0017712 
1754 

From: 

Sent: 

To: 

Youngwood. Sarah M <sarah,m,youngwood@jpmorgan,com> 

Fri. II May 201215:03:07 GMT 

Dimon, Jamie <jamie.dimon@jpmchase.com>; Braunstein. Douglas 

<DougiasBraunstein@jpmorgan,com>; Drew. In. <In.,Drew@jpmorg.n,com>; Staley. Ies 

<jes,staley@jpmorgan,com>; Cutler. Stephen M <stephen,m,cutler@jpmorgan,com>; Evangelisti. 

Ioseph <joseph,evangelisti@jpmch.se,com>; Lemkau, Kristin C <Kristin,Lemkau@jpmorgan,com>; 

Miller, Iudith B, <Iudith,BMiller@jpmorgaRcom> 

CC: Investor Relations <Investof_Relations@restricted.chase.com> 

Subject: IO-Q call- Buyside and sellside comments (4) 

Continuing to connect with Investors this AM. Please see below, 

David Hendler - Credit Sights - Sellside 

Was this an accounting change? Was this hedge ineffectiveness? 

• What is the specific of the trades? 

My only criticism at earnings was that this type of activity was too large an exposure and if you had to alter itl it 

might change things 

Did you put out another hedge on because the exposure was too high? 

• We didn't see a large market movement that would be correlated to your losses 

• When Jamie said this violates the principles of the Dimon rule, what is that rule? 

• Would you characterize any of this as an operational risk problem on how the supervision of risk by monitoring 

is being done? 

• When you went to the new VaR did you go to a 5 year horizon from a 2 year horizon 7 How long was the 2012 

model data tested? 

Has the trading side changed their VaR methodology? 

Looks like that VaR is the highest I have ever seen 

• Appreciate the candidness of the call 

• Is Ina Drew available for discussions? Interested in speaking with her; alternatively, call with Jamie or Doug 

would be great 

• Supportive of your story because Jamie has done a great job overall, including in risk management; premier 

franchise, solid capital; this was a huge fumble because you promote yourself as the best risk managers out 

there 

• There are people worried about other assets at JPMorgan but we are going to have your back and we know you 

are going to do the right thing 

Doug Braunstein call with Dick Manuel and several PMs - Columbia Management Investment - BuysJde 

"You've handled this well given it's a bad situation'" 

Based on the call, I don't understand fundamentally the position and what happened 

How is a net notional of this size not scrutinized? 

• Can you explain the investment grade versus high yield terms? 

Regarding the escalation of the issue, if you were using the old VaR model, do you think this would have hit the 

dashboard earlier? 

Between the close of the quarter and the 1Q12 conference call, were you working with the wrong information? 

How out of the woods do you feel? Any more color on how you'l! get out of this? 

Are there natural termination dates on these contracts? 

• What was the weighted average maturity on the original hedge in 2008 versus the opposite position? 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO. JPM-CIO-PSI 0017987 
1755 

• Any color on the macro environment that drives this portfolio up and down, and how can we watch this from 

the outside? 

• Any implications to CCAR/share repurchases? Have you had conversations with the rating agencies? 

Have you asked regulators if they will change the rules? 

Doug Braunstein call with Ben Hesse and several PMs - Fidelity - Buyside 

, • Why did you have a $lOOB notional trade on synthetic credit? 

Every hedge fund in the world now knows this. Will they make it hard for you to get out of the position? Can you 

mitigate this? 

If credit spreads get wider, will you lose money? 

How do we know you won't drop another $10B on this? 

• ALM was excluded from Volcker; are you concerned that it will now be brought back into scope? 

• What is the impact to NIM if you could only invest in US treasuries? 

• What is the probability of this changing the outcome of Voleker? 

In CCAR the calculation of stress induded a qualitative score for the quality of risk management. Will your 

qualitative score be affected? 

• Any change in your ability to repurchase shares? 

Tony Conaris - Hams Associates - Buyside 

What are the outcomes going to be? 

• Is the $lB securities related to the $2B? 

• As far as timing, when will you be out of this? 

• Having trouble understanding the size of the hedges 

Repurchases not impacted, correct? Have you spoken to the Fed? They reserve the right to stop you from buying 

back stock 

• We are disappointed; we aren't setiing the stock because we think it's very cheap 

• Would like to see some signal of conviction that this isn't a giant can of worms; buybacks are great but personal 

investment in the stock by Senior Management is a good idea 

John Baldi - Clearbridge - Buyside 

Did you get confirmation from the regulator that you can do buybacks? 

• What is the magnitude of the potential losses? 

• What happened? 

AI Savastano - Norges - Buyside 

• The $lB of securities gains, was that related to the trading loss? 

• You had several options on how to communicate this; I respect Jamie doing call, but that raised the profile, 

which has broad implications for JPM and others, including related to Volcker/regulation. Can you use 

unrealized gains to offset trading losses? 

Is it safe to assume the traders that were involved have been let go? Does it go higher than that? 

Who does the cia report up to? 

Sarah Youngwood, Managing Director! Head of Investor Relations! JPMorgan Chase Co. 

270 Park; Avenue, New York, NY 10017! T: 212622 6153 J F: 212 270 16481 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0017988 
1756 

From: 

Sent: 

To: 

cc: 

lewis, Phll<phiUewis@jpmorgan.com> 

Fri, 11 May 20]218:22:07 GMT 

Dlmon, Jamie <Jamle.dimon@jpmchase.com>; Braunstein, Douglas <Dougias,Braunstein@jpmorgan.com>; 

Hogan, John J. <JoknJ.Hagan@jpmQrgan,com>; Drew,lna <lna.Drew@jpmorgan.com> 

O'Rahllly. Rob <Rob.ORahilly@jpmorgan,com::o; Bacon, Ashley <Ashley.Bacon@jpmorgan.com>; 

Venkatair:;rlshnan, CS <cs,Yetlkatakrlshnan@jpmorgan,com>;V1gneron,OIivier)( 

<oDvier.x.vigneron@Jpmorgan.com>;Macrls,AchUles 0 <achilies,o,macrls@Jpmorgan.com>;Martin-Artajo, 

Ja\lier)( <ja\lier .x,martin·artajo@lpmorgan.com::o;Wilmot, John <JOHN,WILMOT@jpmorgan,com>; lewts, Phi 

<phil.iewis@jpmorgan,com> 

SUbject: aD Credit Collateral differences as of COB Thursday 10th 

00 Credit Colli!llteral dlffetences as of COB Thursday 10m May 

Tota! difference between CIO and the coynterpartles is now $66mm \IS. $12Omm prior day 

Largest Counterparty Difference: Morgan Stanley Capital Servkes Is at $46mm - down from $SBmm 

Largest instrument Dffferenre: rTRAXX MN 509 lOY 22·100 is now $22mm \IS. S20mm on the prior day 

·Please /Tote: Deutsche Bank AG Is as per the ~ May 2012 

Difference by C01Rlterparty: 

CONFIDENTIAL TREATMENT REQUESTED BY 

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.lP:\iOIU;.\:'\ CIL\SE&CO. 

JPMorgan Chase & Co. 

Corporate Sector EMR - December 

Corporate Sector Summary 

Private Equity 

Corporate Other 

Treasury Group 

Central Technology a Operations 

Real Estate Administration 

General Services and Operational Control 

Human Resources and Compensation a Benefit Plan Related 

Corporate Finance, Finance Aligned and Executive 

Pg.2 

Pg.12 

Pg. 19 

Pg.22 

Pg.27 

Pg.29 

Pg.33 

Pg.36 

Pg.40 

Pg.44 

Pg.48 

Pi. S1 

Pg. S6 

Strategy, MaC, Corporate Contributions and Corporate Responsibility 

Tax Related 

Legal and Compliance Department 

Other Corporate Sector Groups , 

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1758 

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J.P. MORGAN CHASE & CO. 

Treasury Group 

PItIfI220f61 

.JP:\iOiU;.\:\ CIl.\SE &CO. 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

.Jl'llm((;.\:-; ell.\SL &Co. 

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by 

Permanent Subcommittee 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

.J P~IOK(;.\:-'; CIL\SI', & CO. 

Redacted 

by 

Permanent Subcommittee 

on Investi2ations 

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by 

Permanent Subcommittee 

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by 

Permanent Subcommittee 

on Investigations 

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CONADENTIAL TREATMENT REQUESTED BY 

J,P, MORGAN CHASE & CO. JPM-CIO·PSI 0018071 
1763 

From: Dimon, Jamie <jamie.dimon@jpmchase.com> 

Sent: Tue, 15 May 201209:42:19 GMT 

To: Miller, Judith B. <Judith.B.Miller@jpmorgan.com> 

Subject: Fw: JO-Q call - Buyside and sellside comments (10) 

From: Youngwood, Sarah M Sent: Monday, May 14, 2012 10:03 PM To: Dimon, Jamie; Braunstein, Douglas; Staley, Jes; Cutler, Stephen M; cavanagh, Mike; lames, Matthew E; Evangelisti, 

Joseph; Lemkau, Kristin C; Miller, Judith B. Ce: Investor Relations 

Subject: 1D-Q call - Buyside and sellside comments (10) 

Please see below the balance of today's calis, including several calls placed by Doug Braunstein as follow-ups. 

Doug Braunstein call with Beth Schulte - tapital- Buyside 

Given that the market is assuming a loss in the $8B-$10B range and $100B notional amount, how do you get 

comfortable with the estimated loss you have given? 

• What happened to the original hedge? Has it been unwound? 

• Are the mark-to-market numbers you have provided net (i.e. including all portions of the synthetic credit 

portfolio)? 

Why did you decide to reduce the hedge? 

Regarding VaR, do you use different models in cia and IB? 

Concern is that the market now knows your position and they can push it up. Is the market over-penalizing you 

with the amount you have left? 

Is this just the tip of the iceberg? We worry that you can come out with a message but as people get fired, exemployees can come out with another message and then the newspapers and blogs come out with other 

message; how do you relay your message and how do you get people comfortable with it? 

Are numbers for Cia net of what is booked by LOBs? 

• On a go forward basis, could changes in cia affect Nil in LOBs? 

WSJ said that the Cia's role was to cover your cost of capital. Is that correct? 

• The gross mark-to-market number is going to be important to the investment community, even jf you have 

offsetting securities gains 

• WeI! handled. You guys have done a great job with your crisis management. Glad your team is running this 

situation 

Doug Braunstein call with Kevin Conn - MFS - Buyside 

How should we think. about your exposure? 

What is size of max loss; what is potential timeframe? 

Was this is any way proprietary as opposed to hedging? 

What are the risks in the position? Basis risk? Time frame? Geographic? Asset Class? 

• What went wrong? Is the issue a liquidity issue or a basis differential issue? 

How closely was Jamie involved with managing the positions? 

Did you have to disclose the losses on May 10? 

Does this threaten your capital return in any way? 

• What should we expect for disclosure of this portfolio going forward? 

• Are we going to be speaking about this in 2013? 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI0018241 
1764 

Doug Braunstein calf with Pete Davies - Lansdowne - Buyside 

• What is your take on the situation? 

How is senior management feeling/working as a team? 

Has there been anything that surprised you In terms of market reaction? 

Is there anything preventing you from buying back stock? 

• You moved rapidly on management changes? Any particular reason? Your management style? 

• Think Jamie should be catm when speaking at the conference; important to convey that tone to shareholders 

• Think the market is imagining a very large loss; hard to actually do the analysis on this 

• Believe the market knows a lot about your positions and that incremental disclosure would be very helpful to 

shareholders 

• Think you will get through it; time is your friend 

Andre Messier - Fidelity (Fixed Income) - Buyside 

• We got the impression that this was a moderation of your previous position; confused because would think you 

should be still net short 

• Can you confirm that the CDX9 5 and 9 year are part of this? 

• Historically you have been a good risk manger; assuming that, when you came out and disclosed the losses, you 

understood what the hedge fund reaction would be in the market. Can we assume that before the 

announcement, you took mitigating actions? 

Disclosure by WSJ that there was a mandate to the group to make more than the cover the cost of capital. Is 

that correct? 

• Critical people announced today that are leaving the group; seems this exposes you to more downside risk not 

having the people around that knew this position. Wouldn't it have made sense to keep them to unwind the 

trades? 

How big is the CIO group? What types of connections does this group have to Treasury/CRO? 

• Pg. 108 and 109 of 10-Q -In the financials, if Ilook at your derivatives exposure, it looks like your credit 

derivatives are a different story than what Jamie was laying out. It looks like you've added to your credit 

derivatives in 1Q12. Please help me understand the drivers. 

What other areas, besides ClO's synthetic credit portfolio and the IB, would be utilizing credit derivatives? 

• Say you take a big corporate loan that you'd have for a long period of time and you wanted to put on one singlename hedge, where would that hedge be reported? 

• VaR -''The number changed pretty radically." Please explain why? 

• Was the 20bps reduction in the BIIIT1C related to VaR? 

• Would like to meet with Sandie if possible in next few weeks; "a lot of people here would be appreciative" 

Patrick Hushes - Oliyan - Buyside 

• Trying to size the exposure; have you said any more about it? 

Is the cia in charge of hedging credit for the entire Corporate sector? 

It seems like Ina has been pretty low profile considering the growth in the portfolioi have I missed her being 

talked about? Had she been introduced to shareholders? 

Presume this is the top focus; I read that people from JeS Staley's group are involved 

Have you spoken with the regulators? Any updates to capital deployment and CCAR? 

I read that the board is behind Jamie 

Catherine Murray - Waddell & Reed - Buyside 

If this continues to go against you, what will be the ultimate loss that JPM could realize? Can it be worse than 

SiB? 

My read of those WSJ articles 6 weeks ago was that you originally had a hedge to limit faHaii credit risk. What 

gave rise to these problems? 

Instead of straight closing out the hedge that wasn't working, it sounds like you hedged a hedge, and the basis 

risk/1ack of correlation backfired on you. Is that correct? 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0018242 
1765 

• Jamie said on the call that you will eventually disc:lose more on the 2Q12 call. What do you expect to say then? 

What gives you the confidence that you'll be able to be more transparent in July? Will you be out of the 

positions by then? 

From the point of view of running the business, what can you tell us about the strength of your "bench" given 

the recent management changes? Are you changing CIO strategy further given what has happened? 

Can you talk about what led to your doubling of VaR? How accurate is the new model? How quickly can VaR 

come down? 

Can you talk about the model approval process? What level of management is involved in these decisions? 

Buybacks - The $12B was well-publicized. Realistically. what is available to you now? Is there a limit in the terms 

of the agreement with the regulators for a per-quarter-basis lim in If there are any changes, is that something 

you would announce? 

Have you moderated any tech investment spending? If so, on what types of projects? 

• Should we expect to see the VaR of aU other books come down, all else being equal, because the Firm wants to 

take on less risk? 

• Will Moody's review the bank again? 

Doug Braunstein call with John McDonald - Sanford Bernstein - Sellside 

• Can we have visibility on potentia! losses? Why couldn't it be $1S6 

Is there any macro environment we can route for, given your positions? 

Is it fair to say that correlations broke down? 

• Was there any analysis behind the $16 figure used on the call? 

• What is the duration of the contracts? Do they all run-off by year-end? 

Is there a possibility to rec:lassify any of the positions as held to maturity? 

• Can you walk through what happened in terms of the VaR models? Do you expect VaR to remain at elevated 

levels in the short term? 

Is there any additional that you plan on giving? 

Unrelated to CIO, you didn't update guidance on expense in your 100.. When can we expect an update? 

Doug Braunstein call with Betsy Graseck - MS - Sellstde 

• What is your level of confidence in the loss numbers you have given? 

• Why did you want to put the uncertainty in the market by disclosing this rather than just closing out the 

position? 

• What is your tipping point for losing credibility? 

• Are you trying to work the portfolio down? 

Can anyone really get grasp and know what is going on with your position? 

WSJ said $150mm in 1055 position; market thought it would be worse 50 that's why not down as much 

Feels like 2008 all over again and need to start worrying about tranches of fixed income instruments 

Can regulators force you to take action on the position? 

For every hedge fund that wants to stop you, others might want alpha and have a bid ask 

Equity investors are un-nerved because they can't asses the basis risk 

Betsy Graseck - MS - Sellside 

Page 104 suggest that none of the $1268 of credit derivatives are designated as hedging; does it imply that 

credit derivatives are not for hedging purposes? 

Is Synthetic credit portfolio in part used to hedge Euro risk ($36 after-tax risk described by Senior 

Management)? 

• Can you help separate out CIO from Corporate/PE disclosure; I am able to separate out PE and litigation 

e)(penses, but can't go further 

Can you delineate between Treasury and CIO in terms of interest rate hedging? 

Brennan Hawken - VBS - Sellside 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0018243 
1766 

In talking to folks on Friday, here was my thesis. I was advocating that this is a one·time event, which should last 

at most 3 Quarters and which results in a terrific opportunity to buy JPM. I don't believe the event hurts the 

earnings power of the firm 

• Investors were broadly split. Many (Le., -40-50%) agree with above thesis, but they are the ones who aren't in a 

position to buy at this point in time because they already have a full position in JPM 

• The other investors were divided in their view. The most regular counter to my argument was from investors 

who don't know the full effect of the trading loss (magnitude/timeline) and therefore don't know fully how risky 

the stock is. Some of these investors also question how aggressive the cia was in reaching for yield. Most 

skeptical investors refer to cia returns being embedded in LOB profitability, in a way that cannot be entirely 

traced through Corporate. 

How has Cia profitability affected the franchise and LOB profitability? 

Jamie comments - "In 2008/2009, when there were several loans held in either the C8 or IB, and Jamie said 

we're going to move them to the "corporate center" because we believe at these prices they are attractive as 

investments ... I know there have been moments in the past that the cia has been opportunistic" 

• Around the time of the speculation around the "london Whale" press stories - there were a few folks that heard 

of some unusual hires in the cia office 

• Investors are frustrated because overnight JPM has gone from a safe investment to a "leap of faith" stock. 

Paul Miller - fBR - Sell,lde 

• When did you go to the new model? 

• When you put out your 201110K, did you use the 2011 model for VaR? In April did you disclose that you 

changed models? 

As an I3Inaiyst, you displayed a VaR under a model and didn't disclose the new model and would have loved to 

know what the difference was in the VaR using the two different models 

Big difference in VaR between the two models 

Is the increase in VaR all from the cia office? Is it all related to the articles of the London Whale? 

Jared (Gerard Cassidy's junior) - RBC Capital- Sellside 

Is the synthetic credit portfolio marked-to-market every day? 

The position was supposed to be a hedge, correct? Has that strategy changed at all? 

Is it fair to say that you added more complexity to hedge your original hedge? 

• VaR model change - Were there mathematical errors in the model? 

Excluding Private Equity, is all revenue in Corporate from Cia? Is there any way of deriving Cia-only revenue? 

• We look forward to getting more color going forward 

Sarah Youngwood I Managing Director! Head of Investor Relations I JPMorgan Chase Co. 

270 Park Avenue, New York/ NY 10017 IT: 212622 6153 I F: 212 270 16461 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0018244 
1767 

from: 

Sent: 

To: 

cc: 

LeWts, Phil <phiUewls@jpmorgan,com> 

Tue, 15 May 2012 18:50:56 GMT 

Dtmon, Jamie <jamle.dlmon@jpmthase.com>; Braunstein, Douglas <Douglas.Braunstein@jpmorgan.tom>; 

Hogan, Joho 1. <..IohnJ,Hogan@/jpmorgan.com>; Drew, Ina <lna.Orew@jpmorgan.com>; Zames, Matthew E 

<matthew,e.zames@jpmorgan,com> 

O'~ahllty. Rob <Rab.O~ahillv@jpmorgan.com>; Bacon, Ashley <Ashley.B.acon@jpmorgan.tom>; 

Venkatakrlshnan, CS <cs.venkatakrishnan@Jpmargan.com>;Vigneron,OlivierX 

<onvier.x.vigneron@jpmorgan.com>; Matris, Ath~le:s a <ac.hilles.o,macrls@jpmorgan.c:om>;Wilmot,John 

<JOHN.WILMOT@jpmorgan.com>; lewis, Phil <phiUewis@jpmorgan.com> 

Sub}ect: FW: cia Credit Collateral differentes as of COB Monday 14th May 

00 Credit Collateral diffefences as of COB Monday 14th May 

Total difference between cia and the counterpartles Is nOW' $lS6mm vs. $69mm prior day 

Largest Counterparty D!ffer@nce:MorganStanleyCapkaIServlcesisat$46mm-up from $27mm 

Larg~t Instrument Difference: ITAAXX MN S091DV 22-100 Is now $42mm vs. $lOmm on the prior day 

Dtfferenu by counterparty: 

CONFU)ENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI 0018281 
1768 

From: Goldman, Irvin J 

Sent: Mon, 30 Jan 2012 13:06:49 GMT 

To: Bacon, Ashley, <Asbley.Bacon@jpmorgan,com> 

SUbject: Re: CIO VaR heads up and update 

Sounds fine, Pete as head of market risk and keith stephan in london are responsible Our priority is getting the 

model implemented today 50 we get the reduction the firm is antidpating. Thanks. 

From: Bacon, Ashley 

To: Goldman, Irvin J 

Sent: Moo Jan 3005:07:342012 

Subject: RE: 00 VaR heads up and update 

Irv, I talked with Mick Waring and with Model Review this morning. An full list or differences will be created which 

you and I can review, and figure out who else to pull in to help opine on which is better, and when differences are 

justified. Sound ok? 

Ashley 

From: Goldrryan, Irvin J 

Sent: 28 January 2012 20:56 

To: Bacon, Ashley; Hogan, John J. 

Subject: RE: cro VaR heads up and update 

John, ashley, 

Please find the below summary bulletin in mrg approval report. Ashley I will send you full report, 

Consistency with fmn·wide VaR calculatioll The proposed approach is different from that used in IB, 

While the approach proposed by CIO is superior in that it is a full revaluation approach, it differ> from that 

used in IB in that it does not use risk mapping to on~the-run tranches. 

-----Original Message-----

From: Bacon, Ashley 

Sent: Saturday, January 28, 2012 II :28 AM Eastern Standard Time 

To: Hogan, John 1.; Goldman, Irvin J 

SUbject: Re: CIO VaR heads up and update 

Will do, 

From: Hogan, John ), 

Sent: Saturday, January 28,201204:19 PM 

To: BaeDn, Ashley; Goldman, Irvin J 

Subject: Re: 00 VaR heads up and update 

Thx and can you guys compare notes on any methodology difference bfwn 18 and C10 and let me know what you 

find? Thx, John 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO. JPM-CIO·PSI0020168 
1769 

From: Bacon, Ashley 

To: Hogan, John J.j Goldman, Irvin J 

Sent: Satlan 28 11:15:12 2012 

Subject: Re: CIO VaR heads up and update 

If this change is what! think it is (full reval credit p&1 calculation for the shocks derived from the VaR days, instead of 

sensitivities timE!S shocks); then the 18 is alreadv on the new methodology so no change for us. 

! will confirm, and let you know if not. 

From: Hogan, John J. 

Sent: Saturday, January 28, 201203:43 PM 

To: Goldman, Irvin J; Bacon, As~ 

Subject: Re: 00 VaR heads up and update 

Is this change in methodology applicable to 18's VaR as welL What was the pnmary change that we made? Thx, John 

From: Goldman, Irvin J 

To: Hogan, John J.; Drew, Ina 

Sent: frj Jan 27 13:35:40 2012 

Subject: 00 VaR heads up and update 

From: Stephan, Keith 

Sent: friday, January 27, 2012 1:30 PM 

To: Goldman, Irvin J; Weiland, Peter 

Cc: Kalimtgis, Evan; Martjn~Artajo, Javier X; Macrfs, AchlUes 0; Lee, Janet X; Chandna, Sameer X 

Subject: Update on ·old/current methodology VaR* increase fur COB 27 Jan 

Importance: High 

Beloyj please find'an u·pd.ate on the increase 'in VaR fur Core· Credit from 103.8mm to 107.6mm. Final VaR vectors 

globally have not been processed yet for COB 26 Jan, however em is over its temporary limit, and could cause the 

Firm to do the same. As such I wanted to communicate this to you to ensure we are all on the same page about 

what is happening. 

The *old methodology· currently in production: VaR has increased bV +$3mm, to $107.6mm driven by increase in 

coX tG 5910Y index long risk (+1.8bio notional). This is consistent wI the VaR increases of the last several days, 

under the old methodology, wherein the VaR increases approx Imm per billion of notional in IG9 lOy. I estimate this 

will put CIO Global over its temporary $110mm limit and probably doserto $11Smm-note: not alilJectors globally 

are loaded yet for the 26 Jan cob - so I'm estimating here. This means that the formal notification of limit exceSs will 

be generated and distributed to you for approval. 

Importantly, for the same COB 26 January, the ·new I full revaluation methodology- shows VaR decreased 

($L3MM) from 70.8mm to 69.Smm. 1 estimate that this would make CIO global VAR closer to $76MM vs. the 

currently reported number >$115. 

We' anticipate' final ~ppro~l on M~nday"and tha~ t~.·n.ew ~~~Ddology ~'!D~d ~come t~ !lffidal firm 

submlSsion"from Monday, for 27 Jan COS:· . U;nit.lssUes sh'6Ull:(ther~f~re ce~s~ beginni~g fr~m Monday. 

We have completed all technology changes to support the daily production of the VaR under new methodology 

beginning from Monday. 

Thanks and please let me know if you have any questions, 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO, JPM·CIO·PSI 0020169 
1770 

Keith 

Keith stephan 

dlief Investment Office 

JPMorg.n Chase 

i~~ ;~Dd n I r

2V7AN 

Mob'll: : 

EmailB: ! 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

_ - Rtdaaed by the Perm •• nl 

S.brnmmitlee 011 Invatiptleel 

JPM-CIO-PSI0020170 
1771 

elo SYNTHETIC CREDIT UPDATE 

March 2012 

CONFIDENTlAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

J.P.Morgan 

JPM-CIO.PSI0021953 
1772 

Credit Book: Storyboard: 

,. keep shrinking the book on the largest legs: tranches, HY , 199, Main S9 

2~ Mission: balance the book. : 

... switch the bias to long risk. flatten downside on defaults, reduce Var and Stress Var 

3- Execution: it went all bad." 

... sold protection on lG9 Syr, bought protection on HY on the run, built decompression 

trades 

• S9 forward spreads lagged the IG "'Ily 

4- Whal Happened? 

,. The decompression hit us more than the gains that we recorded on the decompression 

trades 

5- Plan 

• plan A: put the whole book ( tranches & Indices) to lightly managed status 

., Plan 8: keep the tranche book as an option on default lightly managed until expiry 

and collapse the index book. 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO. 

J.EMorgan 

JPM..cIO~PSI 0021954 
1773 

Core Credit Book: Storyboard: starting point 

1~Startingpoint: 

.. The b'anche !'lOUonal was reduced by 15% • 

.. The book started ttIe year wilh a long risk in IG9 forwards (but upside on defaults In IG) and 8 short risk in HY ( 

but with downside on some defaults like Kodak or Rescap). 

"The eim was to aeate soMe options on the book to reduce aggressively on opportunity, 

• In order to -shrink the boOk further, we aimed at reduce the upside on IG defaults end roduce tile downside in 

HY defaults: sem!'\Q protection in IG9 5yr and selling risk in HYon the run would have allowed \0 achieve thaI 

goal and r9duce the sensitivity of the book 10 curve natienel'$. 

2· Mission balance the book. : 

• switch the bias 10 long risk, flatten downside on defaults, r9duce Vat and Stress Var 

3· Execution : it went all bed .... 

• $Old protection on IG9 5yr, bought protection on HY on the Nn, buill decompression trades 

4- What Halppened? 

5- Plan 

.. The decompression hit us more than the gains that we recorded on the decompression trades 

• plan A: put the Whole boOk (IrCInches & Indices) 10 lightly managed status 

.. Plan B : keep the tranche book as an option on defautt lightly managed untif expiry 

and collapse the index boOK. 

CONADENnAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JP.Morgan 

JPM·CIO-PSI0021955 
1774 

Core Credit Book: Storyboard : starting point 

,~ Starting point: 

~ The tranehe notional was reduced by 15% 

• The book started the year wf!tl a long risk in IG9 forwards (but upside on defaults in IG) and a short risk in HY ( 

butwtth dOYlT'lside on some defaults like Kodak or Rescap) 

"The alm was to create some options on the book to ~uce aggressively on opportunity. 

• In order to stwink the book. further, we aimed at ~uoe the upside ()(J IG defaulb and reduce the downside in 

HY defaults: selling protection In 109 5yr and selling risk In HY on the run would heW! allowed 10 achieve lhat 

goal and r9duce the sensitivity of the book to CUM! flaneners. 

2~ Mis"Sion balance the book. : 

"!he short lid; in the book was covered starting the 15" of Oecembel": the bias became bullish the 15'" if Jan 

• the dOY/T'lside ()(J defBult'S lilla Kodak and Rssc&p was covered in February 

• A laf96 decompressIon trade was put on in order 10 cover downside on forward defaun risk in IG and Main in 

order to r9duce the Va, and the Slfess Var 

3· Execution : it wtHlt an bad ... 

• sold protection on 1GB 5yr. bought protection on HY on the run, built decumpreSSion lrades 

4- What Happened? 

S·Plan 

• TIle decompression hit us more lhan the gains that we reCQrded on the decompression trades 

• plan A: put the whole book (tranches & 1nd"1C8&) to lightly rnanaged status 

• Plan B : keep the tranche boOk es an opllon on defauJt lighUy managed until expiry 

end collapse the index boOk.. 

:::ONADENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

J.RMorgan 

JPM-CIO·PSI 0021956 
1775 

Core credit book: execution problem .. 

Relative sensibilities to defaults and 10% credit spread widening 

P&L 

:ONFIOENTIAL TREATMENT REQUESTEQ BY 

I,P, MORGAN CHASE & CO. 

·shortter'Tl" 10%CSO'" 

long!eml" 

1.P.Morgan 

JPM~lo·PSI 0021957 
1776 

pore Credit Book: Storyboard: starting point 

I 1· Starting point: 

• keep shrinking the book on the Iaf1il6St legs; tranches-, HY , 199, Main $9 

2· Mission balance Ihe book, : 

• the short risk in the book was covered starting the 15'" of Decsmber: the bias became bullish the 15" if Jan 

• the downside on defaults like Kodak and Rescap 'NaS covered in February 

• A large decompression trade was put on in order to cover downside on fO/Ward default risk In IG and Main in 

OI'der to reduce the Var and the Stress Vsr 

3- Execution : it went all bad. __ 

• selling protection on !G9 and Main 59 Syr started to steepen a lot : the book became long risk 

• selling risk in HY produced a gain due to the decompression ( right call) but It weighed on the HY nEimes held in 

IG9 Index ( MBIA, RADIAN, ISTAR, SPRINT) 

• the under·perlomance of the forwards versus the IG on the run brought a long risk exposure tlTat had to ba 

hedged in order to contain the Var-Stress Var- RWA iflQ"e.ases: mosl of the ral!ywas thus misseC .. ,.the P&l 

impact is Mtimated at 400M$ 

4- What Happened? 

5- Plan 

• The decompression hit us more than the gains thai 'We recorded on the decompression trades 

• plan A: pullhe whole book (tranches & Indices) 10 lightly marJag6d status 

• Plan B : keep the tranche booIo:. as an option on default lightly managed until expiry 

8I1d collapse the index book. 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

J,P.Morgan 

JPM.cro·PSI0021958 
1777 

Core credit book. execution problem. 

MTM profile of a compression trade as a function of percentage 

spread move 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0021959 
1778 

Core Credit Book: Storyboard: starting point 

I 1· Starting point: 

, • keep shrinkIng the book on the largesllegs : trenches, HY , Ig9. Main 59 

I 2· Mission: balance the book. : 

.. switch !he bias to long risk, flatten dowrrslde on defaults, reduce Var and Stress Var 

3· Execution : It went aU bad ... 

• seiling protection on IG9 and Meln 59 5)'l' started to steepen a 101 : the book became long risk 

• salting risk in HY produced a gein due to the decompression ( right cal!) but it weighed on the HY names held in 

1G9 index ( MBIA, RADIAN, ISTAR SPRINT) 

.. the under..perfomanc;e of !he f()l"Wllrns venlUS the IG on the run brought a long risk exposure. lila! "'ad to be 

hedged in order to contain \he Var-5tress Vat· RWA Increases: most of the rally was thus missed .. «the P&l 

Impact is estimated at 4OOM$ 

4- What Happened? 

S-P!an 

.. The duration extension plus the fotWartl underperformanoe vs !G on the run were balanced In risk with the 

protection we bought In HY 

• the HY names in IG9 were also in !he HY indices we traded, and Ihe gains on decompression did not balance 

the loss In the forward 1G9 

.. we reported a loss of 130M in January, another loss of 90M In February despite increasing the position In the 

forNards.ln march, !he loss alCCI3ierated very fest and painfully. We opted to go long risk and stop trading next. 

• !)lan A: put !he 'Nflole boolI: (lranches & !ndices)to lighUy managed status 

~ Plan B ; keep the tranctJe book as an option on default llghtly managed untit expiry 

and collapse the index boolI:. 

J.P.Morgan 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P, MORGAN CHASE & CO. JPM-CIO·PSI0021960 
1779 

Core Credit Book: Storyboard: starting point 

I 1~ Starting point;· keep shrinking the book on Ihe largest legs: !ranches, HY , !g9, Main S9 

2~ Mission: balanee the book. :* swflch the biat! to long risk, flatten downside on defauKs, redUI;e Var and Stress Var 

3- Execulion : it 'oWnt all bad .... • selling protection on 1G9 and Main S9 5yr started to steepen the C1Jrve a lot 

4- What Happened? "The decompression hfl \IS more than the gairrs that we reco«Ied on !he decompression trades 

5-ptan 

• plan A: put the whole book (!ranches & Indices) 10 lightly managed status 

• Plan B : keep !he tranche book as an option on default lightly lTlanaged until expiry 

and collapse the inde)( book. 

CONFiDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO. 

JP.Morgan 
1780 

Core Credit Book: summary 

i 1· the beta adjusted moves 

~ case of a 1x1 hy \IS IG position illusions with spreads and bp measure sensitivlttes 

• the book remains neutral x% CS01 : implicalions 

1· tflG9 lags, the boo!!: becomes long risk, because we are long risk in IG9 

2· if HY decompresses. Ihe book becomes short risk, because we are short risk. in HY 

2-the Method 

• Look at beta adjusted moves Of! history: the: wIlole s10ry is about compression and decompm:$Sion 

• breakdown \he risk from beta factors 

1- the book has a directional bias. but this is alt about expootBd loss changes ( mixing carry and 

MTM) 

2·lhe beta neutral book breaks into 3 parts: 

3- the findings: target YTO at ·75OM 

e- decompression trade Ie HY vs IG on the run 

~~.a_~_~~~~=_~_~= 

c - equity tranche slope 

- tt1e book is huge; 9551., IG9 and 38BIn 59 fwds, decompression (8M bp in HY or 258!n, 2.3M In Xover or 7BIn) 

• Decompression worked very Mil and ooJy starting: total gain ytd of 600M ( S08p Xover, 60bps in HY) 

we captured 12% decompression out of a move of 18% 

- Senes9 lag is overwhelming: total loss YTO is 1 .5bln (22bps in IG9 fwds and main S9) 

~ directionality -6OM and carry -40M (wtth no rol! down); total 100m 

-defaults ( Kodak and ResC8P) caet are estimated at 100M total 

·0-3 equity slopes cost a total 170M ;OM in itraxx (2pts) and 170M in COX IG (Spt5) 

~New IrlIdes : gain 70M 

;ONFIDENTIAl TREATMENT REQUESTED BY 

I.P. MORGAN CHASE & CO. 

J.PMorgan 

JPM.cIO·PSI0021962 
1781 

Core Credit Book: Trading activity: positions and new trades ! 

i 

Rationale fOf the pogitiol'lS increase : 

,. cover the HY downside on some defaults, prepare for IG tightening, stay maJ1(et neutrllilo minimize RWA 

2· started by selling IG9 5Yl' and 59 5Yl' : !he curve steepened and the forwards moved up 

3- sold 59 and IG9 5x10 to limit the P&l hit 

4- defended the P&l al MenU, end while the derompression kept going al'ld Increased !he Uflde1'pelformance of S9 series 

""'''''- """ .. Main OTRXover 3.700 ·2,419,033, 84 

Main OTR IG '.500 10,599,245.667 

S9 Fwd '.300 15,SJ.4,5;ze,571 

5yr IG OTReq '500 14.844,105,079 

Net 5)'f OTR '.500 22.472,525,079 

COXblocl< .. "" HY OTR 4.100 ·12.027,013.171 

IGOTR '.000 $2,269.399,240 

H"", 4.100 ·2,550,011.Z20 

HY10-11 2.435 4,293,653,388 

IG9fwd '.500 39,8&8,688,889 

lGOTR '.000 .35,899,820,000 

Net lG OTR 5.000 12,061,510760 

tart anBook 

20,497,375,000 

19,586,380,556 

-<I.11tl.619.'144 

tart",""'" 

·7,246.9(J5.439 

31,495,051,036 

..&.555.429.927 

14,405,446,694 

tart Feb Start March Book 

·3,283.783,734 -4.884.371,622 

14,040.000,000 20,883,402,222 

27,746.375,000 33.398,625,000 

26,513,202,778 31.r~'4,24',667 

6,190,069.444 14,082,350.55tl 

StartFeb~ Start Marth 

-7,69:5.056.537 ·14,662.635,805 

33,4il2,715,708 63,723,815.208 

-11.325.839.805 ·11.Z24,162,976 

19.070.202,546 16.899,001.314 

"""', -6,235,790,541 

26,661,458,889 

38,511,625.000 

36,799,997,222 

20,725,417,222 

urrenlBook 

·19.273.916.610 

63.764,450,278 

-11,105.441.148 

18,699,100,0&2 

54,651,951,114 75,029,095,559 94.017,484,448 94,540,640,003 

-<19,166.756.003 -67.525,166.003 -84.615,736.003 -65.086.576,003 

·20.135.375.0'35 -5 27,009.705 ..a 934.809,205 -8..073.864 275 

J,P.Morgan 

:;ONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM.4;IO·PSI0021963 
1782 

Core Credit Book: BP sensitivities and Directionality of the book 

I As spreads tightened the 1G9 and 59 1¢yr saw their duration increase while aU other legs had a shrinking duraticn 

1- thIs created an inaease on the expected toss of the tong risk ttlat was amplified -with the forward exposure 

2· the decompression created a long risk that was covered with B short risk in HY as the market rallied ( Var minimization) 

3-- this long risk eJtp05ure should have been maintained; this would have triggered an inaease in RWA and Var 

.4.. the decompression tntde in HY and Xo ... er was never large enough due to the legacy because we had to increase the 

position to defend tI'le P&L hit without being able to stay long risk (due to RWA & Var constraints) 

5- the decompression in 59 {around 25%} have induced a natural increase of long risk circa 1081., long risk in main and 

2581nlong riskinlG 

eS01 

MamOTRXover 

Mall'l OTR IG 

S9 Fwd 

5yriG OTReq 

N~t5)'fOTR 

OX block 

HY OTR 

lGOTR 

Hyotr 

HY10-H 

IG9fwd 

NetlGOTR 

AlI_ 

·917,243 

4,769,661 

5,619,647 

6,679,847 

10,112,636 

AU trades 

-4,931,075 

26,134.100 

-1;045,505-

1,045,5IJ5 

17,949,910 

-17.949,910 

6030,755 

!art an 

-1,"',000 

7,228,000 

8,613,871 

8,813,871 

·1,652,479 

tart Jan 

·2.971,231 

15.747,S26 

·3,507.72f1 

3,507,726 

24,593,378 

.24.!!ii3,378 

·10,067,688 

."" .. March Book 

.1,215,000 -1.807.218 

6,318,000 9,397,531 

11,930,9-1'11 14,361.409 

11,930,941 14.3&1,409 

2,785,531 6,337,058 

!art tar1MarchBook 

-3.154.973 -6.011,681 

16,721,358 31,861,908 

-4.643.594 -4.601.901 

4,643,594 4,001,907 

33,783,093 42,307,868 

·33,7.63,093 -42,307,868 

-2,613,505 -4.467,405 

wren! • ,30 :243 

11,997,661 

16,559,999 

16.559.999 

9,326,438 

CUrrent 

·7,902.307 

41,882,225 

-4,553.231 

4,553.231 

42,543,288 

-42,543,268 

--4,036,932 

JJ~Morgan 

:ONFIOENTlAL TREATMENT REQUESTED BY 

I.P. MORGAN CHASE & CO. JPM-CIO·PSI002:1964 
1783 

~ore Credit Book: P&L explain 

! PO$itlVQ +-980,.. usa 

Decompression +S60M USD 

HYofl'therun + 200M USO 

Carry + 150M USO 

New trades + 7DMUSO 

Book TOTALS 

Xover/malnratio 

S9fwOrallo 

TrancheP&l 

Newtrades.P&L 

dIrectional 

IGbIod< 

HYIIGratio 

HYofftherunvsonlhellJn 

1G9Fwd 

TraocheP&l 

New TradeP&L 

directional 

Defaults 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO. 

orAlS 

~1T7OM USD 

Sl1lepe!'ll!'lg 59 and 1G9 ·,OOOM usa 

Defaults - 150M USO 

Duration effect 450M USC 

Equijly1Tlloche sleepeoing - ·170M USC 

Feb 118,516,208 uarch.,2,239,1C2 CU~~!o~.486 TOT~"",4'lO 

58,799,595 

-52,805,136 

50,000,000 

50,00(1,000 

12,522,349 

·1-41,$12,021 

89,015,688 

181.036,597 

-340,643.952 

-35,000,000 

o -35.920.561 

44,189,466 

·122,108,810 

o 

o 65,680,263 

·23.5$4,$<19 

120,496,700 

56,597,893 

.(;9,926.692 

-70.000.000 

2C,000,000 

-30.762,450 

-50:000,000 

o 57,852,908 180,&41,968 

-242.054.127 -416,968,733 

-50,000.000 0 

o 50,000,000 

54,059,733 132,262.345 

TO AlS 

-526,$5&,569 "",663,1" 

199.004,093 408,518,681 

'34,187,796 203,4.t6,695 

·544.910.101 ·955,$40,1'" 

-65.00(1,000 -170,000.000 

o 20,000,000 

.Jl,40l.766 ..ee.085.n8 

-50,000,000 -100,000,000 

1.P.Morgan 

JPM-CIO-PSl 0021985 
1784 

Core Credit Book: Series 9 steepening explanation: the forwards have lagged 

1he 40bps market rally by 22 bps .... 

CDXIG9 Spread compresslo spread 0310112012 spmad 2710312012 Duration eadchge OUlatiooad'"", BeI.adjusill1Jfl 

5yr <18% 132 68 -13.00% 64 90.90 92.3 

7yr 37% 140 58 -14.00% 52 57.00 S1.5 

lOy< 26% 149 111 2._ 38 31.51 29.3 

Onil1erunSjr 12% 121 82 -9.00% 39 40.98 41.0 

S9f"""" 22% 152 118 26.00% 34 26.06 19.6 

fG15 35% 111 72 -12.00% 39 ~1.94 <18.5 

IMainS9 Spfeado>mpressio spread 031)112012 spread27/03f1Q12Du~1ioo Spfead D~aojusted Be1aaqu.Durl 

5yr <18% 170 89 ·21.00% 81 101.37 79.5 

7yr 34% 189 124 -9.00% 65 69,42 45.0 

lOy< 26% 195 145 20._ so 43.11 26.3 

On the run 5yr 34% 173 115 0.04 56 56.69 40.0 

S9forward 22% 206 1611 36.00% 45 30.54 16,9 

Component /traxx Main 59 CDXlG9 

10yr undllf]Xrlormance 6Bp ,., Steepening 4Bp 4., 

Duration effect 4Bp 10Bp 

Bet&adJu$lmertl 6Bp 7Bp 

Total 24Bp "Sp 

J.P.Morgan 

DuI2 

0.97 0.74 

2.82 2.68 

516 5.28 

4.65 4.56 

4.29 4.55 

3.8 3.68 

Dul2 

1.44 1.23 

3.23 3.14 

5.54 574 

438 4.42 

4.08 4.44 

::ONFIDENTIAl TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM.cIO·PSI0021966 
1785 

Core Credit Book: Analysis of the IG9 performance 

,i IG9 can be proxted asanoonallG iodexof117 l'\8rne!;and SHYNames{ MBIA, RADIAN, !STAR, SPRINT, RR Donnelley); 

.The 5 names behaved like the whole HY mar1tet: they underperfom'llhe IG martel and steepened alai 

, 

CDXIG9 

RON 

MOIA 

SPRINT 

RRO 

SF! 

%I!'lde)(loss 

C""K>' [RON 

MIlIA 

SPRINT 

RRO 

SF! 

%!nd&xloS$ 

10 

DXIG9 

RDN 

.... IA 

~PRINT 

RRD 

SF' 

%lno;lexJoss. 

• Their mOIle relaUve to Ihe rest of IG Indices allows to explain most of Ihe lag In IG9 curve but not all 

- Yel5yr !Gg. outperionned by 3Bps, 7yr outperformed by ~ bps While 10yr underperformed by 2 Bps; the net 

P&L impact is estimated ~1DOM USD 

compressIOn . ",,, spread2103120120V1llbon - , " inde'-basedlheo 

. " 132 .. ·23.0G"/o .. ".00 " .. 0.97 

"'" 31.00% 12- 16.5% 15.18 18.82%- 02< 

'" 16.00'10 11A9% 4,5% 3.10 971%- '.26 

'" sa"" 2.17%IGlIghbllllJtg 3.6% , ... 3.52% '.09 

'" '''' 1._ 55."" '" '98 1,48"4· '.00 " .. 12.62%. 3.4O'fi51mu1 g.", 7.56 1.56% US 

"" "" ,,. 55.04'14 31 ... '.21l 

""'P"'''''' "''''''' '" 7 12 S_"", "'" """ '" ". .. ·1(,00% " 52.00 52.> U 

'" 52.,,", ""l% 11.5% 14.34 20.94%· 282 

'" J6._ 31.00'- '''' 4.10 1449%· 7.78 ," 2UX)'IIo 1BOO%tGlIghten11l9 3.0% 2.46 8,46%· 4.41 

"'" 15,00,," 12.00% 52."" 3.0'110 2.46 5.04%· 2,49 

'''' 26.00% 23.00%t\mu1 3.0% 2.46 10,41%· 6.12 

'" 31% . " ,,- n." n ... 

"'" 1/2012 27K13120120uratiofl Sp"'" ,- Op --"'" 2<5" ". 112 ,- 37 36." 28.3 , ... "" ".(J()'4 ...'" 11.0% 13.93 '6.21l> 0.66 

'''' 51.00% .. - 5."" 4.10 12,52'l1o· 6,16 

" JO."" 36JJ(I'1o 10 Ughtltflllfll 0.5'10 OA' 8,9(l'!lo· 5.93 

'"' 30.",", "'" lIl.OO% 1,0% 082 1.36'!1o- ,.22 ". ... "" If.OO'1oIlmul 1.5% 6.15 945'!1o- 1.60 

'" '" ". 25.7$% 19.2. 19.26 

J.P.Morgan 

'.7 

, .. 

. .,. 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P, MORGAN CHASE & CO. JPM-CIO·PSI0021961 
1786 

~ore Credit Book: Analysis of the ITRAXX Main S9 performance 

Main 59 can be proXied as a normaliG index 01120 names and 5 HY Names (OTE, ESPIRI,OIXONS,EDP,PORTEL): 

• MalllSi 

OTE 

ESPIRI 

ED. 

DIXONS 

PORTEt 

% Index loss 

7" 

....... 

07E 

ESPIRj 

ED' 

D~ONS 

PORTEL 

%lnOexloss 

, 

MainS9 

0'" 

ESPIRI 

EOI' 

D~OIIS 

PORTE!. 

%Inclexloss 

• The 5 names behaved like the whole Xo maJilet: they lIndef'perform the IG mal1\.et and steepened a lot 

- Their move reJa~ Ie the rest of Main indices allo'lr'S to explain most of 11"10 laS! in Main S9 cur.'9 but not all 

Yet 5yr IG9 outpertormed by 3Bp!;, 7yr outperformed by 4 bps .t1ile 1Dy!' undMperformed by 2 Bps: 11"10 net 

P&.L Impact Is eatlrnatvd .100M USD 

""'''''''''' f2012spread27103I20120\Jfatl0n 

_ .... -",,,, ""'''''' ... "" 13 .. ·2UO,. " ".00 ".D .... "" ""'" ,,- 13.11.% 11.31 16.80% • , ... "" 17.50% 700% 10.5" '" , .... 0.57 , .. '''''' 6.50% IGtlglrtenlltg 1.5" 1.23 448'110- '" '" 12.00," 5.50"4 55.00," 6.5" '.33 6.72%- 0.\6 

'" '''' 5.06"4s1mul '''' 3.23 504"4· Doo 

'" ", '" S2.12' 21.10 5.41 

""" , 12spr&ad21f03I2012IXlraOOnchge ,.. , .. '" ~.OO< .. """ ss.oo ---.... W 

"" 4S."'" 31.90'1'. 131% 10.74 16.3!I'IIo- 2.69 

"" "'."'" ,,- 9.5% m 10.92% • 1.1e lB' 22.'" 1lJ.00"ItlGtI;htttMllI .... 3.28 11..01"· 3.2& 

"'" 2Il.'" 17.50% 47.110% 11.S'4 '" 111.58"4 0.77 , .. 23.'" 17.50% slmul 5.5% 4.51 8.31"1!.· 2_35 

"" '" ". ... "" 31.23 8.71 m_ 0310112012 211!W2012 Duration 5 .... b 

". ". ". 13.ooo"!. " ..... ---0.3 5,,. 

"" "00% ".00% ''''' 7.38 13.15"4 ~ 3.'" 3" 51.00% ""'" 18.0% 14.75 12.65% '.38 

"" 3O.SO% 31.00'II,IO~1I ,.,,, 4.51 9J)S". 2.91 

'" ".- """" zo- o.'" 744%- 6.10 

"" 38.- ao,OO"Itsimui 8.5'4 ." 9.55%- D.B6 

"'" "" "" 27."" ..... .... J,P.MOTgan 

1.24 

lJ4 

S. 

:ONFIDENTIAl TREATMENT REQUESTED BV 

J.P. MORGAN CHASE & CO, JPM-CIO·PSI 0021968 
1787 

Core Credit Book: The devil in the details ... there is an overshoot of circa 385M 

~SD due to over steepening of HY components and 

: The have 

underpetfonnance cox been IG9 accon:fing !ndexcurve estimated 

to !he sleepened on the 

at. 110M 

run marginally IG 

USC 

steepening more this. lhan resutts it should in an !~~~~~~~~~~~~~~~~~! 

The Main 59 index curve steepened marginally more than it should 

have been according 10 !he on the run Main On the RUn steepening 

this results In an undarperformance estimated.at 80M usn 

The HY10and Hy115&7yrl'1aveoutperformed \he on IheHYlndfoes 

but not as much as coukf have been expected: this .. an addtUonal 

hit of 150MS 

The tranches were hit here and there in unrelated ways edding 65M 

foss that can easily nlYBnHI 

1· 10Bln 10-30 IG 1ranche5lost 0.2% 'IS delta (2 Bid/Ask) '" 20M hit 

2~ 3S1n Hy 1 5-25105t .5pts recently in an related WBy '" 15M hIt 

J.. 381n O·31g9 5yr lost 1 pi In overshoot = 30M hit 

:::ONFIDENTIAL TREATMENT REQUESTED BY 

I.P. MORGAN CHASE & CO. 

HY'", 

HY107yr 

Hy11$yr 

HY111 

51% 56% 

25% 33% 

42% 45% 

18% 28% 

-5% 

~" -3% 

.,,,,, 

5 0.0714» 

2.3 0.15805* 

9 0.0981 

U 0.18016-

TO 

J.P.MoTgan 

17,850,000 

29,081,200 

26,487.000 

75,667,200 

149,085,400 

JPM-CIO·PSJ 0021969 
1788 

Core Credit Book: Summary 

1- Ideally, the Book needed an em 30M CS01 in IG : this is a cost opportunity of 1.2 Bin dlJelo the 40 bps rally in IG 

• this long risk shows naturally in the spread tightening and with the corning elCplry of the short term S9 leg 

- II triggers an increase in Var- stress Var- CRM·IRC-RWA across the board if we maintain the bOok balanced 

2~ the need 10 reduce VAR· RWA and stay wilt'lln the es01 limit prevented the book from being long risk enough 

- as we bought protection on HY ill the rally. we kept the 10%CS01 neutral 10 slightly bun 

-Ihe slight bullish bias was dwarfed by tile exposure in the forwards thai kept increasing to protect the pal 

3- Thus II decompression b'ade W<!I'I!i put on in order to remain market nev\ral, but it irlcreased the es01 very fast 

- as a result a decompression trede buill up both in CDX and ITRAXX: it is a good trade that peffonned well 

-yet, 5elling more protection in IG to balance the protection we bought In HY put us close 10 the es01 limit 

4- The long risk exposure would likely have missed the first 15 bp$ and the re.a.iislic P&L miss is ralher BOOM USC 

- deSpite the conviction 011 the mlly In IG spreads, we needed to selll0Bln in main and 30Bln in IG ideally wr.ich 

is a stgnifrcant bullish bet 

• In earty February and earty March, when spreads widened back, !he book would likely have suffered a weekly 

loss or up to 200M each time: this was not an Bcc:ep~ble pal noise ,,,,So the long would have been 

implemented slowly anyway 

5- carrying this long risk exposure would heve triggered some bnrtal pal swings of 100-200 In earty February and March. 

• the book was aiming at flne tuning the pal noise while reducing Ihe ri!iks and the notionels 011 opportunitle$ 

• the losses coming from the IG forwards were already wild, so we waited before being autrtght long risk for fear 

the noise would just inc:rease IllOI'e 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

10 J.P.Morgan 

JPMoClO-PS10021970 
1789 

Core Credit Book: Risk Management and execution mistakes 

1· The reduction of the SytlG9 and 59 .arly in January tumud out to be. bad move! foIward& underporformw 

- Initially, sell 5)'ron a roll basis V$ on the run IG indices allowed to reduce the snort, improve tl'\e C8l'T)'. reduce 

the sens/livity 01 fhe book to\llards nattenlng and pre-empt a lightening in JG spreads without increasing CS01. 

- the marKet player& quickly steepened the 59 curves starting the underperformanee of Ihe forwards: becslJse 

the slight long fisk bias was insufficient to cover the loss, we added bad( some flattaner& to correct the hit 

2- The Kodak default triggered a second wrong move: the HY short risk added to the fOlWard undlnperfonnance 

- The loss was SCM al'ld we alar1ed covering the risk in February by selling HYl4-HY17 indices that COIltained 

MBIA, Radian, MGIC, ISTAR given that RESCAP risk to default was growing. 

- However, by selling those series and targeting the "mo!'f9uge & Insurance- related names, we aggravated fhe 

underperformsllC8 of the IG9 foi'wards because they contain MBIA, Redian and ISTAR 

- ~ a result, lhosa names underpetformed the whole marKet. Thus the decompression trade worll.ed but the IG9 

forward especially uodarperformed in the mlly and this is where the main long risk of the boo!( is. 

3- The Xover (Main decontprussion trade, •. .1l11:ewlse It finally started II lag in Main ItnIn 59 forwllrda 

~ Due to the need to contain the RWA·Var complex. we sold protecUon 00 main while buying protection in Xaver 

- Th!s was a way to prorrt from either e recoveT)' in Europe IG space without increasing the CS01 . 

• The decompr9$Sioo in HY and Xaver sped up in March and this put the book short risk and worsened the loss in 

theforwarcls 

4- The CBITY WII8 overatlnurtlld: the duration extension due 10 the low mtes and the quid( IG tightening created a long risk 

that should not have beef1 hedged and that 8mQ1.1nted to postpone the C8l'TY further in lime. 

What would have happened ff none of these bad moves were initiated? 

_ The decompression would have happened anyway and the forwerd lJflderperformance may have been twice 

smaller or down 750. AJltl1ese mistakes Induced. an increas.e in the forward positions 10 contain the P&L hit 

• If the boo!!: had gone long rtsft fully, the Varwould have incree&e<l and the Fr#A as weI!: likaly 20-25 8ln RWA 

-The can)' would have improved and the book would haw had twice a weekly dmwdoMl of 200M 

CONADENTlAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO, 

J.P.Morgan 

JPM-CIO·PSI0021971 
1790 

Core Credit Book: Computation of the extra CS01 needed for the current book 

i 1~ the 1GB and 59 fDf'llllf'ard decompraaaion and the duration e)derl5ion cntated a 20% (10% duration incnlase, 10% spreads 

decompression) incrtlss" '" duration that should not haw been hedged: 12M l CS01 

- from Mclin 59 fOl"N3rds that amounts to 3.2M $ CS01 

- from IG9 forwards this amounts to 8.6M $ CS01 

2· The dUl'1Ition e)denaion and decompruslon In MY and Xover legs should also have been anticipated as 20% { 10% dunstio" 

increase, 10% 8pntad decompression} inereue In the longa risk IG: 10.5M $ CS01 

• In Itraxx Xover/Maln. this amounts to 2M eSC1 

• In HYIlG, this sums up \0 8.SM $ es01 

3- Tt'le tranche deltas increased 0" tha shOtt tann equity and deereased on long term .super-seniors: 9M $ CS01 

• in Itra)O(, the deltas moved: liM $ eSOl 

• ·10'1 in 0-3 59 5yr (2811'1) or 10e!n on the run jnde:t:: 5M es01 $ 

·0 -o.1x o\ler 2Ob!n on the run index equiv. : 1M eS01 $ 

• in CDX IG the deJtas moved : 3M $ eSOl 

-.10xln2b!n0-3IG95yror4Blnontherunindex 2M SGS01 

• -o.1x over 25b1n 0fI Ihe run equiv : 1M $ CS01 

4- target 10%CS01 : +250M In 10% CS01 tlgMenlng 

- CUlTentlythe book trades at + 133mS on this scenario 

• anticipating a further similar tightening and decompmssion, the book should carry today a extra long risk. of 25M $ CS01 

~ given that Main (25% at 125bps) and IG ( 75% at 90 bps) weighted spread for IG would be 100bps, the boof( s.hould run with 

e -10% CSOl of +250M $ P&L gain 

• this amounts to anolher 20Bln Ig18 and 6bln Mllin 517 sale of proteetton 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

12 J.P.Morgan 

JPM-CIO~PSI 0021972 
1791 

~ore Credit Book: Management of the CS01 2012 

1· The long rlsk exposure-that ,,"ulted mostly from duration extenston and decompnrulon was covered with. short risk in HY 

~ This allowed to cover the downside on defaults in HY names 

~ lNs is not an irreversible loss as It would have been If we had covered the long with IG prolecti~n 

2~ The increase In long ri.k corning from • longer 8vwagft duration, the RWA and VarJnc:ntased too even lfthe dlrecUonality was 

!lntted 

~ !llStead of reducing the burgeoning we should ha\IEI doubled it : this would have increased Vat and RWA by 10% every 

monlh 

• Using the HY as a way to reduce the directionality \NOrsened the P&l issue with the fOl'W8rOs 

3· We should be vary long rtak In IG going Into the expiry of the rG9 5yr to offset the toss of carry 

• we should do it before the expiry comes so that we mitigate the P&L loss 

-we should be short r15k in aU IG equlty !ranches so that the transition is smoolhef through the expiry 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO, 

12 l.P.Morgan 

JPM·CJO·PSI 0021913 
1792 

~ore Credit Book: The path to recovery .... 

1- 1lKt OYel'1lhoota could raverae atthough thls would not be necessarUy stable. Yet, optically the YTD could euity improve with no 

change by up to 350M 

2· The duration extenalon resultvd In a lang rtsk1hllf: hila been covenKt and shgukJ actually atBy' in the Mure 

3· Too extra long risk exposure woukJ overall set the book up 250M in a 10% CS01 tightening move: this wHllncrease the RWA by 

anotf1e.r 5 Bin unl .... we use ab'ueturtld nate. to offload part of the long risk. 1lKt tnnche1n1das should help reduce the futurv 

RWA measures, 

4- The P&L will face 100M temporary drawdowna for a net certy of 2-:U M USD per day. 

5- We still need to buy 581n o.31G91Oyr and 2.581" e-uro 0-359101'. TbiB will allow to ua to freeze also the trading on tranches and 

help reduce the RWA forward measures without ItCtlng on the- book oIhef" than roU'ng the long mk. 

6-the advent of default wi" be a P&l poslUve all thew.y to the expiry aftha book, 

:::ONFIDENTIAl TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO. 

l.P.Morgan 

JPM-CIO·PSI0021974 
1793 

F"",,: Grwl, Juijlll1 G <p.JIIwn.g grCll.tOjprnc/lne com> 

Sent: T .. , 10 Apr ZOl2 Z031 08 GMT 

To: CIO CREOfT POSfTIONS<CIO_CREOIT_POSITIONSClJ:Imch!IM.com> 

cc: C!OP&t TnfO <CIO_P&L_hlrrG,iplnctllse 00ftI> 

SulJted: CIOCORE Cted~PO!IIIonli It)..API-t2 

·'.'OC,~,OOO 

·_815.000 _a~ooo 

.,. ...... 

".000.000 

o -71!.~,000 ~1!.!Gl.000 

o 0 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·pSi 0023061 
1794 

~~Q!I.'~.4S:I HQ!I.3~ • ..a ·M1.38oI.II16 .M1 .... 91$ 

:ONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIQ·PSI0023062 
1795 

Milllli ••• ~!il 

7&100,QX1 "iu ,. ::;,~;:~~.I=: !1:::1:~:~:'~ 383717 11lll.G8!724 PU!!!!! 

,. 7~7 : ' -,-, :i'<:i!.:' , !. , 

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•• ";;e a t::-::: oj:j Si;?Pf 'td ·aF ;10 u t:ttj,.:"f if:t;::;t'f! :U!~;i,J 

:ONFIDENTIAl TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

o /I 818 

JPM·CIO·PSI0023063 
1796 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0023064 
1797 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0023066 
1798 

un,OOO.(D) 

3.11O.00J,000 

... am.ooo ... am.ooo 

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CONFIDENnAL TREATMENT ReQUESTED BY 

J.P, MORGAN CHASE & co. 

"H-f~-~~~~~+--'- _____ 'H 

JPM-CIO.pSI0023066 
1799 

__ Redacted by tbt PtnalDtnt 

Subcommittee on Invntigations 

:ONFIDENnAL TREATMENT REQUESTED BY 

I.P. MORGAN CHASE & CO. JPM-CIO-PSI0023067 
1800 

CONFIDENnAl TREATMENT REQUESTED BY 

J,P, MORGAN CHASE & CO, JPM-CIO-PSI 0023068 
1801 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0023069 
1802 

',va.am,em 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO-PSI0023070 
1803 

.! - ",""", __ Illl\ti:_~ 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0023071 
1804 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0023072 
1805 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI 0023073 
1806 

:ONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0023074 
1807 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P, MORGAN CHASE & CO, JPM-CIO-PSI0023076 
1808 

StrC)legy 270 U::.D 

·5<lO.WO.WO 

;2.)00.000.000 

·1,1:»000.000 1<-9Jil000.000 

. . >14~.000000 

. 

""""'"'' - --~~ 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0023076 
1809 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO-PSI 00230n 
1810 

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:ONFIDENTIAl TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO,PSI 002'078 
1811 

_~±=±==:j_~;:/'~:rr:::=;:' =$T;;;~,l ;=::::i' ,'~~~~t~a 

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO, 

, , , 

JPM·CIO·PSI 0023079 
1812 

From: Lewis, Phil <phiUewls@jpmorgan.com> 

Sent: Mon, 14 May 2012 17:32:44 GMT 

Dimon, Jamie <Jamie.dimon@ipmchi!lse.com>;Braunsteln, Douglas <DoughI5.Braunstein@jpmorgan,com>; 

To: Hogan, John 1. <John.J.Hogan@ljpmorgan.com>; Drew, !na <!na,Drew@jpmorgan.com>;Zames,MatthewE 

o;:matthew,e.zames@jpmorgan.com> 

O'Rahilly, Rob <Rob,QRahllly@jpmorgan.com>; Bacon, Ashley <Ashley,Bac.on@jpmorgan.com>; 

Venkatakrlshnall, CS <c:s,venkatakrlshnan@jpmorgan.com>;Vigneron, OIMer)( 

CC:: <olivier,x,vigneron@jpmorgan.com>;Macris,AchiUes: 0 <:achilles.o.macris@jpmorgan.com>;Martin-Artajo, 

Javier X <javier .x.martin-artajo@jpmorgan.com>;Wilmot, John <JOHN.WIlMOT@jpmorgan.com>; Lewis, Phil 

<phil.lewis@jpmorgan.com> 

SUbject: 00 Credit CoUateral differences as of COB Friday 11th May 

00 Credit CoUateraldifferences as of COB Frklay 11'" May 

Total difference between CIO and the counterpartles Is now $69mm~. $66mm prior day 

largestCounterparty Difference: Morgan Stanh!v CapitaiServlces is at $27mm - down from $46mm 

Largest Instrument Difference: COX IG S09 lOY 00-03 is now $29mm vs. $l7mm on the prior day 

-Pie054! note: Deutuhe Bank AG Is 05 per the 1at' May 2D12 

Difference by countefparty: 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0032235 
1813 

From: G",ut.JulienG",,.,~et1gll"out~8III.com" 

Sell!: Tue.l0AplZ0121902.23GMT 

To: CIO CREOITPOSrrlONS ~1O_CREOIT_POsrrIONS@:IpmcM"".OO'I'l> 

cc: CIOP&lT ..... ¢IO_P&l_T~_eom> 

SLib)Kt:CIOCORECredllP05ihon& 1O-API-12 

4 

../Iql~.1Ol ..al.315.tlXI 

.-a,ooo.lOl -I52,ooo.lOl 

·:;>11,!IOO.IOl 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·pSI 0032406 
1814 

'fI3,'~oro 

~.81~.1XrJ ·~.a~1XrJ 

13Q.75D.1XrJ 'lCl.15D.1nl 

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n.1O!o3.:I.I1 1"2.:1$3.107 

~$I.1I01.~ 

·3.2'U .... ll~ 

2.~J~.016.1 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0032407 
1815 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

.~~;:~~~ I ~~:l·ti1·:· : ~';:·:1t ~~~~i~·tti :183111 , .. , .. & :tIU1le 

JPM-CIO·PSI0032408 
1816 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM.cIO·PSI 00324119 
1817 

CONFIDENTlAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0032410 
1818 

',)1'),(lOO,/IOO ".OSC.J!<l.CDl 

3.TJl.OOO.(Q) ·r.OI7,OO:>.oo:l 

·'M.m.OOO 

1lI3J,00ll.~ Ul.l1ro.11ro 

·t8jUll'.~ ·10111,0::11.250 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM.cIO-PSI0032411 
1819 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0032412 
1820 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0032413 
1821 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0032414 
1822 

HI~.0::1'''17 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J. P. MORGAN CHASE & CO. JPM-CIO·PSI0032415 
1823 

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CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

1UC! 1UO! 

JPM-CIO·PSI0032416 
1824 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0032417 
1825 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0032418 
1826 

CONFIDENTlAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0032419 
1827 

CONFIDENTIAL TREATMENT REQUeSTED BY 

J.P. MORGAN CHASE & CO. JPM-CIQ·PSI0032420 
1828 

Str.;llcgy 270 USD 

'''"'''''' - ----

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO·PSI0032421 
1829 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM.cIO.PSI0032422 
1830 

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'",,,,,,,,, - ----

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'"'''''''''' - ----

CONFIDENTIAL TREATMENT REQUESTED BY 

J,P. MORGAN CHASE & CO. JPM-CIO·PSI 0032423 
1831 

___ ~~~ ___ ~:~I~r~ ..• ~r~;~ 

CONFIDENTIAL TREATMENT REQUESTED BY 

J. P. MORGAN CHASE & CO. 

, , , 

JPM.cIO-PSI 00)2424 
1832 

From: 

Sent: 

Venkatakrishnan, CS <cs.venkatakrishnan@jpmorgan.com> 

Thu, 22 Mar 201213:47:36 GMT 

To: Broder, Bruce <bruce.broder@jpmorgan.com> 

Subject: RE: Privileged and Confidential 

Yes, please, on the last question. Thanks, Venkat 

From: Broder, Bruce Sent: Thuo;day, March 22, 2012 9:46 AM 

To: Venkatakrishnan, CS 

Subject: RE: Privileged and Confidential 

We can't explain their Var movement under the old mode! as we don't see any info about their (risk) positions, eg we 

don't get sensitivities. We had asked Pete's team to explain the movements in the old model, but they were never able 

to and then they had no reason to as they already knew they were changing models. It took them a while, but they 

finally agreed their old model was crap. 

Do you want me to inquire as to why their VAR/Svar declined in the new model? We might be able to get an answer 

ourselves or through Pete on that one. 

From: Venkatakrishnan, CS 

Sent: Thuo;day, March 22, 2012 9:27 AM 

To: Brcx1er, Bruce 

Subject: RE: Privileged and Confidential 

Having said that, why did Var (and SVar) go up from Jan to Feb in the old model but decline in the new model? 

From: Brcx1er, Bruce 

Sent: Thuo;day, March 22, 2012 9:01 AM 

To: Venkatakrishnan, CS 

Subject: RE: Privileged and Confidential 

Here are the results and differences with the old Var model. I'm not sure this really makes it apples to apples. I think it's 

now apples to pears instead of apples to oranges. Apples to apples would be to just drop the Var!stressVar and focus 

on IRC and CRM only. CIO had no choice but to do the VAR model change. They were using a disapproved VAR model 

and one which would have prevented the regulators from approving CRM for CIO's correlation trading portfolio for if it 

had been kept (even though CRM does not depend on VAR). 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0036179 
1833 

From: Venkatakrishnan, CS 

Sent: Wednesday, Man:h 21, 20121:44 PM 

To: Brcx:ler, Bruce 

Subject: Re: Privileged and Confidential 

Got it. Elsewhere but returning. 

From: Broder, Bruce 

Sent: Wednesday, Man:h 21, 2012 01:40 PM 

To: Venkatakrishnan, CS 

Subject: RE: Privileged and Confidential 

The factor is .08 = l/!Z.S. 

"On January 18th, CRM capital was $3.2". This is correct, the CRM Capital was 3.1548, or $39.4258 RWA. 

In the Jan column, you see 31,100 RWA which was the reported CRM RWA. It represents the Jan average. Jan 18 was 

the last and highest of the 3 CRM measurements for CIO in Jan. 

(268 is the Q4 reported average result). 

Are you in your office or elsewhere? 

Fmm: Venkatakrishnan, CS 

Sent: Wednesday, Man:h 21, 20121:26 PM 

To: 8rcx:1er, Bruce 

Subject: Re: Privileged and Confidential 

Then what was the $3.2.bb? 78bb·O.OBS is 6.3 approx but 26bb·O.OBS is not 3.2.bb 

From: Brcx:ler, Bruce 

Sent: Wednesday, Man:h 21, 2012 01:21 PM 

To: Venkatakrishnan, CS 

Subject: RE: Privileged and Confidential 

6.3 is the standalone amount. Corresponds to 78,763 in the table below under pre-split. 

From: Venkatakrishnan, CS 

Sent: Wednesday, Man:h 21, 2012 1: 16 PM 

To: Broder, Bruce 

Subject: Fw: Privileged and Confidential 

In my own memo from yday, there is an inconsistency between two pre-split measured of capital: $6.3bb from Ani! two 

weeks ago and $S.4bb from the table below. Do you know why? 

From: Venkatakrishnan, CS 

Sent: Wednesday, Man:h 21, 2012 07:51 AM 

To: Venkatakrishnan, CS 

Subject: Privileged and Confidential 

CIO CRM The Hjghlights 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI0036180 
1834 

Comprehensive Risk Measure (CRM) allows for internal modeling of Correlation Trading positions and their 

associated hedges 

o These exist at JPM within the 18 and the CIO 

o The regulations also calculate a "Floor" to this capital 

• Other non-securitization positions use Incremental Risk Charge (IRe) as the method of calculation 

• Both CRM and IRC are based on a 99.9% confidence interval and a one year horizon BUT 

o IRC assumes a three month holding period with rebalancing quarterly to compute an annual number 

o CRM assumes a one year holding period with no rebalancing 

a A 30 year bond hedged with a 3month CDS will be fully hedged from a default risk perspective in the IRC 

calculation for one year but will be unhedged for nine months in the CRM calculation 

The Issue at 00 

• On January lSlh, CRM capital was $3.288 but was recomputed to be $6.388 on Feb 22nd 

• The primary reason for this was the net addition of $3388 notional in index CDS between Jan and Feb. 

• The Model Risk group assigned a team to work with cia to explain the CRM model and to understand the impact 

of these new pOSitions on their capital. 

• The team came to the conclusion that many of these trades did not constitute "optimal" hedges to the 

correlation book (from a tail risk perspective) and that they should be given IRC treatment not CRM treatment. 

• Hence, for modeling purposes, we split the CIa's Correlation book into two parts: Correlation Trades plus 

related hedges in one part, and remaining index positions in another part. 

As a result, the CRM capital dropped greatly and, in fact, the floor for the firm was now the operating 

constraint New capital (CRM + IRe) is approximately $3.5866 compared to $5 466 pre-split (CRM only). 

The decline in capital when positions were moved to IRe was rather greater than we expected. An important 

reason was a $12588 curve trade in indices (long risk maturing in 2014 - 2017) and short risk maturing in Dec 

2012. Given the CRM approach of not replenishing maturing trades, the model calculated capital based on one 

leg of this trade ($12588 of long risk) remaining unhedged for three months (Dec 2012 to Mar 2013). IRC, on 

the other hand, assumes it was hedged. 

Rationale and Next SteDs 

• We think that the rationale of splitting the books is well-founded: The correlation book contains tranche trades 

and hedges which work well in tail scenarios; the index book (under IRe) contains the rest. 

• This logic should be used going forward and index trades which hedge tranches booked in the correlation book 

and the others in the index book. 

• The question is whether we re~calculate capital in this way from (a) the start of the quarter; (b) some point mid~ 

quarter; or (c) the date on which they are re-booked. 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. JPM·CIO·PSI 0036181 
Credit Derivatives Terminology 

• Credit Default Swap • Curve 

• Notional Amount • Shape of Credit Curve 

• Credit Default Indices • Bear Steepener/Flattener 

• COX and iTraxx • Bull Steepener/Flattener 

• On-the-Run and Off-the- • Forward Trade 

Run • Skew 

• Traded Maturities/Duration • Convexity 

• Tranches • Tail Risk • Spread • CS10% or CSW 10% 

• Carry • RWA 

Confidential Treatment Requested by J,P, Morgan Chase & Co. JPM-CIQ-PSI
COX Indices 

, 

I Number I On-the-Run Traded 

Index Name I. of . i Series Maturities Tranches , Description I i I 

CO'.NA.IG I m!18', 2, '. 5,>, 10 F'" t7, '-'5. "·'00 .. I 118 ,1,2,3,5,7,10 in!a High Volatility Investment grade 

CDX.NA.IG.HVOL 30 I ' 

i ! 

CDX.NA.HY 1100 :J8 ?, 5, 7, 10 [0-10,10-15,15-25, 25-3S, 35-100 !High Yield CDSs 

\3,5,7,10 in!a iCDSS that are at the crossover 

CDX.NA.XO ;35 . I point between investment 

'grade and Junk 

, -T 

COX.EM 

___ . 

i17 '5 'n/a Emerging market CDSs 

Confidential Treatment Requested by J,P. Morgan Chase & Co. JPM-CIO-PSI-
Number i On-the-Run 

Index Name of Series 

, entities 

:17 

iTraxx Europe :125 

iTraxx Europe I ,17 

HiVol 130 J ... _____ 

iTraxx Europe :40 !17 

iTraxx Indices 

Traded 

Maturities 

'3,5,7,10 

8,5,7,10 

13,5,7,10 

Tranches 

:0-3,3-6,6-9,9-12, 12-22,22-

100 

In/a 

1 

:0-10,10-15,15-25,25-35,35-

!100 

Confidential Treatment Requested by J.P. Morgan Chase & Co. 

Description 

: Most actively traded names 

in the six months prior to the 

iindex roll 

f Highest spread (riskiest) non-

;financial names from iTraxx 

Europe index 

: Sub-investment grade names 

JPM-CIO-PSI
Credit Spread Curve Movements 

110 .,-..... -.---... -........ . ... - ······-·-··-··-··-·--·······-··r 15D 

160'" 

100 

140 .;.--............. . 

J 120"·'-"·_-- I",i ... 

1" i • --- - ..... ----

60 

I -LoIIISVUr 

I 

t 

-5hcRt 1vur 

-BulCUrw 

-FlIItened CUM 

.-. StHPllned CUJ

CI 

-50 

40 "_ .. ---... _ ... - ---, .. ------' .. _--""_._'-" 

·100 

20 -' .• __ .. ".' ..• "--'. -_ ..•.. -_._ ... 

o -150 

Confidential Treatment Requested by JP. Morgan Chase & Co. JPM·CIO-PSI
I suo 

$100 

$111 

$60 

$40 

$20 

$- e----

$(20) 

$(40) 

$(IiD) 

Dally Notional Positions In lC8y Instruments 

-cox HY SOl O.5V 

-COX HY 514 O.5V -COXHYS1705V 

=--'" -COX IG 5090SV 

COX IG 5O9 on 

-CDX IG 5O9 101' 

-COX IG 515 OSV 

-COX1G511iOSV 

-cox IG S170SV 

-cox IG 511 05V 

-1TIIAlO( MN 509 0

-1TlWOI MN 5091

MN SUi O

$(10).l.-] -------------

Confidential Treatment Requested by J.P. Morgan Chase & Co. JPM-CIO-PSI
Dally Notional Positions In Key Instruments· COX IG 

-----_ .. _--

5«1 f=: ;: ::: +! 1---------' 

$- -e-' ",,,,,,,,,,;.,,,-,:,,>""",,,:,',,,; ,;. 

.. 

$(20) t:::::::::::: .... £Z;;;;:mww:--lItl1il, .. """, .. 

.... \i4IC! 

$(40) i----- .• ";;6#4 - _.',.,.- -----

$(60) 

$(801 '. --------

iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiil 

Confidential Treatment Requested by J'p_ Morgan Chase & Co, 

-CD)( IG SO!J 05-CD)( IG SO!J OT

-cox IG SO!J 1D

-cox IG $15 05

'---COl( IGS1& 05

----COl( IG 517 05Y 

COX IG 518 05Y 

JPM·CIO-PSI-0
Dally Notional Positions In Key Instruments I Suo 

$100 

SIO 

$10 

$40 

S20 

-. CDK IG SQg OS" 

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() 
1849 

Date: 

Parties: 

Identifier: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

TRANSCRIPT OF AUDIO RECORDING PRODUCED 

TO THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

April 20, 2012 Telephone Call 

Achilles Macris, Daniel Pinto, Javier Martin-Artajo 

OCC_Box_07\Disc 14\20120711_J PM-ClO-A \NATIVE_ DATA \JPM-CIO-P51-A 0000140 

Hey man. 

Yeah, so what's up? 

No, it's not like that. You know, what is going on here is that this has taken,like, in a 

life by itself. So we are acting after Ina's instruction, you know, who, you know, 

wants to talk to Hogan about it. And, I don't know if she did already or not, or, you 

know, whatever. 

Who, Ashley? 

Huh? 

Who wants to ... 

Ina, Ina, Ina, Ina. 

About this issue? 

Mmm. 

Ok, well then, I need to talk to Hogan too. 

You know, I don't know, listen, I mean, to meSo ah, this one. I, I, we don't have any collateral, significant collateral disputes with 

anyone. I will, I'm trying to get Jean Francois to really check on all of the valuations 

of the positions. So how, how many millions of dollars are we talking about? So I, I 

just don't understand, why, why could someone in March, strange as that might 

sound -

No, like you're not, listen. In a, the way that, you knowAnd how does it go to Ina? Because Ina is not the most stable person in the bank, so 

Yeah, that's what I'm saying. You know it's gotten away from me here, this one. 

You know, because, you know, you know, the story is like, you know, that, you 

know, Javier has, like, you know, sort of, some, you know, feedback and, you know, 

issues, you know, with the dealers. 

But Achilles, Achilles. 

Hmm? 

JPM-CIO-PSI-A 0000140 

1 
1850 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

I should say that it's a situation where I need to do a formal investigation. And, 

really, if Javier is fantasizing about this, he's going to really, he will, he will have a 

bad, a hard time here. I mean, if he's right, I need to fire a lot of people. 50-

Yeah, exactly, you know, I mean, I'm not on that page so much. Like, I don't 

disagree with you. You know, this elevation is not my style, right? But you know 

the story here has to do much more like, you know, the way that this was put, like, 

you know, forward, you know, today. All of this happened like, you know, kind of 

life, like in the last, you know, sort of two hours. You know, I've been told exactly 

how to do this. You know, so the issue that has been described is, you know, sort of 

in the morning call, you know, that's like, you know, two hours ago. So do you 

understand how rapidly this has developed? You know, Javier goes and mentions, 

you know, listen, we are making a mockery of JP Morgan, you know, in the street. 

Because, you know, we are long investment grade and the IB is like, you know, short 

investment grade, and we are battling it in a visible way that is, you know, creating, 

like, you know, a lot of question marks. And then, you know, what do you mean by 

that? And, you know, the issue goes like, you know, ok, what happened, like, you 

know, with the disclosure of the position, with the knowledge of the methodology; 

the capitalBut what I understand, 

Mmm,mmm. 

From what I understand, how we got here, honestly, I don't care. What I see is that 

it is an accusation that the investment bank, with someone leaking the position of 

CIO, is acting against CIO on mismarking the books to damage CIO. And the second 

thing is thatNo, it's not, that is not to my understanding. My understanding is, listen, I, yeah, I 

don't know. These are very aggressive comments. I mean, the way I said, like, you 

know, to Ashley, is like I don't know, you know, whose fault this is, or anybody's, 

you know from my side, or any other side. Like, you know, do you understand? Like 

I'm not, this isn't like, I don't know how, you know this has become, like you know, 

an issue of disciplinary action. You know, the call was more like, you know, to say, 

that you know, that there's a behavior from the dealer, you know, that is consistent 

with like in a nondeposit. 

Yeah, but whoever, if it's you or Javier, or someone, picked the way that you picked 

in order to escalate this one, so that may have been intentional. It's not that it 

wasn't intentional. It's not intentional anymore. So now that we go so far up with 

it, we need to, so one thing is that you tell me, I think, that this trader is doing 

something incorrect. I go and check. And the other one is it goes all the way to 

Hogan to come back to me. Then, yeah, that may have been intention, but 

unfortunately, that train left the station. 

Well, it is what it may. It is what it may, but I'm not going to play broken phone with 

anybody either. You know what I mean? You know, you know, so, yeah, you know. 

Yeah, if that's what it is, then we need to investigate what it is and that's it. 

IPM-CIO-PSI-A 0000140 

2 
1851 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

This issue, like you know, the issue that, you know, we'll have subsequently, and 

that is, like, something that I agree with, you know, that I don't think that it is 

appropriate that JP Morgan battles this in the market. And, you knowBut Achilles, you are working on the assumption, that the guys in my, someone gave 

them the positions that you have. Which, I honestly, don't think that is the case. 

Javier can prove this. 

He can prove it? 

Mmm hum. 

Yeah, well, then, that's fine. 

But all I'm saying is that's not the gravity here. You know, you, you're giving it this 

disciplinary spin to this that is not, like, you know, the central gravity the way I'm 

thinking about it. The way I'm thinking about it is, like, you know, when like, you 

know, basically, you know at CIO we [Indecipherable] with Boaz and Deutche, that 

was like in JP Morgan by Deutche. You know what I mean? You know, I think, you 

know, the current, like, you know escalation, that we have, like you know, between, 

you know, you know, let's say, you know, two different positions in the same firm. 

Even if that becomes like, you know, sort of elev -- you know, I'm led to believe that 

this is not a public, you know, thing, you know. And we're battling it out in the 

open. 

Ok. What, what, what are my guys doing? Just tell me. What have they done? 

They mismarked the books or they trade against your books, or what? What is it? 

Ok, you want me to like, you know? Hold on a second. Let me, let's be very 

accurate because like, you know, this was, you know, they ... Let me see if I can get 

you here on the speaker. Ahhh, man. This is not about "the guys done." I have not 

gotten to what I think is the substance of it, but if you are amused by this conflict, 

we can have that conversation now. My point is, like, you know, I think that Bruno 

will needAchilles, you need to understand that this is a very, very, very, very serious 

accusation. 

Ok, hold on a second. Let's deal with that then and then I'll get to my view of the 

substance afterwards, ok? One second. [Switch to speaker phone.] 

You there? 

Yes, I'm here. 

Yeah, Javier? [Achilles talking to Javier] I have Daniel with me, and he's telling me 

what do you think that his guys done wrong. And I mean, obViously, we have a 

great relationship so he says, and he says, why are you going, like, you know, to, 

that route? I explain that this is what we've been asked to do by Ina. But there is 

something, that you have a grievance, yeah? In terms of, you know paying and you 

collecting this thing. So can you explain it, tactfully? IPM-CIO-PSI-A 0000140 

3 
1852 

Mr. Martin-Artajo: Yeah, Daniel, hi. Yeah, what I wanted, I reflected to Achilles is that I think that is, is 

something that we should discuss internally at JP Morgan, really. I mean, I think 

that -

Mr. Pinto: Yeah but, Achilles, Javier, can we specific? What have they done wrong? 

Mr. Martin-Artajo: Yeah, no, it's got to do with, with, with the quotes that we're getting and the 

behavior of our dealer in regards to the investment grade position that we have. 

mean, it'sMr. Pinto: So the, sorry, hold on. The quote that you are getting from who? 

Mr. Martin-Artajo: With, I forgot the name of the traders. I'll give you the names. It's called Roman 

something. Roman, I'm, I, what I don'tMr. Pinto: Roman in New York? 

Mr. Martin-Artajo: Yes. 

Mr. Pinto: The index trader in the, the, the flow index trader in New York? 

Mr. Martin-Artajo: Yes. 

Mr. Pinto: So on the quotes, I mean, what? There is someone <laughs> that has no fricking 

clue on what you guys have. 

Mr. Martin-Artajo: I know. I know. 

Mr. Pinto: In New York soMr. Martin-Artajo: I know. The only question, the only problem, Daniel, and maybe this is a longer 

conversation is that, we, we are hearing from, from counterparties in the market 

that they are talking about some of the positions that we have. And, and I am 

concerned about that, right? I don't wantMr. Macris: 

Mr. Pinto: 

[Interrupting.] That's not the issue. The issue is not [indecipherable]. Say it exact 

what you mean. 

But, so, I've very bothered. So what you think is that Sanjay, or Olivier or someone. 

So clearly, the only one who knows who the positions are, are, is Olivier, and that's 

it. So do you think that Oliver went and talked to some of your counterparts or our 

counterparts of all of the positions that you guys have in the market? 

Mr. Martin-Artajo: No, I, I don't think it's that. I think that, what I'm trying to see is that, what I'm 

trying to say is that, there is an issue here with our IB in terms of the positions that 

we are trying toMr. Pinto: But, but, Javier? Just to be, so, in the way that this was portrayed to me, is a very, 

very serious accusation. So, then, there are two things that I want to know. So if 

there are any, One, could be that you are concerned about something that may 

happen. And that is very valid, but if it didn't happen, it didn't happen. So my 

question is, there is something that DID happen, that in any shape or form, you 

JPM-CIO-PSI-A 0000140 

4 
1853 

think that our investment bank is trading against your position, because the position 

was leaked in some weird form to them. 

Mr. Martin-Artajo: Ok, I don't think that there is anything here that has happened that is of, of a 

serious nature. What I think is happening here, that is of a serious nature, is that 

what can happen with the marks that we get from the investment bank. Ok? 

Mr. Pinto: <Laughs> Have you got any? Well, that's it. So now we go to the marks. Have you 

got any, we don't have any collateral disputes, so, or very little ones. Have you, 

have you, can you see, any of the marks, that they are deliberately uno, mismarked 

to hurt your position? 

Mr. Martin-Artajo: I have, I have to, I have to show them, I have to show them to you. I mean, I think 

that this got to do with, with the knowledge of our position and the way that the 

investment bank is trying to, to position around that with the customers. I do think 

that that's the whole issue that we have. And then, that is the issue that I'd like to 

make sure that we keep it inside the company, right? It's something that 1-

Mr. Pinto: Yes, but, so I'm asking you, is there any of the marks, that we have put in our books, 

that they are incorrect? Or malicious, to hurt your position? Yes or no? 

Mr. Martin-Artajo: [indecipherable] I'm going to send you that, so that you can judge that, Daniel. 

need to send them to you. 

Mr. Macris: [Yelling.] Say the examples. What does he put, this is the time, the god damn 

words, please. 

Mr. Martin-Artajo: Ok, what happens is that, every time we put a trade on, I get, you know, I get, sort 

of like an immediate ask from, from the dealer into the position that we just traded, 

right? So, I get evidence that they have access either to ICE or to some other way to 

look at what we do, and you know, I am concerned about that. I am, yeah? 

Mr. Pinto: Honestly, I don't, I, I don't know. Is that the case? That someone is accessing your, 

your position? Because Olivier gave it to them or someone? So I need to fire that 

person. 

Mr. Martin-Artajo: Ok. 

Mr. Pinto: So we need to be extremely careful. 

Mr. Martin-Artajo: That's right. We need to be, I mean, I. This came through, through a very different 

angle, Daniel. I mean, I, I need to explain you how is it that we are raising this issue 

through Ina. Well, it came from a very different point of view. It came through, 

having to reconcile the capital that we using in the business with the actual models 

that we use that are developed by the investment bank too, with QR, ok? 

Mr. Pinto: Yeah. 

Mr. Martin-Artajo: So we, we came up with, you know, a system, a way to look at all the risk is. You 

know we look at the VaRs, we look at the stress VaRs, we look at the same thing 

that you do, ok? 

JPM-CIO-PSI-A 0000140 

5 
1854 

Mr. Pinto: Yeah. 

Mr. Martin-Artajo: So what happens is that we ended up with something that ended up with, you 

know, with a dialup that we have with Ashley, with Venkat, with, with a lot of 

people, ok? At the same time, you know, we are, risk management knows that we 

have large, large concentrations, ok? Now, I, I, I am hearing in the market that, you 

know, some of the guys in the company are talking to them and wondering what we 

are going to do with the positions. Now, I, I just want to stop that, yeah? 

Mr. Pinto: But Javier, Javier, Javier, Javier, my friend. You know that over these days, because 

of the difference in performance, everyone is stating that. So that, it's very likely, 

I'm not saying that this is true, it may be that you are 100 percent right and I have to 

fire 10 people here. I don't know. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: But it is very likely that they are kind of warming you up. 

Mr. Martin-Artajo: Yes. <Laughs.> 

Mr. Pinto: It's very likely. 

Mr. Martin-Artajo: I know. 

Mr. Pinto: It happens all the time. 

Mr. Martin-Artajo: All the time, man. That's exactly what I, but I want it to be inside the company. I 

don't want it to be known out there. And I don't want it be getting, gettingMr. Pinto: But what, what the market knows, doesn't know. So, I don't know what it is. But 

obviously, you bought those positions in the market so it is very likely that some of 

the market people can put two and two together. But, let's assume that that's not 

the case. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: So for me, what is important is someone from my group, or Olivier, or Venkat, or 

Ashley, or someone else, leaked these positions to put you in a position that it will 

hurt the bank. Really? I, I, it is hard for me to believe that that is happening, butMr. Martin-Artajo: Ok, well, then, help me with something, Daniel, because this is alii need, I need 

from you. What we need to do is look at what is the real issue here. Are we fighting 

something that is, that is, that is not the same on the other side of the investment 

bank and, therefore, is just something that is just dealers trying to do their normal 

work, trying to see what we were doing, Or are we discussing something that is 

substantially a mirror image of what the investment bank has. And that's what I 

told Achilles. Is that we need to, we need to discuss with the investment bank which 

ofthe two cases it is. Is it that we have an issue With, yeah? 

Mr. Pinto: The position that you have, so, I don't know what it is. I suppose that it has to 

because we have some diversification benefit, by definition you have to put on a 

position that is the other way around. 

JPM-CIO-PSI-A 0000140 

6 
1855 

Mr. Martin-Artajo: That's right. 

Mr. Pinto: That's, that's, that's quite obvious. But, but that, from there, from there, which is a 

fact. Obviously, is a fact. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: And these guys know, that we, as you know, both know, that we are getting some 

diversification benefit. 

Mr. Martin-Artajo: That's right, yeah. 

Mr. Pinto: From there, from there, from there, to go and accuse that someone is putting you in 

a position that is harming JP Morgan, by leaking your positions to the market, or by, 

or by trading against you, or by mismarking the books, it's a very different story. 

Mr. Martin-Artajo: That's right. So I want toMr. Pinto: So what I point out is to prove these three factors have not happening or are 

happening. And ifthey are happening, I need to fire a lot of people. 

Mr. Martin-Artajo: And if they're not happening, we need to stop that they talk outside the market. 

Mr. Pinto: But, you have <laughs> my friend, you don't know if they are talking outside the 

market. So what do you got? You get it from Deutche? You get it from Barclays? 

So where are you getting from? These people, I, I don't know. But we will see. We 

will check everything; we always do. 

Mr. Martin-Artajo: Yes, please. That's what I'm asking you. I am on your side. Try to, try to, try to see 

what we can do about this, becauseMr. Pinto: Friends, I think that this has, unfortunately, this has took a turn and now it's Hogan 

and Ina and the whole world involved -

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: Out of something that you suspect, but you don't know, because a Deutche guy or 

someone told him. 

Mr. Martin-Artajo: No, no, no, no, no. That's not, that's not the point. The point is, is that I am working 

with, with you guys in trying to disclose information on what we are doing, ok? We 

are trying to be transparent here, with, you know, we are learning how the risk 

management and the QR interacts with our books. We are learning what that 

means for us in terms of capital. I'm trying to optimize capital. I'm trying to get a 

Mr. Pinto: 

lot of that done. And I think thatYou know, absolutely, but that, that Olivier, is that Olivier is working on that. Olivier 

is not part ofthe bUSiness anymore. Olivier, I guaranty you, there is, there is no, he 

is a very honest person. He has no incentive at all to leaking that into anyone, 

because he doesn't work there anymore. 

Mr. Martin-Artajo: Ok. 

JPM-CIO-PSI-A 0000140 

7 
1856 

Mr. Pinto: And in any case, and in any case, that someone mismarked the books in March? It 

just doesn't make sense. 

Mr. Martin-Artajo: Ok, alright, I, I, I, ok, I'm just going to give you some, some, some facts. I, I, 1-

Mr. Pinto: No, what I'm going to do, I would prefer that, that we get, jump inside this thing to 

really look into the positions, and see if we have anything that was incorrectly 

marked. 

Mr. Martin-Artajo: Ok. 

Mr. Pinto: And then we will internal audit the whole trading operations. Auditing and we will 

do whatever it makes you feel more comfortable. 

Mr. Martin-Artajo: Ok, let's do that. 

Mr. Pinto: Yeah, obviously, this is, I would have preferred to deal with this in a different way, 

but we are where we are, and next time we will be extremely more careful. And, in 

fact -

Mr. Martin-Artaio: How would you want to do it then? So that it's not, I mean, I, I'm, you know, I think 

what we need to do, I mean, for us, really, what I really wanted to understand is 

that we are in a, in a position where we need to understand very well what the next 

step is for our book, because, it is, you know the, the, the capital issuesMr. Pinto: But Javier, so these are two very different things. One is that you are accusing 

people of wrongdoing. That's one thing. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: The other one is the externalization thing that we discussed the other day. And that 

mayor may not go ahead. 

Mr. Martin-Artaio: That's right. 

Mr. Pinto: And it's nothing to do with this thing. 

Mr. Martin-Artaio: Ok. 

Mr. Pinto: And if you don't want to be a part of it, just don't be. 

Mr. Martin-Artaio: Ok, no, no, we do want. But I, I just want to make sure that we don't have a big, I 

just want to clarify, that, that we don't have a risk management issue. That's all, 

Daniel, that we areMr. Pinto: Yeah, that's fine. But that, at the moment what it is, is a real accusation. It's not 

that a concern that you may have for the future. And the way that the people think, 

over this side, is someone in my group, did something wrong. Either mismarked the 

books or used information that they should have not used to trade against your 

position and acted against the benefit of the, to harm the bank. So that is what is 

floating around. 

JPM-CIO-PSI-A 0000140 

8 
1857 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Hold on a second. Daniel, let me just say to that. like, you know, this issue, you 

know, came about, like you know, less than, you know two and a half hours ago. 

Ok? let me just say that I talked to you about this. like you know, so, the meeting 

was not, like, you know, you concentrate this meeting on disciplinary actions and 

things like that. I don't know where that's coming from, and I don't know what your 

conversation was with Ashley. You know, I believe that like Javier has shown me 

here, enough evidence, that like you know, the people, you know, on the desk know 

our positions or what we are doing in the market place. You can forward to your 

staff but you can see it. I don't much care about it, to be honest with you. So there 

is like, you know, a grievance like, you know, here, about, like you know, the 

knowledge, you know, of our position on the desk. I'll leave it, like you know, it to 

that. I don't care so much about it. The purpose of the call with, like, Ashley, that 

we were instructed to do with Irv. Do you understand that? "Instructed," "Irv," 

these are the two significant words here. You know, the issue revolved about an 

administrative solution in what has been perceived "a battle," you know, whether it 

has, like you know, disciplinary, or doesn't have, it was not like, you know, I don't 

know. It did not enter my mind. But there is definitely a battle. You know, that, you 

know, you know they work it out that theyA battle? Where, where, where do you see the battle? 

[Talking to Mr. Martin-Artajo.] Can you explain? [Talking to Mr. Pinto.] Because the, 

I don't know Javier's sort of words, [talking over Mr. Pinto who says, "But Achilles, 

that's my point."], but you know, you know you find [indecipherable]. Can you find 

something that explains to people what it is? 

Mr. Martin-Artajo: Yeah. 

Mr. Macris: 

Mr. Pinto: 

Because I don't want to care about the disciplinary thing. I want to care, like you 

know, that in my opinion, if there is a short, you know, that needs to be covered by 

the IB, and we got the long, let's find, like you know, some solutions here. You 

know, I don't want to get, like you knowThere is no, I, I, I don't think so. So the last big position that we have against you 

where we lost money is American Airlines. We hedged you at the end of last year. 

We lost the money and we were wrong. So, I, I, I don't know. I don't know. It may 

be another one. I really don't know. You know who are you trading with. ButMr. Martin-Artajo: Ok. So then, then what happens is that then we need to settle this inside JP 

Mr. Macris: 

Morgan. If you're right about what you're saying, I have, I have reasons to think 

that, that, that, you know, I think you need to do a little more work on that. But it 

doesn't, the issue is, is that we should keep it inside the company, whatever that is. 

And if there is a trade to be done, we do it internally and we don't force it outside. 

And if there is no trade to be done in the market, then so be it. But at least I'm clear 

thatOur guys are trading in the market day in and day out. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: My, my, I don't know. I, I really need to, someone to dW~C!l'b'?f\'SI-A 0000140 

9 
1858 

Mr. Martin-Artajo: That's right. 

Mr. Pinto: What is concern for the future, you know, what someone may do and what has 

happened. 

Mr. Martin-Artajo: Ok, let'sMr. Pinto: Clearly, the thing that concerns me the most, at the moment, is to see if someone 

has done something wrong, already. Not that you're concerned that they may do 

something wrong in the future, because, that, that, that hasn't happened. 50-

Mr. Martin-Artajo: Ok, I'll send you, I'll send you through, through Ashley, the, the, you know, the, the, 

you know, some ofthe things that we observe on our side for you to be aware ofMr. Pinto: But those are valuations or they are comments? 

Mr. Martin-Artajo: Well, they are, they are comments. They are chats. They are marks. They, they are 

quite a lot of things really. I mean, I, I don't think there's any, like Achilles said, I 

don't think this is a disciplinary thing. I, I'm just, I just don't want it to be, in the 

market. We're seeing as we're doing something here that is, that is, that we have a 

problem in our desk and at the end of the day what we're trying to do here is 

actually try to optimize the book for RWA purposes. And, and I'm going to, and 

since we coordinating this with the investment bank, I want to coordinate whatever 

we need to do in the book also with the investment bank and not do it outside. 

Because I have a feeling that we have, you know, something to do here. And that's 

what I, I want to make sure that the traders know. That we cannot, I don't want to 

battle it outside when we have something at the end of the day. It, it should be 

done inside the company. 

Mr. Pinto: Yeah but that, that, Javier, I, I don't understand how that one, that, from either of 

two things. The, the externalization is something that we, we decide that we will do 

together. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: And that is happening. The day to day trading, which it looks to be your concern. 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: That someone is trading against you, knowing your position, is something that I will 

be extremely surprised that is going on, but we'll take a look and see ifthat is 

coming up and that's it. 

Mr. Martin-Artajo: Ok, thank you. Thank you for that, Daniel. Thank you for that. 

Mr. Pinto: And if you could, so how much do you think is damage? 

Mr. Martin-Artajo: It's a few basis points, but it's in a large position so that's the issue. 

Mr. Pinto: So it's not many millions of dollars? 

Mr. Martin-Artajo: I don't know like, maybe 250? 

JP.M-ClO-PSI-A 0000140 

10 
1859 

Mr. Pinto: Two hundred and fifty million dollars? 

Mr. Martin-Artajo: Yeah. 

Mr. Pinto: Ok. And you think that the fact that we marked the book that way, so we are 

benefitting with that amount and you are having a loss of that amount? 

Mr. Martin-Artajo: Well, I, I just, I'm just concerned that the bid/offer spread is wide, and I don't know 

where the, the, the prices are when we trade. That's basically what it is, really. 

Mr. Pinto: Ok, so then, then, I think that we need to get Jean Francois to take a look of the 

marks and see if there is anything that is being done inappropriate. What I was 

telling Achilles is that we haven't, we haven't had recently, any substantial, how do 

you call, actually I forgot the name, discrepancies in the valuations with clients, or 

my market disputes. 

Mr. Martin-Artajo: Ok. 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

So if we would have something of that nature, we would have substantial market 

disputes. But in any case, so I'll take a look, and then we'll take it from there. 

Can I, just, I want to, like, you know, comment, you know, Daniel, like on a couple of 

things. Like you know, just to put, like, you know, here, like, in retrospective, you 

know on these things. On the externalization that's like a long-term thing, you 

know, we are working together, nothing is going to change. This is not of the 

moment, right? We are on board. Second, on the issue like, you know, like you 

know, coordinating our activities to optimize, like you know, our individual RWA and 

capital and overall the firm, that is also something, that you know, like the 

externalization, I want to, like you know, use, you know, Ashley and company and 

I've been, like you know, completely open, you know, in all aspects, you know with 

the guys that I want to work, you know to that solution and that is like a second 

point. What, like, has erupted, like you know, today, you know, is, like, you know, 

an issue of, like, you know, disfunctionality in the way that we making the market. 

You know, I personally do not know, or am saying or claiming or mentioned, like you 

know, to Ashley, that, like you know, this disfunctionality is, like you know, our fault, 

you know, the IB's fault, or somebody else's fault. I don't know. Do you 

understand? I know there is tension. Right? It can be only in our head. Now, if, 

yeah? 

One of the things, one of the things that I will do without mentioning anything that 

we have [indecipherable]. I will check with [indecipherable] to see if any CIO 

activities in mark, with some, let's see if they, if this is something that they even 

notice. 

Right. So, like you know, what, all I'm saying is like you know, here. So the nature, 

like you know, of the call that I was asked to do, had to do, like you know with the 

issue, you know, let's not, like you know, escalate. You know, this, you know, 

tension and needs, like, you know, complementary positions that we can settle 

administratively. Right? You know, let's do that as opposed to, you know, 

continuing, like you know, being visible JP by JP into the street. Like you know, 

doing things dysfunctional. Dysfunctional, I think, doeW-~rd~~r.~IijBBe,t.fo 

11 
1860 

things or, like, in the subject to disciplinary action. I don't know. I think that, like 

you know, Javier seems to be a little bit more convinced, like you know, the 

positions that, you know, that he has, like you know, they are known to the lB. And, 

like you know, the positions. [Speaking to Mr. Martin-ArtajoJ What is the system 

that you were telling me called? 

Mr. Martin-Artajo: ICE. 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Daniels: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

[Speaking to Mr. Pinto] ICE. That the, the thing that goes into ICE. You know, the 

dealers, you know, see. I don't know. You know what I'm saying? I have not 

investigated. I don't know. My thought it was not about the disciplinary things or 

punishing anybody. What I'm not saying, like you knowNo, Achilles, Achilles, Achilles? Sorry. That's, that's not right. Someone is acting 

wrong. So, I'm not going to accept any of the persons that work for me that don't, 

that don't operate with 100 percent integrity. 

Ok. 

So, there is, there is an accusation. This is what it is. You may have, it may be right 

or wrong. Alright? Let's investigate and, and, and come to a conclusion. 

Good. 

If someone did something wrong, so there, there will be a consequence of it. Of 

course. 

All I'm saying to you is, like you know, that is not where my thought is, like you 

know, I'm happy that, like you know, that I opened to you what, like you know, 

Javier presents to me. Same thing, together from the same time, like you know, as I 

do, because I asked him to compile it and to put it down, because I understand the 

seriousness of this thing. It's not where my head is. Do you understand? Like, ok, 

we'll look at it, but, I understand, you know, that your approach is like, you know, 

on the up and up. I much appreciate it. You know, the, the point of this call that I 

was asked to do here, you know, and you people involved like Irv does not know the 

book, and, you know, whatever, Ashley, on the outside of the airplane, obviously I 

don't operate this way, as you know, for many years. You know, it is, like you know, 

the issue, there is, like, you know, something that will play in the public arena. 

Right? You know, for whatever reason, you know, let's sort it out. So I think that 

it's notBut, but, ah, yeah but to think, to think, that someone from us, or Olivier, or anyone 

else went and openly in the market, talked about your positions, really? I would be 

extremely surprised. 

Ok. 

That the market knows that, what your positions are, that may be, because you 

bought tons of it. 

Yeah. 

JPM-CIO-PSI-A 0000140 

12 
1861 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

Mr. Pinto: 

Mr. Macris: 

So then, so then, [indecipherable] for now. I mean, if you sold them back, there are 

only three players in this space. So, it is very likely that people know what you have. 

But in any case, I think that we'll take a look and see what it is. If we did something 

wrongAgain, I, all, alii want to tell you, like, I think that is, that is. great that you are doing 

it, and I appreciate it. It is not, like you know, for me here, you know, I don't want 

to, like you know, represent to anybody, and I certainly did not represent this, you 

know, on the quid quo, where at, like with Irv and Ashley, that like you know, there 

is, like you know, something here with, you know, disciplinary, you know, actions. 

You know, we're talking, like you know, if there isYeah, but Achilles, Achilles, you know that whenOk, but I choose to, to, have like what is important to me. I'm just stating it to you. 

Right? You know, youYeah, I, I understand but, but, as I told you, things that that, when Ina goes and talks 

to Hogan and the whole company, this, this is, it was really it, probably. 

Yeah. 

Ok, thank you. 

Alright, man. Take care. Ciao. 

### 

JPM-CIO-PSI-A 0000140 

13 
1862 

From: Drew, Ina <Ina.Drew@jpmorgan.com> 

Sent: Mon, 23 Apr 2012 11:04:41 GMT 

To: Goldman, ltvin ) <itvin.j.goldman@jpmchase.com> 

Sub'ect: Fw: Largest GTC Collateral Call Dispute Report plus Update on Collateral Disputes Reported to 

~ SUperviSOrs 

From: Macris, Achilles a Sent: Monday, April 23, 201203:32 AM 

To: Drew, Ina 

Ce: Wilmo~ John 

Subject: FW: Largest OTC Collateral call Dispute Report plus Update on Collateral Disputes Reported to Supervisors 

FYI 

From: Bates" Paul T 

Sent; 22 April 2()I2 13:32 

To: Stephan, Kejth~ Macris, Achilles 0, Martin~Artajo, Javier X 

Cc: Lewis, Phil; Enfield, Keith 

Subject: Fw: Largest OTC Collateral Call Dispute Report plus Update on Collateral Disputes Reported to Supervisors 

Below is Fridays mail from the collateral team that raised the issue. It breaks out the aver,al! disputes as at 18 April of 

$515mm per cp {ABS mtm of these positions is approx. $39bn dlfference is only 1.5% of this), Morgan stanley is the biggest 

dispute at $117mm this is what triggered the collateral review. This js mostly tranches as it is on out bltatera! trad~5 and the 

majority of the index trades are facing ICE. The btggest difference by instrument is the Itraxx Series -g lOyear 22~lDOtranche 

which is approx $95mm. Collateral disputes are not uncommon at the firm level. We do occasionally get collateral disputes~ 

the bau process is for MO to check the bookings and tie out positions and for VCG to confirm the mark. MO have confirmed 

with the collateral team that the positions have been fully tied out with the counterparty other than a very small number of 

tr:ades with an immaterial varIance that have parameter breaks> 

Currently VCG are working on validating that the book is marked with in thresholds {focusing on the top 19 instrument 

differences which is about 90% of the total) and are looking to completing this tomorrow morning. The desk were given the 

break down on Frlday as well. VCG will also look at any findings from their work as well. 

The collateral team also provided a time series which shows the overall difference growing through March to a approx. 

$500mm at March month end. March month end was tested as satisfactory by VCG, 

Thanks 

Paul 

From: Lewisl Phil 

Sent: Friday, April 20, 2012 03:16 PM 

To: Bates, Paul T 

Subject: FW: Largest OTC Collateral call Dispute Report plus Update on Collateral Disputes Reported to SuperviSors 

From: Wilmotj John 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM-CIO-PSI,H 0000141 
1863 

Sent: Friday, April 20, 2012 9:04 AM 

To: Lewis, Phil 

Subject: FW: Largest.OTCCollateral Ca11 DIspute Report Plu$ Update on Con.teral D~putes Reported tQ Supervisors 

Phil- fVi. Rory seems to be working on this with the F<l. I have alerted.Ed as well. 

John ·C. Wilmot! Chief Investment dfflce I ~.jQfm wtlmQb1{jpmorgan&oID ! if Work; {21''Z) a34~,54S2 11iI: CeU:{917} 66-4 M 1590 

From: Demo., Mark. 

Sent: Friday, April 20, 2012 9:01 AM 

1"0: Wilmot.! John 

Cc: Morris, Andrew X; Miller, Charles R; B1amason, David; Hughe5r Jason LDN 

Subject: FW: Largest OTC Collateral Can Dispute Report plus Update on Co11ater,,1 Disputes Reported to ~pervisors 

John .-1 wanted to bring something to.your attention. This is a weekly r-epOrt that we in Ie Collateral produce that tefl-ects the 

10 largest collateral disputes for the week. You should know that in QUrtop 10 this. week we have guite a few disputes that 

are largely dr.iven bytntrn differences on CIO london trades. If I look at the total mtm differences across theGn book facing 

the G·15 - the mtm differen«! totals (lver $500MM. 

1 have included a break out of yesterday's mtm differences by G-15 firm fot 'Only the CIO London credit book. The numbers in 

the own column show our trade co.un,t .facing the counterparty. The numbers in the DiffMTM column show the total mtn1 

difference across th.e cia London trades. fac.in£, the'-caunterpartyir')okated~ 

\ __ Redacted by the Perman.ent 

:SUbcommittee on InVestigations 

Wt¢ are in correspondence with your middle' office (Ro.ry O'Neil) who has t:t;lke.n Our que.stions rl?gard1ng the~ djfference.s tp 

your Front Office. We are awaiting -a res.pons.e. We are also doing mtm difference based on product type and underlier which 

we wi!! have a littte.later today. 

1 am wo-rking fram home today-I can be rea.ched at ••••• if you want to.. ~rk. 

Mark Demo I 18 Collateral I J.P. Morgan I 383 Madison Alt'enue, 11th ROOf, New York, NY 10179 ! T: 21252254851 

mark.4emo@jnmorpan com 

JPMC INTERNAl USEONlY 

FrOIl1! Demo, Mark 

Sent: Thursday, April 19, 2012 6:33 PM 

To: Staley, Jes 

Cc: Zinke} Steinar X; sankey, Brian; Eichenberger, Stephen; Co~ Andrew UK; Christf MicMel; Eckstein, Peter C; Waner, Lawrenca; 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM-CIO-PSI-H 0000142 
1864 

Ambrecht, Mary R; Hanrahan, Kieran; Brough, Richard; Magnus, Arthur; Keating, Karen R.; Bessin, Jean~Franco1s X; King, Ian A; 

Bishop, Eliz.abeth W; Compton, paul Hi lamesl Matthew E; Masters, Blythe; Pinto, Daniel; Hernandez, Carlos M.; Ricci, Paul A.; 16 

Credit Risk Reporting; Scott, Nicola R; Robbins, Nigel; ORourkel Erin; PS Europe Collateral; Sims, Mark; Bruce, James A; Moores, 

Christopher D; Morris, Andrew X; Magalhaes, Augusto P; Miller, Charles R; Moffitt, Albert J; Cisz, Mark. M; Poz, Thomas I; Rallan, 

Luke X; Lee, Louis TH; Winkelman, Amanda D; McDonaghl Daniel; Diaks, Marc Xi Morzarial Tushar R;, Benesld, Beverly J; Gaunekar, 

Siddhi Pi Thomey, WilHam 0; Robinson, Scott A; WillCOX, Christopher Pi Jhamna, Sanjay X; Vigneron, Olivier X; Munro Directs; 

Munro, Graeme; Rubenstein, Stuart; Leach, Mark; Rakkos, Angela; Nuttall, Kenneth E; Nandanar, Preeti Hi Bogle, Andre A; Warnier, 

Daniel P; BOi, Simona; Dewson, Thomas X; Kane,. Karoline; Healey, Gareth; Hurley, Jonathan X; Eichenberger, Stephen; Miller, 

Charles R 

Subject: Largest OTC Collateral Call Dispute Report plus Update on Collateral Disputes Reported to Supervisors 

Attached is this week's report detailing the 10 largest collateral call disputes on the OTC derivatives book. In order 

to refiect ongoing issues with some of the larger broker dealers, this report lists counterparts with which we are 

seeing consistent differences regardless of whether it is JPMC or the counterpart that is showing exposure. 

The report also reflects updates on collateral disputes previously reported to Supervisors as well as those disputes 

tracking to be reported to Supervisors for April month end. 

The RAG ratings in col 0 are defined as follows: 

Red = a dispute meets the age, size and risk rating criterta set out in the grid below. 

Amber = the dispute does not meet all the crtteria on the grid 

Green = either the dispute has been resolved since the date of the data cut for this report, or resolution is 

imminent. 

cid:image003.jpg@OlC9C8D7,DS4lBBOO 

Mark Demo 

212-622-5485 

Mark Demo Irs Cotlatera! I J.P. Morgan I 383 Madison Avenue, 11th Floor, New York, NY 10179 I T: 2126225485 I mark demn@jompman com 

JPMC INTERNAL USE ONLY 

CONFIDENTiAl TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM·CIO-PSI·H 0000143 
1865 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM-CIO-PSI-H 0000144 
1866 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM-CIO-PSI-H 0000145 
1867 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P .. MORGAN. CHASE & CO. 

'----'--,------,-,---

JPM-CIO-PSI-H 0000146 
1868 

From: Goldman, Irvin J <irvin.j.goldman@jpmchase.com> 

Sent: Thu, 03 May 201200:22:41 GMT 

To: Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com> 

CC: Hogan, John J. <John.J.Hogan@jpmorgan.com>; Bacon, Ashley <Ashley.Bacon@jpmorgan.com> 

Subject: C5W 10% 

Doug:, 

On page four of the materials is a graph of csw 10% since beg. 2011 Please let me know if this satisfies your request. 

Irv 

From: Goldmaol Irvin J 

sent: Tuesday, May 01, 2012 01:49 PM 

To: Hogan, John J.; Zubrow, Barry L 

Subject: 00 Risk Material- As requested 

John, Barry 

Enclosed is the background material you requested for the audit committee meeting. letme know if you need anything 

more. 

Irv 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

JPM-CIO-PSI-H 0000546 
1869 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

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Executive summary 

• Limit structure for synthetic credit book is incorporated within the overall CIO MTM credit limits. 

• Synthetic Credit VaR is large percentage. of overall CIO VaR. 

• Existing risk metrics and risk appetite were consistent with historical experience. 

r Recent experience more consistent with extreme tail scenario. 

• Large stress loss reduction actions taken during Q1 increased substantially complex risks not c

the current limit structure. 

• Substantial notional and risk changes occurred within a very condensed time period In late 01. 

• Risk management Initiated overall review of all CIO limits and govemance policy In February 20

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Background 

CIO Synthetic Credit in the context of the portfolio: 

• Historically intended to provide positive pal protection to large credit events. 

• Partial offset to long credit exposures in the AFS portfolio. • Risk protection strategy changes in 2012 from historical profile. 

Risk profile evolution: 

• Pre Q4 2011 

• The portfolio was net short risk to credit spreads, with upside on HY defaults, positive spread convexity to a sel

widening. 

• tn preparation for large expiry of HY short risk positions in Dec '11, and contemporaneous with increased rang 

positions in Q3, the HY short risk position is increased,. 

• Q42011 

• 30 Dec CSW10% sensitlvity is maximum short at +$152MM, HY -default of AMR in Nov' 2011, with emerging de

among other names (e.g. Kodak RescBp). High yield indices beCome less liquid. 

• Q12012 

• To neutralize the net short risk position emanating from HY short risk positions, yet to retain upside on defaults

Investment Grade long risk positions are increased (this increases the concentration risk to series 9 instrument

and iTraxx, and increases sensitivity to the 'Compression' risk of relative value between IG and HY positions. 

• Portfolio net CSW10% moves from +$152MM to -$152MM as at30 March, 

• Short Risk neutralization strategy creates substantiaUy higher complex risk profiles, 

Directional credit spreads 

Compression (investment grade vs. hIgh yield, US and Europe) 

- basis 

- Curve 

- Tranche/Correlation 

- Interest rates 

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Position Evolution 2012 

• Management decides to reduce short risk position: 

• 1. Spread +1 O%j spread +.50% position turns from long protectfon to long risk • 2. S.igr'\ifica.nt increase io net notion,al position (not indicative of risk position) 

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Risk metrics and limits: CIO limits structure 

• For MTM instruments, limits encompassed both the accounting designated investment portfolios, as well as hedge activ

• Limits were not set at the specific level of the Synthetic Credit Portfolio 

• Limits in place include: 

• CIOVaR 

• CIOstress 

• Credit spread sensitivity (CS01) 

• Exposure to 10% wider spreads (CSW10%) 

• Limit excess during 1Q in CS BPV was approved with a plan to revise the limit as cs01 comingleo hy and IG cs01{not be• Review of aU CIO limits and governance initiated iT1 February 2012 

Limits·usage history 

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Corporate risk appetite 

• Corporate Risk Appetite: "No. quarterly (o.GS greater than ($2.28) - ($1.58) Corp. ex PE; ($750mm) PE; $0 C{O" • CIO -contribution to corporate: 

• CID stress limit on MTM set at $SOOrnm, consistent with historically delivered performance 

- Recent change in MTM stress limit to $1 ,08 driven only by inclu$ion of preferred stock investments 

- Stress periormance of MTM activities not expected to breach risk appetite - Actual P/L driven by a series of idiosyncratic: tail risks 

• VaR, stress, PfL experience did not foretell relative value dislocations 

• Focus 'of risk metrles was performance of synthetic credit in credit deterioration scenario 

CIO MTM revenues In the context of the overall corporate disclosed revenues 

As reported In the EPR Supplement{$mmJ 

PrincipallfBnsactions $ 11:3 -$ 324 $. (9:33) -$ 745 $1,298 • 587 $1,143 • (69) -$ 5<17 $ 115- $1,109 $1,243 

Tclalprl\lS.lt!leql,.l\ty g:ainl3fQosS!:'S) "8 (149) (440) 81G m 387 750 75 136 m 155 (20) 

Securilie5gains ,<19 54 007 1117 102 1,199 99 000 610 378 161 366 

Nei.irrtereslil1cOfTie' ,. 245 210 34 (131) 371 747 1,076 97' 1,031 865 

MlM VaR95% fi1 69 48 51 60 " .. n 70 " 99 111 

MTM RevenuesfcrCIO & CRP ($mm} 

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CIO risk appetite 

cRPC JanU3r)' 2012 

Fmanclal Status 

• Positive Nil relaliveto $lructural risk transfer Baseline lowest NI (tj1r) $114.6m• MTM OVerlay stress no more than twa-quarters MiM revenues Highly Am lowest Nl «(Itr) $ 2Am

• Budgeted total revenues 2012 $1.778 Baseline Lowest ROE (qtr) 

• Target ROE of alleast 15% based on c;a.pitai of $6,58 Highly AcNerae Lowest ROE (qtr') 

Portfolio Strategy 

• Single narTle expOSUre to firtnwide Sinale Name Risk poJicy 

• Country Risk subject to firmwide Country Risk firTlits 

fMarket Risk 

... VaR : One day, 95% unexpeded loss in normal market measured against a one year unweighted look-back period. limits for MTM act

• Stress: FSI LOB Worst Cl;lse (stress loss); applied to MTM, AFS and structural risk swap 

• Largest broad exposure categories are interest rate risk and credit spread risk which are subject to asset allocation from the SAA Invesiment Com

• Duration of Equity limit on overall structural Interest rate risk position 

• Currently analyzing impact of induSion of OCI in regulatory capital under Basel II! capital rules 

• Pre-tax OC! volatility per quarter $28 

• Ongoing tedmology Initiative to capability and streamlfne-Opsrating environment on track 

• Increased focus on key operating and replltational risks 

• Targeted turnover in key finance and frOnt offICe per-lonnel during Q1 2011; replacements and additions possess significant finance and control r

background$ 

.. Focusing significant -attention {In ensuring compliance with regulatory (efann requirements including the Volcker Rule and derivatives clearing 

• Continue to optimize straight through processing rates and apply rigorous-"Ontrols over cllsh arid securities 

• No errors with material financial impact In 2011 

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CIO Synthetic Credit and risk appetite 

• Synt11etle Credit is a significant part of CIO', MTM actvity 

• Generally very benign P/L experience relative to VaR 

• PL experienced in March and April 2012 represents a tail event of relative market moves 

• Synthetic Credit VaR has generally oyerstated aetua.1 P/L and did not capture potential for 

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Capital Metrics History 

• RWA measurement model for credit derivatives under development for implementation with Basel III 

• Firm is managing to Basel III measures, though regulators do not yet require it 

• Managing to the model and model developments showed promise as total RWA reduced during December and January 

• From late January through February model output was halted due to technology issues 

• PortfoUo managers attempted to estimate capital based on VaR output • VaR however tied to much more "normal" (1 in 20 day) part of the distribution 

• Capital WaS increasing but QR could not provide information for 5 weeks. 

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1878 

CONFIDENTIAL TREATMENT REQUESTED BY 

J.P. MORGAN CHASE & CO. 

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JPM-CIO-PSI-H 0000556 
1879 

JPMORGA~ CHASE&CO. Risk Policy 

New Business Initiative Approval 

Chief Investment Office Updated 07/17/2006 

Contents 

Rationale .......... ,., ............... ",.......... ..,' ....................... . . .......... 1 

Changes from Previous Version. . ....... " .. , .. "." .. , .. , ..•...•...•..•• ,., .. . ................. 1 

Key Points.. . . ..... " ............ . ..2 

Policy Statements .... " ...... 2 

1. Definition ....................... ", .. . 

2. Sponsorship 

.. .... 2 

.... 2 

3, Process ....... . . ............ 3 

4. Due Diligence. . ... 3 

5. Sign-off ..•.. , ... " ........ . 3 

6. Other Considerations ....... " ........ . 

Regulatory Requirements 

. ...... 3 

...... .4 

Rationale 

This policy was originally approved by Chief Investment Office's Risk Committee on 

May S, 2005 and was effective as of that date. It has been developed in accordance 

with the Firm-wide policy New Business Initiative Approval (NBIA), which requires 

each line of business to establish an NBIA policy following certain guiding principles 

for risk control, and approval of that policy by the LOB's Risk Committee. 

Changes from Previous Version 

The Firm-wide oversight process has been discontinued. As a result, the new 

Firm-wide NBIA policy shifts responsibility for detennining the appropriate level 

of due diligence and sign-off required for all new products or initiatives to the 

lines of business. 

For CIa, the role of oversight, formerly performed by the Rrm-wide new 

product group, wi!! shift to the CIa Risk Committee. Individual regions or 

business lines wfll continue to sponsor new initiatives and manage the NBIA 

process, induding co-ordination with all groups requiring sign-off. 

AU NBTAs should be submitted to the CIa Risk Committee for concurrence 

prior to commencing the formal sign-off process. 

Effective: 05/17/2006 Updated: 07/17/2006 Policy No.: 01.00.04.28 

Cat:egDry: 

LOBs: 

RjskGovernance 

Chief Investment Office (00): Structural Intet::est Rate Risk Manag~ment - all regions, MSR {Mortgage 

Servicing Rights) hedging ?divities" fX hedgtng actiVitieS, Equlty and credit trading activities. This polley 

may be updated at a later. d~,te fOr the Induslon ,of COU/B?l1, PenSIOh &,Retlrement Plan and other Cto 

attiVities. ' 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO·PSI-H 0001142 
1880 

Key Points 

This policy establishes guIdelines for CIa New Business Initiative Activity 

(NBIA) approval, replacing New Product Approval (NPA) guidelines. 

Establishes minimum requirements for sponsorship of NBIA and the required 

approval process. 

Mandates Regional BUsiness Head sponsorship of NBIA and documentation 

of all new business initiatives prior to inclusion in CIa authorized instrument 

listing. 

Shifts oversight role for new initiatives to CIa Risk Committee from 

centralized corporate group (now disbanded). Requires submission of NBIA 

to CIa Risk Committee prior to its launch. 

Policy Statements 

1. Definition 

A New Business Initiative Approval (NBIA) is the introduction of a new or changed 

product, service or activity. The materiality of a change is a determining factor in 

identifying the appropriate risk contra! procedure to be followed. In a broad sense, 

new initiatives include the following: 

A new product to a region or bUsiness nne with CIa. 

A significant change to an existing product or business activity that significantly 

alters the risk managed by CIa. 

Introduction of a product or activity in a new location. 

A new product or activity requiring significant change to systems, operations or 

middle office infrastructure to process. 

Revival of an eXisting product or activity that has been dormant for a significant 

period of time. 

2. Sponsorship 

Each NBI should be sponsored by a regional or bUsiness head (direct reports). The 

sponsor is responsible for proposing an NBI to the CIa Risk Committee prior to its 

launch. The proposal should be in the form of a business case analysis and include, 

where appropriate, the following information: 

Purpose (e.g. required to hedge incrementa! risk). 

Cost estimate for systems or processing. 

Incremental retum or financial P&L estimate. 

Person responsible for managing process (e.g. bUsiness management/CFa 

representative). 

Associated infrastructure (systems, legal entities, etc.). 

Market risk, credit risk, finance, technology, etc. 

NBIA, Chief Investment Office 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001143 
1881 

3. Process 

The NBIA approval process should include at a minimum: 

Regional or business unit head (direct report). 

Market Risk Management. 

Middle Offiee. 

Operations and technology representative responsible for processing. 

Regional CIa CFO/BM representative. 

Audit. 

Credit risk, finance, etc. 

The sponsor and/or associated Business Manager is responsible for hosting an 

introductory presentation to all designated signatories at initiation of an NBIA 

proposal. It should comprise a clear business rationale, overview of the productl 

proposed support infrastructure and outline any known issues. The forum should also 

offer signatories a chance to pitch initial questions or raise concerns/issues that may 

need resolution prior to launch. 

4. Due Diligence 

The specific level of due diligence required for each new product or initiative will be 

determined by the product sponsor and reviewed, where appropriate with the CIa 

Risk Committee. In addition to the minimum reqUirements, the review should 

include, as appropriate, other risk control areas such as legal, compliance, credit, 

liquidity management, or other risk functions. 

The Business Manager (or sponsor) should maintain a master copy of the NBIA 

document and ensure it is kept updated. Approvers should submit comments, 

recommendations and conditions for sign-off to the Business Manager for inclusion in 

the master copy. 

5. Sign-off 

If an NBIA cuts across two or more locations where coverage personnel differ, the 

signatories should ensure approval is sought from all additional interested parties 

before offering an official sign-off on behalf of their corporate function. Approvals 

must be received in written email format from each and all designated signatories. 

6. Other Considerations 

A post~implementation review should be done where appropriate to evaluate 

whether or not the original process assumptions were correct and whether or 

not the risk controls are performing as intended and that the activity volume 

is not taxing the infrastructure. 

In the event an NBI~driven transaction is not executed within 1 year of signoff, the NBIA should be re-circulated for re-validation. 

Records of all NBI approvals should be maintained within the sponsoring 

location, 

NBIA, Chief Investment Office 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001144 
1882 

Regulatory Requirements 

The NBIA policy is a key control for Sarbanes-Dxley. Documentation of an initiative 

definition, controls, how appropriate risk area reviewers were determined and actual 

risk area approvals are to be archived for seven years. 

Interagency statements and individual statements regarding new initiative due 

diligence are regularly distributed by regulators. As an example, guidance as to the 

process to be followed to prudently manage the risks associated With new, expanded 

or modified bank products and services was distributed by the DCC on May 10, 2004. 

DCC Bulletin 2004-20, Risk Management of New, Expanded, or Modified Bank 

Products and Services: Risk Management Process is found at 

http://www.oce.treas.gov/2004/May.htm , 

Copyright © 2006 JPMorgan Chase & Co. All rights reserved. 

NBlA, Chief Investment Office 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO, JPM-CIO-PSI-H 0001145 
1883 

OSU2/20tJB 15:32 21293tlb55B 

Nllme QfJnitiative 

PortfolloL'MRe ions 

Initiative S unsor 

tniti!llive Annrover 

Btieflni1iativeDcscription 

EconornlcRlltionlllfl)T 

Proeccdj~~ 

l(ey Changes From Currenl 

eID 

Chief Investment OJIj('.e 

New Business Initiative ApprovaJ 

Executive Summary 

Credit and EQuity CapabililYNNEMEA 

Aclrilles Macris, And J?;i.w.ures 

PAGE (U136 

00 Dced3 brosd prodllct capability/e;o;,per1i.~e to dynamically 3Jlotate 

capital and invest across l1sset classe~, as well "liS to effectively manage 

residual exposures created by the Finn's operating businesses. TIle key 

:neas Wht;fC em needs to initially b'lljld out lts prouuct capability atc in 

Cmlit & Equities.. 

Credit 

• The Fiml has Jarge cyclkaJ exposure to credit, wblch is the single 

largest risk concentration from the opernUng bU6ineSStll. 

• Credit e.'qXl.'iw-C and capiralll1e increasingly fungible (Basel D). 

• eIQ to add credit capabilities to mmllge m:lCfO overlay progrilros 

si'rmltrr to interest ratt.s, mortgsges, and fOfcigD exchange. 

Equity: 

Provides ClO with cllpability 10 opportuni:<:tic;uly alloc~le: capital to 

cqttiticsto: 

• Refme and target e)(isting macro views.. 

• Complement CIO's existing product C3pabiliry in conS'tnlCting 

macro hcdgC.'i over the economic cycle, 

Atthity Crcdit: 

Changes to Opcrntionll.i 

Processes 

CJO tUfTently has very limited credit capability, ITIlIinly being confined to 

yidd enhanccment strategjts. This irritjativc will providc the platform to 

build dO's e~pability ill order to allow C)O to managc corporate c~djt 

c:c.poSurC5 an<! diversifyjts~ssetcla.,~cs. 

Equity: 

ClO cunently trades exchange trsdcd equity index products with ~ of 

the CUlTC:ot activity bcing focu.sed jn ASla. The cXjl3nded product sct will 

allow qO grciltcr capability in t~(geting secton and indices across 

regions. 

Systcms: 

CIO will be usjllg the PYRAMID infrastructure ;lnd booking model for 

both credit & equities, which allhough we)) established 'l.Y'ithin the Firm is 

new to CIO. 

em will rely on the Equil)' Derivati'lie..~ Group (f..RQ) l;\lPVorI model. ThIs 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001354 
1884 

--T~ll be determined and govcmed by:a SeJv:\ce Level Agreement CIO will 

retlin ownershlp ofbaJRDce sheet subs'bntiation. 

Key Ri.r.k Issues 

I RJsklhting(J,2 or 3) 

Priority Ratinglfl. J3. or C 

Other SigtlifiCant Information 

TIl; e1 Launch Dale 

DateAulhorizcd to :Proceed win) 

Development 

GuidnDU: 

00 -"';11 be reliant UPOll the EJ)G middle offiec processing and 

CQnfil'1l13ti.on activity. This will be addressed via SLA between CIO and 

EDG support. 

2-Med;vm 

New products Rn<l systl;':ffiS to (l0, but not to tht: Finn 

A-H! h 

Initjlltive Approver: authorizes initiative de .... elopr.mmt, agrtts the britinti .... e !~unch and prioritizes initi.uivC!l for 

development. The initiative approvcr should be II direct report of (be CIO. 

Inltl~tlve Sponsor: tll!: Sponsor should typically be a Portfolio Manager. 

Risk. lI.lIting i~ b:lsed on increment:!.] dsk und malerj;ality of rl9k eh:;mge; 

1. _ High Risk - SfgJlifjCMI incremelltal risk - Dew business for lhe afe::J, signjficant rcgiduaJ ri!k after risk manilge.toeIrt, 

=aUy intensive en .... irol,U1JeTlt, comidcrabJc legaJ exposure, cross botder issues, !Jignific.s.nt eif(lrt for Regulalmapproval, iDfmslrueture IlTIdcr stre$S, ma.j(lr uw~.9tment of capital, ~gnlficant balance sheel irnplicll:tion 

:2. _ Medium Rhk - moderate mer-mll,mlol rUk ~ nmltiple risk controJ areas Me 3ffulcd requiring cross diSCll$sion about 

tbe risks and operational considerationl: 

3 _ lAJw :ru~k - lUcie inCTeml!lltal risk - iropJe:mentahon of a vanilla initiative reqlliring the illvojvc:mcnt of severol risk 

Gontra1 an:3S where only minor conCe,QlS are antidpatcd. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001355 
1885 

115/2.2/2088 15: 32 212B3<l555G CIO 

JPMorganChase 0 

Chief Investment Office 

New Business Initiative Approval 

ProposaJ 

Credit & Eguity Capability 

Initiative Sponsor 

KcyCont:lCl 

Ach;llc~ M~cri~, 

An Paflzurcs 

R()~tf Kibblc·Whil(;, 

A)iS{H'lGiovanne!ti. , 

llr=>ndOl'lKolll&sbel'l!:, 

BOI1nieKin!]ler, 

l&Wl\lJu.OtS 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

PAGE 03/30 

JPM·CIO·PSI·H 0001356 
1886 

@5/2212008 15: 32 212934&556 CIO 

Table of COl) ten ts 

1. Proposa} Summary 

1. WorJdng Group & Apprl)ver J...;jst 

3. Initiatiye Overview 

4. Trade & Legal Entity Flow 

5. MArket RiskfYCG/Credit nis}" 

6. FjnOlnce ~ Accounting 

7. Finllnce - Regul::Jtory C!tpital 

B. Finance - Controls 

9. T &0 - Technology 

10. T&O - 0l?er~tions 

11. Tax 

1:2. Legal 

13. CompHnnce 

14. FUDding 

lS.Audjt 

Apptndb: 1.: CITC Speculative Position JAmits 

Appendix:2.: Non-Statistical Limits 

Appcndb:3: System Arcbitectnrc 

Appendix 4; Equity Sector Index Futures 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

PAGE El<ll3e 

JPM-CIO-PSI-H 0001357 
1887 

85/n120BEI 15:32 212834E.55~ ClD PAGE El5/3£J 

1. Proposal Summary 

Name Ofln_;"~"_tiv~e~~ ___ +-Cc;',.;'di-;o·tc;an,,,d-;-E_qrnty_· _c,,-,p_,_bili_'Y ___________ -i ~s)lReglon5(s) NNEMEA 

Initiative Spomnr 

Initiative: Approl'cr 

Bricflnitil'lt)ve De..~cripfjon 

Ec.QJ/Qrnic f:.ti{'tllale 'or proceeding 

Key eh:l.nges from curre)')1.activity 

Key Ri~k i~sues 

Ac!ulles Macris, Andy Panxures 

CIO need.,; broad product cnpability/expertise to dynami=11y allocate 

capitul and invest across asset cla.sBes, us well n.s to elfectively rnan:lge 

re3idue.l expoWT~ crt.atcd by the Firm's operuting businesses. The key 

arc."Is where CIO need,~ 10 build out it!! prodtlct capability are in Credit & 

Equitie.9. 

Credil: 

• The Firm hns large cyc)j~al npO!!lIn: to CTedi~ which is the single 

largest ri~k concentrotion from the operating busine~s>:!S. 

• Credit exposure lind capi~ lITe increasingly fungible (Basel U). 

• 00 to add credit capabiJitic:I to JmJJage macro overlay progranu 

similar to interest J<lfts, mor1gages, and foreign exch!:11ge, 

Eqillty: 

Provides em with c;,p:t.bility to oppommistiC311y ~lloentc ~pibl to 

cquitiesto: 

• Rerme and l.!Irgdc;usting rn.acro views. 

• Comple..TI1I!Tlt OO's existing product capability in COIlStructil'lg 

rollero hedges over 1he economic cy~le. 

Credit 

CIa emrenlly has very limited credit c.apsbility, mainly being confmed 

to yield cnhancemen! strategies. This irutiarivc wilJ provide the plalfolffi 

to build OO's capllbility in orde:::r to OIl!OW 00 to manage corporate 

pwpertlcs Md diversify its asset cTasses. 

Equity; 

CIO cun-ently tradcs c:o:change lrad~d equity mdex products with most of 

the curreJ)t lI.etiyjty being focused in Asia. The eJ:p;!nded product set will 

allow CIO greater capabilit)' in targeting sectors nnd iudices. 

00 v.ill be usmg the PYRAMID infrastructure and baoklng model, ! which 3Jthongh well est;:lblisl;led within the Fum)s new ~o CIO . 

. ----1 

QO will be rcli-ant upon the EDG middle office processing :md 

conIinnation activity. This will be addressed via SLA between CIO and 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 000135B 
1888 

B5/22/2B68 15:32 21283.:16551'1 

RisklUlting(lT2or3) 

Priority Rating {A, B or q 

Procrulslng Locatiun 

MaIn systcms impacted 

Ot)tu 1 .. 08'5 or Legal EntitiC$ 

Impactetl 

Opcrlltionnl imp:Jct 

(include ,mticipatcd volumell nnd key 

capacitymetrics) 

Other ~ignifi~:lnt lnform:.llion 

CI0 

1 EDG support. 

2~Meujnm 

New produc1.~ md ~ystems to ClO, but DOt to. the Finn 

A-High 

STS, PYRAMID 

Bank and Whitefnnrs Int. 

Credit Indices: jTr3X:~, CDX etc. 

CreditderaultsW:ep5 

bxebangetr9dedjndcx futures 

Options oncxch3ngc traded f\ltures 

aTe total refun) ~waP$ o.n illdicicsisccj{ 

EXcb3nge traded sectorial products 

Anticipated 

M07J!hyVo!s 

.80 

'0 

400 

200 

50 

50 

Regulatory flppruvJl.!s requiT_'d __ --l_N_O ___________________ --j 

D~hHlce Sht.et usage 

Other Policies impacted 

Additional He:HJcollnt Required 

DlIte311thorlzed taproceed)"Hb 

, d~"tlopment 

!4traders 1 ioEMEA,2 ioNcw York 

2 PTE co~t tl.l!Ocal.\OD from Eqtlity Derivllt:iv~ group 

1 em Middle Office TIE, t itt EMEA, 1 in Nl;w York 

Tatget L",unch Dale ("t31C April 

-l~(,:'Y·~C-'"-c"-c,'COr',.,'.,.qu:c'c:""i'="'----+1 "R,=,="CVj(JCib"'b,",-OW"'hl""te, Anson Giovannetti. Brandon Konigsberg., Bonnie 

! Kindler, hsOn Hughes 

Person responsible for post 'I 

JmplementatlonReview ___ .l. ____ ~ __________ • ___ _ 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001359 
1889 

05/22/2088 15:32 21283<lE,55f1 ClD 

2. WOTking GTOUp 3nd Approvers 

T&OMooDgcT 

I - 1 R;~k Conlrol Arcu I M~rl:~\ R~1r: Credl! Risk &. vea F;nlnce~Aecuu:)\lng 

Working Grouj) 

1\4."'!)c"i!l: 

A~niJlI;J Maeri~, Andy 

Pam:urn 

BrtlldonKonig,s'berg. 

RDger'Ki'b'bk·While, 

Colviiue 

AU,onGiov:tI)'lClti,Ph;\ 

,-,,", 

BooR RI)II~U.]) ;r 

M~,k Alll!n, An;~ter 

kffi Dt,vidAJe;.an(\er 

Keith Enfit"id"iM7rk Wcl;>cJ 

I Elliot Honeyfield,N~ncy 

""'" 

Sijlnll!lIfC 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

PAGE 071313 

AgHell D"tcApprr>ved 

Com J~Upl')DII!e 

JPM-CIO-PSI-H 0001360 
1890 

85/'l?/2£ltlB 15: 32 21283<1555E\ cro 

3. Jnitiative Overvjew 

t. lflo'/inllvr; nl!.tl;ripllOlt, ecO/fotnlejldlij1(nrf(>h, JIN1JCf,;Cjil, ,:.roWlhjorUIJJ/, CXPIJC1~n VI1/U"'." el1pl1ci!» /i",!fJ 

II. E"si>'~$., Rafionoif mt:!lIn;lI£, mllr~~ opptJrf~"Jljf.l""n 1';:/0 

Please see Exec:urive Swmmuy. 

Proposed initial product lis!: 

Credit:. 

~ Credit lndices: iTrax,'t, CDX etc, - set; btlow fClt illdic~<; 

_ Cr!;.dit def;lult swaps (not on corporll1e nnmes) - stc below for L.,dices 

~ OptiOJ1.'> on Credit Indices-- s!;.!;. below ror indices. 

PAGE 138/36 

For EMEA. OptiOTLJ on Credit indice.v nre dependenf upollilte bw'lr{ out of crer/tt products within 

Pyramid £quiJie:::, scheduled for Md),IJu7Ic 2006, ll/Id sho/J/d not be lrorfe.d 1Intil this 

implcmellffltion is complete. 

Indice.'1: 

Components: 

- Xover 5 yr 

- HivoJ5yr 

- M3.inlG5yr 

- MaillIG IOyr 

- Fin:mcial Sub Index 5 yr 

- Fil13nci:l.l Sub Index 10 yr 

- Xover 5)'1' 

- Hivol5yr 

MainlG5yr 

ExchBnge traded index futures (:llle:!ily tin approved product) - sec below fOT indices 

_ Options (Ex(:b~Dge tr~decl ;lllG OTC) on l!xchange traded futures - see below for indic!:.S 

OTe total return SWDpS o.n indicc..s/sl!ctol'S - s.ee below fOT illd;e~ 

~ E)(change tr'llded ~I;(orj::ll producls - iSh;JTes and SPDRs ({or list of EXchanges and eontJac~ 

Appelldix~) 

- Vrujnnce!V oJlltilfty' Sy.,apS OurperformancC"Sw)ps 

Tndices: 

S&P 

- EUro"to:\'X 

FfSE 

- CAC40 

- Nasd3.q 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001361 
1891 

El5J2Z12ElElEl 15: 32 2128346558 elD 

_ Oax 

- Thcx35 

- MIB Tndex. 

_ CME-USD dcnm:rUJl3fed Nikkel 

- ClvfE~Ye]) denominated Nikkei 

- Simex N:ikkei 

- Sime;1: Nikkei -USD denominsted 

- MSc) TAJWAN INDEX 

- m Taiwan Index denominaled in TWD 

SICr;or.50Indc); 

- Swiss Market Index 

- HangScng 

OML",{ P1H61.ndex 

- S&P TSE60 - Montreal Ex.ch~nBe 

FTSE Mjd250 

- TecDAX 

Bovespa 

- Mexico· BOLSA 

- KO$-pi 

4. Trllde & Leg~J Entit)' Flow 

PAGE 09/3£1 

pyramlQ-lL ___ S_T_S __ .-JH General Ledger 

_ Oient fadng trade enptured in Pyromid 

- TrMe settled through ST8 

- Confirmntion generated through XDG a subset of STS 

P)'l~mid auto gener;,l1es ~ back to bllck tr.ade between the Dank and IF Morgan WlJitefrj;l,!s Inc. 

- P)'lamid auto feeds JPMCB and JP Morgan Whitemars Inc Gener.ll Ledgu 

_ Oil':.nl riik recorded in JMPCB 

_ Trade ri5'k recorded in JP Morgan Whitefri:m Inc 

_ London Br3Jleh (trades baek-Io-b;x;k through !he branch) 

- NY Branch (trades back-t{l-badc tbrough the branch) 

- JP Morgan Villitefrjars J;QC. (ullimate repository oftbe risk) 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001362 
1892 

fJ5/22/2136S 15: 32 21283.:15558 CID 

5. Market RisWVaJuntioll ControJJCredH Risk 

J,1ark€l,Risk. 

Tht:- initial product sl3te is; 

Credit ($5inm VaR limit): 

~ Creditlndjeics 

- Credit default swaps 

_ Option.!; on crcdjt indices 

Equify($]OrrnnVall.li.mil}: 

_ Exch.mse traded index futures (alre::.cl.y ao ~pprovcd product) 

- Options (inc OTC) on exchaoge h:aded futuro (~lre::.dy DD approved product) 

OTC lotal rerum swaps on indiccslscetors 

- Exchange traded funds 

PAGE 113/30 

~ Business has, {o d::.te, oper::'1ed under a regionlll1imjl:!: infr.lstrueturc then:fon 'it!1l!lY be ncC"cssnry 10 

H·.al:ign the hierarchy 10 be more refh:etivc of a giobel risk Jr:nnework. by :!ISSCI class. This will reqllire 

developmental work from fl:lI~ VARS MO and the risk reporting le~ms. 

Egnitie.!ltrJ>JLiD&;. 

FroI1l an Equilies per$peetive the exisIing VaR limits will need 10 bc supplemented with ndditionnl nonmtistielll mcasures sucb as dell;'! llId vcga \0 ensure coneentr:stion levels 3re kept in check aDtI to more 

appropriately monilor tbe options-related risk. (See Appendix 2) 

posjtion~ will need 10 be bookcd into Pyramid (Equities version) and V ARS feeds eSUlblisbed to e[1sure 

appropriJ1e risk. capMc -lhis: should e:xectly match the SC1-tlP for lLJstitutioml Equities. VaR is calculated 

within Pyramid and \he p&i vectors llre feci to VARS for consolidation with Ihe rest oflhe busioess's 

portfolios, rusk lS fed from Pra()a (Pyramid's front_end ri~k tool) to V ARB on un 'underlying' bas:is (e.g. 

nSE, DAX, EUfOS1OXX) as OppOS!: to individual trades. therefore Prada will J)Ed to be uscd 10 v)£w trade 

details and observe relative vsllle scctor.!;tr:llegies, MVAR will Rlso require access to P1adalAl\.as. 

Credit trllding: 

Credit trading i$ el'~E;Dri3Ily:\ new bl!sjness and tneJcfore requirl:.! a new limits infrastructure comprising 

botb V ... R :and non_statisuC$! measures such a~ 10,% crcdit spread widemng, c..<:.bpv or default exposure. 

ldcally ClO should C"lO)1e tJ\[: Credit Hybrids version ofpyr.amid and utilize ~;c "Trc'ior" datahase 10 emol)te: 

(1) index C"xposures aye fed un;J deCOmposed come-bY-lJ2Ime basis for more accurate VsR compulotio:o a))d 

10 feed the Single Nil.lJle Position fusk monitoring process. 

(ii) options am be appropriately handled (the Equities 'it:r$ion does noj support credit options) 

. CIO will also need to clone the separate PCM feed frorn Trevor for regulatory c~pjt.l.1 purposes. 

It is understood that owing to syslems constraints the Credit Hybrids functionality wil~io l'yramid ... "';]1 not 

be avaij3bJe (011lS{: by ClO until Mny/Junc 200{i. CI0 should iheTeforc Tl.'frnin frIJTn uodutn}";ng 

tfcdit I)ptiom ltading until this t!me. Since tbe Eqllitics ver~ion ofPyr.mud is the on.ly platfonn :l.vailabl~ 

1hm tllere will be a numbcr of short-comings. namely; 

a) no deeompo'cd index feed 

b) no SNPR feed 

e} reliance on the Pyramid model fa! Gomputing VaR (in which credit d;:Ha j.!; uodersto()d 10 be dubious) 

eIO will Deed 10 additionally clone !he PCM feed fot reglliatory c:o.pitllJ purposes <lnd shoult1 el:\l:;llre thallhe 

rclevilnt credit products are ~el up accordingly, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001363 
1893 

85/22/28E18 15: 32 2128345-55[3 C10 PAGE 11/3~ 

Gjven the deficiencies of the Pynimid Equities )lcrsion for fue credlt trading activity, MY AR wOlJld insist 

!hat in 'the event tbe required systcms development docs not occur by end oiH 1 '05 new adivities must slop 

and tlle CIO Risk Commit1ec nrust eV'Oljl,l:lte JlOW 10 proceed. 

/,..,--""--' 

" CJO is Dot a rrurktt maker and uses the Investment Bllllk's risk and valuation systems to transact i1:9 

(

I VniJ,arirm Comru/ 

producls, As ~ch em is a price tal:;er using prices and v .. 1u:ltion inputs eontrolleo anc! determined by the 

fTlllrket making businesses of the b';lnk, CJ.O's Valuation CtIlItrol Group coordinator will ensure tbat where 

pricing adju:;tments an: identified fioJTI the month. end price test proctu for market moUcing groups in lbc 

L InllesTmCJ)t B~nk, llIat whC1e CIO JlOJd the same positions the adjustments arc also disCtlssed wilhlllppJjed to 

CJO. 

CredituadiDg: 

'The only cnndidOltes {or reserves nre credit spread options which may qualify for UnobSer\lable P~rametu 

Reserves dependinR 011 the si:te ~nd fype ofpo.<;itions held. Index CDSs tend not 10 incur reserves, however, 

jf the business WeTe to lIenture into single DJme sp~ee theses posjljoDS would qualify for Price Discovery, 

Recovery Rate lind/or ConcenlTfitioll reservt'.s. 

6. Finance - Acconnting 

The jnslrumcnt$ in the initi"l product slate arc uerivatives ;md as such must be rnllrked-Io-ma:rht. These 

items w:ill be tfeatcolls trading instruments. ETF's "rill also bc trcated as trading instruments. 

II. CC>1'l.irlcr A<:"",,,,I;,,g Pol!!;] re~/ew 01ll{ re~"llfory rt:por/llIg /mpllcmlon. 

Regulatory conJlidcrlltions lire eomidCft:d in Section 8 below. 

The necountiDS wi11 be automated 'USW!).lhe iCE accounting engine to genernte entries, 

7. Fin:mce - R~gul;Jtory Capital 

IF Morsan Whitdriars Inc. has no standalone regulatory cJpilal requirementS. Positions in JP Morgan 

Wbilemays Jnc. will bc s\lbject 10 tJ,(: Finn', regulatory capital requirements: 

HfIJ 11111 plT>tluCl hu" "'''it'k'tof lJy ngJlltHr.>ry r~~rl;f1g (US (mr/ IlO"-u.5) [" <!"slIrc 1J,1II'-' .. ill /}c t'epof/erf I" IU<:ol'do","" ..... ,h 

r~,,'mor)' rq>Onl"8 rC1u;rl!l'JcoJIS, LiJI My rcgu/fliOry '-"poning rctl"jr.:mCltJ:l (US lind """,·US) In rdlllio" to lilt MW 

prorfw<:1 a>!rfpr<>yirfllil t!cJ(frlpf/"n 0/4n)' rt!'1"ircntI:f!IJ 11<111 dlffor jrf>m GAAP. 

This product been rcviewed by regulatory l.qJorting (US and non-US) to ensure tllal it will be repor1e~ 

in accordance wjth legul310ry reporting requirements. 

For R/J/I;-l;lIsrfff copillll pUTPOU~. wl/J 1111$ product 1M ho(}i:t:d ,,"dcr INldl"J: or IJQ"Iri,'f. book nda lI"of IJ(lJ l!'glll lII:d 

"r."lotoryrcpo"iDg't"ic)>'f:rl'lllJP'l'pa..~dlrcmmr:n{. 

For Risk·b3sed espil;1) purposes, this product wiH be booked tmdcr trnding book rules and legal tIJ1d 

regillotory reporting reviewed !he proposed tJ:eatmcn1. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001364 
1894 

H~I2?/?flflS 15:32 21283aE,55e CIO I-'Abt. 1;;1.;:H1 

iii, Wi/! IM1 prMlICf i'ml i~lo npproprialc ",~rket. COVn/~Tpl>rly o'fU/U mill specifIc rlJ/r J)'~J(lI7I~ (if:.", pll.'O-Je dlJcrib, 11l~ fred 

"",,,e.r, inl~nM morid, rJ#: n1l(l !,(John,. ..,.~lf:I1Il'. fll'lri npproprlme Con/"aJ .. ~ Icchnology mu/ middle ofjIu)? if ""t. hove 

pff'ccdu,t..' Imd COli/roll bUll pill In pl~ '" repOrl il momlOliy orTlf .... ho mil bt the coniaCI pCfJonior manu'" T~fX!rili!r.? 

The following approaches w:ilJ be uscd to feed tIle FilTO'S specific risk systems: 

- Cn::dil: Cld"wi..U le"l'erage the Equity Derivnlives Gro1!p's PYRAMID infrastructure. em w.ill usc 

the jnfr:utructofE 10 feed the Finn's PCM model which will be u~ed to ca1cu1a!e specific risk OC Ole 

credit produet~ with Ihe exception of Credit Options which will be calculated us.ing the following 

mle:-

For option positions, long or short., the dsk: weighted amount is Ihe morket ""Jue of the effecti"c 

notional amollIlt of tbe underlying lnstrumellt or index multiplied by 1he option's deltt!. These arc 

required 10 be rcported on ;) lOODul'Il template. FCIJ credil options which arc NOT price based, we 

maYflO1 be able utt;j option delta uppro3cb (we may need to use;) DotjoOaj;,\ 8% approacb). 

Eguity: 00 "Will Jeverage the Equjty Dcrivativ~ Group's PYRAMID infrastructurc. The Firm 11:1$ 

prnnission to use itli intcm~lly calcul;lted VaR for vanilla eqv.ity cash .and deri"3.tive products 

subject TO the application of a onc time .!ld<l-on, In order to utilise this opprovnl CIa wjJ! book 

equity'produclS in a portfolio distinct 10 other instrUments. The add-on i.>I applied os follows: 

RWA from VAR= VAR"'SQRT(10)"'3"'12.5 

RWA for Spcc-ific Risk "" VAR "SQRT(lO)", 12.5 

NOD-vanilla equity products (not in the scope of this "Pproval) must be reported via manual 

lc:rnpia1e . 

. swap. 

~:~~;}~ji::t~Ht~,i!1'L~~ij:'~i;ii) .. v~Hi1r,A~.~p'-"~'_~"."". __ ."';'.~_ p~,.:~t.~UhiU:~(~d~'(~.1~lTi.k~~~,~)? __ ._,_ 

Ir,Ac! v~l ~ 0 11>01'1 f>D.y"Ou\,"·Unin; Srri.li:c_ Vol. 

No specific collateral \'I'i11 be 'held against the proposed products, howcver dcrivative MTM 

collateT<llisalioI'i will be snbjcci to m))'lPaJ firm C<lllalcrol group process, 

v. rN't:J I/oi •• [mJd",::( l"'pMl d"prnir3 (""f. if Jr>. ~n. ,h:', b",,1't um!I'tI,,,,;ctlffd I<> r~t"'m~", hlp"ni"'~f"r P"'I'''u; nf c"/ClIfnli~S 

"Pl'ropriMclV!rYCS. 

This product d~ not impact deposits, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001365 
1895 

£15/22/2008 15:32 2128305550 ClD PAGE 13/36 

vi. H(13 till' ''''pact /0 n'sk ~Ighl{ld II~M:I,. bun iflcntf/kd, evll/un/clf and C'omm""h'lIIcd 10 I'tgtr/tJlI.>ry r1!porllnf.. ,jl't Ih~ 

tJpproprl(!it rlJJ; -.;clghmi 0 .. 1:/ iimjlJ iI;) plilu Imd bu.Il rr:viOl'~d by II>( opp/i~,,/}Ic erG? 

GivCJ) tilt; \l3C ofapproverl models as detailed above, Ihe impact to risk weighted llssets is not deemed 

to be material and can be accommodated witWp. OO's existing limits . 

.. fl. HtJS ,htr nwhrn/,,/ogy Jor (p/cu/8Ii"l! riJk I~it,hlcd aU!!!f for Ytll! <l1I1f $pcciflr: ri.d bt~1I c"l1Jm,,~ict!lcd 1l~1f approw,i! by 

rtgll/llI~ry rv.p"rti"c. & Mor/r.t:1 RiJ.k Mn"oe~menr? Is 1111, M(:<'lnlcf)' opproVl!1 or rpadjk..uk m,,"~1 d""elopmChI rtqllirClfjar 

(bi'pradlfel? 

The methodology for cukl.llating rhk weighted assets for V AR and specific risk ber::n cQmmuujc~ted 

and approved by n::gulalOIY reporting. Thc models have bccn approved by the regubton and hmce no 

specific regubtory upploval ot specific risk model development iS1cCjuircd for thls product. 

vm. If/hi. prod",;! fup,fru. rl<k (,'"diJd,nJ: gC"or"l. spr.cific ""If Cf:I"lJIcrp"''Y) loa .• th~ p"')ff~cl bUll slI/)mfllNi /0 '~g"I"IDTJ' 

l£porling 10 "plff!(~ Ih~ ,;.* invcntory Itsl? 

The product sJille is par1 oflhr:: bllnk'S I'.,.-'{isting ~pproved p1odue!s. 

8. Finapce ~ Controls 

COMId!:,.. d"",I1.~ II> /hc cO(l/ral f'1,l'irf!1fIll£l!/ ill~llIdfJjgpr~«"I,'. cOlllrot paced/IY>'!.' ""d r"",i~ 

SI>r/;unes O:rlg, ;mp/lc"ffc"',J' ~w,,"nh;p oj IItl!' proCI!J,; /cmp/olt.r. Iwlll!: 

Thc Credit ~l)d Equity business will ultimately reside in JP Morga.n WhitefritifS Inc. A [lew op!:ratiOI\J!.I 

controls tempI;]!e wlll bt created for SOX p1JI]loses speclfic to the Crr::dit & Equity business and will 

address 0.11 key contro~. Also. nddjtiOl?al control Slep& will bc added to the "cia CFO" sox lcmpJate 

covering thls new activity. 

Discreet cost ee)Jtw;, SPN's :md book!; art: being e.'Itablishcd for CIO Emope <lod New York. 10 support 

and segregate the activity, 

9. T&O - Technology 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001366 
1896 

e5f??/2E10S 15: 32 212B3465~l'l 

~ Trade: captured in P)'r.Imid 

P/L repo:rted in Scala on T • price review on t+l 

_ Real time risk in Atlas 

End of day risk snllpshpt in Pr<lda 

- Prn<lafeedsVAA 

_ Trll.de settled in STS 

- STS feeds Gil.. ... j3 ACE 

STS feeds XDG for confmnation tracking and matching 

CIO'!; t~chnoJogy learn will provide basic techoology suppa" for ero use of Pyramid. 

10. T&O-Op~ratjOJ1S: 

Li:<I r1PU,III'¢l1J nn;ns ''"fMttl;tf wil" Im,,,I;,,,, aM IHMIt1?I!T """!,,,/!.tiMe, IIOIC A'cy Il'1IpllCI, ,TlIifJi~g aptrlisl!, cl1pt!l:i!)'c(ll!~rns 

Note m(!ltUnl prot~tI~T"", l"rmJ 10 oli/CIlIIIIC, re.q""'I'!tI al .. rTlt'lI cClm,u",fcrtlicn. r.i'P.1Ii rq)(m;II~. cUc"! 1'1I1III!/I&It, 

conjinnlll/Q"-Y,/iIC_ 

,ii, DC$o//;>I' !hcconlrol p~<:sse~ lmplernmkd 10 T'OII/l~gc OJ)Cmlillf, ri~k1 

EMEA 

CIa Fronl Office will cnpl\lre tr.ldes in Pyr:lmid. 

00 Middle OIIice will k\ICJ3"gc the EDG Opuatioru Gtoups. 

Priortotr~ding SLA's md SOP's need to be :agrced with EDG Operations to clarify Olc support 

moclelanO<.:ostb3st. 

Monilor Pyramid queuc:s • highlight excepllons \0 me CIO FO 

Request Dew r£ferenec d"ta requiremellr..~ 

Close books endl)[da), 

Run end of day reval ,tosurin& Se!)la and VAKS data is 8e<:UIntc 

Morulor MlS tcn~J depository. highljght brcsks to FO 

Download Scala Pit reports llJlo excel 

Agree PIl.. "Villi FO.' adjust ror cnd ofda),prjcjng !;ITors 

CONFIDENTIAL TREATMENT REQUESTED BY JP. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001367 
1897 

El5/2212008 15: 32 2128341=,550 ClO 

Review confJJTt) , nOS-lro lind trade breaks - reSolve difrereIl!:t$ 

Maintainac1j\lsllJJelJl~ in Scala 

Request Fa P!L sign off 

ETJ$ure sox handsl1:ikes in plac!": 

Reconcile PfL and Balance Sllee! accoun~ in genera.J.leclger 

Reconci'!c PRF monthly 

Monthly substantiation and GLRS sign off 

EDG Operations 

moo to settle tradts ,report flOS(To breuks 

IBOD io con finn equity tndcs, report breaks 

C~edjt Markets to confirm credit Indes , report brcgJcs; 

Sel up refcn::ncl: clata 

Report ClO c:tccplions in MJS tcntJ':\! depository 

North AmcriC:l 

CIO Fronl Office w)11 eapture cades in Pyramid. 

CIO Middle Office will )evcragt the EDG MiddJe Office and Operations groups ilDd \be Credit 

Dcriv1l1jve Middle Officc and Operations &taup. 

prior \0 ITnding SJ.A's and SOP's need to be agTCed with EDG Middle Office ;tnd Oper~tions 

i'lnd Credit Deri"'atjve MiddlE: Office nncl OpeJoltions to claIify the support model and cost base 

Agree PIL with FO , adjust for cnd of day pricing errors 

Re"iew confiun ,1l0stro and trade break!:. - resolvc differences 

R~qu.~st Fa P/L sign ofT 

Ensure SOX hand9hnkes in place 

Reccnl:jlc PRF mcnihly 

Monthl)' substantiotion a;nd GLRS Sign off 

Monitor Pyramid q\leues-> .highlight exceptions 10 Ille 00 FO 

Request new reference dala rcquiremelll'i 

Close books eoo of day 

Run end of day r!:Val • ensuring Scal:l and V A.RS d:lt:l. is Dccurate 

Morular MIS central dcpository. hlg.hJigh! brelks to Fa Download Seala P/L reports into eJ\.ceJ 

Maintainadjustrnents in Scala 

Reconcl1e PIL alld :BaJance Shcet accounts i.TJ l'!Olcrallcdgcr 

JBOD 10 scole trades, report Do~tIo breaks 

lEOD to confmJl equity trades, report bn:3ks. 

Credit Markets to confirm credit tr.Ides. report breAks 

Sctupreferen.cedata 

Report cIa cxccptiOM in MIS centra1 dtpClSjtttry 

PAGE 15/30 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001368 
1898 

851nl28ElS 15: 32 2128345550 CID PAGE 1'5/313 

U. Tax 

As the ultimate risk: repository entity is different to the entity emplo)'log the risk manl!.gcrs, 00 will 

use thc "hcdge fund" model to attrfbule income bacK \0 the en1:ity employiTJg the .risk managers from the 

ultimatc risk TqlOSitory entity (!PM Whilefrian IDC). Under the bedge row mode} income is attributcd 

from the risk repository ent!1y to the ent;ty employing the I:r;id~ as follows: 

Hlghcr of 1) 25% or year to date net revenue.!!; or 

2) Fully loaded costs of risk managers plulI5% 

This will be dOl;umen!ed via 11 service level ngn:ement. 

None. 

H,. Do Ihe !JU ml"., tliffu from OIW>tlll/illj l1I1tsl 1/ S(), hovc rl'e Jy..leor.1 bUll scI rip Ii) Ctrplure Iht ill/ONllf!lf!Jll m:cr/C(f for III.l 

PII'poS"~? 

No. 

12. Legal 

Rcgulation K is a Federal RcsC}Vc BOllrd regulation whieh restricts' offshore subsidiaries of US bon'\:: 

holding companies engaged i,n bllllking activities with respect to non-investment grnde equity activity. JP 

MorgaD Wbilemars Inc. 19 an indirect $ubsi.rJiary of the Bank and hence S'Ubjee! to Regulation K. 

Regulation K docs not apply to deriv1lt1ve positions (unless equity is ;]cqu-ired as a hedge for Ii! customer 

driven equity dcrivative activily in which case tU ntt delta position m~y Qe taken - this dearl), docs not 

apply 10 CJO). Regul~lion:K will affect CIO balding of Exchange TXl1ded funds {ETFs}. 

Below is. a nJrnmary of the legs! rCQ1lircmcnts applicable to ETFs in the Reg K entitics. 

1. Dunng the Underwriting Period, which is for thc 90 days after we .... cquire the ETF shares from the jS.~UCf: 

No percentage limils 

Dollar limit ptf fundi!lllPP;OXlm\liely $990 million (i.e. 3% of the BIlDl('S tier I o:;opital) 

2. After the Underwrijing Period 

Stlbjett 10 the J9.9% voting Sh::lfes llmit. 

- eal'oe by case rcview of dlch ETF prospectus 10- determine which ETF sllores nre vl;'lting and whien :lre 

no,; 

- if there is a large redcmption resulting in our exceeding the limit .utintentionaJJy, we W~\Jd reuuce our 

position as soon as practicable. 

Subjl'.(llo :In overa1125% equity limit {the tJlreshold for control of 0. fund is 25%). 

Subjecllo !be $40 million dl'.!llil1g limit (S25 million ifhdd in n» inve~tt)1ent J.c~nunt). For pUIpO-\{;S of 

c.lculatlng. compliaTIce wiUI Ule $40 mjllion dealing limir, Reg K pennils W,I to net lODg llDtI sbort )?o.sitions 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001369 
1899 

e5/22/20.El8 15: 32 1128346551.'1 eIO PAGE 17/313 

in the S~lJ)C security, However, II long position in the ETF shnres cannot be.netted against shons on the 

l\Ildc-rlyjng sto!;}(S tJlat the. ETF nach, These wou)r:l flot be longs :md shorts in the same security. 

Regulatioo K docs permit 115 \0 use our internal hedging models to nei a Slock ir.dcx derivative again'll Il 

basket of ::;Iocles specifically segregated as an offse1 to the stock: index derivative. Sueh netting is subject to 

~ 25% haircut (i.e. maxi.mum long physical position of $16Q milliOil) unless the dl:1ivative being hedged is a 

"bo.:nK pennissibll:. customer dtiveD equity derivati'o'e transaction''. (The Bonk bas syst~ in place 10 do 

fl111 netting for bank permissible t:r.lnsaetions but does flat have a systl:I11 to do Mtting subject to the 25% 

haircut) '. 

Since the Bank: is nt'lt authorized to buy and sell TIF shares, the purchase Qlid lillIe ofETF sha,re5 would flot 

qualifyfor-f\lU netting. 

Look througJi Reguirement If we ha'o'e a "redemption mut" ofETFs we woull.! have the: right to convert 

that unit to shares in eac.h oftbc u\lderlying that !he BTF tracks. (It IDay be tlJ~t !;e;(1.ain ETFs do not give us 

the right to !;OMen in whith CD.se the di,~C\lssion which follow,!! would be inapplicoble.) The right to 

convert the ETF shares into the 11nderlying wouJd !;OUTlt as "cqu.ity" in the underlying for purposes of tbe 

Reg K 40% of equity limit. Equity is defined in Reg K as 'including inrcrest!l mat are e:onvel1ible 10 shares 

or other o'W]lership rights in an organization. 

If it is Dol fl2si1;t)r: to do the loak: 1h:rOUgJl every d3Y, it .... ould be reasoDable to calcula.te the maximum 

ptrce:ntage of each of the underlyiflg which you could p<lssibly obtain by rtdcrnUng all tOO ETF shares you 

could bold under your internal limits. You couJd then deduct those llmo1.ml<; permunently from the 40"/0 of 

equity svailubility. Tbis would rnsur .. that we: would never go ova the 40% of equity limil 

00 MO will pre-clear C-::Ish transa.ctions for Reg K p\lrposes with EDG Reg K monitoring team (conuct 

Roberto Vivcnz:io). 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001370 
1900 

ElSf22f28ElS 15: 32 212834G55£1 cro 

13. CompJinn ce 

As Whitefri3rs Inc .is )"101 ptnnitled to face counleIparties dircct1y, nil proposed trading activity should be 

in.trnncdiated through one of 1m regulated Imtitics (JPMCB or JPMSL) when trading with Ih¢ markct 

Exchonge traded securities can be transaelei;l through JPMSL (for Europe based tnJ.ders) provided existing 

practices and procedures are applied and margin paymeIl!s are made aceordlngJy. OTC deriYatives should 

be transacled by JJ'MCB with JPMSL acting as agent. 

Proposed tt<Jding iletiv:ity in e)(ch:u1gc tr<Idcd futures, options on such furores and other exchange traded 

prc.II;1ueL~ is subject to rules o.nd reguli!.tions of the applicable exchullge3 nnd re,gulOltory authoriti~ (suc.h as 

lh~ Coounodities Futures Trading Commission in the US) in the relevant jurisdictions, including speCUlative 

position limit!! (Olrrent npp,li.c:uble lirn)l$ jT) US and Asia are attached in Appeodix 1). CIO will monitor ils 

rrnding activity for I:omplianl:c with all npplir::i1ble }jmiL'I-c- Positions held by other linea of business of the 

finn in the ~JJJe legal elltitics utiilsccl by the CIO shO\lld JJot be aggregated for position limit purpose!!, 

prm>ldcd Ibere is no sh;Hing Qf position infonnation, common traders or dlt~ct common supenrision 

betweCtl business groups (Commell!: 'This -is view from US, is it eOllfinned from F&O eompli:lncc for 

Asia?), 

14, Funding 

fundillg wil! OCC\\t thro\lgb me bank's ~taJldard model M JPM Whitefriafs In/;. bos TPSD. 

15. Audit 

All Audit questions .md queries have been :tnswtred and thelt nJlIjClr concem is "that aU Fronl Office and 

Middle Office staffrcceive the correl:l1r.1ining ;'ll)d that Middle Office document alJ contlol procedwes. 

As the NEllA is 3 R5s.lc: Rating 2 it does not require formal Audil sign~off 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001371 
1901 

05/22/2008 15: 32 2128311r;55El ero 

CIO New Dushu·.ss loitiativc Approval Policy 

Post-lmplementation Review 

SCdiO,n J ~ to be compl~ted lit the time of IIppro'o'lll 

)'II~me Q.fJnitiative: 

Llneofllusiness: 

Post Implementation Key 

COl11:ict: 

Lllllndl ApPfQVlI1 ))llte: 

First Tnms!Ou;:tilJn pau:: 

! 

Brief lIe.sr::nplion of the ::rppr()ved InHll'l.Uvc: 

PAGE 19138 

I 

List 1lny cr;mditions llssoctated with the :approval. comment on open jlf:m$ and the limefr1ame for eomplelion. 

Sedlon:2 ~ to be clJmpleted within 6 manths af the lletivity galng lin 

Addre!J~ the following: lIS the initiative as described in the proposal when it W<l!l approved? 

J .. the initiative within the volumes llnd linnls .. greed when ;JpprovaJ w3S granted? 

Have (beTl! been -:.HJY operational errors 3S 11 result of introducing thi~ initiative? 

What economic value has been received Ilnd how doe!> that value co~are 10 the initiaJ projections? 

I OtlJerpoint~ of nate 

I 

Po;;t im Jementllti(ln rtvitw completed b'Y osertn3mc 

D:tte (lnsertdatecoll)ple1ed 

Send completed eopy to LOB ORM, Regioml bpedilN an(t Audit 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001372 
1902 

65/22/2008 15: 32 21283"5550 

Appendix 1: CITe Specubliv.e PositiQl1 J)mlh 

Chica 0 Mcrcnntile ExchaD2e cm Nikkei:Z25 

S&P500 Jndex ( Jus mini S&P500 

S&P400 Jndex {olus o»ni S&P400 

Russell 2000 Index (plus milli Russell 

200o-Jndex 

NASDAQ-IOO (p'u~ mini NASDAQ 

, 100 

NetofAIJ 

Months 

5~OOO 

20000 

5,000 

JO,OOO 

10,000 

ClD 

Net Single Month 1 SVotMonth 1 

~~;:;:O~:~:x(){p~;:::~~: 50,000 mini 50,000-_-'"---'1-'-0,0-0-0 ~I' ~~~.~ __ , ____ L"~Q,uiv"."'i~'n"""'--.lseeQ l"!,vi3vo,!;i,!:!nc!.., __ ,,,LI ""ql'!!vi",v'!'!"'rrn',,-,_-.J 

Asian E:td):lng~Limlts 

PAGE 2e/3tl 

TFE niwan Index denominated in TWD (TAJEX fuiUren): position limit for mstitutions is gross 4000 (e.g. short 

Ml'Iy 1000 pJus lang JUDe 2000"'3000). For JPMSL, the contract is exempted as 2 timcs of the standilrd iwtitution 

!Un.!t valid for ay£ar, i.e.cum:ntly 8000 

}fang Scng: net 10,000 long / short for All conlr.Jd months combined, (Note: Hang Scng Index Futur~ ;,mel Hang 

Seng Index OptiOflS are dl net1ed together to cl'Ikumle tm: net ].0,000 long I short Regarding the HS] optiom, we 

need to use the delta value in the calculation). 

Kospi: net 5,000 Jong/:;hort foi all contrnct molJ~S combinctJ. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P, MORGAN CHASE & CO, JPM,CIO,PSI-H 0001373 
1903 

1)5/27/2888 15:32 21283<16558 010 PAGE 21/30 

Appendlx Z; ~on..st;)tistiul Limits - DRAFT 

US S&P SPX 

DlIA 125 0.00 

Nasdaq 125 0.00 

Canado S&P(TSX SPTSX60 125 0.13 

Brasil Bovespa IBOV 50 0.00 

Mexico Mex Balsa MEXBOL 50 0.00 

EUfO PuroStoxx:SO SX5E 250 0.50 

CAC uu;:"lO CAC 125 0.25 

DAX Dax DAX 250 0.50 

!fOly S&P/MIB30 SPMIB 125 0,25 

No<woy OBX OBX 17.5 0.00 

S Africa fTSEIlSE 40 TOP40 50 0.00 

Spain Ibex 35 IBEX 125 0.00 

S'>"r'iss 5MI 5MI 125 0.13 

UK FTSEIOO UKX 250 0.25 

S&P/ASK 

Aus1ralia 200 ASSl 50 0.13 

Chino H Shares HSCEI 125 0.J3 

HK HangSeng H5I 125 0.25 

Jakarta 

Indonesia Comp JCI 50 0.13 

Indio 8SE Sensex SENSE>( 50 0.00 

Japan Nikk.ei NKY 25D 0.50 

Topi;x TPX 250 0.25 

Korea Kospi t\OSPI 125 0.50 • 

Kospl200 125 0.50 

Malaysio KL r;:omp KlCI 50 0.13 

NZ NZX 50 NZSESOFG 50 0.00 

Philippines PSEI PCOMP 50 0,00 

Straits 

Sing Times 5TI 50 0.13 

Taiwon TAJE)e TWSE 125 0.25 

Thailand SET 50 SET 50 0.00 

To1o!Gr051 1,250 3.0 

TololNet 500 1.5 

end;! 

10% Credit Sprencl Widl'.n1ug $2mm(Total) 

$2mm (By Sub-Index e.g. itraXl'!: rruin, iO"l...u hivol) 

CSBPV $2mm (TotJl) 

$2mm (By Sub.lndcx) 

Vegn \b:\ (To!1I.1- expressed in 0.1 bp ble terms) 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001374 
1904 

05J22/2838 15: 32 2128345550 CIa PAGE 7213[1 

;: 

~ 

~ 

~ 

'" ] ~ 

!i'r~ t: 

" :; ~ 

~ ~ 

-< 

" ~ ~ 

~ Be 

t ~ i' ~3 isi ~ ~ , 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001375 
o 

o 

Z 

." 

6 

m 

Z 

-1 -1 

;lJ 

m 

;;: 

m 

;lJ 

m 

o c 

m 

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m 

o 

:u 

;;: 

o 

;lJ 

z 

o 

I 

6; 

m 

S10 

o 

o 

"1J 

;;:: 

(-, 

is 

'0 

:l: 

o o 

s: 

'::l 

'" 

Systems ArcbitechlTc Part IT 

Cfl!&t 

Report1llS ,t.Me.RlT 

RDSi>clIshhubTef01'llo."dal:aengine 

FIRM eo:Jntams Ihe COrporBte d:ata 

PRF conlairu corporate balanGe sheet rep. 
o 

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Appendi;t 4: Eqo.ity Sectorial Index Futures 

'NDU6 Index US, USC ' eMf 'NASDAQ 100 FUTURESep06 • 

.:.: 1 

:MDU6lndex , us : USD : eME :MI()CAP40QFUTR Sep06 ; 

.. : : 1 

,ROU6 Index , US , USD ' NYF ,RUSSELL 1000 FUT Sep06 , 

__ 

'SGU6 Index ' US '. USD ' CME 'S&P BARRA CROWTH sep06 , 

::::: :}::: :RSM61r1de:.: : US : USD : eME :RUSS E·MINI \000 Jvr'106 

f t 

'MUU6 Index ' GB ' EUR, UF ,MSCI EURO IX FUT Sep06 ' : : 

.!1)9 .e,! •••• :. __ 9.B. _. . _ ... :. ___ •• _ .... _ : 

:EPM61r"1dex ; GB : EUR: Uf ;FTSEUROFlRST lqO Jun06 ; 

::::: _: i 
1907 

65/2212889 15: 32 212831.16550 CIO 

credi'!. & Equity NB:rA Sign-off.t·xt 

00 & GFlM 

Alison C Giovannetti 20/04/2006 12: 44 

TO: Jason LDN Hughes/JPMCHASE:@JPMCHASE, Roger X 

Ki bbl e-whi tel] PMCHASE@JPMCHASE 

ec: 

subj eet: Re:: cred; t & Equi ty NBIA - si gn off 

This document contains a file attachment with a file size of 198 2 KB. 

Signed off 

Regards, 

A1150n 

Ali son Gi ovannetti GOP : 8 325 8025 External ; (020) 7325 E025 

corporate Reporting Business Advisory Tel 212-834-9425 cell 646-258-1114 

Keit.h Enfield 20/04/2006 14; 51 

~~; ~~~~~ ~D~i ~~l~=~~~ ~~5~~~~~~~~~~~~~HASE subj eel.: Re: credi t & Equi ty NBIA 

~r~§~~~~e (~f\~u t.~~~~ ~~~es~~~~d a~t~r~cJi~t~w~~~{ O~~n(~hi~~ l~o~q~~~y g!tl~~~~~t.~~ ~~~d~~~ ~~~u~l\:~l~~;~entlY approved for PCM) will need to 

phil lewis 21/04(2006 13: 57 

To: Jason LDN Hughes/)PMCHASE@JPMCHASE 

cc: Alison C Giovanne:tti/JPMCHASE@JPMCHASE, thomas. j . maul'"o@jpmorgan.com@JPMCHASE 

subject: Re: credi'!. & EqUit.~ NBIA This document cont:ains a file anachment wnh a file size of 198.2 J([l. 

Jason - ok to s1 gn-off. 

As stated in the document, next SLep is to finalise the SLAs· and SOPs 

regards 

rh11 

David M Alexander 25/0'/2006 14,11 

~~ ~ ~~~~~ ~D~i~bl~:~~~~~7~~~~~~~CHASE subject: Re: Credlt & Equlty NBTA 

page 1 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

PAGE 25/38 

JPM-CIO-PSI·H 0001378 
1908 

B5/22/2El£lS 15; 32 212834G558 ClU 

Credit & Equity NBIA Sign-off,txt 

Jason ~ 

You have my approval, I traded vms with Roger ~ al~ of these positions will be mtm in a trading book. please reven back to me if any Other types of positions are held beyond y.ohat is included in the NBIA that might wa rram: di fferent acctg. I. e. Loans or non-marketabl e equity secu ri ti es. 

Thanks. 

Nancy E. oennery Chief Investment office - Tel (212) 834 - 9485 Nancy E oennery 25/04/2006 13:09 

~~~ ~~~~~ ~Di<i~bT~=~h~~~7~~~~~;'~~~~!~~HASE 

This doc~~~~~C~;ntains /fil:w~tg~~~~n~ !1~~t~ ~n~ size of 198.2 KB. 

Yes, I have reviewed and sign off for the controls section. 

Treasury - Tel +44 20 7777 0034 Frederi C Mouche:l 0)/05/2006 09:56 

To: Jason. LON. Hughes@jpmorgan.com@.JPMCHASE 

cc 

subj eet: Re: Credi t & Equity NBIA This document contains a file attachment with a file size of 198.2 KB. 

Fine with me. 

Rgds 

F 

Investment Bank - Technology Hi cholas )5 Wood 03/05/2006 17: SO 

To; Jason LDN Hughes/JPMCHASE cc: joseph 9 coleman subject: n.e: credit & Equity NBIA This document contains a file attachment with a file size of 199.4 KB. 

Jason - 'chi s looks fi ne from my poi nt of vi ew. off 'the top of my head the: a reas that we need to i ncl ude 1 n the pl a n are; 

d~n ~~v!~~c~~ a:haiO~~~y t~~t o~oho~abi ~e t~~~e ~~~i n6e (~O~o~~~~d~f t~l~~ese but 

create ilppropriate id admin workflow~ for the existing apps (Pyramid. STS, etc) for the CIa 5"taff unless y.oe w11l use thre same appr'overs as for EOG 

and E&H update the 8e plans for CIO as these new systems will need to be included. 

regards, 

Ni ck Wood 

Robert J. cole compliance - Tel 212/270-1554 Fax 212/270-3450 

Robert J cole Page 2 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001379 
1909 

El5/22I2I3El8 15: 32 21283<16556 ClD 

cred; t & Equi ty NBIA Si gn-off. txt 

05/05/2006 20:19 

I~; ~~~~~ ~O~i~~1~:~h~:5~~~~~~~~~j~~~HASEI srandon Kon; gsberg/J PMCHASE@JPMCHASE., carol 'yn Monroe-Koat Z/JPMCHASE@JPMCHASE, col i n R Harr; son/JPMCHASE@JPMCHASE Subject: "Re: NBIA - complianc.e sec.t:iol'l 

~~!0~;n~~:9~Y r~~~di~~ ~~~g1 i~~~e r~~p~~ea ~t;!;~i~~dU5~~~r:h~~~d~ ~~1 ~~es credit/equlLY indices with less than 20 names as we discussed. Wlth these change.s; we are ok from us compliance perspect'ive 

Feel free to call me with any questions. 

- Tel (201) 595-5696 Fax (lOl) 595-6776 Arthur" Kirshenbaum 04/05/200615:4B 

~~~ ~;~~~ ;D~i~b1~~~h~~~~~~~~i~~~~~~~HASE subject: Re: Fw: credit &. Equity NBIA 

Jason, 

I have no further commem:s or questions and approve. 15 this e-mail suffiCient or do you have a more formal process? 

Arthur 

Mark Frediani l7/04/2006 15: 25 

~~~ ~6~g~ ~D~i~b1~=~h~~~7~~~~~~~~~~~~HASE subject; Re: FW: credit & Equity NBIA This document conl:ains a file attachment. with a file size of 778.5 KB. 

Jason, 

I don't have any issues. please accept this e-mail as my sign-off. 

Regards, 

Mark 

Robert R RUpp 28/04/2006 20:49 

TO: Achi11es 0 Macris/JPMCHASE@)PMCHASE, Andrew 

panzures/ J PMCHASE@JPMCHASE cc: Ina Drel'!'/JPMCHASE@JPMCHASE, Enrico Dalla vecchia/JPMCHASE@JPMCMSE, Joseph s. BOnDCOfl:/JPMCHASE@JPMCHASE, Roger x Kibbl e-white/JPMGIASE@JPMCHASE, Brandon Konigs berg/JPMCHASE@JPMCHASE, Jason LON Hughes/JPMCHA5E@JPMCHASE, Fi ona J. Longmui r / J PMOIAS E@JPMCHASE 

subject: 

Enrico, Fiona and I met to review the credit and equity N6IA and we agreed "to Sign-off, for purposes of the new product approval proces5, 

~~ il~w~~~Pi~~~e~ (~:a~~e °6o~~~m d~~C~h!i ~~t~~~~~n~)~l U~;~e ad~i~~ 1 ~~ information is included in the NBIA doc.ument. Most of the issues are pagE! 3 

PAGE 27/313 

CONFIOENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001380 
1910 

85/2212888 15: 32 21283tl555(3 ClU 

related to feeds and reporC;sedtih~t& R~ueir7FiNoB:aj}aisg:n-o:;td' ~x"t\8r5 have bE'en 

working on. In addition to those issues, there are two items I want to note here: 

1. We assembled an approach to l-imhs tha.t parallels 'the method used in the 18 for.these products. While we are set on VAR limits; we need to 

~~~~i ~i~~e~~~) t~u~1 ~ ~e~t~ n t~he O!~~~cR~~~~:ed lim; ts (eg de ta. vega. 

2. pls note the systems issues around credit options which need to be resolved before proceeding with that product. 

Any questions/issues, lets discuss early next week. thanks 

Bob 

(10 / GFLM Technology Tel 212-622~6136 

Joseph .G Col eman 25(04(2006 13:03 

To: Jason LDN HughesjJPMCHASE@JPMCHASE cc: Alison C Giovannetti/JPMCHASE@JPMCHASE subject: Re: credit & EquiLy NOXA 

confi rmed - I si gn off 

Elliot M Honeyf'ield 20(04(2006 10:39 

~~ ~ ~~;~~ ~D~i ~b1~:~h~~~7~!~~~l~~~~~~HASE subject: Re: credit & Equity NBJA 

Thi s document cOJltai ns a· fi 1 e attachment wi th a fi le size of 198.2 KB. 

Happy to sigrt off, just. noticed a f€w grammar errors that I will advise of 

regards 

Elliot 

LONDON BRANCH LEA LEGAL ENTITY (ONTI\OLLERS Tel 44 207 777 2275 Fax 44 

207 777 2010 Mark S. Allen 09(05/2006 18:50 

To; Jason LoN HughesjJPMCHASE@JPM(:HASE cc: Andrew MarcovitchjJPMCHASE@JPMCHAS£, Arthur K'i rshenbaum/JPMCHASE@JPMCHASE, Dermot M wal shjJPMCHASE@JPMCHASE, Rachel E Lei gh/JPMCHASE@JPMCHASE, Madhura shah/JPMCHASE@JPMCHASE subject: Re: Fw: credit & Equity NBlA 

This document contains a file at'tachment with a file size of 778.5 KB. 

Jason, 

RE"gards, page 'l 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001381 
1911 

tl5f2::120B8 IS: 32 21283<16558 ClD 

cred; t & Equi ty NBIA 5i gn-off. tXt. 

t>tark.. 

Roger X Kibble-White 

10/05/200612,10 

'fa: Jason LDN Hughes/JPMCHASE@JPMCI-IASE 

cc: 

subject: FW: cr"edit & Equity NBIA This document cont.ains a file attachment with a file size of 198.2 KB. 

Jason 

signed~off. 

Thanks 

Rogel"' 

chief lnvestment office Finance and Business Management - Te1 (8S2)2800-7091 or GDP280-7091 FaX (8S2)2810~6709 

colvls Lee 10/05/2006 14,52 

To: Jason LON f.lughes/JPMCHASE@.JPtKHASE cc: Cha rl E.S K, c. /¥Iong/JPMCf.lASE@JPMCHASE , Roger X Ki bb 1 e-Whi te/ J PMCHASE@JPMCHASE subject: Re: equity and credit initiatives 

Hi Jason. 

There is no issue from Asia 00 CFO perspective. The market risk 1imits granted are on a global basi ~. we ~re in the process of coor:d~ naLi ng a 

~~~!~~~~n~~r s~~~-~U.ef~hi~5~~ ~~d 5r~~~f?fer to the global l1m1ts 1n our 

Thanks, 

Colvis 

chi ef Investm~n't offi ce CFO/COO Joseph S, Bonocore 10/05/2006 1.6,09 

~~ ~ ~~~~~ ~D~i ~~1~~~h~ ~~j~~~~~;~~~~~~~ASE' Ina Orf!W/JPMO{ASE@JPMCHASE subjEct: credit/EQuiLies NaIA 

Approved. 

Joe 

chi ef Investment offi ce Ina Drew 10/05/2006 1.6:19 Page 5 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

PAGE 29/3El 

JPM-CIO-PSI-H 0001382 
1912 

credit & Equity NBIA Sign-off _ txt 

TO! Jason LON Hughes/JPMCHASE@JPM01ASE 

CC; Roger X Kibbl~-white./JPMCHASE@JPMCHASE. Joseph 5. 

Bonocore/J PMCHASE@JPMCHASE 

subj ect: F\'I: Cred; t/Equi ti es NBIA 

Approved l 

Ina Drew 

carolyn L. Monroe-Kaatz Managing Director & ASsoc. General counsel carolyn Monroe-Kaatz 

15/05/2006 14; 59 To: Roger X Kibble-White/JPMCH.ASE@JPMCHASE 

cc: . subject: credit and Equity Capabili ty NEIA 

Roger - can't find the mail asking me ~o Slgn off. I am.signed,off, but I am going to send YOU,lat,?r today a rev1sed ":IBlA •• My aSS15t:an't 1S inpu'tting more matenal lnto t.he Legal sectlon nght now. CMK 

Page 6 

CONFIDENTIAL TREATMENT REQUESTED BY JP. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001383 
1913 

.JPMOIW;\~ Cll.\SE&CO. 

Rationale 

Risk Policy 

New Business Initiative Approval Chief Investment Office & Global Trea~ury 

Contents 

This pollcy was originally approved by Chief Investment Office's Risk Committee on 

May S, 2005 and was effective as of that date. The policy was most recently reviewed on June 30, 2011. It has 

been developed in accordance with the Firm-wide policy New Business Initiative ApprO"'al (NBIA), whlch requires 

each line of business to establish an NBIA policy folJowing certain guiding principles for fisk control, and appro",al of 

that poHcy, by the Business Control Committee. The CIa Risk Committee, under its crurter, reviews and/or 

approves (as appropnate) Risk policy and strategy for all risk impacting the Chief Investment Office. The NBIA 

policy sets forth a framework that encourages innovation and introduction of new products, while making sure that 

the rISks are idlmtlfied, controls established and approved prior to li'lunch. 

Changes from Previous Version 

InitIative risk assessments howe been "dded to the NBJA template in accordance with the materiality 

of the applicable risks. 

Expanded the Governance section of the policy to ensure NBIA proposals are reasonable and 

appropriate through the monitoring conducted by the Business Control Committee. 

Post Approval process Ilas been added [D help ensure that subseQuent requirements are recorded, 

monitored and completed on a timely basis. 

Scope 

This Policy applies to initiatives i'lfising from Globi'll CIa lines of business and Global Treasury. 

Definition of New Business Initiative 

A New Business lniti"tive Approval (NBIA) is the introduction of i'l new or changed product, service or actlvlfy. The 

materiaiJty of a change is " determining factor in idel'1tifying the appropriate risk control procedure to be foHowed. 

jna omadsense, new il'1itiatives include the following: 

A new product to a region or business line with cia. 

A significant cll2lnge to an existing product or business i'lctivity that significafltly alters the risk managed 

byClO. 

Introduction of a product or activity In a neOli location. 

A product, seNice, business or program or a subsidiary acquisition that requires significant change to 

allow regulatory compliance. 

A new product Of acti"'ity requiring signlflcant change to systems, operations or middle office 

infrastructure to process. 

Rev!"'''1 of an existing product or activity that h"s been dormant fot a significant period of time. 

If an initiative is determined to be a variation of an existing product by the Initiative PropoSer .... nd the G!obal Head 

of ORM, then NBIA Ute procedures are followed, 

Sponsorship 

Each NBIA should be sponsored by a regional or bUSiness head. The proposal, which lS managed and retained for 

future reference by the Key Contact (person responsible for managing the process) should be in the form of a 

proDosal summary analysis and include, where appropriate, the follOwing information: 

Brief Initiative Description 

Economic Rationale 

* Responsible parties involved with initfaU",e 

• Othefsignificantinformat,on 

Initiative Risk Assessment 

:~D~;''::~al>C. po"""N,;" q,'er ,"vesll'fle'l\ 0llI<~ (ClO): S\ruc\u'~ll~te'<K' ~'" Ill!lk "' ...... ge"""" - alf'''9iM<, .. s~ ("""oago. 

s.",1(1r>o) ~'!I~\s) i>ed9i"9I11CIr<lUes, f)\ IJe<lgln; ~'t'v'u~ E<l"~~ ~Ad c,."", .... ad'ng octl.l"'~ Tlll5 policy 

:~: ... "I>'Iatod at ~ 1~1"'- ~~\e!",. th ..... lu.<iM 01 COUJ&IlU. p..,$IO<I 8, ~.tI, ... ~1'II. PI~~ #rid ~h ... c10 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001384 
1914 

Each initiative is risk ranked according to the materiality of the applicable risks. Any Question regarding the risk 

rank can be escalated from the ..... orking group to the head of Market Rtsk or Operational Risk Management (ORM). 

GUidance on risk ranking is mail1tained by ORM and a summaI)' is included below. 

Risk Rank Guidance Summary: 

GenEral guidance is provided below on the risk ranking of lnltiaUves. The <;leneral prlndple behind the risk ranking 

process is to compare the proposed activity to the existing business and control envIronment of both C10 and 

JPMorgan asa whole. 

Establishment of Risk Raflk 1 or 2 mandates that a full NBJA template be used. EstabHshment of Risk Rank 3 

indicates that an NBIA Ute template may be used, 

~. High risk: signincant incrementa! risk - New business for the area, significant residual risk after risk 

management, monuoUy intensive er1\lironment, considerable legal exposure, cross border Issues, significant effort 

for Regulatory approval, infrastructure under stress, major investment of capital, significant balance sheet 

implication. 

Activity completeiy new to the CIO. 

ActiVity that requires a new operating legol entity. 

Acti~ity that requires significont investment (e.g. for technology /new hires) or has. major potential 

fin<'lnc1allmpact. 

SigniricanteXpansion of current high-risk activities. 

A combination of these may indicate a potelltial RRI Initiative. 

~ - Medium Ris.k: moderate incrementa! risk - multiple risk control <'Ireas are affected requiring cross 

discussion about the risks and operational cOllsiderations. 

Variation of existing products ( ..... hich requires new infrastructure or contro! processes). 

Offering existing products in a different location or from a different legal entity (which requires new 

infrastructure or control processes). 

Expanding existing products to different Business Units ( ..... t1k;h requires ne ..... Infrastructure or control 

processes). 

~ - Low risk: Uttle incremental risk - implementation of an Initiative requiring the Involvement of several 

risk control areas where only minor concerns are <'Intldpated. 

Change to an existing, well-controlled product or business. 

Dffering existing product!;; in a different location or from (l different legal entity (for which limited new 

infrastrlKture is reQuired and existing control processes wit! be leveraged). 

• Expanding existing prooucts to different Business Units (for which limited ne ..... infrastructure is reQuired 

and existing control processes wH! be leveraged). 

During the review process, if the incrementa! risk or an initiative is more or less significant than antkipated, the 

risk rank can be amended. 

Initiative Review and Approval Process 

The NBIA approval process should include a working group comprising of representatives from the fol!o ..... ing 

groups: 

Regional or blJsinessunit head 

Credit Risk 

Market Risk Management 

Finance/Valuation 

Operatioflal Risk; Management 

Middle Office 

Finance 

Audit 

Global Controller 

Leg!)1 Entity Controller 

Regulatory (some regions may require mUltiple regulatory approvals) 

Treasuf)' 

T" 

Compliance 

Lega! 

Operations 

Technology 

Others (as needed) 

NBIA,Chleflnve$tTTlefli orr;~e So GiobaiTrell5IJry 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001385 
1915 

The sponsor is responsible for communiCllting Vlll email documentlltion to all designated signlltorles llt initiation of 

an NBJA proposal. It should comprise a cfellr business rationale, overview of the product, propose~ supp.o:t 

infrastructure llnd outline llny known issues. The forum should also offer signatories a chance to ~tch imtlal 

questions or raise concernS/issues that may need resolution prior to launch. 

All Initiatives should be evaluated in terms of risk and subject to a review and approval process as outlined in 

Exhibit A. Initilltrves should be reViewed and approved by each impacted risk stripe. The working group is 

responsible for commenting on risk impact, establishing appropriate controls llnd processes and ~oviding Input to 

documentation. 

Risk stripes hllve the abHlty to provide conditional approval. Examples may include: 

• R~ulatory approval or notificatIon required prior to implementation. 

• Operalional parameters (e.g. technology requirements). 

CondiUonlll approv1l1s, if any, are revleY\led at the Business Control Committee (BCC) meetings. 

Governance 

The Business Control Committee (SCC) forum members discuss and review global NBIA proposals. Participants in 

the BCC include the Head of business, the Globa! CFO, the Controller and representatives from the various 

functional areas - 11':9111, compliance, m<)rket risk, technology I:Ind operil-tiollS and audit. 

The BCC has oversight responsibility for the NBIA processes and generally ensures that current NBIA proposals are 

reasonable and appropriate. 

If lln NBJA cuts across two or more locations where coverage personnel differ, the signatories should ensure 

I:Ipproval is sOll9ht from al! additional interested parties before offering an offlclnl sign-off on behalf of their 

function. Approvals must be received in written email format from each designated slgn"'tory. 

Documentation Requirements 

For each Initkitive, the definition llnd scope of the activity, economic rationale, riSks and controls should be 

recorded in a document (the 'NBIA Document'). Template is attllched in Exhibit S. 

The key contact (Middlel FrOflt Office) wiU be responsible for maflllging and coordinating the approval process (or 

ttle NBIA. Final NSIA information wi!! be archived for seven years from the date of approval. 

The NBIA document represents the engagemel'1t of aU required functional groups and is reviewed by Audit 

All NBJA requests and completed activities are tracked and stored In Jira, a central database, whictl is the sole 

repository for NBIAs. and required approvals. 

Post Approval Requirements 

The Key Conrect of the completed NBJA Is responsible for enSl..lring that post approval requirements are tracked, 

reviewed and monitored to closure. Post approval requirements llre coordin"'ted by the Key Contact unless. 

otherwise agreed by the BUSiness Unit CFO. 

Post approval requirements include; 

• Recording the Initiatlve implementation date. 

• Monitoring and reporting any condltiona! approval unti! closure. 

• Completing 11 Post Implementation Review ('PIR') for all ful! NBlAs, 

The P!R should be completed within 6 mOl'1ths of flrs.t activity with llny el<tensiol'1 to this period agreed .... Ith ttle 

Buslnes.s Unit CFa and tne key contact. They should: 

Verify that the Initiative is mil-terially the same as that "'pprove<l. 

Check that economk: performance and limits are within projected levels. 

• Ctleck that controls llre effeCtive ar-d transaction volume is not negatively impacting the infrastructure, 

Roles lind Responsibilities 

Initiative Proposer (Front Office I other functions) 

o Responsible for creating or propcsing NBJA with financial case and sollcit/ng senior business. 

support (see ~Sponsorship" sectiol'1 for detalls). 

!(ey Contact (NA: Middle Office; EMEA: Middle Office/Change Management; Asia: Business Management) 

o Identifies llctivities which require NElIA review, coordinates the NBIA process "'nd prepares the 

NBIA document. 

NBIA,Chlefln\{estmentOfflce&GlobllITreilsury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001386 
1916 

Maintains a master copy of NB!A document and ensures It !s kept updated. 

Final, represented copy to be housed in Jira witll appro>,al signatures. 

Escalates issues and delays to CFO / Workmg group and ensures tile NBIA protess is complete 

prior to initiativelauncll. 

o Responsible fO( compietiol) anel/or execution of the Post Implementation ReView (PIR). 

Working Group (see "Initiative review and appro>,ai process") 

o Identify activities that require NBIA review; comment on the risk impact (ultimate eSCalation 

points Include CFO, COO allel CR.O); establish appropriate controls. 

o Provide input on documentation and approval as required. 

o Provide confirmation on initial due di!lgence to proceed with initiative (NBJA) development. 

Global Controller 

CfO 

o Responsible for ensuring proper reporting and accountin9/GAAP policies are est<lblished. 

Responsible for forecasting of RWA based on e)(isting products and rules. Validate RWA 

calculations provided by corporate. 

Ensure due diligence is enacted to comply with cia NBIA guidelines. 

Monitor accounting/GAAP policies are foUowed as established by the Global Controller. 

Ensure proper portfolio/strategy is associated with the NBJA under review. 

coo o In C(llJaboratlon with Working Group, agrees to preliminary Risk Ranking. 

Oversees the overall NBIA process within their LOB. 

o Responsible for guiding the Key Contact in completing the PjR. 

aRM Control Team 

Oversees the overall NBJA Policy and Process and provides guidal1Ce and training where required. 

Assists in the determin.ation of the NElIA Risk Rank where needed and acts as a central control 

<lnd escalation point for issues. 

Maintains aU completed NBlA documentation, 

\> Monitors and triggers the six-month Post Implementat!on ReVlew. 

Othl!!r Considerations 

In the event an NBI·driven transaction is not executed within 1 year of signaff, the NElIA should be re· 

cirC\Jlated for re-validation. 

• Records of an NBI approvalS should be maintained within the sponsoring IOC3tion. 

Regulatory Requirements 

The NBJA policy is a key control for Sarbanes-Oxley. DocumentatloJ1 of an initiative definition, controls, how 

appropriate risk area reviewers were detf!f"m'lned and actual risk area approvals are to be archil/ed for seven years. 

Interagency statements and individual statements regarding new initiative due diligence are regularly dIstributed 

by regulators. As an example, guidance as to the process to be followed to prudently manage the risks IlssoClated 

with new, e)(panded or modified bank products and services was distributed by the ace on May 10, 200<1. 

OCC Bulletin 200<1-20, Risk Management of New, Expanded, or Modified Bank Products and Services: Risk 

Management Process is found at bttQ:llw ..... w occ t!J!as goy{200<lIMay htm, 

~81A, Chief Investment Dlflce 8< Globi!1 Treasury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001387 
1917 

Exhibit A: Process of development of an initiative for Review and Approval 

N81A,CllleflilVestrrnmtomce a. GloblllTreasury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

p"$t-APP'i>~1" 

'".¥!lI!llf'~t:lIlll)tICfO 

=""""""<ot,,,!~,"' ","~J/ • mw.C~ .. iM'l'pon l"'l'Ia"'",,\o~R~ 

NI,"aPJ'!<I~Ql 

,*~<>,dI.'~T'.d< 

co""llotIlkll",""up(bylll. 

E><pO<lllO<j 

.~O"V~ 

JPM-CIO-PSI-H 0001388 
1918 

Exhibit B: NOlA document templates 

Economk Rational to~ Pnxeeding 

(estimated rl$," Jlnt! mvards, induding 

proriualldlosses) 

Chil!f hlVestmenl Office I Global Treasury 

New Business Initialin Approval 

ExeculiveSummary 

~-II"ngesFromCurrenIAtliviIY-- .. -.----------------------1 

l<ey Rfsk lssu('S 

mikRating(1,2nr3) 

PriorilyRating{A,BorC) 

Account Tnatrr>Clll lei Trnding. FA.S 

ml 

DlllcAllthoriudloProc«dwilh 

Otvdolllllfill 

~: 

I 

High 

A 

Hilt" 

2 , Medium Low 

n C 

Medium Low 

IllillaliytApprcvtrall!horjze:sinilialjvedeveloprnet11,a~lheinil~Ive!allncl!andprioril1l£$ini!iali...esfordevelopme<1!Theimlialiveapprover 

sllooldbeadu(,:(:lreponoflhc:ClO 

JnillllliveSponwr; the Sponsor s/Jollid rypically be a Por1folio Manager 

Risl< R.lIoting is b .. aoo on incr .... ent .. l risk and materi .. lity c£ risk change: 

1 - High Riak - siqnificdnr inc(!?m!?ntai risk new business for the area, .significant reSidual 

risk ~ttet risk man~gement, manually int"no:llll'e environment., considerable leg~l exPOSUt", cross 

borde. :issues, significant effort for Regulator ~pprovaL infrastructure undet stress, maJor 

investment of capit~l. sJ.gnificant balance sheet J.mplication 

2 - Hediwa Risk moderate incremented ri5k - mUltiple rl.sk control areas are affected requiring 

cross dlSCUSS10n about the rls.ks and operational considerations. 

3 - Low Risk - little incremental risk - implelllentation of an ini.tiative requiring the 

involvement of sev"ral ris~ control are,J,~ ",here only minor concerns are ~nticipated. 

NBJA, ChIef l!lveslm~nt omce 3. G!obal Tre1l~ury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001389 
1919 

JPMorganChase 0 

Chief Investment Officel Global Treasury 

New Business Initiative Approval 

Proposal 

(Portfolio(s)/Region(s)) 

(Title of Product Proposal) 

Nil/A, Chief lllvestmenl OJ/lee.& Globlll Trusury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001390 
1920 

Table of ConI en Is 

1. Proposal Summary 

2. Working Group & Approvtr List 

3. Initiative OveJ"l'iew 

4. Troule & ugal Enlily Flow 

5. Market Risk 

Credi\Risk 

7, Finance-Accounting 

8, Finlince- MhhlleOfficeJOpcralions 

9. Finance - Controls I Operational Risk Mgmt NCG 

10. Finance- Loc.lli LEe ("Where applicable) 

II. Tl'(hnology 

11. Treasury Funlling (where applicable) 

lJ.TrellsllryRegu!alory ( .... hereapplicab!e) 

14. Regulalory 

15. Tn 

16. Legal 

17.Complillnte 

18, Audit 

Appentlites lIS necenary e.g. ulernal product lIescriplion dlJcuments, legal tlocumenlS, tleilliletl operating 

procetlures 

NBJA, Clllef Investment Office &. Globel Tree5Ury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001391 
1921 

1. Proposal Summary 

Name of Inilialive 

Porlfolio{s)lRcgiolls{S) 

ilnilialiveSponsor 

Illili~tivcApprover 

Brltflllitb!ivtDescriplion 

I Ecollomknlliomtlerorpro(teding " 

(nliJ;n:lledrisksandl"t'WAnls.,illdudlngprofils 

IIndlll$SC5) 

Kqchangufrom(urnnl:lrlivily 

i ",K""~'~ 

I R""""",,'. "") 

Priority R~lIng (A, n (lr C) 

I 

High 

A 

~igh 

Medium 

n Medium 

3 

LA. 

C 

LAw 

h~"-~"-i:~:~:=~~:~:~=':~""d---------+-------------------------------------- Ltgal Enlles Ihlllrt imp~cletl 

rLOB'slhllfartilllplicled 

i O()trllti(lnalimpa<:1 I (mtlud~anficipaled"olumesandkeycapaclty 

im.emcs) 

R~gul~!(H'Y approvllls required 

Mcounling Trtalm~III(Cl Tntdlng, "AS 

133) 

NOlt IIny Repul~llolI rusk Rtvitw 

rtl)uirtmenlS 

OtherPolieicsimplicled 

Dale ~uthorlud 10 proceed with 

development 

KeyConlaclrurque5lions 

P~rson Il$pomible for Post lrnplemenlllolion 

Iltvlew 

NB1A,Chjeflnvl!:SlmentOffjce~Globallreasury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001392 
1922 

2. Working Group and Approvers 

O.h" .... ".'e s...""c""", orr",., IA Em. CfOtSFO 

NBIA. Chief In\'l!S(mI1nt Office I! Global Tr11awry 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001393 
1923 

3. tnithlti"~ O"u'yiew 

,L"";""'"d.3uip""",,,,,,,,,,,,,i<j,,,Jir,< .. ;,,,,,W'h:II,,,(".gr<,, •• hfo,"c"t.~xl"'e"dvo1"""',<o.p'."'.Yl....,"s 

" n"";" ... R .. Ion.oI.i""l"dt"llm ..... """""u~" ...... d"'h 

4. Trade & Legal Entity Flow 

]",,\u<k ."upaO>dod tn<l to.rod I"""ua n_ <baf,om .. <lud,"lI ~n K.y $(r.tcom,llII""" ,.ro"",h~"<>n> W,lb"'.tl.o ",odu<> <yel. pI .... t"''''llf>i! 1000] tr.oo<.P'"". p!Jdally .. ~,"8..O/!r"_,""k.m'm.,''''' .... IItm<N.'''S"I"'Dr)' '~'ns • ..J «oI1.1Cfolmgmt 

Lis •• II I<1l"l.n''',..,S'and''dparT'J'Nomb<r$(SPNj'''T ... d ...... uretYIlI''' •• h ..... '"'!'''<l.d 

S. Market Risk 

Ou<:" ..... p""".'O,n1'"' .. " .. ~t;n .. 

How"';1!VAR',boo o.\odo,d' Dcct'be'n6t'l •• 1"""'lI'jlwn"';llbt",.d.o",..,i,.,...!eapruo."sklvv. 

n, Da<,,'" ........ ",,1u""'nAnd ",io."I! .... 'hodology, Vc(] ;mp:I;~t<>n. ,nolud.nll moOd <Jl..n (tit .. ", u,,,iniil. ", •• kl v.]od)lion p;ro"du," 

iV c"""," ... t<od"'ihmllS.ro ... ""."o ... no.k",......"""'iI.'oponmg."di><dgonsow: •• d1 Wha1 wil! ,bt<Xl ..... ')' ,i •• \im,lli..ht,. 'pplieo\>l<). YAR oI,li ... ,_.o<I SIR (S<>",,";g~ I" •• R.n).SNMI (so"Sl, N ..... Pe<;'ioo Riol) lIm,n bet 

~""i",", ,fih .. _p<Q<I .... ,~"" .. ,I>t v .. "fa m"".l 10< '1Ilu.h""~tt<U '" n.k ""'_,""'n' 1""."'"'' Ify .. , h .. lh. mod<i boo ... t ... cd,app'''''cl.o.d ,*",,,,,,,,,, .. 4 i~ 

a«oJI' ... "".""",$I • ...t.<ds~>lat>hJJ>odi~""'-F,_""d.M"'"'IR".Pol,<y. 

"" lfn", is Ih, .. ..,dd,' ... u.l!y in ,he p<pehntlo",", .. vi.wool by th< MlI.G .wn7 In oddi""".),u ~ ",",.n "knhficd .. In ~"pp'o""dmOOel in tb~ tnDd.1 "p"n;nsd.l.bo.I<' 

vi" j("' .. 'h'R·"'~u! ........... ,.'h.VaRandS\< ... V.l'lt 

6. Credit Risk 

C"",id., "1'" •• "~.I;mi,.,mod.l .. h.dgi.g."dp;r"" .... /lo.w<for'":<,,,.'.,..k m"";I",ms • ..dl~p'''',nJl. 

C"""'«pa"J''''''odo.'';.,n, ,t! ~ .. gin .. d.(>II"''"!_.8.m<J>I 

7. Finl'lnce· Accounting 

•. D ... "bor"'«>UfI""lI"·""",nt'''",",UI;h",,,j 

,'. CCl>3ldt'A<:<""toImSPol«y,t"';twrnd"8ul "'0'1,tJOl"ingJmp:li<>.,i.,.,. 

", \V,n'h ... """"'inSI"'I/I." .... p'''''UCl.'''"'pe'(o'm04",.''''''lIy'''''''!)i'boo.''IO"'''led· 

i. 11""'n<Wp'~"a S .. u"!}'(F ... S1H)pl __ .,,._""." ....... v·.,i>ir""'pl, ... I.'P'~"i" 

v. A .. ,hos.:<u"" .. m .. 1«.tot>.' 

"'. Wh.i<l>,"' .... ,i .... ."..,."".J>odol"I!J,.;III>o"'.d(C""" ... ,Eff.w .. Yi.Id."''''po<'' .. ''''R.'' ...... ~li'''')? 

¥ti W""'''''p''',mcn,,,,lnwi!llh.S.<U';ii .. bo,,JbjO<l1C' Whcn.ocollRt<.t for •• IIJS,.btproOu<'w<llbt,ublon,oSFAS 1!~;ml'l;t""nlNl<s If"'""",hIl'tAA •• 1><n 

,obj't<1IOErn'99·2(l 

Ir,Mp<<duc: ... ",b..<<coo""df", .. AfS,lhcnh .. "bo.n •• ",,_forombodo)<<Id<,.-aHv,,? 

.. Wh" Sf AS 1~7 F .. , Y.I"" M<"'~'<m<n. d .. "f'.~l!"" ""II b • ...,i!P'<d? 

lilhi ... ""SPY1,_";!I;'\>O~i"-"tdono",bI.~.h«'t 

x, W,\! tho ><w';'J' -=i ... M.,~", Ri'k·", Bonking JJ.ooI< Rulo,? ~~riJ; •• Aco_1ed fo)< •• ,nd,,,,,,," ~hS,b','.'<O"'" bo~~ins!>ool< RWP. il ...... " .,.;,.n. oro <>Ii,fl,d 

rllOemb<<ldeddo" • ." ..... ,,",<n!.ol>otd, .. <) 

~" """'"' 'J'p<: ofp'od,,,,,,, i,(ifboRliinll OOok ",1",1' rrod"" • ..,pe""nd<1~rmi"" u,.'G, .... "D.r"oi! 

8. Finance- Middle OfIieeJ Openllions 

U"IIj>e<a1iOll> "';>$lmpM'"',,,,-lh loe .. "," and "'"""I1"', •• """"bk, ?', .. hy imp><!. "'~'''I! .. p<rt'«. topa<i'1 cOn<:~' 

NOlO ",",,",I I"o<:od~, ... P!""i"'~'omiI". ,oqw"" .. , ...... l tommvn,Ull" ... d .. nt ,.,.,rt,n8. th.M .. I .... ,"". co"r"m."on'. <Ie 

III A",'Mr •• nyi~a1"il>oI;"""o'I.,......I.~la8"""'''''? 

.. H ..... ""nGkoIWN.v(),..,bef<d'>Will"bc:"""ual,,,sy ... mlt"" 

H,,,,,allofll,,pI<'po'po<1rO/iocod<'0<ld'''''''''''l'Ort, .. bo<noelup1 

'" lfa"l'offmark •• " ..... co;""" ••• ploeehow....;U'h.ybomOll''''''.,p 

"', Pl .... ''''''",b<o ... y~''''"'')' ,i" O'I'''M< ("""'-,tappl"obl,) 

9. Finance - Conlrols I Opul'ItionAl Risk Mgmt !VCG 

C"" .. d,,<""'~ .. IOlh. ",,,,,r>I.n.t,,,,,,,,,,nl i""l<><Iing pro ..... ro"""'! p<o<td ....... u,."' .... 

f",.U r"""I>"'" p<".,.."..,d by ""nitux!«nal.Q CIO ~ ••• ,<k~j;r,."" oW", ... "I. B'''''pl lob .""conr"", ... , '''''_I'I',opri''. hoJrl>l, ... ;..", •• td Tn;.""I1.""". 

,h.,r'''''''SOX·IIIUldpoi'''lhe",.""g"fconl,ol$,..pptop<,.,,lyhondlt<l 

'" O" .. il:><-""' •• , ""l ... uon.nd PJl''''S rntlh<od6l"l!)' Higltli8~ veG imph< ........ ;"'1.,1>08 modtl ""~, toewOftX,.'mgJ. model vol""";,,., ~-..lv,.. C""",d<t prking 

m .. hodolog •• o.dmcd.hng 

IV. c"" .. d .. J)n«odju" .... nl.nd •• :oe ..... 

b't.tpo-ope,GLRSI.ubo>"''''''>O<>p'D«'''''P'''''''' 

10. Finance-Local LEe ("".,uWhublt) 

NaJA, ct..Jet Investment OUlce &. Globa! Treasury 

CONFIDE'NTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001394 
1924 

11. Technology 

i. $yll= on&: W,ll oddiIion,l.y"."", ",.,..,om ""Iun<..."." .. bo A,td.<II If,o ,...no,,, ,to. .".,., ... !~y of'l>< n .... ' Wh,o~ ~ ... Iong W'*''''''"''''' , .... ~'r"". ""l~ ,h ... ", 

p'''''"'''? W;Uoy".m'n,.,.r • ..,.bc""n<>ol",.lo<l'",,;':' 

,i EM.o ,,,,,,,,.ci'1' on<! ""&'1" mOl"'$, ""', ,.li ..... onm.nlJlll .-1< ... ""tId'Md.p'c..n~ .. ", "I'"'" ),""''''''''', ex,.",.I_" 

12, Tre~sury Funding ( ...... ,Hppl,c.abl.) 

, NoI<,h<,,,,,",,,orr ... dmgor.dhq"id,ry 

13. Treasury Regul3!ory (wloc:f~appl, .. bI.) ) 1'I""""l' Cop11111n .. ",",c!lU, bollne ........ 0IYg<. P .. ..,. ,B",,~ o. Mr,]i ... f~~ .. C_.".,-

,i' Elli", ... r""" .... SftQl>i,.",.",.o"',.II..,. 1</101"",,'1' ond"""'~""''''<l~S: l"lmd,ry''''j:l':..o\!on 

14, RegUlatory 

i 0 ......... '" 

i;R'J:rII"'ar:rR~""rti"llNI'A ncv'owc""id ... """, 

Regnl~lory Reoorllng I'tPA Rev;~w Conshler.lliions 

HrJ:S Ihis prodnci be,n 1e>lltwed by "8.IIIOIO!}' reponing (US aNi nan-US) ID tnJllrf 1001 il '~J/l be reponed m auordanr:t wilh 

reglr/olOf)' reporling re<{lIirl!"'l!nr$, LUI any r~ulQ/Of}' reporlmg reqrlire"'itnl$ (US and n"".USj in ,,'ou'on 10 rhe lIe\~ produci alld pro~ide a 

dMC6p1'on of any r"'l"'''I!",eml thol differ fro", GAAP 

For Ruk-oosed cllP,wl pl'~poJe$, ,.il/IJIIS prod"ct be bool<ed ",oder'radlng or oonl<mg book niles and OOs/egol and ngll/olory 

reporting re~iewer:l/he profX1sed IrUJ/lniUlt, whell! appropno./e, HO$ ony /mp<>fl/O r#* w~'f;h/ed o.sse/5 been idenlijled, tll(lilltlled and 

comnHm;coled 10 re(fI'/%ry reporlmg. Are lhit oppropriO/e nsl< "eighltdmsellimils in place aNi bf:f!n fEVJewed by Ihe appJicoblit CFO? 

Will (hiS prom>elfeed mlooprxopriale mllrket, cvll1llerpal'1y credit oM """cffic risk systems (i/so, pJea.fe ducnoo I"e feed nomes, 

jnuma/ model, risk and bookmg systems, ond oppropru1/l/ comocu in technologyo.lld middle office)? if ,,~, haW! procedwes OM conrrols bee" 

PII/11I place 10 report iI momlOlfyond whow,1I1n Ihe COllloct ~r5<mfor ",onlloJ rl!poning? 

[)eserobelhenailluojo")'coliolerof/reldi" re/ofionlolhisprod"ci. 

Does lhis p,YXl"C/ impact deposils and, if$O, hO$ I/ois ooitn coml1i,,",ooled 10 regllioloryritparlmgfor p"'poses of Co/clI/oIing 

appropnalereserves. 

Has Ihe methodology for la/c"lolillg risk witigbted O.l.le15 oNi ¥Jrcific risk bun commllmrolw IOrrgulotOlY reponing? llo"y 

regulatory appt'oval Or $pitcifiC mk ,oodtl de"fiopmertl reqlliredfor lhis prod"c,7 

7 If this prodllci r~q!lire5 fisA (;",:h,dmg generol, $~qrJC oM coun/upony) htu Ihe produci bHn Jllbnlllled 10 reglliarory reporting 10 

IIpdofelherrsk'''''tnlaryll5l' 

IS. Ta). 

1 J",i,d'<l;M~_j<kr.,it>m,wi,hhoId;"Ii_,VAT,j""ornta"'itM;"" 

iiT .. , ......... .s-,.xod.-.., .. t<d ....... <t;M,,. ..... l,,,KJ..J"''''''' 

III 00 .1><1 •• rul .. dirr., f''''''oc~O\l''';''lI ,,,,,", If ... ...,,,.,ht '~iI"'" been 1<1 up 10~"l"", •• 1>t ,nform"'"", nKd«l ro, , .. P'''P<''''~ 

16, Legal 

NatA, Chlel Investment Office &. Global Treasury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001395 
1925 

17. Compliance 

" ""'.", of Compl".", ... ," .. for .11 j~r,".kl;"'" "npaCl.d ",,.<IlI '0 be ~Qmpl.""d h >I>ould ~",,,dor <co",.""" ... ", .. '0 ,od ... ,JSl<I ,01010<1 1<> '''II"b.w),. """"_n,,,,;,,,.nd 

p<ot.dur .. 

DOH Ih.,"'"., ..... "'dodo """I'O''',vob'dd.<ni(.'' .... ''''!,''''in .... '<hJPM'''ll"nC ..... l<C(.. 01. """,do.'l'.IIhmiIl .t><d".F"""'d • .,.,pu,.Im. •• r"'anao.ll"odo.I"' ....... "'.m 

• ton'IJ"""i", 1"0"" ''''''-'$",! • ..d.d!o"''ult '" "'. x1«o ,; "'ofonc..-",..... .... n"'"S b .. ft<. r,,,,,,.cll .. ;",,)' If ..... ''''.;Mi .. i'''',.,,.t.I~''be'.'''.wtdbyNrt'''''''' 

Co""",,.,,.. 1"...-1<> HillA ow<r'<lll, an<! ifL!lc HOIII .. oppro",d.lht o.ewb .. ' ..... """wry .... 11 ""cd Kl be ,dcl«l '" It.: I. .. m""""peth'~. b,cjdm8""U"'''t) '"10)'"' '0 add,l;c",l 

pobe' ... "'<><od .. ."...d<onl" ... »n<Io.'hcl< ........ r,..nou.·.sWOl""l'0@' .. menl>o:b'.dJuly6.1(11! 

18. Audit 

" NSJA,ChieflnvestmentOff;ce 80 Gklbl!ITreasury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001396 
1926 

Chief Investmenl Office & Global Treasury New Business lnithttive Approval Polley 

Post· Implementation Review 

Drierd~riplionorlheappro"ttlinililitiH: 

Uslan)' cand;flons a$soci~led with Iht appro~aJ, (<rmmen! on opt'" items an" the limtframt for campltlion. 

~·tobttompltjttlwithi,,6rn<1"lhsoflhtlictil'il)'golngll" 

dm"'~,p<'''' 

,'"''m'".,'''''~'''pp',"''",,''''''''' 

I H.~,"«, "."0"",, 'Q'" OJ m"~mm, ,"J< m"."~? 

I W''''~''.m'' 

I H'''<h~' 

I H.~,"~, """''''Y''~''-'' "'-"";"';"? 

I O<"«po;""'C",, 

Send CI)Illp/eH:d copy 11) LOB ORM, Reg.IQJl8! Expeditor anl'l Audn 

NBIA Ute Procedures 

1.0b}ecUVil 

The New Business Initiative Approval clocumentalion SeNeS as a gui~ to help the appropriale ImpH:'menlaL!on 01 new bUlliness. 

The obtecHYI:! of the NBIA ligh! version is 10 facllitate the approval j)'ocess of cenain initialives the! represent a variation 01 an ellislin9pmdudOlj)'~Ss. 

NDJA, Chid Investment Ollke &: Gk:tb<!! Tn::lI!.Uty 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001397 
1927 

2. Eligible inlUativGs for the "NBIA light" version 

- Varialion of an existing prodUCI f process ...,.ithin CIO 

Examples: producilraded in one regioru'legal entity wit! expand \0 other regions I LE, e:o.1ension of e:cisting product ranges (Iradild 

long·lerm 10 short.\erm). If a product is traded on IS but nol on CIO the NBIA has to be "ful1versioll". 

In case of doubl aboul which version of NBtA 10 apply, Ihe NBJA preparer and lhe Global Head of ORM should reach a consensus. 

3.Duedmgl1ncerev!ew 

[lefore a Irade can be e.ecll1ed the 10U[)Wing slepsmusl be completed: 

1, Fm the checkliSl sedions A \0 0 on Form 1 

2. Contaci gill necessary key lIrellsJpeople for the appfOpria\e implemen\allon ollhe iniliaUve end fill up section E 01 FO/TTI 

I. Thean:!as lobe con!acloo are dlviood in "Required apprOllal" and "Required conlaC'". FOilhe "Required approval" it is 

necessarytocolJecttheSignalureorapprovatemailofarepresenlaliveoflhe area. 

3. Sen! Ihe completed Form 1 to Ihe CIO Controller 

4. ResponslbmUes of the "N8JA prftparer" 

• In case of doubt, cOfllad Ihe GldJal Head of ORM 10 determire if a Lite NBIA version is applicable. 

Contact all /ley areasfpeopk:J listed on seClion E and lndude any other areas lhat should be contacted based on specifIC 

requirements of the lnlliative . 

. Explain Ihe iniUative and check the axistencs of any issues or systemJprocesses modifications necessary for the implementation 01 

\neNB1A. 

- Follow up on any issues and update Ihe /ley areas on Ihe NB1A's development. Make sure thai the areas involved have the same 

level of informalion by the lime the NElIA will be s.entla approvaL 

-Col\eclsigna\uresorapprovalemails. 

5. Post·lmplementallon review: 

The NBJA preparer has 10 complete a post implemen\alioo form 6 mOl1lils after \he trade product and SUbmll to lhe CIO ControUer. 

15 NBJA,Chleflnvest~ntOmceaGlobaITreasory 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001398 
1928 

A Proposal Summary 

2 

f' 

lnilla Va Name: 

NBlAPf"p_!Vr. 

Crealiondale: 

NS1A Lile FOfm 1: il>malive Approv~l Proposal 

(If any of the ilemlO are not appJici!ble wrile NlA, pleS:;ff cbnl delete thalme) 

BneflnitfativeDescriptKm: r· 

r,·-1~"~iti~"~"'.~P~"'P~'~"~'"~P~"CC,,,~, --.-----+-----------------4 

" I R",i,", 

f' JusllflCationforNBlAfite 

I' Status: 

Proposed Launch Date. 

B. Systems Impacted 

r-- ··legal entlty(lesj impacted: 

Legal Entity Blanch 10 

lE I OU Number 

j" Siandard Part Number SPN 

I' I 

Orn~de·_· __________ +-_______________ 4 

10 

" 

'''' 

\3b 

TraoeCapluresyslem 

- Ponfolio I Book 

- Portfolio I Book Tvoe Accrual or MTM 

Seillemenlsysiernlissves 

-porl/orlO/Book 

Confirma\IOOr><ccess 

Will system feed Jhe general ledger? 

VARPortfolio 

How will VaRs be calCulated? 

Ooes producl requires the use of iI model for 

valualion andl Of risk management purposes. If 

yes, has Jhe model be@nlested, approved aocl 

documenledina[;C{lrO;"lrlCewilh standards 

established in the Firm-wide Model RIsk Policv? 

I 

::;t~h~~ ~:d~~r~:~tl~~~~I~~eh~ ~ebeen I L---.~~~;~~~i~~~~~~:~:~~~W.ro_w __ dm_o_"_I._'_"'_m_o_"_' __ LI ____________________________ ~ 

NB!A,Chleflnv(!S1mef'l1 Dffice & Glob&1 Treasury 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001 ~gg 
1929 

C. Accountlng treatment 

If this new produd IS a Securily (FAS 115) please 

answer uestlons 3- 6. if not lease ski \0 uestion 7 

ArelheSecuritiesmarketaole? 

Which interest income methodology will be 

useo? (Constant EffeCliveYieJd, Prospective,or 

Relrospective 

What impainnent rules wlll be \tie Securities be 

sub)ectto? 

lflhe product is to be acoounled for as AfS,lhen 

When accounted lor as AFS. the prodUCI will be subject to SFAS I 

~65lmpaill11enl rules. If lowe/lhan AA. Ihen subjecllo ErrF 99· I 

What~:~~~~~n::~~~ f~~:~ut;:::~-~,!,:",,~:a"'i;:ca"''''''!''~:nCC+---------------i wmbea$$i~nad? 

How will SpecifIC Risk be reported? 

Manual or s stem fed 10 PCM? 

if manual, whal is the risk weighling based on Sasel 

treatment? 

10 Is thiS product an SPV? II yes, howwillihis flem be 

consolidated on the balance sheet? 

11 Win lhe secU/ily receive Markel RiSk or Banking Book 

Rules? 

12 If Markel RiSk Rules, what is the VaR and SlfessVaR? 

13 Whatt of roouctlSlt !lbal'lkin..9.pooIlNJes? 

D. Controls, legal 2II'Id other proces5&s 

Whi(:h controls and reconcmalion will be performed? 

Pleasenslout 

Are a (;ont'o~ beln orrned b non CIO IOU s? 

'Nhic.h substantiation recess win be in lace? 

What is the source of daily marks? 

Exlernalmarks? 

Pricelestingrequired?tf eS,whalisthesource? 

Legal I regutalory reslriclions? Explain. 

Compliance .eslficlions? Explain. 

Specific CoUateral management needs 

How will this product be funded? 

NBIA, Chief Investment O(/j~ &. Globlil T,~aSllry 

SecurilJesAccounted for as trading ale eOgible 10 receive bilnklng 

bool!. RWA if certain criteria are saUsrJed (no embEdded 

derivatives, Intenllohold, etc. 

Product \ - e wlll determine loos Given Default 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001400 
1930 

E. Areas tonlacted during the NBIA process 

Requ!redconlacl$: 

C:mlaclname 

fC' M"""-"'k",,,,,,RI"'''~ ____ -t.f..~!erW!eland 

MIddle Ofllce NA - Bonn,e Kindler 

EMEA-Pau!Bat~ 

As!a fe!QianlYulin Xu 

Mark if not:ippl!cable 

.JJNIA 

o NIA 

fCC""IO"-,A""""",~""1in=Q!P,,,,IfCCLV_--I-"N"'"'"'-""""""'"",","-N __________ t-.-----liNJA __ _ 

valuation CQntrol Group! 

ORM Edward Kasll 0 NlA 

I 

t-T~"~M~O~IO~" ___ --t~J"'~~~PthC~o,,~~~,"~ __________ +-__ ~~N~~~--1 

L al Caro6ne Monroe Koatz, An ela Liuui r. NJA 

eomoUance 0 NIA 

Audit Bill McManus n NJA 

n N/A 

Requirod approval (signature or approving email must de aHoched to Ihis Form): 

NBJA, Chief J,wpstment Office & Global Trea!OUry 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0001401 
1931 

NBIA Lite Form 2: Post-Implementatioll Review 

(To be completed by NBlA preparer) 

~0Jl.1- Please fill the table below by l;opyl11g Ihe Items Irom NBIA lite form 1. 

I'"""""'N""" 

! "'~'''''''''''''''''''P'''''' 

I LOW'" App"'" ",ie. 

! COO","", ,~'o,"" -'<h <he 'w'"'' 

Sel;!lon 2:.10 be compleled within 6 months 01 the activHy goll19 !lve 

Send compJeted copy to local aRM 

N8IA,ChleflnveS!IT\I!Il!Offl(eI!tGtobaITreasul")' 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

i 

i 

i 

I 

I 

JPM-CIO-PSI-H 0001402 
1932 

From: Jalan, Rashmi <rashmi.jalan@chase,com> 

Sent: Sat, 21 Jan 2012 00:09:26 GMT 

To: 

cc: 

Alexander, David M <david.m.alexander@jpmorgan.com>; Braunstein, Douglas 

<Oouglas,Braunstein@jpmorgan.com>; Dimon, Jamie <jamie,dimon@jpmchase.com>; Drew, 

Ina <Ina.Drew@jpmorgan.com>; Goldman, Irvin J <irvin.j.goldman@jpmchase.com>; Lee, Chris 

C. <Chris.C.Lee@jpmorgan.com>; Macris, Achilles 0 <achilles.o.macris@jpmorgan.com>; Sabo, 

Richard W <richand.w.sabo@jpmchase.com>; Tse, Irene Y <irene.y.tse@jpmorgan.com>; 

Weiland, Peter <peter.weiland@jpmchase.com>; Wilmot, John 

<JOHN.WILMOT@jpmorgan.com>; 'deidre.schiela@us.pwc.com'; 'stephen.h.nesi@us.pwc.com'; 

'kristen.brown@us.pwc.com' 

Enfield, Keith <Keith.Enfield@jpmorgan.com>; Gandhi, Samir X 

<samir.x.gandhi@jpmchase.com>; Jalan, Rashmi <rashmi.jalan@chase.com>; Giovannetti, 

Alison C <alison.c.giovannetti@jpmorgan.com>; Lahoud, Michael 

<MichaeI.Lahoud@jpmorgan.com>; Masur, Jon] <jon.j.masur@jpmorgan.com>; McManus, 

William K <mcmanus_william@jpmorgan.com>; Sinha, Sreejib X <sreejib.x.sinha@chase.com>; 

Weiner, Pamela <pamela.weiner@jpmorgan.com> 

Subject: 00 Weekly - 1/20/2012 

All, 

Please see attached the cIa weekly for the week of 1/20/2012. 

Best Regards, 

R;,shmiJi'llao 

Office I J.P, Morgan, Floor 10, 270 Park Menue, N~w York, United States j 

@shmliaiao@cbaset"QID 

ConttdentialTl"'at",entReque;1:edby 

JPMORGAN CHASE & CO, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

JPM-CIOOOO2118 

JPM-CIO-PSI-H 0001577 
I CIO Perfonnal'lce Summary 

John VVilmot, Dave Alexander 

IS. "'_I ',,",",",,"" I 

ow"'" 

[Redacted 

: by 

Subcommittee 

on 

ConfldeJlllalTrellfmentRequntedby 

JPMORGAN CHA:iE & co. 

CONFIDENTIAL TREATMENT BY J,P, MORGAN CHASE & CO, 

1 

JPM-CIOOOOl119 

JPM·CIO·PS
Interest Rate Risk Summa 

1. """'1 ... 

.. 

S. Tft"' 

.u ... ""n •• o_ 

. 

1 ...... "'1' 

"" H. .. 

1$. tlvn,""'oHq..OtJ' 

1!o"""II .. 

11.1 Fii';;:;-':loE 1 .. "d<ldl"1l Sp .... 

.. !<>nIn_lmooIU 

I 

L 

I 

CONFIDENTIAL TREATMENT BY J.;. MORGAN CHASE & CO. 

JPMORGANCH/l.SV

[S.RlskTerml;:'-':;I\>iY 

"'-th.n""d.-",llal>lllty 

.... ".,to ... ll"", 

.H01ot",.IyP-" : 

• .. ! .. 

2 

JPM·CI0000l120 

JPM-CIO-PS
CIO Position 

January 20, 2012 

CONFIDENTIAL TREATMENT 

John VVi!mot.Dave Alexander 

Permanent Subcommittee on Investigations 

Redacted By 

Permanent Subcommittee on Investigations 

BY J,P, MORGAN CHASE & CO, 

5 

JPM.cIO00021D 

JPM·CIO·PS
John Vv'Ilmot, Alison Giovannetti 

CONFIDENTIAL TREATMENT BY J.P. MORGAN CHASE & CO. 

6 

JPM-CIOOO02124 

JPM·CIO·PS
1937 

;1 

II 

ii I 

I 

c:i 

u 

"" w 

(f) 

« 

I 

U 

Z 

« 

'" c:r: 

0 

:2' 

a: 

--; 
1938 

From: Evangelisti, Joseph <joseph.evangelisti@jpmchase.com> 

Sent: Wed, 04 Apr 2012 23:22:52 GMT 

To: Goldman, Irvin J <irvin.j.goldman@jpmchase.com> 

Subject: RE: Call 

Greg got back to me tonight. He's not writing tonight. He'll give me more details tomorrow morning, and 

then I'll work with Ina and others on next steps. Thanks, Joe 

-----Original Message-----

From: Goldman, Irvin J 

Sent: Wednesday, April 04, 20127:20 PM 

To: Evangelisti, Joseph 

Subject: Fw: Call 

----- Original Message -----

From: Weiland, Peter 

Sent: Wednesday, April 04, 201206:22 PM 

To: Goldman, Irvin J 

Subject: Call 

- - Redacted by Ih.c Permanent 

SIIbcomlllittft OIIlnvatiJ;atfoas 

So I'm sitting in Laguardia about to get on a plane. I pulled out my iphone and I had a message. It was 

Greg Zuckerman from the Wall Street Journal, said he was writing a story that would mention me and 

wanted to give me a heads up. He's doing a story on Bnuno and cro. His number is 212 416 3614. He 

talked to me about the story trying to get a reaction and all I told him was that I could not make any 

comment. To be honest what he said actually sounded fairly balanced, but you never know what might 

actually get into print. 

Left you a vmail at work too. 

Boarding soon but call if you want to talk. 

Pete 

Peter Weiland 

JPMorgan 

0: +1 212 834 5549 

m: 

CofIfId9ntIalTlQbnanl R"'lll!Htedbl' JPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002093 
1939 

From: Macris, Achilles 0 <achilles,o.macris@jpmorgan,com> 

Sent: Mon, 09 Apr 2012 14:35:27 GMT 

To: Braunstein, Douglas <Douglas.Braunstein@jpmorgan.com> 

CC: Drew, Ina <Ina.Drew@jpmorgan.com> 

Subject: Synthetic Credit Presentation 

Hi Doug 

FYI - the presentation related to synthetic credit is attached. 

Best, 

Achilles 

Confidential Trv.lment ReqUHtod by 

JPMORGAN CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002204 
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April 2012 

Confidential Tre'lllment Requested by 

JPMORGAN CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY JP. MORGAN CHASE & CO. 

J.P.Morgan 

JPM-CloOOO2146 

JPM-CIO-PS
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Default Summary - COX IG 

800 

600 

400 

200 

o 

-200 

-1,200 -1,400 

Confidentlal Treatment Requ'ilsted by 

JPMORGAN CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

CDXIG 

-30/03/2012 

6 7 8 9 10 11 1

J.P.Morgan 

JPM..ctQOOO2747 

JPM-CIO-PSI
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Default Summary - COX HY 

2,500 

2,000 

1,500 

1,000 

500 

o 

Conndenllal Trll!atmant Requested by 

JPMORGAN CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

CDXHY 

-30/03/2012 

11 1

2 J.P.Morgan 

JPM·ClOOOO2148 

JPM-CIO-PSI
Distribution of P/L 

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-zoo 

distributions of P&L in stress cases ( either bullish or bearish) 

__ 

'" 

400 600 

P&L 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

800 

1-- di;t -SO%

1-.- -25% 

I 

dlst-10% 

dist DO/u 

, dist +10% 

L 

dis+2S% 

dist +50(%, 

dist+75% 

--=- dist 

J.P.Morgan 

J PM·CIO 

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P&L: Detailed Breakdown - CDX IG 9 

Ouralion 

mrr 

run orr 

(orNara 

IG15 

Component 

Steepening 

HY bucket Spread effect 

Total 

CaRndent!al Treatment RBquested by 

JPMORGAN CHASE & CO. 

m 

JI% 

LO% 111 

JJ% lLl 

n% 15L m 

J5% 111 n 

CDXIG9 

5 Bp 

7 Bp 

12Bp 

10 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

Ouraijon adjusled Bela adjusl Durl 

04 

5L 512 nL 

) JI.51 520 

( m 4.05 4.56 

\ J4 ) 4.55 

40.J 

JPM-CIO (1002760 

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Current P&L: COX IG9 performance I 

$ cox IG9 can be proxied as a normallG index of 117 names and 5 HY Names (MBIA, RADIAN, ISTAR, SPRINT, RR Oonnelley) I I "The 5 names behaved like the whole HY market they underperform the IG market and steepened a lot 

! "Their move relative to the rest of IG indices allows to explain most of the lag in COX IG9 curve but not all 

.. Yet Q.75yr COX IG9 outperformed by 4Bps, 2.75yr outperformed by Q bps while 5.75yr underperformed by 2 Bps ,the net P&L alone impact is estimatedUSD11Qmm 

0.75yr compression CDXIG9 

Radian 

MBIA 

SPRINT 

RRD 

ISTAR 

% Index loss 

2.15yr compression 

CDXIG9 

Radian 

MBIA 

SPRINT 

RRD 

ISTAR 

% Index loss 

5.75yr compression 

CDXIG9 

Radian 

MBIA 

SPRINT 

RRD 

ISTAR 

ConrJdemlal Treatmll!nt Reque6ted by 

JPMORGAN CHASE & CO. 

spread 03/01/2012 spread 27/03/2012 DUration chge 

61% 132 68 

60%-'-""'" ................. 31.00% 12.48% 

28% l6:0Q% 11.49% 

63% 5,80%'---"'" ., ....... "'--..... 2.17% IG tightening 

59% 4.09% ..... ··"},S8% 55.00% 

73% 12.62% 340%s1fnUL"", 55% 44% 51% ..., .... 55.04% 

spread 03/01/2012 spread 27/03/2012 Duralion chge 

40% 140 88 

34% "f ....... __ . 52.00%- 34.50% 

14% ':lI;:jJ{)%_ 31,00% 14% 21.00% .. ,-___. ". 18.00% IG tightening 

20% 15.00% "11:000/, 52.00% 

12% 26.00% 23.00% 

21% 31% 41% 39.23% 

spread 0310t/2012 spread 27/03/2012 Duration choe 

24.5% 149 112 2.000% 

26% "'---"'--'" 66.00% 49.00% 

10% -5\:00'''- 46.00% 

1% 36.50% ---......., .. --.."'..... 36.00% IG tightening 

311/1) 30.00% <29;00% 30.00% 

19% 38.50% 

14% 23% 26% '- 25.75% 

Spread chge Index eq bp index based thea 

64 64,00 64,0 0.97 0.74 

16.5% 15.16 16.62%- 0.24 

4.5% 3.70 9.71% - 4.26 

16% 2.96 3.52% 0.09 

2.4% 1.96 0.06 

9.2% 7.56 7.66% 1.26 

31.39 3.20 

Spread chge Index eq bp index based thea 

52 52.00 52.0 2.82 2.68 

17.5% 14.34 20,94% 2.62 

5.0% 4.10 14.49% 7.76 

3,0% 2.46 4.47 3.0% 2.46 6,04% 2.49 3.0% 2.46 10.47%· 6.12 

23.36 23.68 

Spread chge Index eq bp index based theo 

37 36.50 28.3 5.26 5.28 

17.0% 13.93 16.20% 0.66 

5.0% 4.10 12.52% - 6.16 

0.5% 0.41 8,96% 6.93 

1.0% 0.62 7.36%- 5.22 

7.5% 6.15 9.45%- 1.60 

19.26 19.26 

J.P.Morgan 

JPM.CIOOOOZ751 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-
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Appendix; Position COX IG position changes since June 2011 allocated to IG9 

forward trade 

IG9 history In BLN USD Net O.7Syl'{"Syr') short InNet 2.7S1' I'7Yltdex level 

Juell 

Aug-II 

Sep-11 

Oct-II 

Dec-II 

Jan-12 

Feb-12 

Mar-12 

Apr·12 

Confidential Treatment Requested by 

JPMORGAN CHASE & CO. 

·89 20.9 

-95 23.6 -90 41.5 -85 27.4 

99.80 24.40 

·95 21.8 ·90 20.6 

-116.7 19 

·135 22.8 ·135 20.6 

Index ig9 5.75yr11914 "5yl' 

85 24.6 

96 28.8 

114 33.1 125 33.7 127 33.80 • 

131 34.8 

120 35.6 

102 56.7 

93 70 

91 78.2 

no: cux IU Inoex i 

posltiDn on"5yr 

IG15 "5yl' IG1S"5yl' IG17"5yl' bucket" 

·1.38 ·8.54 ·M7 2.86! 

-1.38 ·9.04 -8.89 4.48' 

·1.6 ·13.7 -26.6 ·2.24 ·2.8 -15.85 ·31.7 ·15.315 

3.40- 16.30· 25.60 - 1.20 - 16.50 

-3.68 -16.5 ·25.06 -1.7 -15.814 

·3.9 -16.9 -25.1Hi ·0.8 ·13.75 

·8.3 -17.6 -22,48 -17.6 -14.355 

·7 -18,48 -17.5 ·20.8 .i).W2 

.7.7 -18.9 ·17.5 -15.98 12.14 

JJ)Morgan 

JPM·CIOOOO271i2 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI
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Cwrent position and trading activity 2012 

Itrax£sfock 

Ca'-compression trade 

Main OTR Xaver Main OTRIG 

Forward vs OTR 89 Fwd 

5yriG OTR eq 

cOlC6Iock 

Decompression trade 

HY OTR 

IGOTR 

HY Steepener HY On the run 

HY10·11 

Forward vs OTR 

IG9 fwd 

IGOTR 

Net Index exposure per Block 

Net 5yr ITRAXX Main OTR Net CDX IG OTR 

Cortftclentlal Treatment ReqUested by 

JPMORGAN CHASE & CO. 

All trade-s 

3.700 H2.A 79.033.7RJ" 

4.500 10,599,246,667 

4.300 15,534,528,571 4.500 -14.844,105.U79 

All trades 

4.100 

4.600 56,814,564,391 

4.100 ,228 

2.435 4,293,653,388 

4.500 39,888,688,889 4.600 <::D,:)/1 :')':'3.478 4.500 22,472,525,079 4.600 13,110,337,783 

CONFIDENTIAL TREATMENT REQUESTED BY JP. MORGAN CHASE & CO. 

Start Jan Book - -Starn=eb Book Start Ma'iat Book Current Book 

-4,88-4,:nl.fi22 -6.23f.i,'"fDO.5r.1 

16,062,222,222 14,040,000,000 20,883,402,222 26,661,468,889 

20,497,375,000 27,746,375,000 33,398,625,000 38,511,625,000 

0 _A,g b86,380,5:::,6 ')13,20'2.775 

Start Jan Book Start Feb Book Start March Book CUrrent Book 

-7246,905-4::9 AA (,G95.0:'iC5:17 -14,6t,)2,635,805 ·19,273.918,610 

34,233,751,128 36,350,777,943 69,265,016,530 91,048,315,520 

-8,555.42(1.'027 ·1 .11.224.1 132.976 -11,10rJ,it41,146 

14,405,446,694 19,070,202,546 18,899,001,314 18,699,100,082 

54,651,951,114 75,029,095,559 94,017,484,448 94,540,640,003 

-91 97:3 

6,190,069,444 14,082,350,556 20,725,417,222 

-!")J',f3 1 -9.7''' 1 "7<19,136 

8 J.P.Morgan 

JPM-CIO 0(102753 

JPM·CIO·PSI
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Q2 Status Quo Scenario - A reflection on relative performance 

- the IG9 curve steepens a bit more in a tightening while the IG9 10yr lags the Syr OTR rally \i\ at the wides, the IG has ftattened a lot, not the IG9 curve \ \ » The IG9 curve should rally more with such a 

\ \ slope in a rally 

\ \ » The IG9 curve could flatten more in a widening 

\ . 

140.00 

120,00 

100,00 

80,00 

60,00 

40,00 

20,00 

Confidential Trutmem Raquuted try 

JPMORGAN CHASE & CO. 

0 2 4 

-------

....... 

--------

______ 

111 

6 

- .... ..",.-_ .... 

------

--------

8 10 

22 

12 

---50%IG9 

- - '-50% CS OTR 

- - '-25% CS OTR 

----10%CSOTR 

--'O%CSOTR 

--'10%CS OTR 

---2S%CSOTR --'SO%CS OTR 

JP.Morgan 

JPM.CIOOOO2754 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO, JPM-CIO-PS
1949 

From: Dimon, Jamie <jamie.dimon@jpmchase.com> 

Sent: Wed, 09 May 2012 18:44:27 GMT 

To: Miller, Judith B. <Judith.B.Miller@jpmorgan.com> 

SUbject: Fw: 00 Credit Collateral differences as of COB Monday 8th - induding 2 day differences against Morgan 

Stanley 

From: Coombes, Herna 5 

Sent: Wednesday, May 09, 2012 02:32 PM 

To: DImon, Jamie; Braunstein, Douglas; Hogan, John J.; Drew, Ina 

Cc: O'Rahilly, Rob; Bacon, Ashley; Venkataknshnan, CS; Vigneron, Olivier X; Macris, Achilles 0; Martin~Artajof Javier Xi Wilmot, John; Lewis, 

Phil 

Subject: 00 Credit Collateral differences as of COB Monday 8th - lnduding 2 day differences against Morgan Stanley 

CIO Credit Collateral differences as of COB Monday Bth 

Total difference between cia and the counterparties is now $144mm vs. $212mm prior day 

Largest Counterparty Difference: Morgan Stanley Capital Services is at $S4mm - down from $61mm 

Larsest Instrument Difference: COX lG 509 OSY 00-03 is now $26mm vs. $24mm on the prior day 

~PJC'Pse note: Deutsche Bank AG is as per the 7th May 2012 

Difference by counterparty: 

Top ten differences by instrument: 

ConfldentialTrvatmel'ltReqU8S\edby 

JpMORGAH CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002712 
1950 

Top 10 differences by Instrument against Morgan Stanley Capital Services as at COB Monday Bth May 2012: 

Top 10 differences by Instrument against Morgan Stanley Capital Services as at COB Monday 7th May 2012: 

ConfldentlalTI"IIIIJI&J\tReqllNtedby 

JPMORGJI,N CHASE &. CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P, MORGAN CHASE & CO, JPM-CIO-PSI-H 0002713 
_ __ 

CA (HI,97a,291} 

ElBVAS'; 

'NPI' 216,218,101 

aDA 131,319,255 

,pce (BS,S{)ll,ll11!) 

CBf(AG 11,S4S,9ZS} 

CG!.!L la,ZOO,022, 

em !)87,346,713/ 

eS! f17.3,S44,9,44} 

eS)( ("'3,34!J.,OO4i 

08KA.G 3&4,699,62.8 GS! 25,428,476 

HseCEU 

H5BCUS 19,5G9,sea; 

MU 5,173,139 

I.ISCS. 347,354,073 

MS!L f73,2£8,7S"-i NOrJURAlP 124,926,304 RESPLC 79,23,1,353 

Total 385,0lI5,t97 

Corrfldentlal Treatment Ruquested by 

JPMORGAN CHASE & CO. 

la()05,D.s2) 

210,007,619 

1 {!4.,985,Q52 

,6,{)71,306) 

(23S,24S,[)Jj5) 

'131,146,2.161 

,45,071,"1-) 

359.684.654 

10,558-,303 

13,671,196 

292,975,692 

171.8$1.2821 

116,102,655 

77,998,7,U 

1,272,925 

(4;),8911 

1 779 ,515 i 

26,334,211J 

110,19.1.,:>31; 

31,321 

\128,7113'i 

20,9Dl,352 

7,601,302 

1,723,96{) 

25,01-4,974 

14,870,173 

2,50D,601 

3,764,5£9 

t 174,79>3) 

54,378,381 

1"'3HS2J 

6,223,649 

1.232,611 

\19,932,29-1, 

. __ 

240,906,69-5 144,178,.601 

JPM-CIOOO03255 

CONFIDENTiAl TREATMENT REQUESTED BY J,P. MORGAN CHASE & GO JPM-CJO-PSI-f-I0002714 
1952 

lil~i~~~,;§~~; 

~ 
fn,alrum,,", 

rn.<..'O()JIlSGS10YZ2.111f1 

JdtI S01 12·11 

AA .... >O:Ufl.$tloji 10YDl.05 

/TR<lJ\'XMH 

Olher 

Confidenll1!,1 Tll!almllnl Requested by 

JPMORGAN CHASE &. CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO, 

CIO.YMt-e 

CPlmpll<"=d 

'''''' 53.76 

lOO.S! 

SH2 

23.57 

151 

'"" 

JPM-CIO 0003257 

JPM-CIO-PSI-H 000
1954 
1955 

Strictiy private and confidential addressee only 

Bruno fuil 

J.P.Morgan 

_ Red~ed by the Permanent 

- Subcommittee on Investigations 

FRANCE 

12 July 2012 

Dear Bruno: 

Subject; Termination of your employment 

J.P. Morgan Limite.d (the Company) hereby terminates your employment with immediate 

effect. 

The termination of your employment relates to your management of and responsibilities in 

respect of the CIQ's Synthetic Credit Book (the Book). The grounds for termination are that 

you have committed serious misconduct which may amount to gross, misconduct justifying 

the termination of your employment by the Company with immediate effect, as follows: . 

Under your responsibility for management and implementation, the Book experienced 

substantial, unexpected losses, after a dramatic increase in size, complex.ity and. 

ex.posure to various risks and pursuant to a strategy that was not adequately vetted and 

that was executed poorly- and without sufficient examination of underlying positions: 

and/or 

During March and April 2012, when the Book began to show significant losses., you 

received or were aware of instructions from Javier Martin-Artajo (1) to show modest 

daily losses in the marking of the Book rather than marking the Book in a manner 

consistent with the standard policies and procedures of JP Morgan Chase & Co 

(together with its subsidiaries, the. Firm) and/or {i;J to provide daily profit nnd loss 

reports that would show a long-term trend in the value of the Book's positions that did 

not necessarily reflect the exit price for those positions under the Finn's standard 

polides and procedures. You complied with, or permitted the compliance by Julien 

Grout with, such instructions in whole Dr in part with the result that there was a 

significant divergence between values under the Firm's standard policies and 

procedures and the Book' 5 stated value; and/of 

You improperly and/or with gross negligence failed to identify. raise or assess, in a 

timely manner and as reasonably expected,. risks and/or concerns in relation to the Book 

with respect to risks material to the Firm or its business activities; and/or 

J.P.MorpnLlmlJW 

25BIIflkSlred.Dma!yWlwf.l..Dndoo,EI45JP 

Tet+44(0)20T77121llJ·Fa:c+44{0l20}493~84 

Rq:ium:dInEni;lml&WIikor.'n.l.QIIill\l,~DII»I1'I"iImil(SI!o<t.C-:Y\Vbzirl;Llro: ... EI41Jf'.l\IAlrdood2'll~bYIh:FN:i:ioIS!:r>'Io.'l$...wr.ty. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002740 
1956 

J.P.Morgan 

Your actions were inconsistent with proper marking considerations under the Firm's 

standard policies and procedures; andlor 

Your actions andlof failures to act have violated the JP Morgan Code of Conduct andlor 

other policies applicable to you; andlor 

Your actions andlor failures to act were injurious to the interests of the Firm or its 

relationship with its customers or clients; andlor 

Your perfonnance of the duties aSfiociated with your position or job function was 

inadequate andlor unsatisfactory and fell significantly below what is reasonably to be 

expected of an employee operating at your lever of seniority; andlor 

Your failure to perform adequately andlor satisfactorily the duties associated with your 

position or job function is sufficiently serious to constitute serious misconduct by you; 

andlor 

Your conduct was detrimental to the Firm in tha.t it caused material financial and/or 

reputationa! harm to the Firm or its business activilies, 

The Company will today make you a payment into your bank account of 12 weeks' salary in 

Heu of notice (less derluctions for income tax and employee's National Insurance 

contributions) in accordance with clause 1.9 of your terms and conditions of employment (the 

Tenns and Conditions), This payment is without prejudice to any final determination by the 

Company as to whether your conduct amounted to grosfi misconduct, such as would justify 

terminating with no payment in lieu of notice, 

The Company and the Firm each retains all ~ights and remedies it may have against you 

including, but not limited to, the right to cancel or recover any cash or eqUity-based 

compensation paid to you in accordance with the terms of the relevant compensation awards, 

the. Finn's Bonus Recoupment Policy and other policies or agreements. 

You are reminded that following the tennination of your employment you remain bound by 

the post-termination restrictions set out in the Terms and Conditions, including, in particular. 

clause 14 (,Confidentiality') and clause 20 (,Business Restraint Covenant'), In accordance 

with clause 19.6 of the Tenns and Conditions. you must return to the Company all Company 

property including, but not limited to, any documents. Company equipme.nt, computer disks, 

books. key:;, document'>, corre."pondence, records, credit cards and passes which are in your 

possession or controL Please do so before the close of business on [7 July 2012. 

Yours fiincerely. 

:h~ Head of EMEA Human Resources 

For and on behalf of 

rp, Morgan Limited 

J.P.Margan~ 

lSBankS!m:t.Canary'Nharf,lcn:Ion,.EI-451P 

TeI:-+44to)1077712OlJ·FM.:+#{0)20J4930684 

~hE!¢lrl&:Wal:!iNn.~.~Q\b;rl9:lld;~Cmor1W1-.m;lJ.n1o ... E145Jl'.~mI~1>!kf"m,:;i:ll~AdIt"Y. 

CONFIDENTIAl TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002741 
1957 

Dear Achilles: 

Subject: Termination of your employment 

IP.Morgan 

'-- Redacted by tbe Permanent Sabeommittee OR IDVestigatiODs 

l2July2012 

J.P. Morgan Chase Bank N.A. (the Company) hereby terminates your employment with 

immediate effect. 

The termination of your employment relates to your oversight responsibilities in respect of 

your role a.<i head of CIO International which included the Synthetic Credit Book (the Book), 

The grounds for tennination are that you have committed serious misconduct which may 

amount to gross misconduct justifying the termination of your employment by the Company 

with immediate effect, as follows: 

Under your responsibility for oversight, the· Book experienced substantiaJ, unexpected 

losses. after a dramatic increase in size, complex.ity and exposure to various risks and 

pursuant to a strnlegy that was not adequately vetted. and that was executed poorly and 

witho.ut sufficient examination of underlying positions; andlor 

You failed to provide effective or adequate oversight over the Book and the activities of 

Javier Martin-Artajo and the traders on the Book; and/or 

You improperly and/or with gross negligence failed to identifY, raise or aSSess, in a 

timely manner and as reasonably ex.pected, risks andlor concerns in relation to the Book 

wim respect to risks material to JP Morgan Chase & Co (together with it.s subsidiaries, 

the Firm) or its business activities; and/or 

You made representations to senior management in relation to the Book being balanced 

andlor well positioned and in relation to its estimated P&L scenarios and risk exposures 

which were Significantly inaccurate in circumstances where you knew or ought to have 

known that such representations were inaccurate and/or omitted material facts necessary 

to make your representations not misleading andlor failed to make an adequate or 

prompt statement of correction of such representations in circumstances where it 

became clear that such representations \'?ere inaccurate; and/or 

Your conduct was detrimental to the Firm in that it caused material financial andlor 

reputational harm to the Firm or its business activities; andlor 

Your actions andlor failures to act have violated the lP Morgan Code of Conduct andlor 

other policies applicable to you; andlor 

Your actions andlor failures to act were injurious to me interests of the Finn or its 

relationship with its customers or clients~ and/or 

J.P. Margut OU"$II! Bunk N..A.. 

15Banlc.SIm1.Cana!yWlwf,l.orIdal, EI4!iJP 

Te!:+44(0)20rrn2COO·Fu:;44(Ol2DJ.49J~ 

~=lIn~&r.W*'tb.~.~0IIb:25Il:ro1<So\oI.c:-ryWl=!l;l.ardnE)4S1P.AWrrio.lwd~byI/t!F'tIIm;:W~~. 

r.ONFlnFNT1Al TRFATMFNT REOUESTED BY J.P. MORGAN CHASE & CO. JPM·CIO·PSI·H 000274; 
1958 

J.P.Morgan 

Your perfonnance of the duties associated with your position or job function was 

inadequate anellor unsatisfactory and fell significantly below what is reasonably to be 

expected, of an employee operating at your level of seniority; andlor 

Your failure to perform adequately andlor satisfactorily the duties associated with your 

position or job function is sufficiently serious to constitute serious misconduct by you. 

The Company will today make you a payment into your bank account of 12 weeks' salary in 

Heu of notice (less deductions for income tax and employee'!j National Insurance 

conrributions) in accordance with clause 1.9 of your terms and conditions of employment (the 

Terms and Conditions). This payment is without prejudice to any final determination by the 

Company as to whether your conduct amounted to gross misconduct, such as would justify 

terminating with no payment in lieu of notice. 

The Company and the Finn each retains aU rights and remedies it may have against you 

including. but not limited to, the right to cance! or recover any cash or equity~based 

compensation paid to you in accordance with the terms of the relevant compensation awards. 

the Finn's Bonus Recoupment Policy and other policies or agreements, 

You are reminded that following the tennination of your employment you remain bound by 

the post~termination re.~trictions set out in the Tenns and Conditions, including, in particular, 

clause 14 (,Confidentiality') and clause 20 (,Business Restraint Covenant'). In accordance 

with dause 19,6 of the Terms and Conditions, you must return to the Company all Company 

property including. but not limited to, any documents, Company equipment, computer disks, 

books, keys, documents, correspondence, records. credit cards and passes which are in your 

possession or control. Please do so before the close ofbuslness on 171uly 2012, 

Yours sincerely. 

~a./?/ Head ofE~uman Resources 

For andon behalf of 

J.P. Morgan Chase Bank N.A. 

U. Morgan OJII5t Bo N.A. 

nBankSu«l.OIrII!ry\YhBrf,l.ondcn.E145J1> 

TeI:+44(0)20Tm2OOl·m;+44{(F)203493 05S<1 

~"~&Yr'~"'l'/tI.:\.IIItOJU.~0II-"~15Boo1o:~~WImr(,~E!4ll1'.~""lI;IIlBIl!dbr01o~Sa;m~ 

Pagel 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002743 
1959 

J.P.Morgan 

Strictly private and confidential addressee only 

--== Redacted by the ~linn.neDt ' 

S~bcommittee on ~vat1latiom 

12)uly 2012 

Dear Javier: 

Subject: Termination of your employment 

J.P< Morgan Chase Bank N.A. (the Company) hereby terminates your employment with 

immediate effect. 

The termination of your emplDyment relates to your management of and responsibilities in 

respect of the CIO's Synthetic Credit Book (the Book). The grounds for termination are that 

you have committed serious misconduct which may amount to gross misconduct justifying 

the termination of your employment by the Company with immediate effect, as follows: 

Under your responsibility for oversight and management. the Book e.xperience:d 

substantial, unex.pected losses, after a dramatic increase in size, complexity and 

exposure to various risks and pursuant to a sttategy lhat was not adequately vetted and 

that was ex.ecuted poorly and without sufficient examination of underlying positions; 

andlor 

During March and April 2012, when the Book began to show significant losses, you 

directed Bruno Ikl:ii1 andlor Julien Grout to show modest daily losses in the marking of 

the Book rathe·r thnn marking the Book in a manner consistent with the standard 

policies and procedures of JP Morgan Chase & Co (together with its subsidiaries, the 

Firm) andlor to provide daily profit and loss reports that would show a long-term trend 

in the value of the Book's positions that did not necessarily reflect the ex.it price for 

those positions under lhe Firm's standard policies and procedures~ andlor 

You made representations to senior management in relation to the Book being balanced 

andlor weil positioned. and in relation to its estimated P&L scenarios and risk exposures 

whiCh were significantly inaccurate in circumstances where you knew ar ought to have 

known that such representations were inaccurate andlor omitted material facts necessary 

to make your representations not misleading andfor failed to make an adequate or 

prompt statement of correction of such representations in circumstances where it 

became clear that such representations were inaccurate; andlor 

J.P. Motgun ~ Bank N.A. 

2SB!l!lk.Sb'eel.CllnaryWlmlf,~EI45JP 

Tcl:+44{O)2071TI 2!XXl· fn:-+44 (0}2014910684 

~ilE<lp.!&·Wok:sIh:!oMl'l,~OfPalSe..w:SI!t«.Cn!rj·w=r.tlIIG!n.EI4~.AId/lncl:lfd~I>J'~F'0I'IIri0I~AlIlIIrl)', 

r:ONFlnFNTIAI TRFATMFNT RFOUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002744 
1960 

J.P.Morgan 

You improperly and/or with gross negligence failed to identify. raise or assess, in a 

timely manner and as reasonably expected, risks andlor concerns in relation to the Book 

with respect to risks material to the Finn or its business activities; andlor 

Your conduct was detrimental to the Firm in that it caused material financial and/or 

reputationlll harm to the Firm Or Its business activities; and/or 

Your actions and the instructions you gave were inconsistent with proper marking 

practices under tbe Firm's standard policies Ilnd procedures; andlor 

Your actions andlor failures to act have violated the JP Morgan Code of Conduct and/or 

other policies applicable to you; andlor 

Your actions andiOf failures to nct were injurious to the inte.rest') of the Firm or its 

relationship with its customers or clients; and/or 

Your performance of the duties associated with your position or job function Was 

inadequate and/or unsatisfactory and fell significantly below what is reasonably to be 

expected of an employee operating at your level of seniority; and/or 

Your failure to perform adequately and/or satisfactorily the duties associated with your 

position or job function is sufficiently serious to constitute serious misconduct by you. 

The Company will today make you a payment into your bank account of 12 weeks' salary in 

lieu of notice (less deductions for income tax nnd employee's National Insurance 

conlributions) in accordance with clause 1.9 of your terms and conditions of employment (the 

Terms and Conditions). This payment is without prejudice to any final determination by the 

Company as to whether your conduct amounted to gross misconduct, such as would justify 

terminating with no payment in lieu of notice. 

The Company and the Firm each retains all rights and remedies it may have against you 

including, but not limited to, the right to canceJ or recover any cash or equity-based 

compensation paid to you in accordance with the terms of the relevant compensation awards, 

the Firm's Bonus Recoupment Policy and other policies or agreements. 

You are reminded that following the termination of your employment you remain bound by 

the post-termination restrictiOn<; set out in the Tenns and Conditions, including. in panicular, 

clause 14 ('Confidentiality') and clause 20 ('Business Restraint Covenant'), In accordance 

with clause 19.6 of the Terms and Conditions, you must return to the Company all Company 

propeny including, but not limited to. any documents, Company equipment, computer disks. 

books. keys, documents. correspondence, records. credit cards and passes which are in your 

possession or control. Please do so before the close of business on 17 July 2012, 

Yours sincerely, 

=kv 

Head ofEMEA Human Resources 

For and on behalf of 

J.P. Morgan Chase Bank N.A. 

J.P.M(JtgIllt~BIlnkN.A. 

25~SIreeI.CarwyWllalf.l..oodon,E14:'iJP 

Td:+4tl {O)2OTm 2OC.(l. Fn:+44 (0)2lJ14930084 

~in~&.WobNt~~.~onb2:la...tSla1!l.C=ry\Yll>lr{lmIW:!.EIoI3lP,,,",,,,....m:IIIIII~byIMFil:n:t.I~Aollnb.y, 

Page 2 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002745 
1961 

N 

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CONFIDENTIAL TREATMENT REQUESTED BY J.P, MORGAN CHASE & CO, JPM-CIO-PSI-H 0002746 
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CIO compensation - Overview & Pool Determination 

• Overview 

CIO compensation consistent with firm-wide approach 

Discretionary, awards 

Balances performance of tile Firm, CIO and individual 

Same cash/stock splits and deferred equity compensation as firm and other LOBs 

Major driver of individual total compensation is value" 

• Pool detennination and limits 

Pool estimated at beginning of performance year based on previous year's aggregate poo!, adjusted far changes in 

incumbents, staffing plans and other known changes 

Pool estimate reviewed during year and adjusted as needed, if significant changes in CIO financial forecast vs. CIO 

changes in overall firm Ie gUidance or other significant unanticipated changes 

Determination of final pool subject to discussions at senior-most levels, taking into consideratton numerous factors, 

including multi-year performance, quality of earnings and risk adjusted financial performance 

Final pool approved by CMDC 

JPMORGA" CHAS
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CIO Compensation - CIO Financials 2008 - 2011 

Hlllt[)ricat Operatlt)!lPerfonn"oce($ ill rnillh.lJst 

2008 

Actuals 

Revenue1 2,345 

Total Comp 117 

Non-Camp 70 

Total Expense 188 

Credit Costs 

Pre-Tax Earnings 2,157 

NeHncome'"' 1;262 

SVA (at 12% assumed cost of capital) 1,124 

RoE (Net Income/Economic Capital) 110% 

Comp/Re'.l9nue 5% O'.l9rhead Ratio 80/0 

Economic Capital 1,151 Economic IC 68 Economic Total Camp 100 

Note: Corrp and I\Ion-ConTl expenses adjUsted to elinlnute LOB FX hedging reskjuuls 

1 klcludes and BOLVCOLI 

2009 2010 20

Actuals Actuals Act

9,157 7,207 

169 203 

79 108 

248 311 

3 8 

8,906 6,888 

5,210'" 4;029 

5,044 3,869 

377% 302% 

20/0 3% 

3% 4% 

1,382 1,333 

156 132 

194 184 

JPMORGA::\ CHASE 
(") 

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CIO Compensation - Revenue to Compensation Historical Lookback 

m 

CIO compensation is relatively flat over the period, and there does not appear to be a direct correlation between revenue and comp

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10,000 

9,000 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

All elo Comparison 

Revenue and Incentive 

sao 

450 400 

350 

300 

ZSO 

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150 100 

so 

c 

1,200 1,000 

800 

600 

400 ZOO 

Synthetic Credit Book Comparison 

Revenue &5(B Trader Inc-enthte(W08.2011) 

200B 2009 2010 2011 2008 2009 2010 2011 

_Tota! Revenue - ..... -Incentive _SC Revenue Traders 1C (Iksil, Grout, de Sangues,

JPMORGAN CHASE 
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CIO Compensation - Individual Determinations 

• Individual total compensation determinations 

Internal and external benchmarks (put together for this presentation) a reference for seat value (Tab A) 

Quantitative and qualitative assessments of performance and contribution 

Performance reviews, though not always formally documented, consider a number of objectives and factors, 

including finanda! performance, risk management and execution of firm objectives (Tab B) 

Input obtained from the Chief Risk Officer of CIO and other control function leads (Compliance, Legal, Audit) on 

senior market professionals (Tab C) 

Total compensation recommendations for the most highly-paid employees, including Macris, Martin-Artajo and Iksil, were 

reviewed by the Operating Committee and compared to others in like roles across the firm, then reviewed and approved by 

CEO of the firm and included in JPMC Highly Compensated Report provided to CMDC 

Total compensation recommendation for CIO CEO made by firm's CEO and approved by CMDC 

Compensation history for Drew, Macris, Martin-Artajo and Iksil are at Tab 0 

JPMORGAN CHASE 
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CIO Compensation - Overall Observations 

m 

• Observations 

;u 

g of CIO compensation indicates that both quantitative and qualitative factors, including risk management, were ill Included 

@ Significant changes in annual revenue from 2008-2011 do not directly correspond to changes in total compensation or 

incentives 

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Total compensation is largely driven by 'seat value" and thus remains relatively flat over the period 

As JPM CIO is not directly comparable to CIO functions in other firms, external benchmarks are not readily 

available; however, blend of data from IB, AM and external positions provide reference information 

Governance processes were in place and were followed 

Internal review of pool and individual awards by senior management across the organization (HR, Finance, 

Operating Committee) 

Input and review by Risk and other control functions 

JPMORC;AN CHASE 
1967 

List of Tabs 

A Seat Value Comparisons 

B. Performance Reviews 

C. Risk & Control Feedback 

D. Individual Compensation Summaries 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002752 
1968 

CONFIDENTIAL TREATMENT REQUESTED BY JP. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002753 
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"Seat value" comparisons 

Total Compensation ($mm) 

17.5 

"''''' 

Chf.!n-"'. Head 9.0" 11\0 

International cia Maals '" 17.25 Avg -High 8YlL=J:!!9.!l JPMTopPald S.S·lZ.e 15,0 

Top Paid fixed 1{1-12]5 10.6-15 

income 

AM Fixed '.0 '.0 

Income!lW. 

EMEA C!O Mgt MartJr.-Ar/ajo 10.se 12J5 lk&11 !),re 7,32 EMEAIBMDs R.9-10.5 6.0--13.3 

4..4.:';'1).8 

1{lCOfJ18 

SCBTraders Ouraya to 1.46 _. AVa -7SP 

Gmu\ 1.0 ," FronlOfflce 1.0-1.95 1::<-2.2- deSangues 1,25 ,17 

1M Fixed 9-1.5 

IncomePMs 

CPC Avg.=2.16 Avg."'213 

A'Ig."'.6 Avg.=.63 

, Illdepender'lithird party pay surveydala us!)din direct job benchmark(ng 

" Indepenliel1tlhml party pay sUl1Iey dala used for cemparable jobs !r. othe rlOBsthllitarere!erencedaspartofln!emalcompariaol\S 

I Other 

iniemJil Head 

$7-$16 

Internal - Sales &Trooing MDs in 18 (n"'

Intema! - 18 Fixed !nalme (Top 3 t)eiow f

tnlemal - AM Fixed Income Inlreslmerrl H

tnlemal- ,Si!'!es ll< Trading tn=2

MGMC MaikSt SurveY' 

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lnternal-IB MDs 

m EDNPs 

CHAS
1970 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002755 
1971 

Macris 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002756 
1972 

Acl.:J.m. PhiIlipa C 

Fl'Om: 

Sent 

To: 

$ut;'l.j.o.er. 

S:'!_~JI!t.~ 

DrEw,lm:: 

1.3 January 201 1 13'0:1 

M~cris. P-.-cMnleos 0 Con:'lc'!>n~"'! _ 2010 PQrfQrmunce Eonl!U2tion 

If\~ 

~~~~~:;;~";.tk,,1;~~~~::;~:17~~~~~'~;x"';;."" 1.'~;~h;P rl"='''fln"'V 

,'~ r-\J{I,'i.,~n!V1J~':UW.i9f!S·;p1~imt·lrit"""~·~il:lft~ti\'~11'lfto~~-:;'y.1'~ .. ;glrdi .. ~~i;h':'~ j' 

50r>c-;~Clfeeedo .. r;k From the ~ontrOlieads.whCl <::cn~urttmt In 20.10, \-oU r<;lnti:'Jl,Ied tQ be t:lf'Q;)C1lvc and dcrnanstr.ltOOll .hIgh degrt:e of sen:S'T:1vity to the firm'5 fisk manOi,aernl!nt pracdc~ Yau lead by t!X'iJmple thro\.Jgtl ct edsion m<lkfng fn risk" man~gemcl'\t. ~ 

~9Q!I'1~tIt.8r.!2~ 

Shoutd yal< :!tpiJ'"l!: to ,?,?/OC I"I:!J~,.y?" }'?~,~,tp:,~~.~.}~~T~:t~~I"SI?~qt'fe"'.oflOP tier;l~ya'bi-l1e'tirm: 

To be, eo:nptetely suC"C~~1 as a ""o'terrtlall'lJcces-soryoo ne~d to help drive fn'te:gr3t:io n and pan"erw;th. North Americ". 

'Employee Confirm 

CONFIDENTIAL TREATMENT REQUESTED BY J.P, MORGAN CHASE & CO. 

JPM-CIO-PSI-H 0002757 
1973 

Achilles Macris 

Strengths: 

• 2011 solid year for Intemational cia under Achilles' leadership 

avoidan~ of~,?jpr risk rnanagem~nt errors 

some oppo'rtunities left on the table 

.. Identmcation of risk with a strong inclusive Risk Management culture. (see code reView) 

• Leadership - role on EMEA Management Committee; excellent on both FSA and Regulatory 

matters. 

Development: 

00 needs leadership at the top to improve internal partnership 

• Achilles must strive to promote teamwor~ information sharing and relationships between his 

team and NY setting the highest possible standards and pushing down the role of culture carrier 

Less reliance on staff and more intensive rigor in budget planning and expense management 

Feedback from Control Partners: 

• Has created a supervisory environment which is compliance and controls-oriented 

• leads by example and sets the right tone with his team regarding compliance and control 

• Is always keen to understand the regulatory environment in which the bUSiness operates 

.. Conducts regular risk management discussions during his weekly meetings 

Demonstrates rigor in his team meeting, reviewing each market one~by-one and quizzing PMs 

on their positions 

.. Holds quarterly close and continuous meetings with the FSA on the CIO business. Feedback 

from the GSA is that the ClO business under Achilles' leadership engages in an open and 

transparent manner, bringing issues to their attention and ensuring deep understanding 

.. Is highly sensitive tD market risks and is very responsible to market events, drawdowns and 

other situations that may signal need for risk reduction 

Executes without hesitation when a reduction is agreed 

• !s engaged and supportive of the Risk Management team 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM·CIO·PSI·H 0002758 
1974 

M.anager soctions of this review are in 'dmtr status. Employes cannot vi6W manager's comments CIt' ri'ltings in Dralt status. 

-- !nProgress 

Employee: Macris,Achmes (U430216) 

Manaaer.: Drew,lna R (UOS0924) 

Additional ............ ' NlA 

Review CVcle: 01.JAN·2011 -- 31-DEC-2011 

jReportin-.9Year.: 2Q11 

Job Trtle:: Chief lnvestmenl Officer 

Tenure Date: 1Eh.!AN-2008 

luSe< S"marum 

I ....... ., Not"'_ IErnnln~ N"S_ 

~~J":i<' , .... ~,; ,:;;, .. :i:',;, 

can.e.G~1 

The" aM no """'" ""'" "" th:, e"<>"""' . 

• = cC=mems 

iManaoo< 

'171mfB ate no eommanls availab/o1 from me manBg<!l'(s): 

comments mtN not exist or be in dtaft status. 

Macris,Acl1i!1es (U43021£)· 2011 PeriormanCG ReYfew 

,~,:"':~' 

; 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO. 

.. 

10ate 

J,<lA 

IN/A 

,.: " 

IT..", 

I 

Page 1 012 

JPM·CIO·PSI-H 0002759 
1975 

lemo!olle Year End fDiscl Flemin .... Lorraine 23-JAN-2012 

\

_exceI1ent YearmahardmS!'kGtel'lV'l1'l)l'l.":K!nt. 

- In a&frtion to doubling the International buCl;-ets. r:'\2.da E'I I:)g comllutio,'11n C:t'.arlgiflg and updating the min;Qn;I and manager.'lent 

! me'Jlodology of:he Global \)OOkl;;. ;A';-.Jl..O.~.Q;:",~".;; j-String Europoon-corttnbution.artd,~~, ••. havaadditiooalslklO.QQ~1r!?nltl~~;C~!P)f'!'I~!~~~~~~ 

11) " j- PeopI@:stn:lrJgeslteam.sll1Y.Igdavelopmeflt 

l-Co,.,~!s: ~tanding ~cj{ from tI1eoontn:llfuro';t1on partners tx:tt"I tundicna! and re~ (SaIIy/FSA E'lc) 

\ There an:> no commllnl'$ availab/g from the managllr(s); 

comments may not exist or 00 in fkaJt status. 

, .. . .···,;;;:;"'W··,:f?'· 

I Dl..",..k>n 

10bi_" ,PI", 

IJ"'. 

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. 

ISourne 

I""",=~ 

Is"",,,,,,, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

.: ... --. -"'':'; 

"Man""", Confinn 

:: : ... : .... " ... ' .. 

!Oate 

IMooJ.,,, 

IMooJ",'" 

"~ 

Page 2 of2 

JPM-CIO-PSI·H 0002760 
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Summary of Contribution 

2,006 

Actua.l 

international SAA 

Carry I Sec Gains I MTM 

FX Capital 

Carry I Sec Gains I MTM lOCI 

Tactlcal 

Total return 52 

2007 

Actual 

444 

2008 2008 2lI10 

Actual Actual Actual ¥TO 

133 Z,gg6 1,143 1,335 

,_ .. Redadtd by Ihe Permanent 

Subcommittee on Innstigations 
1977 

Redacted By The 

Permanent Subcommittee 

on Investigations 

JPM-CIO-PSI-H 0002762 
1978 

CIO 2011 Financial Revenues ($81160ns) 

2011 Budget 

2011 Actual 

nt'll]~ 1.7 2.4 4.1 

3.2 0.0 3.2 

'---

CUJ 2011 Financial Revenues ($8il1ions) 

Int'l NA Global 

2011 BudgetTAA 0.6 0.2 0.8 

2011 BudgetSAA 1.1 2.2 

1.7 2A 

2011 Acfual TM 1.2 

2011 Actual 8M 2.0 

3.2 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002763 
1979 

Tactical Contribution 

'-- Redaded by the Permsneat 

Subcommittee on In"est •• ~ 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002764 
1980 
1981 

Rtvetti t Reoo.cca 

From: \~acris AchillE''' 0 

Sent: Thursday. Ja'1U3ry 13. 201112:20 PM 

To: Rivattl. Rebecca 

Subject: Appraisals 

I afways conduct my year ~nd appraisals Wlth my dire.:t:: \~~llly as 1 find this allows for ~ better exchange- or vlE!\"J~ and 

more honest conversation. Nonetheless I have detailed bl!low the key ~h~mes that we discussed plus sp~lfk feedback 

that! have re-ce~ from the Control dl~!pi1ne.'S'!n re-Iation to JavIer 3!1d Chris. 

).vl., mcu'il YI- ftr~ 0 

Smngth .. 

Has developed a world d<lss Credit ri~ rnO!na~em(mt al"!d hwe-stment team In ~N'TIS of pe"'Sor.ne! and r<:'su!ts. 

£~ce~nt..risk·manageme!U·'l\I)::)ffied b"l1he-.~eptio~at~ifQf~n,e.eXpo.:.t1el1't:ec In 2blO wlwre the 5tr.at/!,IIJC 

ere-em boOk rontincued to generate a' POSitN~ conti:l~u·tr.on whHe'O'e~n~king. Typically :he: exp~rlenc:e of der'sklrg st:ch a boo!o;. 3ftH t!"le 'Ie ." slWlifican: positive nf"tribl!'lio",s in 2008 "r.c 2!}J9 would be one of a 

drawdcwn. In 2010 Wf> have t'xperie'llced tf'," opOC :",?, 

• H<lS establist'!~ hlmseif as a teal leader and lnflL'encer t.rJ't"'in ClO ,m(\' tl'l<? • ... ·id~r F:~~ This is deMol'\~tra~ed by 

his appointment to em's extended m<lnagement teil;~ and his bteractior1. with otr.~r pti,,· of tl"ie Flrf"1 siJr~ as 

the lB. 

.. Gncd control discipline and aWU€'ness,. 

A~as {If FCK'us for 2011 

flt1akes a huge con::ribuTion to the co~~ndng SUCC'~$S of Cl0 ;:.lab3ily and int<;!rr.~tianal!v. However the~e are 

tirr;es wMi!'n ~erhaps he n""/"osto playa more arti~ role In hi.5 involvement with t~E' Europe !tnt~s blJsin~ss. 

8' ~e development of EmNll'ir.g Marr./?t caIJabilr.y is a big ~t;(\· '\,·;w ]011. l:am locking fo" JaviM. in (Ja~r;?"~hlo 

with, Chrii, to drive ':he stJ::te-ss :-':th,is. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002766 
1982 

" Javier is a d-E'':?p thinker aod ,an ,;et very irnr;"1ersed !r.:"j t:,e de-t.,il and !E:chnica-I ",speer- oJi.en issue. At times ne np',!-jS t-o st~tJ l,.atk aM \CX;;i'> at the W'teJer pi("tur~. 

Market Risk· Very 2ware of risk limits and good discipline. Great pertner in supporting d-eveJopmerrt; in 

impn;;l'Iing ris~ anaiYSois C!nd undemanding of pos:1tions. 

~ COO· Control aware. Ah.~.rl3y~acts jf a contra! iSSUe is escalated to him, ccndl.':-:~~ himself as a tt\.le' business 

owner ;:;;I;,in-g abo'Jt all aspects (not just risk managen1ent) of the busil1es.s. Y~<:-'"1 to ';-:"Jc)!l.'meont ciJntrof 

im;>rovements and -enhancements. Chairs loc;:!! Bee. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002767 
1983 

Mana,OIer sections ofth!-s reV1'aw are In 'dmrt' stalU!i. Em?loye~ cannot view mBnagers ':::ommol'1!s or falings in DI1lf! status. 

lnprogren 

Martin-Al!3jQ,Javier (!016308) 

,""""""" Macris.Aehmes (U430216) 

AdOttionalUanaoer: NfA 

Review~ OhJAN-2011 • 31-0eG-20i1 

RN'lnrlinnYear;. 2011 

Head Portfolio Manaser 

Tenure Date: 2S-JUl-2005 

luse< Sia_ 

I .......... NotSiQn 

1""",,,,,,_ NotS;",,,, 

1""",,==- ",.. 

I""""" ..... ,..~~ 

Thare am no comments available from rna amployee; 

aomments mow f)Of exist or be In draft status. 

There 8m no comrrl8f1ts /lvdJ7aDla from the rmm9!;8r(s); 

,c:ommen.tsmavnolexistor06lndr:a1fstatus. 

Mal1in-ArtIlIjo.Ja.vier (1018306).2011 f>(!rfl)(r'MI1ce Ravtew" 

;:!\'<~;~~O' .... 

U! ;'Y"·;· "4:;:». 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

l ...... 

IN/A 

iN/A 

I"~. 

Page 1 ofS 

JPM-CIO-PSI-H 0002768 
1984 

EmoloveeYearEnd lOisolav)· Flemina.lorraine U7-FEB-2012 

ReSp;:lflSabifrties 

Management of aU EMEA (london} PortlollOSi and Portfolio Maroagsrn 

Areas of improvement 

ImprOV\! comrnunlcaflOn of our As$et Management ckldsioos and speed of this ~munlca1lon with NY 

Improve th& ovarnll comlTllJl1ication precess in EMEA!\"om bottom up proca:!lS sa thai we buHd that cullum across all Portfolio Ma!'"li.lgers 

Improve Risk ManagemetIt !nfmstnJdurG and Risk Control errvi!'Oflmentg~ the IlElW 8M framework 

Strenglhs 

Long term trac1<·record in !~en1 Management in Crooit portfonos 

LDng tenn track-l'l3COrd !n buildiog cohesive high-performal'lCt' Teams 

Highly quanllta.ti'ffl approach to dadsion making 

Other secondary responsabW1Jes 

Memoor of lhe Di>le~ COmmittee Worldwide 

Mamberof leadol1ohip Inltiath.<es OOI'QSS EMEA 

1M""" of t~ k" ,""",Mum Ie"'" EMEA 

Javier i:!i one of \he bes'I investors I haVe- ever worj(ed yMn. OUt at !he bOx !!'linker, aJways a feIW slSps allead of everyone else, 9OO"S Into 

tl'Ia OGl:3ils and !he results shoW theI"nsetves 

;::~ls~~roragroop_oIPMswt>ot09~r~"~~~~~:,~~o.~_~~~!S:,,,~ .. 

. ,,"',.!""'"~,..".... '~ ..... ',. .... 

. ,~, .. 

Ois<usslon Emplovee Continn 

""-'" ,p<", 

,. F". Mac< 

lAm. Mav "'''' y,,,, 

Martln-A.rtalo.Javiet {101S308).2Cl11 Performance R~ew 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

Page 2 of3 

JPM-CIO-PSI-H 0002769 
1985 

M;:ottin-Artajo,Javier (1016300)· 20'1 Perfortnance R~e.w 

Page30f3 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002770 
1986 

I ksi I 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002771 
1987 

Manager sectiQflS ollhis ~ew are in 'dn!lft' status. Employee canllOt view manager's oomrnen\:.$ or ril~ in Draft status. 

,,-

Iks6,Snmo Miche! (0014921) 

~'1Ianaoei-: NIA 

Teriure flit:ite:. '. ~. 2o-JUN-2005 

~~~~~~~~ditcmai'- ;:t8~:;:~~:~:r~~=;:er::l:by30-50%.geft/1e 

Vat back to 70M and maintalll acoeptaole stress. test ~tls. TargGl 

Date :eodot03 

I~A 

R -

lk:sil.Bruno MlCIlei (0014921) - 2009 PerfQllT1arn:B Review 

Pagel of! 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002772 
1988 

E= ...

~_,Not .. Ao!I.~ 

Started 

expand tradIng actiVity to other ,-Iwep reducing 9XpOSU1'9 In credl1 

asse!class.es man..ets 

2- d.....-alop exposure to ralss-, FX and 

eouitvmaril:eI:s onl'l'lOdestsi;ro 

abUilyto aath&rrnarke!lntalligenc:aincreditdenvalfve:s 

• abillly to "thInk' oni! or two trades ahead ot the events 

-ab todefiM andtrncteideesl 

cJ;:3·;;··~~f,0''::·d.:';;;'''-_/r' ~-':"'~'~"~v.:.' 

• be less naive el:lov1 some playars !n the industry 

-be more tic in 1he n 

There are no commoots 8Vlii/able from t'he 1118n£l9a!(S); 

~ norexistorbBindiaftstatus.. 

-Iksil.Snmo 'lboo\{ OOwnslzlng neods to go Further 

no trade yet in other asset dasses 

, 

The first quaner was a particularly challenginQ moment where I did not pay Bnough care 10 what marks! players WOUld do when I slar1ed 

IksH.BMlo Mit:hat (0014921) - 2009 Perlormance Review 

Page 2 of 3 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002773 
1989 

reducing tha posillons.1'hal'Iks ID tho suppoo of my mana!;jel'5 aU aJoo.!;j!he way, this expertenoo turned 0<11 ta be a vary profitable exercise 

\n m8J1y respects: 

1· J leamedalot In quful, exceptional COI'\di!iQns on 1'Iow!O manage very ~rge positions· 

2· j leamed II:) se/oc.tcounl:9l'Part!esdepend!ng on wtlBt they could do and wha1 th~ warned 10 do. 

S- 11eame<f1ha:~evemQlnQ Is also an art. as much as buIkl!f'l.;: aOOok and a P&Lcan ba. 

~ are no comm9l1f$ allQJ7ab/s from rtl81Mfl1i9tU(s); 

CO/nIl"1ei'ItS mavnote:xJstorbei'J dtaff stmus. 

Devel menl/Career Plan 

Jan. Feb Mar Quart", Diseusslon 

,Ma ,Jun MidYear 

Jul Au . Sa Quarte DIscus.s 

Nov Dec aarE 

llcsi1,aruno Midr&! (OO14921). 2009 Performance Review 

y 09·NOV-2009 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

Page30f3 

JPM-CIO-PSI-H 0002774 
1990 

Manager sections- of tnia review are in 'dmtr status. Employee cannot view maoaoer's oomlJ\ellts or ratings in DmtI slalus. 

Em 

Not~ 

01..JAN·2010 - 31·DEC-2010 

2010 

Head Portfolk:l Manager 

Not Rated 

_'~P&L~: __ m~~_1 

the taroet Is achieved t1!.nleri<::allv vet notionaJs, have remained due to th& lack of!jquldity in credit dertvafives markets. 

Iksl1.Bruno Mldle~ (OO14921) - 2010 Perfoll"T)af1CB Revrew 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

Pa.ge 1 013 

JPM-CIO-PSI-H 0002775 
1991 

~'MW~~~~~~ ____ ~ _____ ~I ____________________________ ~ 

targel ac:hiell9d lOf !h1s year although many deyaklpmsnt oro sllU 10 t>e done on the infrastructIJre side. We also nlHI'I! to !;la-I mOl9 

~tietlCllt()fltheserna.r1u'lts, 

analyze the experianec 01 !he I-build a trading group based 0f1 tactiCal 1- the gl'tlup exists but the process of capital allocstlon Is not 

past 4 years and start up a personal views yet In place 

trad'mg group. listen to olhers' 2-merga the vlw.oslnto a set of 'Ia~ Z-!he 'tatl event"posflicns exist but ove~m the tactical 

fears and gmed avant"optlons thai will netp observe how trades 

everyone feets WIth the rl'sks IIlke-n 3- tna porttoHo spans already from mte5 to equity \lIB "r!KIn: 

3-bulld a crus..! 8ssm portfolio to access yet them is 11(l1 yet a sett..:onla!ned appmach 

ible6 l'TlaI1o:ets 

- tradi skills to caoture either short term rdties or ma/ke! driven "t.a~ event" trades 

-j rova!hebuild andthe of the trades 

There arG no commenl$ available from !he manager(s); 

CO/1'lI7lent$ notexistorbelndraftstarus. 

h~~uii1i~ti8mg~~tft .. t~~i:~;)\:J~:~~JJ;:~E'~:·~~) : :;~,:"',: :,o~~·~;<·:~~~~~~t.~,:4fl;':;"i} '" 

!Emploveev"",End (0_)-_ Bruno 23-I<OV-WlO 

thIS yeal was vrtryquiet despite aU \he I1.J:n'Ibltngs In Ina crGd~ mar1o;als.! wor1o:ad under many cons1ra/nts ana did many 'bad trades·, Ie 

!fades thaI were bad econimic:al!y. Yet INs has aliowed.lo maintain a verystabla P&L and uffimarely be able to prolil from eldrerne 

_\VOI3MtY 

Iksil.8nmo Michal (00149:21)·2010 Pl'lrformal1Ce Review 

Page 2 ofS 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CID-PSI-H 0002776 
1992 

-llaam: why and when to co1 or ~giv9 bi.lck' a trade irl oroor 10 re-enla[ at a batter point lfl tim~ 

- j learn! how to mltlga16 risk reductlon, Milone! reduction irl a mar1f.(~t!hat did 1'101 provide liquidity 

-Ileam! how to wait and cmatethe opportunities to rnduce the book.!n an unsupportiva envi"ronmenL 

All this was very humbtinq. ! could ha-"e done much better .. with h~ght; et the result Is oood 

illanaoe< 

There are no oommsnts avaHab/IJ from the mBIlBi}6rM: 

comments mav not existorbe In dr.dt .<>bJ1rJ!< 

["""""" 

ADr. Ma Jun fMid Year 

Oct. Nov, Dec (VearF".rrl\. 

IIcst1,B!Uoo Mid1~ (OOl4921}- 2010 PeffonT\di"ICB: Review 

CONFIDENTIAL TREATMENT REQUESTED BY JP. MORGAN CHASE & CO. 

Page3af3 

JPM-CIO-PSI-H 0002777 
1993 

M:mager gections of ttfis rov!sw are in 'draft' status. Employee C!lrtrlO! view marwger's commenfll 01" ratings in Draft status. 

In Progn!$S 

!ksll,Bruno Mlchei (OO14921) 

Maron·Artajo,Javler (I016308) 

AddiIional..llalaQer. N/A 

ReviewCvcle: 01..JAN·2011-31-0EC-201' 

2011 

Head PortfOlio Manager 

2ChlUN·20Q5 

1031& NotSignea 

Not Signed 

TM overall riskyoass ot!he book was gfl)aIly rad~ in ellery measures. !he Var Il"lCI13asad mostly due to materially increased realized 

voIatil in the marl<ets. Buttl)e P&L otthe book has been Ies.s andlE!$SvoIatlleoutrl hl. 

Rati 

tions Hi hMeets. Ne<lRated 

the book has been tumed over in some places 011 !tie riQhl time, ."r"lch allowed 10 de-risk the book while locking gains despite tile limited 

Ii_ 

I_Comments 

Iksil.Bruno Michel (0014921)·2011 perfl;lrrne.nee Review 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

Paae1of3 JPM-CIO-PSI-H 0002778 
1994 

Build tadical slralagias ba1ween credit and e.qulty marXe~ Eric Os Sangues and ! bunl trading strategies that ganera19d regular 

incomG despite the very h!gh volalitity. P!.L is dose IOeoM forBM 

1 designed a~ alternative strategy 10 what elic dJd , although being in tile same 'spirit·, II pmvEld very robust espadalty when marke1 started 

tooanic:ilorotectedful thetadicalbooks.. 

w _~; 

.Empfo· ~""-':\it..a\i;,;". lIi$1!. """'" , .... 0V-201, 

trading ski!!, overall underlilanding of !he marXiI! cond"rtJons 

buiIQi:n9....C?PBbI1ltieswithmem!':lersoflhedesk 

I-Iksi ,-Bruno 16-NOV-2011 

There sro flO comm9fJts 811Si/abJo rrom lfUI marrager(s); 

~mayT'iOtexistotbefrld«dtsta/us, 

Credit & equir\' rnari(eis are aclively tradod logett1Bf. Bond 

marKets are target for nen yaOlr. Tradlng co FX should:rt!lrt 

on a smaJl scaJe. 

Medium Term (t2<38 months) 

The year was qualitatively very good under the marml Slress and uncanainty Qusnthatlvaly it has beef]!ass satis1ai;lory due 10 the 

bottlenecll created al'(l(1l'ld the FNoIArnea!;.Ure. 

lksil,Brurto Michel (0014921)·2011 Perlormance Review 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

pa"j~M'.~IO_PSI_H 0002779 
1995 

em-..Coofinn 

V (16-N(W-'2011 

y 16-NOV·2011 

Jan. FeO. Mar /Ouarter1v Discussion) 

.. _M;, .JunfM.oYear 

Y 16-NOV-2011l 

Oct Nov. Dec (Year End y 1S.NOV~H 

Filename IUpIoaded By 

/~ ..... 

/Date 

IksllBruno Mldlel (001.4921)·2011 Pertol'l1"\aJ"lOe Revi.ew 

Page3of3 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002780 
1996 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM·CIO-PSI-H 0002781 
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for a large portJon of CIO'e MTM risk. He displays a deep 

junderatandll;g of the mariest and full ownershrp of the posItions, and he Is very aware of 

and their ImpUcaUans. He Is very open and good at 

book, and very focuettd on managing the various types 

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CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002787 
() 

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Name: 

Salary 

Cash Ie 

RSU 

# RSUs 

SARs #SARs 

TC 

Ina Drew 

Total Compensation History 

Performance Year 

2011 2010 2009 

$750,000 $500,000 $500,000 

$4,700,000 $5,000,000 $2,000,000 

$7,050,000 $7,500,000 $9,500,000 

198,006 169,358 219,933 

$1,500,000 $2,000,000 $1,500,000 

168,729 153,847 100,000 

$14,000,000 $15,000,000 $13,500,000 
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FSA Retained 

RSU 

FSA Deferred 

# RSUs 

SARs 

#SARs 

TC 

AchWes Macris 

Total Compensation History 

Perlormance Year 

2011 2010 2009 

$756,000 $524,000 $245,000 

$2,630,000 $3,346,000 $5,898,000 $2,630,000 $3,346,000 $0 $3,645,000 $4,019,000 $8,847,000 $4,245,000 $5,019,000 

102,379 90,760 204,816 

$600,000 $1,000,000 $3,000,000 

67,492 76,923 200,000 

$14,506,000 $17,254,000 $17,990,000 
" o 

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RSU 

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# RSU. 

SARs 

#SAR. 

Te 

Achilles Macris 

Total Compensation History 

Performance Year 

2011 2010 2009 

$756,000 $524,000 $245,000 

$2,630,000 $3,346,000 $5,898,000 

$2,630,000 $3,346,000 $0 $3,645,000 $4,019,000 $8,847,000 $4,245,000 $5,019,000 

102,379 90,760 204,816 

$600,000 $1,000,000 $3,000,000 

67,492 76,923 200,000 

$14,506,000 $17,254,000 $17,990,000 
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Salary 

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FSA Retained 

RSU 

FSA Deferred 

# RSUs 

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#SARs 

TC 

Jcwier MartlnwArtajo 

Total Compensation History 

Performance Year 

2ill1 2010 2009 

$756,000 $491,000 $215,000 

$1,965,000 $2,453,000 $4,900,000 

$1,965,000 $2,453,000 $2,748,000 $2,930,000 $7,350,000 $3,148,000 $3,680,000 

77,178 66,165 170,159 

$400,000 $750,000 $2,250,000 

44,995 57,692 150,000 

$10,982,000 $12,757,000 $14,715,000 
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# RSUs 

SARs 

#SARs 

TC 

Bruno Iksil 

Total Compensation History 

Performance Year 

2011 2010 2009 

$429,000 $318,000 $187,000 

$1,267,000 $2,540,000 $2,166,000 

$1,267,000 

$1,900,000 $3,810,000 $3,249,000 

$1,900,000 

53,365 86,034 75,218 

$0 $650,000 $600,000 

50,000 40,000 

$6,763,000 $7,318,000 $6,182,000 
2008 

Adam, Phillipa C 

F~om: 

Bc-"t; 

To: 

Draw, lna 

1:::l January 2011 13:02 

Macris, AchlUes 0 

Subje.ct ConfidentJ:Jl ~2010 Performance Ev .. lualion 

l.~d !nternarlDnal ClO 'to very strong performam:e rescult:s with ext..ellent lE'ader:s:hlp (esp~d:a:l1y In my 

absence) <lnd de<:ision makIng!n risk management. 

l=ully integrated ClOs mission internationally witi'> th~ comp.lI1y's OVGr-.. lI direction. 

Attl<lctt'ld and trainof.ld high!y skilled profe:;~;onab. who =n continue building out Intern<Jtion<l! CIO, 

Solidted feedback from the control leads who conl:ur that in 20~O, you continued 'tD be pro;,ctive and 

demonstrated a high degree of 5en.snivity to tlle firm's risk rna n:agement pr<lctices. You lead by example 

through deciSIon makin,g in (isk: management. 

Oeve!opm-ent Areas 

.. ShOUld you aspire to dO/OC .. ole, you need to take a broader perspective ai'tDp tiE'r pay at the firm. 

.. TO be complerely ~uo:e:;sftJl as a pot:errria! s.uccessor you need to help drrve integration and partner with 

North America. 

Work with CIO to increase understanding 01 sC;:1.IE'" for top of the house posItrons. 

Employee C-onflrm 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002799 
2009 

Wilrnot, John 

From; 

Sent: 

To: 

Subjed: 

Ore'.'\'!,lna 

Thursday, January 13, 20115:43 AM 

Wilmot,John 

Confidential ~2010 PetformanceEvalua1:1on 

H<l5 had d very successful ye<trln P&l gener,ation through COU, BOL! and Private Equity Investments. 

.. Developed Ana to a point where he can successfuUy move to the (Fa role without business interruption. 

Heavily r.elkd on for judgment throughout the year on multiple issues. 

Development Areas 

fn (FO roJe it will be extraordinarily important to over communication with both me and the entire team in 

order to be successful. 

Develop complete transition plan for ali tasks that Ana wi!! not take to S!G. 

Employee Confirm 

Man.ager Confirm 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002800 
2010 

Weiland, Peter 

From: 

Sent: 

To: 

Subject: 

Drew, Ina 

Monday, January 10, 20114:4.'1 PM 

Weiland, Peter 

Confidential ~ 2010 Performance Evaluation 

Has d~ve!oped the eRO rore and started building out appropriate risk management tapabilities across CIO. 

Begun successful inlegf"iltion of eRO ir.to "firm wide. processes. 

Has hired and fined out ClO Risk Managem~nt team 

Development Area 

Must drive the C!O eRG risk management c<!pabihties to a high-level of sophistication and depth. 

Must m8ke more lndependent decision on marginal risk requirements now that you have had time to 

understand how the division functions. 

Should u~e empowered seat to initiate discussions with front office without my instructions. 

Employee Confirm 

Manager CDnfirm 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002801 
L 

Dan Chen 

MD 

AS50C 

NA 

Jon Forman 

Analyst 

Effective Pre-June 2011 

CIO RISK MANAGEMENT TEAM 

11 

Keith Stephan 

ED 

janet Lee 

VP 

Karrie D'Costa 

Assoc 

Fiona Longmuir 

EO (maternity) 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

Inri 

AS50C 

Mandy Chui 

Analyst 
CIO RISK MANAGEMENT TEAM 

NA Int" 

Samantha Tocchio 

ED 

Effective June 2011-January 2012 

-[ 

Assoc 

____ _ 

Sameer 

VP 

CONFIDENTIAL TREATMENT REQUESTEO BY J.P. MORGAN CHASE & CO. 

Patricia Yew 

ED 

Mark Chan 

Assoc 

Mandy Chui 

Analyst 

12 

] 

JPM·C10
2013 

Distribution List Membership Around March 2012 

EOD Credit estimate: 

• Buraya, Luis 

• DeSangues, Eric 

• Drew, Ina 

• Enfield, Keith 

• Goldman, Irvin 

• Grout, Julien 

• Hagan, Patrick 

• Iksil, Bruno 

• Hughes, Jason 

• Lee, Janet 

• Macris, Achilles 

• Martin¥Artajo, Javier 

• Patel, Samir 

• Polychronopoulos, George 

• Renshaw-Lewis, Philip 

• Tocchio, Samantha 

• Tse, Irene 

• Stephan, Keith 

• Weiland, Peter 

• Wilmot, John 

C/O P&L Team: 

• Buraya, Luis 

• DeSangues, Eric 

• Enfield, Keith 

• Grout, Julien 

• Iksil, Bruno 

• Martin~Artajo, Javier 

• Patel, Samir 

• Polychronopoulos, George 

Stephan, Keith 

CONFIDENTIAL TREATMENT REQUESTED BY J,P. MORGAN CHASE & co. JPM-CIO·PSI·H 0002815 
2014 

From: Drew, Ina <InaDrew@jpmorgan.com> 

Sent: Mon, 23 Jan 2012 22:57:26 GMT 

To: MRM Reporting <mrm.reporting@jpmchase.com>; Weiland, Peter 

<peter.weiland@jpmchase.com>; Hogan, John J. <JohnJ.Hogan@jpmorgan.com> 

cc: 

MRM CIO Global <MRM_CIO_Global@restricted.chase.com>; Doyle, Robin A. 

<Robin.A.Doyle@chase.com>; MRM External Reporting 

<MRM_ExternaLReporting@jpmchase.com>; Intraspect - UMITS <Intraspect_-

_UMITS@restricted.chase.com>; MRM Firmwide Reporting 

<MRMJirmwide_Reporting@jpmorgan.com> 

Subject: Re: ACTION NEEDED: eIO Global 10Q VaR Limit One-off Limit Approval 

Approved 

From: MRM Reporting 

To: Weiland, Peter; Hogan, John J.; Drew, Ina 

Cc: MRM CIO Global; Doyle, Robin A.; MRM External Reporting; Intraspect - LIMITS; MRM Rrmwide Reporting 

Sent: Mon Jan 23 15:46:19 2012 

Subject: ACTION NEEDED: CIO Globa! 10Q VaR Limit One-off Limit Approval 

Pete/Johnl tna, 

This email is to request for your approval to temporarily increase the following Level 1 CIO - Global- 100 VAR limit from $95mm 

tq $105mm until January 31, 2012. 

CtO 95% VaR Ilas become elevated as cia balances credit protection and management of its Basel III RWA, In so doing, CiQ 

has increased its overall credit spread protection (the action taken thus far has further contributed to the positive stress benefit in 

the Credit Crisis (Large Flattening Set!~off) for this portfolio which has increased from +$1.4bn to +$1.6bn) while increasing VaR 

dunng the breach period. 

Action has been taken to reduce the VaR and wit! continue. In addition, CIO has developed an improved VaR model for synthetic 

credit and has been 'NOrking with MRG to gain approval, which is expected to be implemented by the end of January, 

The impact of the ne'N VaR model based on Jan. 18 data will be a reduction of CIO VaR by 44% to $S7mm 

If more information is required, please let us know and we will arrange to provide further details. 

Limit Description Limit Umit Value Proposed Proposed Approvers 

ID Type One~Off Expiration 

Limit 

38589 CIO ~ Global ~ 10Q Level 1 95,00,000 10S,000,000 113112012 Peter Weiland, John 

VAR Hogan, Ina Drew 

Upon receipt of your approval, the above proposed limits will be effective January 20, 2012. 

If you approve of the above limit changes, please ~ with your approval. Thank you. 

Connd@nthd Treiltment ReqIJe-sted by JPMORGAN CHASE & CO. JPM-cIO 0003.702. 

:()I'rFln~NTIAI TRFATM~NT R~nIlF.c:.T~n RV .1 P MnR(:;AN ~~A~~,It ~O JPM..cIO_PSI_H 0002880 
2015 

From: Zubrow, Bany L <ixlrry.l.zubrow@jpmchase.com> 

Sent: sat, 28 Jan 2012 15:29:16 GMT 

To: Goldman, Irvin J <irvin.j.goldman@jpmchase.com>; Hogan, John 1. 

<JohnJ.Hogan@jpmorgan.com> 

Subject: FW: JPMC Firmwide VaR - Daily Update - COB 01/26/2012 

Why is 00 VAR so elevated? What is the collective view regarding what to do about this? 

Bany 

-----Original Message-----

From: Market Risk Management - Reporting 

Sent: Friday, January 27, 2012 06:16 PM Eastern Standard Time 

To: Market Risk Management - Reporting; Dimon, Jamie; Hogan, John J.; Zubrow, Bany L; Staley, Jes; 

Drew, Ina; Goldman, Irvin l; Weiland, Peter; Weisbrod, David A.; Bacon, Ashley; Beck, David l; Braunstein, 

Douglas; Morzaria, Tushar R; Wilmot, John; Dellosso, Donna; Bisignano, Frank J; Rauchenberger, Louis; 

Lake, Marianne 

Cc: Doyle, Robin A.; Waring, Mick; Market Risk Reporting; GREEN, IAN; Mccaffrey, Lauren A; Tocchio, 

samantha X; Chiavenato, Ricardo S.; Chen, Dan 

Subject: JPMC Firmwide VaR - Daily Update COB 01/26/2012 

Firmwide 95% 100 VaR 

The Firm's 95% 10Q VaR as of cob 01/26/2012 has increased by $Smm from the prior day's VaR to $161mm and has 

breached the $140mm Firm VaR limit forthe third consecutive day. 

CIa's 95% 10Q VaR* as of cob 01/26/2012 has increased by $Smm from the prior day's VaR to $120mm and has 

breached the $110mm Cl0 VaR limit for the third consecutive day. 

The increase in the Firm's VaR is primarily driven by an overall reduction in diversification benefit across the Firm and 

position changes in cia. 

Each LOB's contribution to the Firm's $161mm VaR (as shown by marginal VaR) are: 18 ($45mm mVaR, primarily driven 

by Credit Mkts Global, Credit Port Global, and Global Rates), cia ($107mm mVaR, primarily driven by cia International 

credit tranche book), RFS ($2mm mVaR, primarily driven by the MSR portfolio), Private Equity ($3mm mVaR, primarily 

driven by the International Cons portfolio), andTSS ($4mm mVaR, primarily driven by the ADR hedge book). 

The stand alone VaR for each LOB are as fonows: lB IS $76mm (vs. $120mm limit), cia is $120mm (vs. $lOSmm limit), 

RFS is $lOmm (vs. $9Smm limit), TSS is $9mm {vs. $2Smm limit}, Private Equity is $6mm (no limit set given 

immateriality), and AM is $0.2mm (no limit set given immateriality). 

* cia continues to manage the synthetic credit portfolio balancing credit protection and Basel III RWA. The new VaR model for 

cia was approved by MRG and is expected to be implemented prior to month~end, 

100 Externally Djsclosed YaR 

The below table shows the 95% 100 VaR forthe current quarter compared with the prior quarter and the corresponding 

quarter of prior year. 

Cordidential Treatment Requested by JPMORGAN CHASE & CO. JPM-C!O 0003719 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002897 
2016 

dd:imageOOl.png@OlCCDDlC.9BlEEDEO 

P!ease contact the MRM Externa! Reporting team with any questions. 

Confidl!tJl:ial Treatment Requested by JPMORGAN CHA.SE & CO. JPM-C!O 0003721) 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0002898 
2017 

From: ERIC DE SANGUES <EDESANGUES@ ••••• 

Sent: Fri, 16 Mar 2012 19:17:02 GMT 

To: 

BRUNO IKSIL <BIKSIL2@_BRUNO IKSIL <bruno.m.iksil@jpm.org.a.n •. co.mll>.; .. L.UIS 

BURAYA <LBURAYA~C DE SANGUES <EDESANGUES@. 

ERIC DE SANGUES <eric.de.sangues@jpmorgan.com>; JULIEN GROUT 

<JGROlJT3@ ; JULIEN GROUT <julien.g.grout@jpmchase.com> Subject: .-__________ -, 

--:.: Red.rted by the Permanent 

Subcommittee on Investigations 

03/14{2012 21:35:07 ERIC DE SANGUES, JPMORGAN CHASE BANK, has left the room 

03/14/2012 21:35:37 BRUNO IKSIL, JPMORGAN CHASE BANK, has left the room 

03/15/2012 02:00:10 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room 

03{15/2012 02:00:10 BRUNO IKSIL, JPMORGAN CHASE BANK, says: *""' JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILTIY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTIl'( IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03{15/2012 02:59:11 LUIS BURAYA, JPMORGAN CHASE BANK,. has joined the room 

03/15/2012 02:59:11 LUIS BURAYA, JPMORGAN CHASE BANK, says: *** JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE REUABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03{15/2012 03:42:26 ERIC DE SANGUES, JPMORGAN CHASE BANK, has joined the room 

03{15/2012 03:42:26 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE REUABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03{1512012 04:41:02 JULIEN GROUT, JPMORGAN CHASE BANK, has joined the room 

03{15/2012 04:41:02 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFEROR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN I::OnlldentlalT",Mmer\'lReqUl>S1.1>Il 

by JPMORGMI CHASE & CO, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO--PSI~H 0003798 
2018 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/15/2012 11:17:30 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

bruno 

03/15/2012 11:17:37 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

no data on your blotter page still 

03/15/2012 11:19:00 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I saved it 

03/15/2012 11:19:06 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

maybe is the wrong date 

03/15/201211:19:15 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

i hope it wss not the blotter from ytday 

03/15/2012 11:19:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Look on my pc 

03/15/2012 11:19:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ah yes 

03/15/2012 11:19:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

This is 

03/15/2012 11:19:43 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

:-) 

03/15/2012 11:19:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I over wrote 

03/15/2012 11:24:43 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Julien 

03/15/2012 11:24:54 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

yes 

03/15/2012 11:24:57 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Target is to buy only 10yr 0-3 

03/15/2012 11:25:00 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

At 62 or better 

03/15/2012 11:25:05 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/15/201211:25:11 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

no citi though 

03/15/2012 11 :25 :24 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

so far only JPM/citi offering there 

03/15/201211:29:21 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Bruno c<>nfldent\aITl1l.atmentRe.qu~ed 

by JPMORGAN CHASE & CO 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & co, 

JPM-CIOOOO5594 

JPM-CIO-PSI-H 0003799 
2019 

03/15/2012 11:29:31 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

I do not understand T82 

03/15/2012 11:29:47 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

_2.8M coming from Greek default? 

03/15/2012 12:45:38 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Equity +2M daily 

03/15/2012 12:52:50 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Back 

03/15/2012 12:53:02 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ok the sovex index is much tighter 

03/15/2012 12:53: 13 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

So I think this should not be a loss 

03/15/2012 12:53:34 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Please check by remarking correctly the savex 

03/15/2012 12:53:44 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

The index quotes 225 . 

03/15/2012 12:53:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Or less 

03/15/2012 12:53:59 JUliEN GROUT, JPMORGAN CHASE BANK, says: 

230 

03/15/2012 12:54:20 JUliEN GROUT, JPMORGAN CHASE BANK, says: 

bruno u need me to book the gs S9 5/10 trades? 

03/15/2012 12:54:53 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Yes please 

03/15/2012 12:55:22 JUliEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/15/2012 12:55:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Try to seel hy16 at 99 3/4 and hy15 at 100 3/4 

03/15/2012 12:55:51 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

100m each 

03/15/2012 12:56:02 JUliEN GROUT, JPMORGAN CHASE BANK, says: 

ok 

03/15/2012 12:59:51 JUliEN GROUT, JPMORGAN CHASE BANK, says: 

core -90k 

03/15/2012 13:01:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ah ah 

03/15/2012 13:01:10 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Nice Confidential Treatrn""tRequl!'S\ed 

by JPMORGAN CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO.pSI.H 0003800 
2020 

03/15/201213:01:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Tactical? 

03/15/2012 13:01:19 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

metric at 290 

03/15/2012 13:01:31 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

worst ig9 as 5y widening .. as well as lOy 

03/15/2012 13:02:06 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

tactical -3.4M - equities +2M 

03/15/2012 13:02:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Wonderful 

03/15/2012 13:04:11 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

we broke 1400 in spx 

03/15/2012 13:24:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ig9 5yr widening should be good for us 

03/15/201213:24:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ah 

03/15/2012 13:24:50 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Send the pnl 

03/15/2012 13:25:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Can u drop me here the breakdown of the lag please? 

03/15/2012 13:26:10 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

sure 

03/15/2012 13:26: 14 LUIS BURA VA, JPMORGAN CHASE BANK, says: 

for block 4? 

03/15/2012 13:26:16 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

And send it to javier email 

03/15/2012 13:26:46 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

itraxx 83 (4bp) ig 180 (4bp) hy 37) 0.12 

03/15/2012 13:26:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Put me in copy 

03/15/2012 13:27:02 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I refer to the spreadsheet 

03/15/2012 13:27:06 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

No luis 

03/15/201213:27:14 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

just fyi, looking at the sovx thing. The MO didn't prooess it correctly. The factor is wrong and the CDS for 

Greece is price by the IB who knows where. 

03/15/2012 13:27:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: Conlioentl;sl Tnmtment ReqlJ~ed 

byJPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. 

JPM-CjO~596 

JPM-{;IO-PSI-H 0003801 
2021 

Ok 

03/15/2012 13:27:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I think what happens here 

03/15/2012 13:28:05 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Is that the greek cds is booked at 100 bps 

03/15/2012 13:28:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

And valued at 78upfront 

03/15/2012 13:28:17 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

yes, we were talking about that 

03/15/2012 13:28:19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Now 

03/15/2012 13:28:43 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Then the index as such is now say at 230 not at 345 

03/15/2012 13:28:54 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

yes. 

03/15/2012 13:28:57 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

That should make no pnl jump 

03/15/2012 13:29:02 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

agree 

03/15/2012 13:29:23 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

but the IB is pricing the single name at 4354.8 spread running 

03/15/2012 13:29:49 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

I worked the upfront with Eric, but we do not know what the guys are doing 

03/15/2012 13:30:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

So julien, basically u say the worsening is 1 bp in ig9 

03/15/2012 13:30:08 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

any help? 

03/15/2012 13:30:18 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Look luiS 

03/15/2012 13:30:23 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

correct bruno 

03/15/2012 13:30:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

This sounds correct 

03/15/2012 13:30:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

This is not the pb 

03/15/2012 13:30:41 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

mostly, 5y roll ftatter 

03/15/2012 13:30:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: Confl.del)tial Tl"'aun'mt Raquesled 

byJPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. JPM-CIO-PS1-H 0003802 
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The pb is tied to the index pnl 

03/15/2012 13:32:22 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

that was for yesterday problem 

03/15/2012 13:32:35 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

today's is also taking a hit 

03/15/2012 13:32:43 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

it's not linked to the sovx 

03/15/2012 13:32:48 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

we are working with Colin 

03/15/2012 13:33:41 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

sorted. MT is wrong. 

03/15/2012 13:33:53 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

We are flattening the pnl. +500K in Tactical 

03/15/2012 13:34:01 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Julien 

03/15/2012 13:34:05 JUliEN GROUT, JPMORGAN CHASE BANK, says: 

yes 

03/15/201213:34:10 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Could remind me the level of hy17, ig 17, main s 16 and ig9 10yr please 

03/15/201213:34:12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

At month end 

03/15/201213:34:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

And now 

03/15/2012 13:34:40 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

tactical pnl now +2. 9M 

03/15/2012 13:34:41 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

Cool 

03/15/2012 13:34:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ok good 

03/15/201213:35:13 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Reserve 2.5 

03/15/2012 13:35:26 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

sorry my bad -2.9M 

03/15/2012 13:35:34 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

sorry ... 

03/15/2012 13:36:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ah 

ConlldentlaITr;eatmentR.equested 

by JPMORGAN CHASE: & co, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. 

J?M-CI00ll0559B 

JPM-CIO-PSI-H 0003803 
2023 

03/15/201213:36:15 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Send like that 

03/15/2012 13:36:23 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

ok 

03/15/2012 13:37:24 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

ok, i took the latest marks from Julien FInal Tactical pnl +800k 

03/15/201213:38:11 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno: at 29-feb: main s16 128.25bp, xo: 566bp, ig17:93bp, hy: 98.0625, ig9 10y:112.5 

03/15/2012 13:38:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Good 

03/15/2012 13:38:22 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Shoot 

03/15/2012 13:38:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ok 

03/15/2012 13:38:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Now? 

03/15/2012 13:39:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

What do u see on metric 

03/15/2012 13:39:09 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

And what do we have 

03/15/201213:39:11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

? 

03/15/2012 13:39:18 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

today: main s16 123.5, xo: 547bp, ig17: 89.5, hy17: 98.125, ig9 lOy: 113.5 

03/15/2012 13:40:57 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

we have: main s16: 123.75, xo: 548, ig17 89.25, hy17 97.9375, ig9 lOy: 106.25 

03/15/2012 13:43:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I a m a bit puzzled 

03/15/2012 13:43:03 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

depending on runs ig9 lOy can be see tighter. 

03/15/2012 13:43:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

We have 6bps in ig9 after all 

03/15/2012 13:43:06 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Is that realistic 

03/15/2012 13:43:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

? 

03/15/2012 13:43:15 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

i have the roll at 19 

Coi1fi<lentiat Tnoatment l'Ieql.lest<!<:l 

by.lPMoRGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. JPM-CIO-PSI-H 0003804 
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03/15/2012 13:43:18 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I know 

03/15/2012 13:43:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I question here how we position ourseleves 

03/15/2012 13:43:55 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Aren't we making Ig9 10 responsible for all here? 

03/15/201213:44:10 JULIEN GROUT; JPMORGAN CHASE BANK, says: 

ah yes It's definitely pb number one 

03/15/2012 13:44:17 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

also: main s9 lOy 

03/15/2012 13:44:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Ok 

03/15/2012 13:44:50 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Does not show here 

03/15/2012 13:45:00 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I am conbfused 

03/15/2012 13:45:22 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

i mean, im trying to keep a relatively realistiC picture here - ig9 lOy put aside 

03/15/2012 13:45:44 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Because 7 bps in Ig9 10yr makes up for 7x50 gives 350 

03/15/2012 13:46:01 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Yes but usee 

03/15/2012 13:46:13 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Just the Ig9 10yrs explains more 

03/15/2012 13:46:14 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

that's what i am saying. i am not marking at mids as per a previous conversation 

03/15/201213:46:15 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

Than the metric 

03/15/2012 13:46:25 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

I can call and explain 

03/15/2012 13:46:29 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I am confused 

03/15/2012 13:46:48 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

Cool 

03/15/2012 13:47:04 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

Go 

03/15/2012 13:47:29 JUlIEN GROUT, JPMORGAN CHASE BANK, says: 

calling 

Confldentlal Treatment ReqlJelrted 

by JP~ROAN CHASE 8. co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0003805 
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03/15/2012 13:48:05 JULlEN GROUT, JPMORGAN CHASE BANK, says: 

ok let me know when you are ready 

03/15/2012 13:48:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Did u hear me? I could not 

03/15/2012 13:48:53 JULlEN GROUT, JPMORGAN CHASE BANK, says: 

no i didnt hear you 

03/15/2012 13:48:55 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Try now 

03/15/2012 13:49:24 JULlEN GROUT, JPMORGAN CHASE BANK, says: 

voicemail 

03/15/2012 13:59:46 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room 

03/15/2012 14:07:00 JULlEN GROUT, JPMORGAN CHASE BANK, says: 

coupe 

03/15/2012 14:14:31 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Julien? 

03/15/2012 14:14:44 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

yes 

03/15/2012 14:15:12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Send to me and javier the spreadheet where u store the breakdown of the difference between our estimate 

and crude mids 

03/15/2012 14:15:22 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I will comment to javier 

03/15/2012 14:15:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Just say that this is the spreadsheet that provides the details of the difference 

03/15/2012 14:16:07 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Between main s9 ig9 and hy 

03/15/2012 14:16:15 JULlEN GROUT, JPMORGAN CHASE BANK, says: 

u need the spreadsheet, or only the table 

03/15/2012 14:16:37 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

The spreasheet only 

03/15/2012 14:17:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

In the ralaly 

03/15/2012 14:17:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Just say the difference worsened by 1bp on ig9 

03/15/2012 14:17:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Rally 

03/15/2012 14:18:12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Btw 

03/15/2012 14:18:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: Co"fi~em:iaIT""""'entRerquesto:<l 

by JPMORGA.N CHASE 8. co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. JPM-CIO-PSI-H 0003806 
2026 

What did iu have yesterday for ig9 lOyr and igl7? 

03/15/2012 14:18:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

As crude metric price 

03/15/2012 14:19:44 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

91 vs 110.5 

03/15/2012 14:20: 11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

No 

03/15/2012 14:20:13 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Crude 

03/15/2012 14:20:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Not our estimate 

03/15/2012 14:20:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Market mids 

03/15/2012 14:20:35 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Blind marking 

03/15/2012 14:20:42 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

i repeat 

03/15/2012 14:20:56 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

No 

03/15/2012 14:21:18 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Yeaterday is quoted wider the ig9 lOyr 

03/15/2012 14:22: 16 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

I think u had 114.5 or 114 instead 

03/15/2012 14:22:30 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

For 91 ref in ig 17 

03/15/2012 14:45:33 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Email sent 

03/15/2012 14:45:48 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

i sent you the sheet 

03/15/2012 14:46:20 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

going home now speak tomorrow 

03/15/2012 14:46:35 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

rescap headline out 

03/15/2012 14:47:12 JUUEN GROUT, JPMORGAN CHASE BANK, has left the room 

03/15/2012 14:54:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

>Yes 

03/15/2012 14:54:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

> Seen 

CoMldel'lti<l! Treatment Requ~ed 

by JPMORIlA.N CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0003807 
2027 

03/15/2012 14:55:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Could u sell hy16 and hy15 

03/15/2012 14:55:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

? 

03/15/2012 15:00:38 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

HENRY KIM: i buy 100mm@ 99.625 and 100mm @ 100.625 

03/15/2012 15:00:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Late trade to book 

03/15/2012 15:25:23 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

FELIX BHANDARI: so i sell 20mm at 39, 70mm at 38ii 

03/15/2012 15:25:36 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

Hy9 5yr 10-15 

03/15/2012 15:32:40 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

HENRY KIM: so far i've bot from you all day: 

100mm hy15.5y @ 100.5 

100mm hy16.5y @ 99.625 

100mm hy15.5y @ 100.625 

and you can do 50mm more of each 16, 15 @ .5625 

03/15/2012 20:23:49 BRUNO IKSIL, JPMORGAN CHASE BANK, has left the room 

03/15/201221:54:01 ERIC DE SANGUES, JPMORGAN CHASE BANK, has left the room 

03/16/201202:14:24 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room 

03/16/201202:14:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: *** JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/16/201203:17:13 LUIS BURAYA, JPMORGAN CHASE BANK, has joined the room 

03/16/2012 03:17:13.LUIS BURAYA, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/16/201203:18:19 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

good moming 

03/16/201203:18:31 BRUNO IKSIL, JPMORGAN CHASE BANK, says: [;onfiOenti;a1 Traalnlent Reql>llSted 

by JPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. 

JPM.CIOO~ 

JPM-CIO-PSI-H 0003808 
2028 

hello 

03/16/2012 03: 18:35 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

i think we are looking forward to another non-action day 

03/16/2012 03:19: 10 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

I'm checking the deltas Bruno 

03/16/201203:19:14 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

I'll come back to you 

03/16/201203:19:18 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok 

03/16/201203:19:20 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

let's see if anything has changed 

03/16/201203:33:10 JUUEN GROUT, JPMORGAN CHASE BANK, has joined the room 

03/16/201203:33:10 JUUEN GROUT, JPMORGAN CHASE BANK, says: *** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/16/201203:33:42 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

morning 

03/16/201203:40:27 ERIC DE SANGUES, JPMORGAN CHASE BANK, has joined the room 

03/16/2012 03:40:27 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/16/201203:44: 11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

hello 

03/16/201203:44: 19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i sent another email today 

03/16/201203:44:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

have a look 

03/16/201203:44:26 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

yes 

03/16/201203:49: 17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: Corofident" • .ITreatmentRequested 

by JPMOROAN CHASE & co 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. JPM-CIO-PSI-H 0003809 
2029 

please let me know when core deltas are updated 

03(16(201203:54:17 JULlEN GROUT, JPMORGAN CHASE BANK, says: 

done 

03(16(201203:55:05 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

thx 

03(16(201203:59:59 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Most of the olm options have been expired. 

03(16(201204:00:11 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

delta unchanged 

03(16(201204:00:14 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

cool 

03(16(201204:00:15 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

+204M 

03(16(201204:00:23 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

checking now, the issue 

03(16(201204:01:21 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

74 eur, 0 delta change after expiry 

03(16(2012 04:02:19 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

74 usd, + 72M after expiry 

03(16(201204:02:26 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

sorry - 72M 

03(16(201204:02:57 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

76 usd + 28M after expiry 

03(16(201204:03:17 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

total impact after expiry should be +44M in Atlas. 

03(16(2012 04:03:22 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

sorry 

03(16(2012 04:03:23 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

-44M 

03(16(201204:03:39 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

so final delta should be + 160M 

03(16(2012 04:03:53 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

(all this is theoretically as per current Atlas) 

03(16(2012 04:04:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok thx 

03(16(201204:39:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

JUlien? 

03(16(2012 04:40:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says: ConfiClent!aITreaD!lentReque!<lad 

~ JPMOROAN CHASE & CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE" co, 

JPt.\-C1Q0OQ5$05 

JPM.{;10-PS1-H 0003810 
2030 

Can you make a print of the chat you had with Biran Christman yesterday please? 

03/16/201204:44:45 JUllEN GROUT, JPMORGAN CHASE BANK, says: 

done 

03/16/2012 04:44:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

th 

03/16/201204:45:06 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i bought 50m xover 

03/16/201204:45:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

instant 

03/16/2012 04:45:12 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

main widens 

03/16/2012 04:45: 19 JUllEN GROUT, JPMORGAN CHASE BANK, says: 

proxy hedging 

03/16/2012 04:45: 19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

eauity flat 

03/16/2012 04:45:22 JUllEN GROUT, JPMORGAN CHASE BANK, says: 

sophsticated 

03/16/2012 04:47:07 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

the index market is non existent when us guys are not in 

03/16/201204:57:31 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

so true 

03/16/2012 05:01:26 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

Credit Agricole correlation book RIP : * CREDIT AGRICOLE (UW) IT reports Credit Agricole has handed the 

remains of a dosed business in its investment bank over to BlueMountain, reducing RWAs by EUR14bn 

03/16/2012 05:03: 15 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ah ah yes 

03/16/2012 05:03:28 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i will surrender to our own investment bank 

03/16/201205:03:33 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

no worries 

03/16/201205:03:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

the work on their bonus for this year 

03/16/2012 05:03:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

they have one customer 

03/16/201205:03:51 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

that will be enough 

03/16/201205:04:59 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

I love the caveat in this article: There is still some residual risk for Credit Agricole from this transaction as 

they are providing an unquantifled liquidity facility to Blue Mountain, so not a dean sale. Con1'idi!ntialTI1'!:mnentRequested 

by Jf>MORGAN CHAse: &. co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. JPM-CIO-PSI-H 0003811 
2031 

03/16/2012 05:05: 11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

yes 

03/16/2012 05:05: 13 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

excellent 

03/16/2012 05:05:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

n worries 

03/16/2012 05:05:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

jp does first class business 

03/16/2012 05:05:31 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

no spillage 

03/16/2012 05:05:37 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

yes in that case 

03/16/2012 05:08:53 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

for CA it's different...they're still on the hook ... CPPIs with liquidity lines, LSS with (far away) triggers, super 

thin mezzanines (I remember a 5-6% lOY mezz ... ) ... The toxic waste of a toxic period ... all that wrapped in 

a nice gift package ... Most of the remaining risk in that thing is now tail risk / liquidity risk 

03/16/2012 05:09:27 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

they say they get rid of the risk and still keep the liquidity side of it. .. mind boggling 

03/16/201206:18:27 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno pis read MS chat 

03/16/201206:18:31 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

re: yesterday's trades 

03/16/2012 06:25:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

yes 

03/16/2012 06:25:50 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

just saw 

03/16/2012 06:27:44 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

thx 

03/16/2012 06:27:55 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i corect 

03/16/2012 06:37:38 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

bruno - javier here- can you call him at some point today 

03/16/201207:11:34 JULIEN GROUT, JPMORGAN CHASE BANK, has left the room 

03/16/2012 07:40:21 JULIEN GROUT, JPMORGAN CHASE BANK, has joined the room 

03/16/2012 07:40:21 JULIEN GROUT, JPMORGAN CHASE BANK, says: *** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECf m CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN Conrl<'lentialT ... annentFi.equeste:d 

by JPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-eIO-PSI-H 0003612 
2032 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/16/2012 07:49:38 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

stoxx 50 expired - Delta and PnL impacts are zero 

03/16/2012 08:02:21 ERIC DE SANGUES, JPMORGAN CHASE BANK, has left the room 

03/16/2012 08:07:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

cool 

03/16/201208:19:21 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

good day in equities today Bruno 

03/16/2012 08: 19:55 ERIC DE SANGUES, JPMORGAN CHASE BANK, has joined the room 

03/16/201208:19:55 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

*** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR 

SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL 

CONFIRMATION OF TERMS. THE INFORMATION IS BELIEVED TO BE RELIABLE, BUT WE DO NOT 

WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND 

ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER 

IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT THEIR OWN 

ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND 

EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS 

GOVERNING LAW PERMITS OTHERWISE. 

03/16/2012 10:07:20 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

tactical 82 ytd is back at -399k 

03/16/2012 10:07:26 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Monday is the auction 

03/16/2012 10: 12:38 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i do not see why really 

03/16/2012 10:12:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

sovex is tighter 

03/16/2012 10: 12:48 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

greece has not moved 

03/16/2012 10: 13:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

it is better instead 

03/16/201211:04:54 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

expiring the spx 

03/16/2012 11:33:10 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Bruno, one instrument is incorrectly created. 

03/16/2012 11:33:14 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

hence the wrong delta 

03/16/2012 11:33:51 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

once it is expired I confirm that delta will be + 163M 

03/16/201211:34:16 LUIS BURAYA, JPMORGAN CHASE BANK, says: COI'IfideJ'1tI3ITrMtrnentRe>quested 

by JPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. 

JPM-CI01lOO5&09 

JPM-CIO-PSI-H 0003813 
2033 

+23M now + the 138M coming from the option 

03/16/2012 11:42:00 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

are you booking other stuff? 

03/16/2012 11:42:07 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

no 

03/16/201211:42:16 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i do not see the option delta coming 

03/16/2012 11:42:22 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i see a loss in new trades 

03/16/2012 11:42:44 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

you just booked 500spx. 

03/16/2012 11:42:59 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

I need to expire one more option. I put you in copy 

03/16/2012 11:43:05 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

the set up was wrong 

03/16/201211:44:13 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

delta should be higher by 140M and yes pnl on that book is still wrong 

03/16/2012 11:44:21 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ah ok 

03/16/2012 11:44:23 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

James and Amardeep are contacting NT 

03/16/2012 11:44:24 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

NY 

03/16/2012 11:44:29 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

that was my question 

03/16/2012 11:44:31 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

let's see if they sort it out soon 

03/16/2012 11:45:25 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

sorry, but I can't do anything. If I book a trade and expiry the option I was todl I will create a break 

anyway 

03/16/201211:45:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

and this is where the delta comes from right? 

03/16/201212:19:20 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

look now 

03/16/201212:19:26 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

delta is + 195M 

03/16/201212:19:29 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

all is expired 

Confidential Treatment Reque5to:d 

by JPMORGAN CHASE 8. co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. JPM-CIO·PSI·H 0003814 
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03/16/2012 12:19:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok 

03/16/2012 12: 19:43 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i have the loss 

03/16/2012 12:19:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

right? 

03/16/201212:19:55 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

the new trade pnl is f*ck up because the prices are stupid, have a look into new trade tab 

03/16/2012 12:20:01 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

th call 1300 

03/16/2012 12:20:29 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

the FV should be 105.11, that it is whene it is closed. I don't understand why they are still pricing it at 

998.29 

03/16/2012 12:21:06 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

same with the call 1350 and with the call 1160 

03/16/2012 12:21:13 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

and 1320 

03/16/2012 12:21:21 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

the FV should eq ual the price 

03/16/2012 12:21:26 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

how and when does this clear? 

03/16/2012 12:21:29 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

the ESDP is 1405.11 

03/16/2012 12:21:39 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

the reported pnl is corned 

03/16/2012 12:21:43 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

or should be 

03/16/2012 12:23:26 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

do you follow me? 

03/16/2012 12:35:25 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

SX5E vol going very bid into the close, very squeezy, outperforming the rest of europe by 30bps across the 

curve. 

03/16/2012 12:36:46 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room 

03/16/201212:39:18 LUIS BURAYA, JPMORGAN CHASE BANK, has joined the room 

03/16/2012 12:50:55 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room 

03/16/2012 12:54:30 LUIS BURAYA, JPMORGAN CHASE BANK, has joined the room 

03/16/2012 12:57:46 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

Bnuno : Tactical pnl1st draft -7.3M USD 

03/16/2012 12:58:07 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

block 4 -804M divs + 1.8M 

Conlidel1tialTreatml!ntReql.lested 

by JPMORGAN CHASE & co. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co. 

JPM-C10OOO5G1D 

JPM-CIO-PSI-H 0003815 
2035 

03/16/2012 12:59:37 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

block 4 detail: 71 eur +3.5M / 71 USD - 5M / 75 USD -7M / 74 + 76 +0.6M (atlas is +1.3M) 

03/16/2012 12:59:49 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Recovering from yesterday 

03/16/2012 13:01:05 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

what do you want us to do Bruno? 

03/16/2012 13:06:48 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

ok 

03/16/2012 13:06:59 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

is the atals pnl correct? 

03/16/2012 13:07:22 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

Reported pnl should be correct 

03/16/2012 13:07:26 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

However 

03/16/2012 13:07:27 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

with the option expiry I cannot guarantee that 

03/16/2012 13 :07:34 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

so new trade is correct 

03/16/2012 13:07:36 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

? 

03/16/2012 13:07:43 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

my reported pnl is wrong in the strats where I have expiring options 

03/16/2012 13:08:24 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

The options are misprice in atlas, I don;t know the situation in Scala. 

03/16/2012 13:08:50 BRUNO IKSIl, JPMORGAN CHASE BANK, says: 

can you send me the positions eric? 

03/16/2012 13:09:08 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

If there's pnl coming we will check if it is from those instruments 

03/16/2012 13:09:46 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

The cash is supposed to correctly reflect the pnl 

03/16/2012 13:09:54 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

positions and predict in your mailbox bruno 

03/16/2012 13:10:07 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

The problem is as usual, the fair value concept 

03/16/201213:11:45 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Eric, what is the pnl in equities only? In the option rewport 

03/16/2012 13:12:26 lUIS BURAYA, JPMORGAN CHASE BANK, says: 

In MT 

Conf'klentlaf Tll>atment ReqlJested 

by JPMORGAN CHASE II. CO 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co, 

JPM.C!00005611 

JPM-CIO-PSI-H 0003816 
2036 

03/16/2012 13:12:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

thx eric 

03/16/2012 13:12:30 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

let me see 

03/16/2012 13:12:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

where is core pnl here? 

03/16/2012 13:14:17 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

julien? 

03/16/2012 13:16:23 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

yes 

03/16/2012 13:16:32 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

306 

03/16/2012 13:16:45 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

hy taking a beating today actually, esp in tranches 

03/16/201213:16:49 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok 

03/16/2012 13:17:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

so the pnl in tactical is doen wiht thos eprices that brings up 306 in core right? 

03/16/2012 13:17:34 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

corred 

03/16/201213:17:41 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok 

03/16/2012 13:17:55 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i think u should set ig9 levels as follows 

03/16/2012 13:18:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

5yrat72 

03/16/2012 13:18:08 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

7yr at 88 

03/16/201213:18:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

10 yr at 110 

03/16/2012 13:18:53 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

well rite now i am 70.25 86.25 109.75 

03/16/201213:19:00 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

ref 88.75 

03/16/2012 13:19:17 JULIEN GROUT, JPMORGAN CHASE BANK, says: 

i will use your levels 

03/16/201213:19:27 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i see u r levels 

Confillentla! Trutment Requested 

tit JPMORGAN CHAse &. CO. 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0003817 
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03/16/2012 13:19:34 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

ah ok 

03/16/2012 13:19:37 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

one sec 

03/16/201213:19:53 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

or u do the corrections ur self 

03/16/2012 13:20:00 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i do not mmind 

03/16/2012 13:20:04 LUIS BURAYA, JPMORGAN CHASE BANK, says: 

Be back in 15mins 

03/16/201213:34:10 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

sent an Email to javier anouncing this is more 300 now 

03/16/2012 13:34:19 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

that was 100 Monday 

03/16/2012 13:34:22 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

it is 300 now 

03/16/2012 13:34:30 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

1000 for month end? 

03/16/2012 13:35:08 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

ouch 

03/16/2012 13:35:23 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

well that is the pace 

03/16/2012 13:45:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

any update JUlien? 

03/16/2012 13:47:57 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

still working on this, sorry it's taking time 

03/16/2012 13:48:05 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

i am sonry too 

03/16/2012 13:48:11 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

this is the end 

03/16/2012 13:48:18 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

? 

03/16/2012 13:48:18 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

hey hey 

03/16/2012 13:48:24 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

no talk like that 

03/16/2012 13:48:29 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

cheer up 

c.ord'id'mtial Trelllme11t ReqlleSted 

by JPMOR"GAN cHAse II co, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI_H 0003818 
2038 

03/16/2012 13:48:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

yes JP 

will not lose a cent on this 

03/16/2012 13:48:59 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

we'll see 

03/16/2012 13:49:10 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

one day after the other 

03/16/2012 13:49:20 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

like in 09 

03/16/2012 13:49:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

no 

03/16/2012 13 :52:00 BRUNO IKSIL, JPMORGAN CHASE BANK, says: 

ok call me when u have something ready 

03/16/2012 13:53:34 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

will do 

03/16/201213:53:40 JUUEN GROUT, JPMORGAN CHASE BANK, says: 

sorry it's taking so long again. 

03/16/2012 14:04:03 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

bruno 9m de new trade? 

03/16/201214:04:38 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

currently -4m 

03/16/2012 14:04:42 JUUEN GROlJT, JPMORGAN CHASE BANK, says: 

core 

03/16/2012 14:06:21 ERIC DE SANGUES, JPMORGAN CHASE BANK, says: 

tactical now +2.1M 

03/16/2012 14:13:21 ERIC DE SANGUES, JPMORGAN CHASE BANK, has left the room 

03/16/2012 14:55:50 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room 

03/16/2012 14:58:47 LUIS BURAYA, JPMORGAN CHASE BANK, has joined the room 

03/16/2012 15:00:36 JUUEN GROlJT, JPMORGAN CHASE BANK, has left the room 

03/16/2012 15:17:02 JUUEN GROlJT, JPMORGAN CHASE BANK, has joined the room 

Conlidel11:illl Trearrnent R"qUested 

~JPMORGAN CHASE &CO, 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

JPM-CfOOOO~14 

JPM-CIO-PSI-H 0003819 
2039 

Subject: 

Location: 

Start: 

End: 

CIa RlSK COMMITTEE (Attachment Below) 

Telepresence Call- Room 10C NY I Room M008 LDN 

Wed, 28 Mar 201215:30:00 GMT 

Wed, 28 Mar 201216:30:00 GMT 

Show Time As: Tentative 

Organizer: Rios, Martha I on behalf of Goldman, Irvin J 

Adam, Phillipa C; Corio, Norma; Drew, Ina; Lewis, Phil; Macris, Achilles 0; O'Donnell, 

Attendees: Julie; Praia, Joann; Radin, Neila; Sabo, Richard W; Serpico, Gina; Tocchio, Samantha X; 

Tse, Irene Y; Weiland, Peter; Wilmot, John; Wilson, Wanda A 

When: Wednesday, March 2B, 201211:30AM·12:30 PM (GMT~05:00) Eastern Time (US & Canada), 

Where: Telepresence Call- Room IOC NY / Room MOOS LON 

Note: The GMT offset above does not reflect daylight saving time adjustments. 

Hard copies will be available in NY / conference room C. 

Thanks, 

M 

CONFIDENTIAL TREATMENT REQUESTED BY J,P, MORGAN CHASE & CO, JPM-CIO-PSI-H 0006401 
2040 

CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. 

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Risk Policy 

Model Risk Policy 

Model Documentation, Inventory and Initial and Ongoing Validation 

Firm-wide 

06/29/2010 

Contents 

Rationale ....................................................................................................................... 2 

Scope ............................................................................................................................ 2 

Section 1: Rnn-wlde Policy Statements ............................................................................ 3 

1. Model Categories ..................................................................................................... 3 

2. Model Inventory ....................................................................................................... 4 

3. Validation ................................................................................................................ 5 

4. Materiality Monitoring ............................................................................................... 5 

5. LOB Specific Control Procedures ................................................................................. 5 

Section 2: Model Documentation and Review Guidelines ...................................................... 5 

1. Model Documentation ............................................................................................... 5 

2. Implementation Testing ............................................................................................ 6 

3. Model Review .......................................................................................................... 7 

4. Model Disapproval .................................................................................................... 8 

5. Annual Review ......................................................................................................... 8 

6. Ongoing Validation ................................................................................................... 9 

Regulatory Requirements ................................................................................................. 9 

Attachment A - Model Documentation Templates ................................................................ 10 

Attachment A-I: Complex Model Technical Document ................................................... 10 

Attachment A-II: Complex Model User Guide ................................................................ 10 

Attachment A-III: Complex Model Testing Note ............................................................. 10 

Attachment A·IV: Complex Calibration Document .......................................................... 10 

Attachment A-V: Standard Model Document .................................................................. 10 

Attachment B - Model Review Templates ........................................................................... 10 

Attachment 6-1: Model Review Report ........................................................................ 10 

Attachment 6-II: Model Sign-off Template .................................................................. 10 

Attachment B-lIl: Annual Status Report ...................................................................... 10 

Attachment C - Model Stress Scenarios ............................................................................. 10 

Attachment C-I: Model Stress Scenarios Document ...................................................... 10 

EffectIve, 09/28/2004 Updated' 06/29/2010 Policy No.: 08.00.01 

category: Special R.isk 

LOBs: firrn~wjde 

Confidential r",.tment Requested JPMC-5enaIalLevln D00026 
2068 

Rationale 

Understanding model risk is critical to the Firm's assessment and management of 

risk and to ensuring the integrity of its financial statements. The application of 

models to value and risk manage financial products, assess portfolio risk and 

optimize capital allocation, Inform decisions about extensions of credit, and support 

or automate trading and investment decisions continues to expand; all of these uses 

can have material economic impact on the Firm. Model risk is a joint responsibility of 

the business operating the model, the model development team, the model 

validation team, financial/product control and risk coverage, and all of these groups 

have an important role to play in its control. 

Although the usage of a model dictates, to some extent, the procedures associated 

with model risk controls, there are a number of basic principles of model validation 

that apply generally. Every model must be adequately documented Including 

description of its use, mathematical/logical specification, and underlying assumptions 

and algorithms used in its implementation. Adequate model testing must also be 

performed and documented and the model behavior benchmarked against the 

original design and speCification. Where appropriate, models should also be tested in 

the context of extreme market conditions. Calibration of model parameters, whether 

empirical/historical, market implied and/or subjective, must also be thoroughly 

documented, including a quantification of estimation uncertainty. If a model is 

designed to output specific decisions and/or automatically take actions, the 

sensitivity of model outputs to this uncertainty should also be documented. Models 

need to be independently reviewed by domain experts and their assumptions, 

limitations and range of applicability dearly identified. Model reviews should take 

place periodically, especially as warranted by changes in the market or expansion of 

a business activity. Finally, all major models should undergo periodic performance 

monitoring; done properly this allows for transparent evaluation of a model's 

predictive power and also adds an important layer of control around its operational 

Integrity. 

Scope 

This policy establishes firm-wide standards for model documentation, Inventory, 

testing, and initial and ongoing validation. 

For the purposes of this pOlicy, models are algorithms that provide a mathematical or 

statistical representation of a business decision making process. The policy covers 

production models, I.e. models used systematically to facilitate decision making 

which directly affects financials or risk assessment of the Firm, divided into the 

following types according to their usage: 

Valuation models, e.g. used for valuation or hedging securities or derivatives. 

Risk measurement models, e.g. used for portfolio risk, economic capital or 

reserve requirements. 

Consumer risk models, e.g. used for credit scoring and decisions. 

Decision support tools, e.g. used for investment management decisions. 

Trading models, e.g. used for algorithmic trading or statistical arbitrage. 

The policy applies to new models and material changes to existing models, either 

developed In-house or purchased from third-party vendors. 

Model Development, Documentation, Validation and Use 2 

Confldential Treabnent Requested JPMCoSenalolLovln 000027 
2069 

Section 1: Firm-wide Policy Statements 

It is the responsibility of the line of business (LOB), to ensure model development is 

performed in accordance with corporate policy, and that all models used by the LOB 

are: 

well tested before their use in production; 

accompanied by appropriate documentation; 

accounted for in an up-to-date model inventory; and 

subject to initial and ongoing validation. 

1. Madel categories 

Requirements for model documentation, testing and validation must be 

commensurate with the level of model risk that a model can pose as applied to a 

particular product or task. This involves consideration of three dimensions: model 

complexity, exposure, and reliance. 

(a) Complexity 

Model complexity reflects the significance of a model's dependence on: 

Iterative algorithms and/or numerical solutions to stochastic equations 

Mathematical formulations with a large number of input variables and/or 

logical layers 

Choice of model variables/assumptions and their accompanying 

dynamics and inter-relationships 

Stability of parameters calibrated from historical data or the market 

Elaborate numerical schemes requiring error analysis 

Non-standard approximations used for computational efficiency 

Approximate treatments of material product features 

Examples of models that would typically fall into the high complexity category 

are capital models based on stochastic Simulations, valuation models for 

complex derivatives or structures, key credit scores containing multiple 

segments and large number of variables, as well as statistical arbitrage 

models. Curve generation, cash-flow discounting models, or deterministic 

dedsion trees would usually be considered low complexity models. 

(b) Exposure 

Exposure is an assessment of the economic materiality of a model's 

uncertainty. Generally this reflects the economic consequences of the 

business activity for which the model is applied, as well as the sensitivity of 

such activity to model uncertainty. For example, the materiality of a trading 

model's exposure would typically relate to the portfolio's sensitivity to market 

inputs. For models used for client valuations and not directly affecting the 

firm's balance sheet, high exposure could be triggered by high reputational 

risk. 

Model Development, Documentation, Validation and Use J 

Confldentlal Treatment Reqlasted JPMC-SenatalLevln 000028 
2070 

(c) Reliance 

Reliance measures the extent to which model outputs influence the Finn's 

financials or business decision processes. E.g. if model outputs directly feed 

into P&L reporting or risk measurement calculations, the reliance would be 

high. For a model influencing investment decision in combination with several 

other models and an expert opinion, the reliance would be low. 

Based on the three dimensions above, each model should be classified into Tier 1, 

Tier 2 or Tier 3 corresponding to high, medium, and low model risk. The 

substantiation of this classification should be documented by the model owner and 

Signed off by an independent party. 

Each tier has the following associated requirements for documentation, 

testing/validation, ongoing validation, and review/approval. 

Mod'el \ Doeumentation ,. 

.Inltlal testil'lg Review lind 

Category R,equYrements and validation IIpprov~i O!:'$I!J1I,lg validation 

Tier 1 Standardized - - Independent - Periodic model 

technical and Implementation in-depth model performance 

user testing review with analysis 

documentation documented in report on - Annual re- testing note findings, assessment 

- Model documentation with a written 

perfonnance adequacy and status report formal approval evaluation decisions 

Tier 2 Comprehensive - - Independent Annual review 

technical and Implementation review with of model 

user testing report on inventory with a 

documentation documented in findings written status 

testing note Including slgn- report and reoff of model certification of 

classification, model 

testiru] and classification 

docu mentation into Tier 2 

Tier 3 Description of Basic functional Sign-off by an Annual 

model testing independent recertification 

specification party of model of model 

classification classification 

into Tier 3 into Tier 3 

2. Model Inventory 

Model Development, Documentation, Validation and Use 4 

Conrldential Tleatm""t Requested JPMC·Sonatell.eYin 000029 
2071 

Each LOB must keep a complete and up-to-date Inventory of its models. The records 

should Include proper model references including model/product documentation, 

documentation of tier classification, version or production date information and the 

results or status of model review. The LOB should have the capability to generate 

reports on the status of model documentation and review. 

3. Validation 

All models should be fully validated and independently reviewed according to model 

category requirements prior to their usage in production. The LOB should establish 

escalation mechanisms to track and handle exceptions, including regular reports to 

control functions and senior management. 

Models used by each LOB must be re-assessed annually, according to model category 

requirements. 

4. Materiality Monitoring 

Each LOB must establish periodic reporting of exposure materiality for all of its 

models in order to facilitate assessment of model risk and model classification. 

5. LOB Specific Control Procedures 

Each LOB must further develop its own policies detailing roles and responsibilities, 

specific requirements and control procedures around model documentation and 

review in accordance with the standards outlined in this Policy. Each LOB specific 

policy must be approved by the LOB Chief Risk Officer and LOB Risk Committee and 

reviewed by the Corporate Model Oversight function. 

Section 2: Model Documentation and Review Guidelines 

This section outlines guidelines for model documentation and review. When 

developing their own policies, LOBs may choose to adopt the suggested 

documentation templates provided in the Attachments, or substitute them with 

equivalent documentation and review requirements that comply with the Policy 

Statements in Section I. 

1. Model Documentation 

Model documentation must be completed prior to model review. Documentation 

should be sufficient to permit independent review and to facilitate potential 

replication and/or upgrade of the model by others, independent of the original 

developer. For Tier 1 and Tier 2 models, documentation should contain the following 

components, as applicable and required by LOB model policy and procedures: 

(a) Technical documentation 

Rationale for the choice of the model concept and approach. 

Justification of the introduction of a new model, if an alternative model 

already exists, including numerical/statistical comparisons between the 

new model and models to be replaced. 

Model's Intended use, limitations and scope. 

Model Development, Documentation, Validation and Use 5 

Confidential Treatment Reque.ted JPMC.senatell.evln 0000311 
2072 

Description of underlying methodologies, including theoretical results that 

are derived from the assumptions. 

Justification of the use of input data in terms of accuracy, robustness, and 

appropriateness. 

Details of the model's construction and numerical techniques. 

(b) Testing note 

Description of the nature of the testing effort and testing plan. 

Numerical details of implementation tests and analysis of the results 

against designed specifications of the model. 

For models with explidt reliance on a specified range of market inputs, 

tests checking reasonableness and smoothness of model sensitivities to 

market inputs and/or other applicable risk measures. 

Where appropriate, numerical comparisons between the model being 

tested and benchmark models or historical backtesting of the model 

predictions. 

Where applicable, analysis of model behavior under stressed market 

conditions. 

(e) User guide (for models or tools run directly by business users) 

General deSCription of the product or tool and key assumptions, 

The intended use (e.g. valuation, risk measurement, or investment 

decision). 

List of all inputs and outputs. 

Model limitations. 

Boundaries of input parameters within which the model works properly. 

(d) Calibration document (for models calibrated to market inputs or historical 

data): 

• High level description of the engine or tool, and covered products. 

Ust of calibrated parameters. 

Calibration benchmarks and algorithm. 

Criteria for successful calibration and treatment of calibration failures. 

Frequency and triggers for recallbration. 

Data smoothing and manual overrides. 

Ownership of calibration and sign-off procedures. 

See Attachment A for suggested model documentation templates. 

Documentation for new models that are variations of other production models (e.g. 

flexible payoffs) can consist of a description relative to the existing model and a 

reference to the existing model documentation, 

2. Implementation Testing 

Implementation Testing is the process of ensuring that the model behaves as 

intended by its developers. This testing focuses on faithful implementation of 

deterministic algorithms and numerical accuracy/convergence where applicable 

Model Development, Documentation, Validation and Use 

Confidential Treatment Requested 

6 
2073 

rather than the reasonableness and appropriateness of the model to a given set of 

financial circumstances. 

Implementation Testing is conducted by model developers supporting the LOB. The 

model developers performing the testing should consider the following, as applicable 

and required by LOB model policy and procedures: 

Comparison of model results with the analytical solutions and/or with an 

independent implementation of the same model 

o Under the full range of each model parameter including stressed 

scenarios; and 

o Under all scenarios of correlation amongst model parameters. 

Analysis of numerical accuracy for iterative algorithms, including 

comparisons with alternative numerical schemes. 

Checking desired properties of model output (e.g. smoothness of the 

model implied hedges, correct pricing of similar products). 

Checking model's ability to price another (generally simpler) product 

consistently with the approved approach. 

3. Model Review 

A Model Review is an independent review by a qualified person who is not the model 

developer. It assesses the appropriateness of the model methodology as applied to a 

specific product or task, signs off on the quality of testing and documentation, and 

identifies potential model risks. All TIer 1 and Tier 2 models are subject to 

independent review. 

Model reviewers must consider the following aspects of a model, as applicable and 

required by LOB model policy and procedures; 

The rationale for model assumptions and methodology. 

The selection and reliability of model inputs. 

The adequacy of model documentation and calibration procedures. 

The completeness of implementation testing. 

Justification of using the model if alternative models are available, and 

results of model benchmarking. 

Model adjustments or reserves to account for model uncertainty or 

deficiencies. 

Additional independent testing. 

Review findings should be published in the Model Review/Sign-off Report that 

contains: 

Model review conclusion (approved/signed off, or disapproved). 

Scope of review (model application to a particular product or task). 

List of identified model risks. 

Actions required to remediate critical model shortcomings that are 

Identified. 

Model Development, Documentation, Validation and Use 7 

Confldenttal TNatmant Requested JPMC-SonaloJlAvln 000032 
2074 

Recommended improvements to remediate model shortcomings identified 

that are not critical, 

Replies from other groups received during the course of the review. 

The report must be sent to the following individuals, as appropriate: 

Head, or Chief Risk Officer, of the business unit that owns the model. 

Head of the business area's modeling or quantitative support team. 

Others specified by LOB model policy and procedures. 

In cases where a review is conducted at an intermediate stage of model 

implementation, It may result In a Progress Report with no final conclusion on model 

approval. Progress reports will otherwise follow the same format as Model Review, 

documenting potential model risks and recommendations on model enhancements. 

See Attachment B-1 for suggested report templates. 

4. Model Disapproval 

The following issues can trigger model disapproval for TIer 1 or Tier 2 models: 

Methodological problems. 

Insufficient implementation testing. 

Incomplete model documentation. 

Failure by relevant parties to satisfy recommendations agreed upon in the 

course of the model review in a timely fashion. 

Upon disapproval of a model, the business unit must, as required by the LOB model 

policy and procedures, provide a timetable for remediation steps and take other 

Immediate actions that might be deemed necessary to mitigate the model risk (e.g. 

deferring pal, adjusting reserve, limiting affected business activity). 

If TIer 2 or Tier 3 model classification is not Signed-off, it will result in 

Model re-classification into a higher Tier. 

Change of documentation and review status into 'Incomplete' until it 

complies with the requirements for its new category. 

5. Annual Review 

Each lOB must ensure all of its models are re-assessed annually in light of: 

New developments in the literature or internal or commercially available 

models. 

Changes in the market for the product (e.g. availability of liquid quotes for 

model input or major growth in volume). 

Change in the features of the product or portfolio. 

Back-testing of the model and experience with effectiveness of its 

application. 

The materiality of model risk. 

Model Development, Documentation, Validation and Use B 

Confidential T",almenl Requested JPMC..s.nale!Levin 000033 
2075 

For each LOB or asset class the annual review of model Inventories must be 

summarized In an annual review status report containing: 

An overview of the overall models review status. 

Model review strategy and plan. 

Status of critical recommendations. 

Re-assessment of the need to re-revlew each TIer 1 model. 

Re-certification of Tier 2 and Tier 3 model classification. 

See Attachment B-Ill for suggested annual report template. 

6. Ongoing Validation 

In addition to the model testing and review process, all TIer 1 models are subject to 

periodic validation to assess their ongoing performance. 

The validation should be based on a comparison of empirical model output from the 

production environment (where feasible) against realizations of the process being 

modeled. 

Examples of ongoing validation approaches include: 

Examination of consumer default rate by model score range. 

Historical back-testing. 

Comparison against benchmark models using actual or representative 

portfolios. 

Assessment of predictive performance (e.g. residual P&L monitoring, 

forecasting error, etc. l. 

In some applications, it may be useful to analyze the errors and stability 

of calibrated parameters in addition to or as an alternative to directly 

testing the model outputs. 

The ongoing validation is performed or, at minimum, reviewed independently. Such 

validation should be rated based on objective metrics speCified by the LOB model 

policy and procedures. The business unit must provide remediation timetable and 

plans for models with unsatisfactory validation ratings. 

Regulatory Requirements 

Model documentation and independent reviews are required by Bank regulators, and 

are subject to periodic regulatory examinations. 

© Copyright 2010 JPMorgan Chase & Co. All rights reserved. 

Model Development, Documentation, Validation and Use 9 

Confidential T",,,,,"ent Requested JPMC.s.nateILevln 000034 
2076 

Attachment A - Model Documentation Templates 

Note: 

For all the Attachment templates listed below, the following conventions are used: 

1. Examples are shaded in .gray; 

2. The numbers in square brackets, e.g. [1,2], refer to the numbered document 

references at the end of that template. 

Attachment A-I: Complex Model Technical Document 

Attachment A-II: Complex Model User Guide 

Attachment A-III: Complex Model Testing Note 

Attachment A-IV: Complex Calibration Document· 

Attachment A-V: Standard Model Document 

Attachment B - Model Review Templates 

Attachment 6-I: Model Review Report 

Attachment 6-I!: Model Sign-off Template 

Attachment 6-111: Annual Status Report 

Attachment C - Model Stress Scenarios 

Attachment Col: Model Stress Scenarios Document 

Model Development, Documentation, Validation and Use 10 

Confidential Treatment Requested JPMC-SanatolLevln 000035 
2077 

iI_.iI=.·.t •• 1iII7.F.IIIIIRI:II.IIIIl~:.r:.~'::aJ1IIIIIFfIO."I".'II-.' •••••••• $mm 

DIto 2811_1~ln .. ""!I!!!Mty) 2012 model !lull _I 

1211/20111 611,721,144 

'212/20'11 611,985.81;4 

121512011 69991,256 

121612011 70,3<;4.384 

12/1/2011 71.805.Gn 

12181201. 75.226,504 

12Ri201' 78.862 5521 

1211212011 78678,6'8 

12}131201' n821,992 

12/1412011 78802,700 

I 12/15J20" ~139.448 

I '2/16120\, 72.55',456 

: 1:l/1912(]1' 73,137.938 , 12J2QI2Ql I 70 708.34' 

12121120111 70965016 : 

12122/2011 i 73,926,380 i 

121231201' 73,580 016 

1212712011\ 13.4Z7.040 

1~lli - 75.292.2!21 

1~1'1 .. 7G.~..!!J~1 

12I30I2011 7U" 152 - 11312012 85,302.073 --- • ~~H ... l1U2012 87,401 rn ,N.W12 611,734 784 

lJ612O,2 .. _------- 69,245135 

11912012 66,137.498 

11'012012 92.374,467 

"1'/2012 . - 92'_~1 ... 1/1212012 94~9,716, 

11161201 95,6819281 

1117120121 95.683.649 i 

1118/2012 102.385,_ 

111912012 99,938 350 

1/20/2012 100 116_ 

112312012 102,719.140 , 

1124/20'2 106,610,295 

11251201 111.799.222 1 

1~1 119,645.519 ! --- i 

, 1127/2012 1ll.nO,187 8M9II,4se 

1 1I30I201 134 079 796 69.466,084 .. 1/31/20121 134,39142' 66,54',192 - 211/2012 129,236948 59.197.276 

ii= 129192 194 59,000972 

130084 791 55 713._ 

125 '68,631 536n,IB4 

126966825 5< 848,380 

2J8I2012 126.991110 54,255,744 

2Ri2012 126,721.863 49.104 246 

2/10/2012, 126,739678 52881 192 

211312012' 127,801,135 53.499.366 

2/14120'2 129.299.896 53.792.'80 

2115/2012 126,213.506 53.875,832 

2116120' 126,451,910 52,187,460 --_., 2J2QI2Q12 127465158 46978448 

2/21/20' 130,500800 40183.766 

2J22J2O, 131,251222 50.279,532 1 

--- 2J23I2012! 130,430.001 l .. - 50652.276 

ConIldentlll r .... lnMnt Requested JP~.n.to/Levln 000155 
2078 

. . • ". • CIOtOO . 

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2J29I1!J'2 132.833 '96 S. 163684 

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3/2120121 133.704084 51.535.512 

I - 31512012 136605 714 50958.292 

3N2012 140,128,881 54,894.036 

I 317120121 140.954444 _!I'!.O~J 

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3/W20121 188,216.452 SQ,&16788 

3112/20'2 138.887.002 51.578020 

311812012 137321.589 49.821896 

3114/2012 138617153 47.769800 

3115120'2 '40.792.235 49.003.672 

311812012 140.698.109 49.957.628 

3I1!112012 141721 584 51008796 

3/2tv2012 140,211.213 52105.512 

312112012 159.445.963 56188.524 

i 3I22I2012! 182.390.344 66 307.760 

I 312812012i .. 18§.4p.818 66.618812 . 

312812012 160.382763 M017.Z48 

3I2111!J12 182,154.086 63.716788 

31281201Z 187.165.416 63,188.378 I 

312912012 187.431,999 M.495,160 

3/301201 165,618,727 M4SZ292 

01l2I2012 188.598.767 M407186 

41312012 189.469.332 1 M.I63.070 

f 41412012 192.422,735 , 88.887.561 

I 41512012' 193.053.3861 69.402._ 

416120121 192.os3.010 68.010.389 

4i\lI2012 192.495.077 68.135.825 

411012012 191,8Z1758 17.270.089 

411112012 192.0314" 17137104 

4112/201 190867754 74.260,086 

411812012 190.589.887 . 17.718189 

41'612012 '92.'09.065 16.364.970 

4I1711!J1Zi 190.833.422 75.131.494 

41'8120'2 .. _.!9~ ,531 189 17At'061 

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41231201 194 505,328 86.228.352 

4124120' '92,394.576 84 906175 

4I25I1!J,2 '9'.274.091 87.889.552 

4I2SI201 190.897397 90853 83, 

4/2712012 195.165.266 68608 5116 

4I30I2012 '95.258883 94.590.113 

51'1201 '90,267138 92.2'8681 

51212012 189.782 543 93.336 353 - 5131:20121 '65 712.663 93 117.029 

5I4I2012! 165.749880 93.218961 

51712012\ 179870909 93.840Z11 

51812012 157.351,394 84.595.683 

51912012 148.906.2M 

5/'0120'21 142.782 600 

Confidential TreabnOnt R~ JPMC.s.natellevIn 000158 
2079 

JPMURCAN CUASE&CO. Risk Policy 

Market Risk Limits 

Firm-wide 

Contents 

Updlted 05/ 18,12011 

Rationale ......................................................................................................... 1 

Changes From Prevlous Verslon ......................................................................... 1 

Key Points ....................................................................................................... 2 

Policy Statements ............................................................................................. 2 

Firm-wide Umits .............................................................................................. 3 

establishing 8r. Approving Mar1cet Risk Umlts ........................................................ 3 

MonitOring 8r. Reporting Umlt utilizations ............................................................ .4 

Umlt Excesses ................................................................................................. 5 

One-Off Approvals ............................................................................................ 6 

Umlts Review .................................................................................................. 6 

Thresholds ...................................................................................................... 7 

Rationale 

This policy sets out the roles and responsibilities for establishing, reporting, and 

managing mar1cet risk limits. Responslbllity for Implementing this policy rests with 

the Arm's ChIef Risk Officer (CRO), the Une of Business CROs, Buslness Units and 

their Middle Offices, Mar1cet Risk (MR), Risk Reporting and Anance (RRF), IB Mar1cet 

Risk Reporting (IB MRR) and IB FInance. 

Changes From Previous Version 

• Combines IB and non-IB Market Risk Limits policies. 

• Further defines the responsibilities of the Business Middle Offices and Anance 

groups. 

Defines Arm-wide limits procedures. 

Effective. 05/18/2011 Updlohd. 05/18,12011 PolIcy Mo.. 04.00.02 

catevarft Herbt RIsk 

LOS.. F1nn-wlde 

Conftdentlat Treatment Requested JPMC-Senate/Levln 000157 
2080 

Key Points 

• This policy applies whenever the Finn or a Une of Business assumes market 

risk from trading, funding, underwriting or investment activities, arising from 

dlent business, other business, or from managing Its structural risk. 

• This policy grants various authorities to approve limits and excesses. 

Policy Statements 

1. This policy applies firm-wide. 

2. Limits are established by MR and business heads. 

3. Where limits are established and approved: 

Market risks bome by a Business Unit should not exceed Its limits, 

unless expressly authortzed under a One-off Approval. 

• RRF and IB MRR must: 

o Distribute limit utilization reports for the dose of each bUSiness 

day to MR and Business units; 

o Monitor limit uttllzatlon for data quality; In cases of suspected 

data quality Issues and/or Inappropriate methodology, RRF and 

IB MRR should seek guidance from MR prior to distributing limit 

utilization reports; 

o Notify SIgnatories to limits of all Valid Umlt Excesses (defined 

below). 

MR must: 

o Promptly verify the validity, and document the reasons for, any 

Valid Umlt Excess; 

o Monitor limit uttllzatlons for limit excesses. 

• A One-off Approval may be given by the Grantors of Umlts. 

If a Business Unit has a limit excess before a One-off Approval is 

given, the Business Unit must take steps to reduce its exposure to be 

within limit, unless an exception Is granted by the Grantors of Umits. 

4. Umits are Intended to constrain both Intra-day and dose of business 

exposures. As part of their management responsibilities, business and desk 

heads are expected to be generally aware of their Intra-day risk levels, and 

are responsible for enforcing this policy. 

S. MR must conduct periodic reviews of market risk limits (at least semiannually). Changes to limits must be signed-off by the Signatortes to Umlts. 

Market Risk limits, Firm ·wlde 

Confidential Traatment Requested JPMC-SenatelLevln 000158 
2081 

6. Where thresholds are established: 

Business Units can exceed thresholds, so long as they do not exceed 

their market risk limits. 

RRF and IB MRR must: 

o Distribute threshold utilization reports for the close of each 

business day to MR and Business Units, as required; 

o Monitor threshold utilization for data quality; In cases of 

suspected data quality and/or Inappropriate methodology, RRF 

and IB MRR should seek guidance from MR prior to distributing 

threshold utilization reports. 

MR must: 

o Promptly verify the validity of any threshold excess; 

o Monitor threshold utilizations for threshold excesses. 

7. Exceptions to this policy must be approved by the Firm's eRO. 

Firm-wide Limits 

The Arm's Board of Directors has delegated responsibility for establishing and 

managing market risk limits to the Operating Committee, which, In tum, has 

delegated authority to the Arm's eRO. The Firm's eRO, In conjunction with the LOB 

eROS, establishes Firm-wide market risk limits. 

Market Risk Umlts are reviewed annually by the Board's Risk Policy Committee. 

Thresholds generally are not established at the Arm-wide level. 

establishing. Approving Market Risk Limits 

Umlts are dasslfled as Levell (highest level) or Level 2. Umlts are granted and 

delegated In the following way: 

." ' .~ • • '.~ '. < ..' t • . . . 

Grantors: 

FInn-wide Limits JPMC Chief RIsk Officer, as 

delegated by the JPM Board 

Loa Limits JPMC Chief executive Officer and 

JPMC Chief Risk Officer 

Business Area Limits Head 01 LOB, LOB Chief Risk 

Offlcer and Head of LOB Market 

Risk 

Market Risk Umits, FJrnI'widc 

Confldentla' Treatment Requested 

3 

.. (Lhijlts '.', . :,'..' .... : . 

Grantees: 

JPMC Chief Executive Officer and 

JPMC Chief Risk Officer 

Head of LOB, LOB Chief Risk Offlcer 

and/or Head of LOB Market RiSk· 

Head of Business Area and MR 

Executive responsible for Business 

Area 

JPMC-SenatelLevln 000159 
2082 

Signatories to;'U~ " ", 

Level 2 limits and One-Oft Approvals are self-approved by the following: 

LOB LImits Head 0( LOB and 

LOB Chief Risk OffIcer and/or Head 0( LOB Market RiskBusIness Area limits Head of Buslness Area and 

MR Executive responsible tor Business Area 

• Where an LOB hilS both II eRa lind Helld of Mllrket Risk, both IIpprovals lire 

required, however where an LOB does not have both a CRO and Head of Market Risk, 

only one approver Is required. 

Monitoring. Reporting Limit Utilizations 

MR 15 responsible for: 

Monitoring limit utilizations. In certain circumstances, reporting may be 

cllmed out by MR (e.g., piloting new reports). 

RRF and IB MRR are responsible for: 

Reporting limit utilizations dally. 

Distributing dally position and drawdown summary reports to senior 

management, including CROs, LOB Heads, Business Area Heads, Business 

Units Heads, MR Heads, and MR executives. Reports should be tailored to 

meet the requirements of the intended recipients, and indude: 

o Umlts and limit utiliZations for LOB and Business Areas; 

o Trend Information (e.g., five-day and monthly trends); 

o Limit excess Information. Details of all excesses should be reported 

(e.g., size, duration, reason for excess, whether the validity of excess Is 

under Investigation). 

Market Risk Middle OffIce Is responsible for: 

AccurilCY of reference lind market dlltll. 

Business Middle Office Is responsible for: 

Uploading data feeds to market risk systems per Service level Agreements. 

Finance/Product Control and/or Bushtess Middle offices are responsible for: 

Providing risk Information to RRF and IB MRR for exposure calculation and 

monltortng against limits. Where this Information is not available, risk 

Information may be obtained from non-independent sources, i.e. trading-desk 

originated reporting, but only where necessary; 

Attesting to the accurilCY and quality of the data provided to MR; 

Market Risk Umits. FIrm·wide 

Confidential Trealment Requested 4 

JPMC·SenatelLevln 000160 
2083 

Recondllng data delivered for VAR, Stress, Single Name, Country, Specific 

Risk and other market risk calculations to an Independent file I data store, 

such /IS the general ledger, front office or risk aggregation systems to ensure 

accuracy and completeness, and for signing off on the reconciliation of this 

Information In the market risk systems, dally, or as required; 

Accuracy of any P&llnformatlon supplied to RRF and IB MRR. 

Limit Excesses 

Umlt excesses fall Into four categories: 

Valid Excess 

Invalid Excess 

Under Investigation Umlt Excess 

Acknowledged Umlt Excess 

Valid Limit Excess 

Occurs when a correctly calculated limit Utilization exceeds the corresponding 

limit. MR must verify whether a limit excess Is valid. Valid Umlt Excesses may 

be: 

o Active; or 

o Passive. 

Active Limit Excess: 

Occurs when a BusIness Unit exceeds its own limit; the Business Unit 

must take Immediate steps to reduce its exposure so as to be within the 

limit, unless a One-off Approval Is granted. 

Passive Excess: 

Occurs when a higher level (or shared) limit Is exceeded as II result of a 

number of lower level active limit excesses In different Business Units, 

or an excess of an aggregated limit without lower level active limit 

excesses. MR should coordinate with the affected Business Units to 

resolve the excess. 

Invalid Limit Excess 

Occurs when MR has determined that the excess is not a Valid Umlt Excess, but 

Is the result, e.g., of Incorrect systems feeds, or the wrong measurement 

methodology. Invalid excesses should not be reported as Umlt Excesses. 

Under Investigation Limit Excess 

Occur when a Umlt Excess Is under review, and should be labeled as such by 

RRF and IB MRR. 

Harlcet Risk Umits. Firm-wide 

Conndentlal Treatment Requested 

5 

JPMC-5enate/Levln 000161 
2084 

Acknowledged Limit Excess 

Occurs when MR has determined that an excess Is Valid, but that no further 

action can be taken to reduce exposure (e.g., drawdown excesses). 

Acknowledged Umlt Excesses must be approved by Signatories to Umits. 

Notification of Limit Excesses 

Notification of Limit Excesses 

RRF and IB MRR must report all Valid Umlt Excesses, Under Investigation 

Umlt Excesses and Acknowledged Umlt Excesses to: 

• the Signatories to the Umlti 

• the weekly IB Markets Meeting and other LOB Risk Committee 

meetings; 

Risk or LOB Buslness Control Committee meetings. 

The notification sent to Umlt Signatones should Indude: 

DescrIption of the Umit Excess; 

Umltvalue; 

Exposure value and excess percentage; 

• Number of consecutive days the limit has been in excess. 

One-Off Approvals 

A Business Unit which has a Umlt Excess must take Immediate steps to 

reduce Its exposure so as to be within the limit. However, situations may 

arise when position dosure Is not possible or desirable. In such 

drcumstances, exceptions may be given by the Grantors of Umlts by way of 

One-off Approvals or changes to existing limits. 

Any request for a One-off Approval must be in writing, and describe the risks, 

and: 

o Size and tenor of business opportunity or specific transactlon; 

o Umlt(s) that would be exceeded and expected duration of the excess; 

o Exit strategy, where appropriate. 

No Market Risk Limit 

Where a Business Unit has no market risk limit, and needs to enter Into a 

transaction that gives rise to market nsk, a One-off Approval may be granted 

by the LOB CRO, or, In the case or the Investment Bank, the Head of 18 MR, 

or his designate. 

Umits Review 

MR should conduct penodic (at least semi-annual) reviews or market risk limits as 

part or Its holistic analysis or the Arm's market risk. 

• Approving limit changes as part of the limits review 

Mancet Risk umits, Firm·wide 

Conlldentlal Treatment Requested 6 JPMC-5enateJLevln 000162 
2085 

o Revised limits, to be blndlng, must be signed-off by the Signatories to 

Umlts, nonnally via email, whereupon the superseded limits will cease to 

exist. Approval e-maifs must be retained In accordance with the Finn's 

document retention policies. 

Thresholds 

With the agreement of a business unit and MR, thresholds may be established to 

supplement the market risk limits described above. RRF and IB MRR are responsible 

for reporting threshold utilizations dally to MR and to the businesses as required. 

The following applies to thresholds: 

• Thresholds need only the agreement of the LOB or Business Unit and Its 

corresponding MR executive. 

• MR coverage Is responsible for monitoring and validating excesses to 

thresholds. 

• It is not required that Immediate steps be taken to bring threshold 

excesses within threshold levels, given that they do not cause a limit 

excess; however MR may escalate threshold excesses as needed. 

• Threshold excesses do not require One-off Approvals. 

• Thresholds excesses should be reported In aggregate to MR and LOBs 

daily. 

Copyright &) 2006, JPHoI'9i1n Chase & Co. All rights rf1S<t/WId. 

Market Risk Umits, FIrm·wlde 

Confldentlal Treatment Requested 

7 

JPMC-SenatelLevin 000163 
2086 

From: 

To: 

ttJbbaro, Bryan 

<Hubbard, Bryan> 

BCC: AI Zibel <.alan.zibel@dowjones.corrP,Ben PrOless <.ben.protess@n~1imes.com> ,McGrane, Victoria 

<Vidona.McGrane@wsj.colTP,Puzzarghera, JIm <JimPuzzangheraWatlmes.com:>, 

<Shahien.Nasir1pour@FT.Com>.Lindsey\i\lhte <LVllhite@Snl.colTP,JeffBater<jbater@bna.colTP, 

<Katherine.Da'OOson@sourcemedia.COrTP.<bappelbalITl@:nytimes.corTP, 

<Davkl.C.CJarke@thomsonreLters.com>,<.pcoy3@bloorrberg.net>, <ron@csmonilor.com>, 

<tzwillich@gmaH.colTP 

Sent: 5/14/20129:29:40 PM 

Subject: OCC on JPMC Trading 

Greetings 

Many folks have asked for clarification/confirmation on """'ther the OCC believes """"her the Voleker rule mUd have 

prohibit JPMC acfivity that has been in the news since last Thlssday. The following information is aHnbutabie to an 

OCC spokesman. 

It is prematue to eonclu:le 1M1ether the Voleker Rtie in the Dodd-Frank Act mud have protibited these tredes and the 

hedging activity conducted by JPMC. The 'Voleker Rule" law is not in effect yet. and regLiations implementing the law 

have been proposed, but not yet adopted as final rues by reguators. Even if both were assumed to be in effect, the 

transactions at issue are complex and """'ther they mud qualify for exceptions under the staMe or proposed rule 

reqLires careful analysis. The ace ard other regulators are gathering additional details regardirg the transactions to 

determine the fUi reguatory implications of these activities and the proposed rues ClITentiy being oonsidered, 

Previous positions attributed to ace staff were based on incomplete details. 

others have asked """'ther the OCC has a stated position on """'ther such positions should be protibited by the 

pendirg Voleker rue. That rule is still in developmert and rt muld be inappropriate for me to commer! on that. 

What is the oce doing now? 

The acc is examining the bank's activities and is in cor!inuous dialogue 'Mth bank personnel and other regLiatory 

colleagues as we eva"-.Jate details related to the specific transactions as well as the sllTol.l1ding risk management 

processes that resu"ed in this unexpected loss. 

OLl' examiners are also evakJating risk management strategies and practices in place at other large banks to validate 

our urderstarding of irherent risk levels and controls of these risks. 

On Risk Management 

Asset-liability management is a core and essential flJ'lCtion for all banks. Identifying, measlJing, moritoring, and 

controHing nquidity, interest rates risk, foreign CLlTent translation risk, and credit risk is fundamental. The oce expects 

banks to proactively manage these risks. 

The loss by JPMC affects its earnings, but does not present an issue of safety or soundness for the bank. 

Bryan Hubbard 

Director, Public Affairs Operations 

Office of the Comptroller of the Currency 

bryan.hubbard@occ.treas.gov 

250 E S1 SW (RM 9060) 

W.shirgton DC 20219 

(202) 874-5307 

BANK PROPRlETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-00001361 
2087 

From: 

To: 

Sent: 

Subject: 

Waterhouse, Scott 

<Brosnan, Mike>;<Belshaw, Sally> 

5111120122:58:22 PM 

RE: J.P .Morgan Chase 

Just FYI - we did an examination of tre CIO at the en:! of 2010 and have a foHow-up planned soon. We had some 

concerns about overall governance an:! transparency of the activities. We received a lot of pusrback from the bank, 

Ina Drew in particLdar, regardir>;l ou" comments. In fact, Ina called Cntn6sh when he was in London and ·stemy" 

discussed Oll' cordusions with him for 45 minutes. Basically she said that investmert decisions are made....,th the fiJI 

understanding of executive management irduding Jamie Dimon She said that everyone knows what is goirg on and 

there is 1I"le need for more ~mits, controls, or reports. At the cordusion of the exam, 'NE issued the folo-Mng MRA. 

It just goes to show that it is difficult to amays be smarter than the marKet. Humility is good. 

From: Brosnan, Mike 

Sent: Friday, May 11, 2012 10:35 AM 

To: Belshaw, Sally; Watemouse, Scott 

Subject: Fw; l.P.Morgan Chase 

From: Brosnan, Mike 

Sent; Friday, May 11, 2012 10;20 AM 

To: Curry, Thomas; Williams, Julie 

Subject; Re; l.P.Mergan Chase 

Yes 

At end of day trey are good at financial risk mr>;lt. But they are hunan and win make mistakes (big loan losses. tradir>;l 

losses, litigation etc). But on grand scheme they are good. Ttis will tunble them - a healthy and good thir>;l 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·OOO01746 
2088 

From: Cuny, Thomas 

Sent: Friday, May 11, 2012 10:12 AM 

To: Brosnan, Mike; Williams, Julie 

Subject: RE: J.P,Morgan Chase 

Mike, 

Thanks. Isn't it a little more than embarrassment issue? While it may not be material, it does implicate their risk 

management abilities doesn't it? 

Tom 

From: Brosnan, Mike 

Sent: Friday, May 11, 2012 10:00 AM 

To: Cuny, Thomas; Williams, Julie 

Subject: FW: ],P,Moryan Chase 

Fyi - intematioral colleagues will be asking and hare's v.tlat I sent to batin. 

From: Brosnan, Mike 

Sent: Friday, May 11, 2012 9:58 AM 

To: 'Daniel,Mestek@bafin,de' 

Cc: LUdaer.Hanenbero@bafinde; Peter.Krusche!@bafin.de; 'Sarah.Dahlgren@ny,frb.orgl; lim.P.Clari<@frb.gov 

Subject: FW: ],P,Moryan Chase 

At ttls point there is a lot of pubflc information as bank issued 10-q filing and had call with analysts last right. 

The transactions in qLSstion YJere part of their asset·~ability management process (alco) wtich jpmc refers to as the 

chief investment office (cia), Here are my take-aways 

Sack in 2007-08 they put on a short credit risk position to protect against a dediring economy. This was a 

macro hedge. 

Over the past few years ttls hedge woriked as the economy declined, credit spreads widened (causing gains 

on the hedge) but these gains were of course offset as they took credit losses (for eJ<ample Kodak, American 

airtines etc.). note, the derivatives positions are mtm wtile the: loan portfolio is primarily cost accountirg. 

This presents complexities for analysts etc. 

After evaluating macro envirorment in 4q11, actions were taken in early 2012 to reduce the short position --

by entering lorg position in other credit risk indices. 

The new transactions had different betas and basis risk. 

As recent marks show the bark mis-estimated the basis risk (while their short position did gain 'h'ith recent 

~ward shift in credit spreads, the Iorg position had losses beyond original estimates). 

the overall impact of recent mar1<;s on 1q12 pit resutted in a chBnge from cio's previous estimate of a $200mm 

gain to last night's annotreement of a $BOOmm ",55 ($1b swing). 

The micro positions in question are now in control of risk management. 

The overall resutt will be a reduction in 2q12 earrings, and I think the bark has informed market there is a good chance 

the adjustments mderway colJd result in some earrings impact for one or two future quarters as weft. Also, they 

changed risk models whch will result in tlgher rwa and ttls will cause tier one common ratio to drop from 8A to 8.2. 

obviously there isn't a safety issue with these I"Ilmbers, but there is an embarr~ssment issue for bank leader.;hip which 

has overtly expressed pride in their ability to measure and control risk. 

From: DanieI.Mes\ek@bafin,de fmailto:DanieI.Mestek@bafin.del 

Sent: Friday, May 11, 2012 8:39 AM 

To: Brosnan, Mike; lim.P.Oark@frb.gov 

Cc: ludger.Hanenbera@bafin.de; Peter.Krusche!@bafin.de 

Subject: ].P.Morgan Chase 

BANK PROPRlETARYAND/OR TRADE SECRET 

INFORMA nON 

OCC·OO001747 
2089 

Dear colleagues 

As you may know, Bafin is in charge of supervising l.P.Morgan AG, an indirect subsidiary of l.P.Morgan Chase 

& Co, New York. furthermore, J.P.Morgan Chase's frankfurt branch is under our supervision. 

Regarding the latest news on major losses of J.P.Morgan's US business, we would be grateful if we could get 

insight into both the background of the transaction(s) leading to the reported losses as well as any supervisory 

action (to be) undertaken by you. 

Therefore, it would be greatly appreciated if you could as soon as possible either provide us with respective 

information in written form or, as an alternative, if we could set up a telephone conference, 

Yours sincerely 

Daniel Mestek, LLM. 

Bundesanstalt fur finanzdienstleistungsaufsicht 

Referat BA 16: Aufsicht Ober auslCindische Banken aus Amerika, Schweiz, Asien (ohne arabische Staaten), 

Australien 

federal financial Supervisory Autt10rity 

Section BA 16: Supervision of foreign banks from the USA, Switzerland, Asia (exduding the Arab states) and 

Australia 

Graurheindorfer Str. 108 

53117 Bonn 

Fan: +49(0)2284108-3787 

Fax: +49(0)2284108-63787 

e-mail: danielmestek@bafin.de 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00001748 
2090 

From: 

To: 

Sent: 

Crumlish, Fred 

<Belshaw, Salty> 

4/10/201212:41:37 PM 

Subject: RE: JPM cta tradesMM JPMorgan's IksU May Spur Regulators to Dissect Trading ~ 8100rmerg News ~ 

4/9/12 

We asked to confirm booking. Likely bank chain 

*h If you have received this message in error, please delete the original and all copies. and notify the sender immediately. 

Federal law prohibits the disdosure or other lISe of this lnformation. 

From: Belshaw, Sally 

Sent: Tuesday, ApollO, 2012 B:39 AM 

To: Crumlish, Fred 

Subject: RE: JPM CIO trades- JPMorgan's Iksll May Spur RegulatOlS to Dissect Trading - Bloomberg News - 4/9/12 

Just to confirm, this is in the bank/branch, right? 

From: Crumlish, Fred 

Sent: Tuesday, ApollO, 2012 B:38 AM 

To: Belshaw, Sally 

Subject: RE: JPM CIO trades- JPMorgan's l1<sil May Spur Regulators to Dissect Trading - Bloomberg News - 4/9/12 

thanks 

M apc 

H~ If you have received this message in error, please delete the original and all copies. and ootify the sender immediately. 

Federal law prohibits the disdosure or other lISe of this information. -., 

From; Belshaw, sally 

Sent: Tuesday, AprtlIO, 2012 B:34 AM 

To: Crumlish, Fred; Waterhouse, Scott 

Subject: FW: JPM 00 trades-- JPMorgan's Iksil May Spur Regulatol'; to Dissect Trading - Bloomberg News - 4/9/12 

FYI. Sally 

From: Belshaw, Sally 

Sent: Tuesday, ApollO, 2012 B:33 AM 

To: pfinsgraff, Martin; Brosnan, Mike 

cc: Lyons, John; Belshaw, Sally 

Subject: RE: JPM CIO trades- JPMorgan'siksil May Spur RegulatOl'; to Dissect Trading - Bloomberg News - 4/9/12 

Sounds like Fed and our folks in NY are getting info on this. I would think Fred will decide if there is more we need 

to do based on his comfort level. I'll make him aware of your concern, but hesitate to launch something based on 

supervisionMbYMnewspaper. Let's see what we get in this next round of info the bank is providing. Sally 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-DODD 1826 
2091 

From: Pfinsgraff, Martin 

Sent: Tuesday, April 10, 2012 6:22 AM 

To: Belshaw, Sally; Brosnan, Mike 

Ce: Lyons, John 

Subject: RE: JPM 00 tracies- JPMo'llan's lI<sil May Spur Regulator.; to Dissect Tradin~ - Bloombe'll News - 4/9/12 

Sally, 

Would it make sense for McQuade and/orVourvoulias to also go in under Crumlish's guidance to validate that the 

desk activities in london are consistent with the story being provided by JPMC NY? This is dearly getting scrutiny 

and comment from the likes of Merke!y and levin. It would be good if we can demonstrate that we took all 

measures to review this activity and at both the macro and micro leve! when we respond to the questions that will 

inevitably arise. 

Marty 

From: Belshaw, Sally 

Sent: Tuesday, ApollO, 2012 6:12 AM 

To: Brosnan, Mike 

Ce: Pfinsgraff, Martin 

Subject: FW: JPM CIO trades-- JPMorgan's Iksil May Spur Regulator.; to Dissect Trading - Bloomberg News - 4/9/12 

Just to keep you in the loop, Mike. Julie sent an e-mail earlier saying we should perhaps have an answer ready in 

case Mr. Curry inquires about this and also, I think, to understand Volker rule implications. I'm copying Marty on 

info since he's also a likely one to get questions. 

Sally 

From: Crumlish, Fred 

Sent: Tuesday, April 10, 2012 6:00 AM 

To: Waterhouse, Scott 

Cc: Wilhelm,' Kurt; Belshaw, SaIlYi Atkins, Glenni Banks, George; Berg, Jaymin; Fursa, Thomas; Hohl, James; Kamath, Jairam; 

Kirk, Mike; Monroe, Christopher; Wong, Elwyn 

Subject: JPM 00 trades- JPMorgan's Iksll May Spur Regulator.; to Dissect Trading - Bloomberg News - 4/9/12 

CIO is in the news again today (See following). A quick recap of where we are. ! have copied Sally and Kurt in 

anticipation of questions: 

As you know we had a call with Chief Investment Officer Ina Drew and others in JPM yesterday, along with the frb. 

The trades that are getting press coverage now are part of a program to reduce a an existing hedge on credit risk 

stress losses. Mgmt felt this stress loss hedge became overhedged as credit risk lessened in 2011, and so used the 

IG9 to adjust it. Unfortunately the IG9 index has also seen reduced trading volume and market participants, so that 

JPMC's trades probably further decreased liquidity in the index. JPMC's credit stress hedge is again where they 

want it, and there is no significant further trading planned on this strategy. JPM did say that, if they had to do it aU 

over again, they would have used a different index. My sense is that they misread the liquidity in the market. C/O 

really doesn't like to draw attention to itself. 

We asked the bank for a number of items yesterday that reflect details on the trades and support the stress loss 

hedge rationale associated with this specific strategy. We expect this sometime today. FYI the stated purpose 

would be consistent with the CIO's mandate to hedge overall structural balance sheet risk. Most notably this 

includes interest rate risk in the banking book, the MSR, and FX translation. 

I agree with the press that this will likely become a good case study forwhat should t'countll under the Volker rule. 

BANK PROPRlET ARY AND/OR TRADE SECRET 

INFORMATION 

OCC-OOOO 182 7 
2092 

James Hohl or I wi!! provide some numbers or further analysis when we have them. 

- ape 

<tu If you have recei'-'ed this message in error. P'ease delete the original and all copies. and notify the sender immediately. 

Federal law prohlbils the dlsdosure or other use of this information. -" 

From: Tuorto, Louise 

Sent: Tuesday, ApollO, 20127:38 AM 

To: LB Morgan Stanley; LB em: Heinsohn, Allison; Crumlish, Fred; Devincenzi, Saray; Decker, Sharon; Kiefer, Joseph: 

Gouldie, James 

Subject: JPMorgan's Iksil May Spur Regulators to Dissect Trading - Bloomberg News - 419112 

JPMorgan's Iksil May Spur Regulators to Dissect 

Trading 

Market-moving trades by JPMorgan Chase & Co. (JPM),s chief investment office probably will force regulators to 

seek more detail on banks' derivatives positions to help them distinguish risk management from speculation. 

Bruno Iksil, a London-based trader in the unit. has built derivatives positions linked to corporate credit that are so big 

he's moved markets, according to hedge fund managers and dealers. While Joe Evangelisti a bank spokesman, said 

yesterday that the trades are part of the flfTIl's hedging strategy, four market participants said they resemble 

proprietary bets, or wagers with the lender's own money. 

Executives at New York-based JPMorgan, the biggest U.S. bank with $2.27 trillion of assets at year-end, have 

opposed the so-called \bIcker rule that seeks to prevent banks with federal backing from making speculative trades. 

Details on Iksil's positions are too sparse for regulators to detennine whether they should be permitted, said Frank 

PartnoY. a former derivatives trader who's now a law and finance professor at the University of San Diego. 

"Illis could be an almost completely matched, hedged position, or it could be massively risky, and there's just no way 

to tell Vlithout getting more complete disclosure," Partney, author of "Infectious Greed: How Deceit and Risk 

Corrupted the Financial Markets" said in a phone interview. "I'm sUJprised that regulators don't see this example and 

cry out for more disclosure and more intormation about these contracts." 

Bank Regulators 

Judith Bums. a Securities and Exchange Commission spokeswoman, declined to comment on whether the agency is 

looking into the trading. Brvan Hubbard a spokesman with the Office of the Comptroller of the Currency, which 

regulates banking at JPMorgan. and the Federal Reserve's Barbara Hagenbaugh also declined to comment 

The three regulators are among those working on the final version of the \bIcker rule. 

Regulators are stationed in JPMorgan's offices and are aware of what the bank is doing, said a person familiar with 

the company's thinking, who asked not to be identified because he wasn't authorized to discuss it. 

The results of JPMorgan's chief investment office "are disclosed in our qualterly earnings reports and are fully 

transparent," Evangelisti said in a phone interview. 

Harvey Pitt. a former US. Securities and Exchange Commission chainnan. said yesterday in an interview on 

Bloomberg Television's "InBusiness With Margaret Brennan" that trading such as Iksil's should raise regulatory 

concerns because it's influencing market prices. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-DODO J 828 
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'Dispel Concerns' 

"I'd want to talk 'Nith the folks at JPMorgan and understand exactly what took place here," Pitt said, "And then I 

would try to get a report out to the public as quickJy as possibJe to dispel concerns about things that may not have 

occurred and to raise issues about things that actually did occur," 

Arthur Levitt. another former SEC chainnan who is a senior adviser to Goldman Sachs Groop Inc. (GS), said in a 

radio interview on "Bloomberg Surveillance" that he expects regulators will require more infonnation on banks' 

derivatives positions 

"And I think that is unfortunate," said Levitt, who also is on the board of Bloomberg LP, the parent of Bloomberg 

News, "That raises all kinds of competitive issues." 

JPMorgan holds a portfolio of investment-grade debt and uses "credit-related instruments" such as derivatives to 

protect against a decline in the value ofthe holdings. Evangelisti said. 

'Simply a Balancing' 

"Our most recent activity noted in the media is simply a balancing of those credit-related investments to reduce the 

impact of our hedge," he said. "We do this in the ordinary course of our asset- and liability-management activities." 

Jack Gutt, a spokesman at the Federal Reserve Bank of New York, declined to comment on whether the New York 

Fed is examining the trades. Jamie Dimon, JPMorgan's chairman and chief executive officer, is on the New York 

Fed's board of directors. 

"This "'ill be the first test of how asgressively the Fed will enforce the Dodd-Frank Act," which includes the Volcker 

rule, said Mark Williams, a lecturer at Boston University's School of Management. "From a Fed regulatory 

standpoint. I see JPMorgan as having some serious explaining to do." 

The positions. by the bank's calcuJations. amount to tens of billions of dollars and were built with the knowledge of 

IksWs superiors. a person familiar with the firm's view said. 

Price Movements 

Iksil may have built a position totaling as much as $100 billion in contracts in one index, according to the market 

participants, who said they based their estimates on the trades and price movements they witnessed as well as their 

understanding of the size and structure of the markets. 

Even if regulators are satisfied that Iksil's trades are intended to hedge other risks the bank is taldng, regulators 

should be aware that derivatives often fail as offsets because of differences in the way contracts are written and 

traded, Partnoy said. . 

"It's not a pure hedge, it has a speCUlative element to it. and that's particularly true when the contracts are this big. 

when you're talking abou.t tens ofbiUions of dollars," said Pannoy, whose new book "Wait: The An and Science of 

Delay" is being published in June by PublicAffairs. 

"The only perfect hedge is in a Japanese garden," he said. 

Louise A, Tuorto 

Administrative Assistant 

Morgan Stanley Bank, N.A, 

750 7th Avenue, 30th Floor 

New York, NY lOOl9 

2l2-762-07l0 

BANK PROPRlET ARY AND/OR TRADE SECRET 

lNFORMA TION 

OCC-OOOO1829 
2094 

From: 

To: 

Sent: 

Subject: 

Brosnan, Mike 

<Belshaw, SaIIy>;<lJIJaterhouse, Scott> 

4/30/20125:53:14 PM 

RE: pis read, eelh and send back. thx 

Will wait on scott - it may be that they hedge their capital (it is fixed) but someone else hedges revs/expenses as 

they move, But will wait on scott to be sure. 

Thx for clarity and patience. 

FrOnt: Belshaw, sally 

Sent: Monday, ApiI30, 20121:50 PM 

To: Waterhouse, Scotti Brosnan, Mike 

Subject: RE: pis read, edit and send bad<. thx 

Not sure why the word "earnings" got stuck in below but it doesn't fit, Overall, this is our take. It's like a PSI 

testimony here ..... ,ifyou ask the right question enough times, will you get a different answer? 

From: Waterhouse, Scott 

Sent: Monday, ApiI30, 20121:04 PM 

To: Brosnan, Mike 

Ce: Belshaw, sally; Watemouse, Scott Subject: RE: pis read, edit and send back. thx 

Mike - you can call me Marty if you want, but please don't call me late for dinner. 

We made a few edits to correct facts. 

Bottom line: We believe that AJLrM activities at JPMC make sense, We do have an outstanding J\1RA and there 

will always be examination fmdings as wen as ongoing questions but we conclude their day4~y and strategic 

activities are appropriate from safety and soundness view, and they are not running afoul of inappropriate 

"proprietary trading" issues, My conversations \\~th FRB counterparts confirm similar thinking. My short take: 

JPMC (and WFC, BAC, and to lesser extent C) have very large investment portfolios that are managed 

centrally, at JPMC by the Chief Investment Office (CIO) and at others by an ALCO. 

JPMC typically runs S300b • S400b investment positions and there are a lot of derivatives (interest rate, 

foreign exchange, and credit) that are overlayed to control exposures to structural interest rate risk., basis risk., 

earnings foreign currency translation risk, and structural credit risk. Note, the overalJ risk positions can go up or they 

can go do'wVIl, though JPMC speciflcalty has a bias that marginal transactions result in less risk. These activities are 

normal AlLIM. at the big banks. though JPMC's indusion of some credit risk mitigation from CIO is somewhat 

different (credit people call also do this in other banks, but skills and activity vary). 

The dips referencing tbe "whale" moving the market are tied to unwinding part of credit positions put on a 

couple of years ago in different instruments. Where the bank gets a gain there has generally been a loss (American 

airlines etc.). They are big and can move the market, particularly where markets or specific instrument activity is 

less liquid to beEPn with. 

I think there are people out there that have lost money and are grousing at JPMC. I also think some 

people are using this to spin a story to influence policy work. Tune "ill tell if the gut is right. 

BANK PROPRlETARY ANDIOR TRADE SECRET OCC-00002135 

INFORMATION 
2095 

From: Brosnan, Mike 

Sent: Monday, April 30, 2012 12:25 PM 

To: Belshaw, Sally; Waterhouse, Scott Subject pis read, edit and send back. t~x 

Marty - John Lyons asked that I send you a summary of my thinking (Large Banks) on the a/l/m activity and related 

angles portrayed in media coverage a couple weeks back. 

Bottom line: We believe that AlLlM activities at JPMC make sense. We do have an outstanding.M.RA and there 

will always be examination findings as weU as ongoing questions but we conclude their day~to-day and strategic 

activities are appropriate from safety and soundness view, and they are not running afoul of inappropriate 

"proprietary trading" issues. My conversations with FRB counterparts confirm similar thinking. My short take: 

JPMC (and WFC, BAC, and to lesser extent C) have very large investment portfolios that are managed 

centrally by ALCO. 

JPMC typically runs $300b - S400b investment position and there are a lot of derivatives (interest rate, 

foreign exchange, and credit) that are overlayed to control exposures to structural interest rate risk., basis risk., foreign 

currency translation risk and credit risk. Note. the overall risk positions can go up or they can go down, though 

JPMC specifically has bias that marginal transactions result in less. risk. These activities are normal AILIM at the 

big banks, though JPMC's control of credit risk from CIO is somewhat different (credit people can also do this in 

other banks, but skills and activity vary). 

The clips referencing the "whale" moving the market are tied to transactions put on a couple years ago and 

are now being unwound in different chunks. Where the bank gets a gain there has generally been a loss (American 

airlines etc.). They are big and can move the market, particularly where markets or specific instrument activity is 

less liquid to begin with. 

I think there are people out there that have lost money and are grousing at jpmc. I also think some people 

are using this to spin a story influence policy work. Tune will tell if the gut is right. 

the most recent message from Scott and team at JPMC follows this email. Based on what I learned from the emails 

as well as phone conversations with Sally and Scott, I have not requested additional follow-up and \\Ii.llieave it to 

their discretion in circling back to if anything new arises. I also read b"anscript of lq 12 earnings discussion and saw 

some discussion but not much in way of controversy (essentially the spin in clips = tempest in teapot) 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00002136 
2096 

From: 

To: 

Sent; 

Subject: 

Thx. 

Brosnan, Mike 

<Hubbard, Bryan>;<Wlliams. Jutie>;<~lsh, John>;<Kilber, Kenyon>;<Moore, Carrie>;<Rowe, 

\!\Iilliaro> 

5/14/20126:43:07 PM 

RE: updated talking points (onsite team is gOOd whh this wrsion ~ various edits are 11) 

To be clear, from what you said Corker was right. It is us/me that will now be reserved and leave some room for 

interpretation etc. later. 

From: Hubbard, SlYan 

sent: t-tlnday, May 14, 2012 4:32 PM 

To: Brosnan, Mike; Williams, Julie; Walsh, John; Kilber, Kenyonj Moore, Carrie; Rowe, William 

Subject: RE: updated talking points (onsite team is good with this version - various edits an! in) 

Thank you. ! think these are very helpful and could help clarify the "absolute" statement by Senator Corker this 

morning. 

j have numerous queries from NYTimes, WSJ, Dow Jones, Financial Times, Christian Science Monitor asking to 

confirm or clarify this morning's statement. Pending Mr. Curry's approval of these more nuanced statements, I'd 

like to make calls before folks' deadlines 50 tomorrow's paper's don't include Senator Corker's absolute statement. 

It would be very helpful. 

Also got a call from Public Radio Intemational stating that Senator Corker told him that the acc has changed its 

position from this morning. 

Based on all the moving parts and interest, I'd like to provide all these reporters the same information consistent 

with what was said on the call with Mr. Levin. 

One reporter also said that Corker's staff is also saying that The acc staff do not think these sorts of trades 

"should" be covered. That is different than whether they would be covered. 

A separate question from a Peter Coy, at Bloomberg, is asking the more systemic question of what isthe banking 

system's exposure to trading risk. His deadline is Wednesday. 

Please let me know if these are ok for me to speak from. 

Bryan Hubbard 

bryan,hubbard@occ.treas.gov 

(202) 674-5307 

« File: JPMC Talking Points May 14 2012 (4).doc» 

From: Brosnan, Mike 

sent: Monday, May 14, 2012 4:18 PM 

To: Williams, Julie; Walsh, John; Kilber, Kenyon; Hubbard, Bryan; Moore, Carrie; Rowe, William 

Subject: updated talking points (onsite team is good with this version - various edits are in) 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC·00002263 
2097 

« File: JPMC Talking Points May 14 2012 (4).doc» 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-00002264 
2098 

From: 

To: 

sent: 

;ubject: 

Crumlish, Fred 

<Worg, EIwYrP;<Hohl, James>;<Kirk, Mike> 

5/16/20123:15:53 PM 

FW: here Is redllne and new final 

Attachments: Talking Points re $ 2 B loss ~ OCC Role and Responsibilitie SW ~ final.docx; Talkirg Points ra $ 2 B 

loss ~ OCC Role and Responsibillie SW - redline.docx 

Please advise me of "fatal flaws" or factual errors immediately. 

And of course don't forward ... 

- ape 

*** If you have received this message in error, please delete the original and all copies, and notify the sender imrrediate/y. 

Federal law prohibits the disdosure or other use of this information. 

F,am: Waterhouse, Scott 

Sent: Wednesday, May 16, 2012 10:22 AM 

To: Crumlish, Fred 

Subject: FW: here is redline and new final 

From: Brosnan, Mike 

Sent: Wednesday, May 16, 2012 10:20 AM 

~o: Williams, Julie Cc: Waterhouse, Scott; Belshaw, Sally 

Subject: here is redline and new final 

We are good with the new ttnal. Red!ine attached to help you see changes. 

« ... » « ... » 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-00003507 
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JPMC Trading Loss and OCC Role and Responsibilities 

In 2007 and 2008, in order to hedge credit risk in its balance sheet as a result of stressed credit 

conditions in the economy. the bank constructed a macro-hedge against the credit risk of the 

bank's balance sheet using credit default swaps (CDS), This synthetic credit position was 

designed to provide income to mitigate credit losses in the loan portfolio that would arise under 

economic conditions that produced broad credit stress, The strategy was managed to provide 

around $1 billion to $1.5 billion of income in credit stress scenarios to offset potential stress 

losses of $5 billion to $8 billion. 

The ace was aware of this macro hedge. The position was captured in the bank's standard 

Chief Investment OffICe (CIO) and market risk reports available to the ace. Mitigating portfOlio 

credn risk is a ~ step for safety and soundness purposes, and thus the OCC's focus on this 

strategy was to ensure that the bank had effedlve risK management functions and controls. The 

OCC did not review aach particular transaction that resulted in the synthetic credit position 

because transactlons remained within the parameters of the bank's overall nsk management 

limits and were viewed as working reasonably. OCC examinations focused on the quality of risk 

management and the quantity of risk. Risk management was viewed as satisfactory, with a 

proven track record. It operated under value-at-fisk (VAR), stress, and other limits as well as 

various measures depicting sensitivities to other market factors .. OCC examination of the 

investment portfolio in 2010 did find, however, that the bank needed to more clearly document 

investment policies, portfolio decisions, and processes to manage investments. 

The DCC also has Issued MRAs on model govemance over a period of several years. The bank 

revisecl its model govemance policy as a result and updated it again in pate 2011-early 2012.] 

Corrective action is ongoing, 

Sinca its inception, the original hedging stmtegy generally has worked as anticipated. f:vs the 

economy declined and credit spreads widened, the bank reported gains on the hedge position 

that offSet credtt losses it took in its loan portfolio. (Note that gains and losses on the derivatives 

positions that constituted the hedge are marked to martel.) 

As the economy improved, in late 2011 and early 2012 executive management felt that the credit 

cycle was I~ risi(y and made the strategic decision to reduce the high yield debt credit 

protection position. However, after the American Airlines bankruptcy and with an expected 

bankruptcy filing by Kodak. the markets for high yield indices were not. according to the bank, 

liquid enough to use to unwind the exlsting short credit protection position. COnsequently, the 

bank ooked for alternatives to offset the positions via other tn'Struments that were presumed to 

have offsetting risk characteristics. 

The bank; de\leloped a risk management strategy that relied heavily on the IG 9 Index. 1GB was 

vtewed as more liquid than the high yield indices, and included five -rallen ang~s· that allowed 

the index to be used to partially reduce the bank's protection against stress losses. Thus, the 

bank began selling IG 9 credit defautt swaps - going long on IG 9 credit risk (selling CDS) - to 

neutralize some of its short high yield credit risk position (the original credit default swaps). 

Essentially the bank was putting on a hedge on a hedge. The resulting combination of the 

original hedge, end the new position was quite complex. 

At roughly the same time as this hedge-on~a hedge was being executed, the bank implemented a 

new VAR rnodel, which was designed to improve the precision of risk measurement This model 

went through multip'e leveJs of review at the bank, including the updated mode! govemance 

pojicy required pursuant to acc MRAs. 

In this regard, the DCC does not -approve- in advance all the particular models a bank uses - nor 

the panicular loans, or in\lestments. etc. that it makes. OCC evaluates the bank's risk 

management policies, processes, procedures, limits, and controls (including quality assurance 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00003508 
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processes and audit). And we monitor management systems for exceptions to policies or limits 

which may then prompt further review or inQuiry. We also monitor and follow-up on errors and 

adverse findings from risk managers and auditors to ensure they are cleared on a timely basis. 

OCC exarmners look to see where activities or losses have diverged from expectations to a 

degree indicative of a breach of approved parameters or breakdown of controls. For example, 

wa would look for traders/managers operating outside approved limits. where risk management 

activities did not identify or escalata such instances, and for mOdels breaking or not going through 

proper validation, etc. It is possible that losses could be incurred even when all controls function 

properly, however, because of poor risk estimation o( bad businass judgment as well as extemal 

events that create low probability but higher impact anvirOM1ents that aggravate poor decisions 

or bad judgment. Risk managemant seeks to minimize risk but cannot aHminata it, which Is why 

banks have requirements to maintain specific capital, reserves, and liquidity to manage 

unexpected losses. 

Examiners review management information on a regular basis and have access to additional 

details and information if warranted. OCC examiners observa risk management practices and 

assess effectiveness by evaluating whether they provide credible challenge to business people to 

ensure proper balance between risk and reward, Ifaxamlners do not see that. they seek to have 

correctiva action to the risk management practices at the institution. 

The bank in this case made its decision to reduce its exposure from the original 2007 strategy in 

late 2011/ear1y 2012. This was an unexceptional decision made by bank management; not 

something that would prompt a spacial alert to the oec, or a reaction by the OCC that individual 

trades needed to be examined. 

Notably. however. In the present situation, the risk characteristics of the original macro-hedge and 

the hedge-on-a-nedge diverged and this Introduced additional r1Sks, Including basis r1sk. The 

basis risk that resulted made the bank's new hedga strategy sensitive to a change in the spread 

between High Yield CDS and Investment Grade CDS (IG9) known as 

compression/decompression risk. ~ recent events have proven, the bank's modal assumptions 

regarding the expected price behavior batween the indexes and the value of the positions were 

incorrect. The overall impact on the CtOS first quarter2012 earnings estimate is a $1 billion 

swing from a $200 million gain to May 10's announcement of an $800 million loss. 

We discussed with management expected first quarter 2012 results in the three weeks leading up 

to the bank's eamings announcement. We met wtth the CFO on April 12 to go over financial 

resuMs. At that time. the CFO noted that he expected the COrporate sector, Including the CIO, to 

make approximately $200MM per quarter for the rest of the year. The bank formally announced 

eamings on April 13, with no mention of the CIO issue. 

The OCC reviews the CIO book on a regular basis. We began to focus on the details of this set 

oftransactlons and resulting Impact on limits in mldwApril, foUowlng April 9. 2012 reports of the 

bank's -London Whale" trader who was actually executing the trades to establish to establish the 

hedge-on-the-hedge. On April 16, OCC and FRB examiners met with Ina Drew (now former CEO 

of the CIO) and senior members of the CIO and Officials of the bank's risk management function 

to discuss the bank's poSitions in tight of the press reports. Ms. Drew and other bank Officials 

explained at that time the use of CDS to mitigate the bank's credit risk and their rationale for 

using the IG 9 Index to reduce the bank's high yiekj credit derivative position. Thus, the bank 

was se!l!ng IG 9 CDS - going long on IG 9 credit risk (seiling CDS) to neutralize some of Its shan 

high yield credit risk protection (the tong CDS) put in place to mitigate the credit risk of its loan 

portfolio. 

On May 4, 2012, we received a call from the CFO and CRO to inform us that the value of the 

position was deteriorating rapidly. Management informed us that it brought in specialists from the 

Investment Bank to dissect the position and take over its management. The CFO said the 

BANK PROPRlETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-00003509 
2101 

investigation was ongoing and that they would make B presentation to us on May 9 2012. 

Additional information on changes to CDS exposures and the synthetic credit portfolio 'Nef'e 

provided to examiners as a result of this meeting, and we are having ongolng disc;ussions, 

Additional information on changes to CDS expJSures and the synthetic credit portfolio were 

provided to examiners as a result of this meeting. Also noted were recent changes In the 

behavior 01 the IG 9 market 

The bank had to publish its 100 on May 10. Given that the value had changed so much, 

management felt that it needed to inform its investors prior to publication, A conference call was 

quickly arranged for hours on May 10 to highlight the issue and change its corporate sector 

earnings forecast for the rest of the year. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·000035JO 
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From: 

To: 

Sent: 

Subject: 

Kama1h, Jairam 

<Crll1llish, Fred> 

5/23/20122:42:26 PM 

FW: Stop Loss Defirilions 

This makes no sense and gives a misleading picture of t~ 5-day and 1G-day stop losses. Perhaps if t~y had 

reported clI11uative losses in the 5-day and 20-day tines, management woLld have been apprised of the gravity of the 

situation much earlier. Incidentally. CIO does not have drawdo'M'llimits. 

jairam kamatb@?occtreas.gov 

Tel: 212-899-1386 

BB: 202-368-9193 

Fax: 301-433-6238 

This message is interded for designated recipients orY,t. If you have received this message in error, please delete the 

original and all copies and rntify the sender immediately. Federal law prohibits the disclosLl"e or otl"er use of tris 

information. 

From: Kamath (Regulator), Jairam X [mallto:jairam.x.kamath@jpmchase.com] 

Sent: Wednesday, May 23, 2012 10:27 AM 

To: Kamath, Jairam 

Subject: fW: Stop Loss Definitions 

From: Surtani, Lavine 

Sent: Wednesday, May 23, 20129:48 AM 

To: Kamath (Regulator), Jairam X 

Cc: Regulatory COOrdinator 

Subject: RE: Stop Loss Definitions 

Jairam, 

I went back to Market risk management to enscre t~y were comfortable ~ththe defirition and t~ way t~ reports are 

calculat!ng Stop Loss Thresholds and they agree with the ogle which is as follows: 

The five day !ossadvisory is an arithmetic sum of the last 5 1--day~. Any of these underlying ~that have 

caused an ~ are NOTJnd.u.dedJn the sum ror the following reason: including .u.ti1lza.tiQns that caused .exc.essio.os..would 

result in a doublewpenalty. A business would break both their 1 day andJive day loss advisory. Rather, this type of loss 

advisory is used to capture smalileal<s in loss over a larger period of time 

The same logic V'I'OlJd be implemented for the 20-day. 

Also, the ot~r point t~y emphasized is that >Mlile some LOBs conti"", to show the loss advisories as thresholds, 

Market Risk Management overall favors the Drawdown measLl"e of P&L petforrnance for limit plIPoses. 

Let me know if you have any fu1her questions. 

Lavine 

lavine Surtani I Corporale Market Risk Reporting IT: 212-270-1369 (rridlown); 212-623-6835 (downtown) I M: 917-757-1091 

Ilav'ine.surtaniIttHpmchase.com 

--_._-------------- From: Kamath (Regulator), Jalram X 

Sent: Thursday, May 17, 2012 9:37 AM 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00003917 
2103 

To: Sultanl, lavine 

Subject: Stop loss Defimtions 

Hi Lavine, 

I know tHs sCoud be fairly obvious bul we'd like to know Cow MRM defines 1-day. !;.days, acd 2()'days stop loss 

IhresColds. From looking at some of Ire risk reports we are not getting a good sense of Cow the !;.day acd 2()'day 

stop loss nLIllbers are derived. 

Thanks. 

Jairam 

This conunullJcatioll is for informational purposes only. It is not intended as an offer or solicitation for the purchase 

or sale of any fmancial instrument or as an official confirmation of any transaction. All market prices, data and other 

information are not warranted as to completeness or accuracy and are subject to change 'r'iithout notice. Any 

conunents or statements made herein do not necessarily reflect those of JPMorgan Chase & Co,. its subsidiaries and 

affiliates. This transmission may contain information that is privileged, confidential, legaHy privileged, andior exempt 

from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any 

disclosure, copying, distribution, or use of the information contained herein (including any reliance thereon) is 

S1RICTIY PROHIBITED. Although this transmission and any anachments are believed to be free of any virus or 

other defect that might affect any computer system into which it is received and opened, it is the responsibility of the 

recipient to ensure that it is virus free and no responsibility is accepted by JPMorgan Chase & Co., its subsidiaries 

and afftliates, as applicable, for any loss or damage arising in any way from its use. If you received this transmission 

in error, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard 

copy format. Thank you. Please refer to http://INWW.jpmorgan.com/pagesldisclosuresfor disclosures relating to 

European legal entities. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00003918 
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From: 

To: 

t;c: 

,ent: 

Subject: 

Wong, Etwyn 

<\Naterhouse, Scott>;<Crumlish, Fred>;<Swank, Todd>;<Kirk. Mike> 

<Hoh!. Jarres> 

5/1712012 3:42:36 PM 

History of Trades 

Ok, looks like they gave us all trades as of Month~end Jan, Feb, March 

Then 3 snap shots for April, 

Then Daily May but only 01,02,03,04 

So "netting" Feb vs March vs the 3 snapshots in Apri! would give us info on incremental trades done since the loss 

really began to snowball. 

Obviously still need explanations on the right hand columns in the spreadsheet, especially for tranches. 

Elwyn 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00004035 
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From: Crumlish, Fred 

To: <Watemouse, Scott> 

cc: 

Sent: 

<Wilhelm, Kwt>;<Belshaw, SaUy>;<Atkins, Glem:>;<Banks, George>;<Berg, Jaymin>;<Fursa, 

Thomas>;<Hohl, James>;<Kamath, Jairam>;<Kirk, Mlke>;<Monroe, Christopher>;<Wong, Elwyn> 

41101201212:00:21 PM 

Subject: JPM CIQ trades-- JPMorgan's Iksil May Spur Regulators to Dissed. Trading ~ Bloomberg News -

4/9112 

cia is in the news again today (See following). A qUick recap of where we are. I have copied Sally and Kurt in 

anticipation of questions: 

As you know we had a call with Chief Investment Officer Ina Drew and others in JPM yesterday, along with the frb. 

The trades that are getting press coverage now are part of a program to reduce a an existing hedge on credit risk 

stress losses. Mgmt felt this stress loss hedge became overhedged as credit risk lessened in 2011, and so used the 

IG9 to adjust it. Unfortunately the IG9 index has also seen reduced trading volume and market participants, so that 

JPMC's trades probably further decreased liquidity in the index. JPMC's credit stress hedge is again where they 

want it, and there is no Significant further trading planned on this strategy. JPM did say that, if they had to do it aU 

over again, they would have used a different index. My sense is that they misread the liquidity in the market. CIa 

really doesn't like to draw attention to Itself. 

We asked the bank for a number of items yesterday that reflect details on the trades and support the stress loss 

hedge rationale associated with this specific strategy. We expect this sometime today. FYI the stated purpose 

would be consistent with the Cia's mandate to hedge overallstructura! balance sheet risk. Most notably this 

includes interest rate risk in the banking book, the MSR, and FX translation. 

I agree with the press that this will likely become a good case study for what should "count" under the Volker rule. 

James Hoh! or I will provide some numbers or further analysis when we have them. 

- apc 

*** If you have received this message;n error, please delete the original and all copies, and notify the sender immediateI}'. 

Federal law prohibits the disclosure or other use of this information, 

From: Tuorto, Louise 

Sent: Tuesday, April 10, 20127:38 AM 

To: LB Morgan Stanley; LB em; Heinsohn, Allison; Crumlish, Fred; Devincenzi, Saray; Decker, Sharon; !(jefer, Joseph; 

Gouldie, James 

Subject: JPMorgan's Iksil May Spur Regulators to Dissect Trading - Bloomberg News - 4/9/12 

JPMorgan's Iksil May Spur Regulators to Dissect 

Trading 

Market~moving trades by JPMorgan Chase & Co. (JPMrs chief investment office probably will force regulators to 

seek more detail on banks' derivatives positions to help them distinguish risk management from speCUlation. 

Bruno Iksil, a London-based trader in the unit, has built derivatives positions linked to corporate credit that are so big 

he's moved markets, according to hedge fund managers and dealers. While Joe Evangehsti, a bank spokesman. said 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00004087 
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yesterday that the trades are part of the firm's hedging strategy, four market participants said they resemble 

proprietary bets, or wagers with the lender's own money. 

Executives at New York-based JPMorgan, the biggest U.S. bank with $2.27 trillion of assets at year-end, have 

opposed the so~catled Volcker rule that seeks to prevent banks with federal backing from making speculative trades. 

Details on !ksil 's positions are too sparse for regulators to determine whether they should be permitted, said Frank 

Partnoy, a former derivatives trader who's now a law and finance professor at the University of San Diego. 

"This could be an almost completely matched, hedged position, or it could be massively risky, and there's just no way 

to tell without getting more complete disclosure," Partnoy, author of "Infectious Greed: How Decert and Risk 

Corrupted the Financial Markets" said in a phone interview. "I'm surprised that regulators don't see this example and 

cry out for more disclosure and more infonnation about these contracts," 

Bank Regulators 

Judith Bums, a Securities and Exchange Commission spokeswoman. declined to comment on whether the agency is 

looking into the trading. Bryan Hubbard a spokesman with the Office of the Comptroller of the Currency, which 

regulates banking at JPMorgan, and the Federal Reserve's Barbara Hagenbaugh also declined to comment 

The three regulators are among those working on the final version of the Volcker rule. 

Regulators are stationed in JPMorgan's offices and are aware of what the bank is doing,. said a person familiar with 

the company's thinking, who asked not to be identified because he wasn't authorized to discuss it. 

The results of JPMorgan's chlefinvestment office" are disclosed in our quarterly earnings reports and are fully 

transparent," Evangelisti said in a phone interview. 

Harvey Pitt, a former US. Securities and Exchange Commission chairman, said yesterday in an intelView on 

Bloomberg Television's "InBusiness With Margaret Brennan" that trading such as Iksil's should raise regulatory 

concerns because it's intluencing market prices 

'Dispel COllcems' 

"I'd want to talk with the folks at JPMorgan and understand exactly ....nat took place here," Pitt said. "And then I 

would try to get a report out to the public as quickly as possible to dispel concerns about things that may not have 

occurred and to raise issues about things that actuaJiy did occur." 

Arthur Levitt, another former SEC chainnan who is a senior adviser to Goldman Sachs Group Inc. (GS), said in a 

radio interview on "Bloomberg Surveillance" that he expects regulators 'Nill require more infonnation on banks' 

derivatives positions. 

"And I think that is unfortunate," said Levitt, who also is on the board of Bloomberg LP, the parent of Bloomberg 

News. "That raises all kinds of competitive issues." 

JPMorgan holds a portfolio of investment-grade debt and uses U credit-related instruments" such as derivatives to 

protect against a decline in the value of the holdings, Evangelisti said 

'Simply a Balancing' 

"Our most recent activity noted in the media is simply a balancing of those credit-related investments to reduce the 

impact of our hedge," he said. "We do this in the ordinary course of our assetw and liability-management activities." 

Jack Gutt, a spokesman at the Federal Reserve Bank of New York., declined to comment on whether the New York 

Fed is examining the trades. Jamie Dimon JPMorgan's chairman and chief executive onker, is on the New York 

Fed's board of directors. 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

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"This ""ill be the first test of how aggressively the Fed will enforce the Dodd-Frank Act," which includes the Volcker 

rule. said Mark WIlliams. a lecturer at Boston University's School of Management "From a Fed regulatory 

standpoint, I see JPMorgan as havjng some serious explaining to do." 

The positions, by the bank's calculations., amount to tens of billions of dollars and were built with the knowledge of 

Iksil's superiors, a person familiar with the tlrm's view said. 

Price Movements 

IksiJ may have built a position totaling as much as $100 billion in contracts in one index, according to the market 

participants, who said they based their estimates on the trades and price movements they witnessed as \\'ell as their 

understanding of the size and structure of the markets. 

Even if regulators are satisfied that lksil's trades are intended to hedge other risks the bank is taking, regulators 

should be aware that derivatives often fail as offsets because of differences in the way contracts are written and 

traded, Partnoy said 

"It's not a pure hedge, it has a speculative element to it, and that's particularly true when the contracts are this big, 

when you're talking about tens ofbilJions of dollars," said Pannoy, whose new book "Wait: The An and Science of 

Delay" is being published in June by PublicAffairs. 

"The only perfect hedge is in a Japanese garden," he said. 

Louise A. Tuorto 

Administrative Assistant 

Morgan Stanley Bank, N.A. 

750 7th AVlmUe, 30th Floor 

New York, NY 10019 

212·762·0710 

301·433·8910 

BANK PROPRlET ARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00004089 
._- ReUdedbyt ......... . 

5II_1I ........ 1IIIp_ 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION O
2109 

From: 

To: 

CC; 

Sent; 

Subject: 

Crumlish, Fred 

<Kirk, Mike> 

<l-bhl, James> 

4/111201211:28:18 AM 

RE: CIO info on elephant trade 

Yep. I think we will need to sit with them. 

-aPC' 

".-•• Ifron IIl\'C rcceh'cd this nl:.ssa~ in error. please delete tIr origilIlI and aU copies. and mtit:. tIt:: studer iUllll:.dinfely. Fcdcml taw ~b.ibi1S_ tk. disclosme or oU..:r use .ofthis infornntioll .. '" 

From: Kirk, Mike 

Sent: Tuesday, April 10, 2012 4:28 PM 

To: Crumlish, Fred; Swank, Todd 

Cc: Waterhouse, Scott; Banks, George; Berg, Jaymin; FUTSa, Thomas; Hoot, James; Kamath, Jairam; Monroe, Christopher; 

Wong,8wyn 

Subject: RE; CIO info on elephant trade 

Fred, 

I agree with YOIr reply to the bank: the attached narrative reads as something they may post in the 10K (sans the 

trade level detail). Not very helpfUl. 

\Nhat woUd be helpfu lNDuid be to see the stress scenarios with:nt these assets, and v'IUh these assets so one can 

understand the impact. I'm assuming they have value in more than one stress scenario as 'Nell; so it wot.*:! be helpful 

to understand what other utility they provide as well. It woud also be helpful if the CIO coUld provide some indication 

of a present target level they are trying to achieve, and herc:e the change of activity that resLlted in the same (in other 

INOrds results prior to and after recent trades). 

I woud think they should be able to pul the stress test resUlts off the shelf for the time period prior to increasing hedge, 

then provide the resutts at the time the trades were made to reduce, and now current levels showing v.tlere they are 

now relative to their target. Just a thought. 

Regards, 

Mike 

From: Crumlish, Fred 

Sent: Tuesday, April 10, 2012 4;\3 PM 

To: Swank, Todd; Kirk, Mike 

Cc: Waterhouse, Scott; Banks, George; Berg, Jayminj Fursa, Thomasi HOOI, James; Kamath, Jairam; Kirk, Mike; Monroe, 

Ctlristopher; Wong, Elwyn 

Subject: 00 info on elephant trade 

James (and Mike) - Attached is a message from Joe S recapping the trades and inclu:ling a brief narrative. In my 

response on JPM email, I said that we would get back wi questions. I also said it woUd be usefu if they provided 

analytics or a summary that recapped the hedge strategy, su:h as the expected impact 01 the hedge on the projected 

stress loss identified. I had asked for this on the call as well. Hopeluly we will see something 

Just getting a list of trades doesn't do much ~prop trading" wise ... 

BANK PROPRlET ARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-00004730 
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In any event Jet me krow....mat you thir"K 

- apc 

••• ICyou love received this Il~ssage iu error. please delete lb: origiual ard all copies. am mtify Ue selde.r iIml~diately. Federalla\\ 

prohibits lte disclm;ure or oib:r use of this inforlmlion ..... 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00004731 
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From: 

To: 

Sent: 

,ubject: 

Hohl, James 

<Berg, Jaymin> 

1/24/20126:11:18 PM 

RE: CIO meeting 

I don't know who John Wilmot'ssecretary is, so I've e-mailedhim, Dave Alexander, and Phil lewis together. My 

Outlook ca!endar should be availab!e to look at. Monday and Wednesday afternoons look good, Tuesday 

morning, and pretty much any time Thursday except noon. Thanks, James 

p.s. Was the December Treasury EMR available? 

From: Berg, Jaymin 

Sent: Tuesday, January 24, 2012 1.8 PM 

To: Hohl, James 

Subject: 00 meeting 

Fred wants me to setup this quarters cia meeting. He said that you'd still be in c.harge of IRR portion and 1'/1 be 

responsible for ongoing supervision of investments. What days are you free next week for a meeting? Also, who 

do you typically email to setup the meeting with Cia? 

-j 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMA nON 

OCC-00004746 
2112 

From: 

To; 

Sent: 

Subject! 

Moore, Carrie 

'MichaeLBright@corker,senate.goY 

5/12120127:49;28 PM 

Re: JPM 

You'll definitely beat me in .. But I should know more !ater today or tomorrow on times that will work for Mike. likely 9 or 

10 on Mon. 

From: Bright, Michael (Cori<er) [mailto:MichaeLBright@cori<er.senate.gov] 

Sent: Saturday, May 12, 2012 02:34 PM 

To; Moore, carrie 

Subject: Re: JPM 

Sure, let's talk Mon, I will be in very early. About 6 or 6:30 

From: Moore, carrie [mallto:carrle.Moore@occ.treas.gov] 

Sent: Saturday, May 12, 2012 01:57 PM 

To: Bright, Michael (Corker) 

Subject: Re: JPM 

Michael, am trying to set up a 30 min or so call with you and Mike Brosnan on Mon. His schedule is tight, 50 hoping you 

have some flexibility on your end.l might not know the time until early Mon· when are you in the office? 

From: Bright, Michael (COI1<er) [nnaitto:Michael_Bright@cori<er.senate.gov] 

Sent: Saturday, May 12, 2012 12:54 PM 

To: Moore, carrie 

Subject: Re: JPM 

Thank you! (Will get back to backyard grilling now.) 

From: Moore, carrie [mailto:carrie.Moore@occ.treas.gov] 

Sent: Saturday, May 12, 2012 12:45 PM 

To: Bright, Michael (Corker) 

Subject Re: JPM 

Hi Michael, That's accurate. These trades would have been allowed even if the Voleker rule was in place. Hope you're not 

working too hard tbday! 

From: Bright, Michael (Corker) [mailto:MichaeLBright@corker.senate.gov] 

Sent: Saturday, May 12,2012 12:43 PM 

To: Moore, carrie 

Subject: Re: JPM 

Carrie, sorry to bother you on a Saturday, But quick question. The committee staff seemed to think that the OCC's view was 

that the JMP trades would have been permissIble under Vokker.ls that an accurate statement? 

Thanks, 

Michael 

From: Moore, carrie [rnailto:tanie.Moore@occ.treas.gov] 

Sent: Friday, May 11, 2012 06:46 PM 

To: Bright, Michael (Corker) 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-0000S12 I 
2113 

Subject: Re: JPM 

Yes, all out of the bank. Will set up something for Man! 

From: Bright, Michael (Cor1<er) [mailto:MichaeLBright@coriter.senate.gov] 

Sent: Friday, May 11, 2012 06:16 PM 

To: Moore, carrie 

Subject: RE: JPM 

Yes please. WoUd love to talk on Mon. These trades were done out of the bank N.A., correct? 

From: Moore, carrie [mailto:carrie.Moore@occ.treas.gov] 

Sent: Friday, May 11, 2012 5:43 PM 

To: Bright, Michael (Coriter) 

Subject: RE: )PM 

Hi Michael, 

Yes, as I understand it, ttis is a hedge trade gone wrong issue, wtich \\ill resl,jt in a tit on earnings. And I have folks 

that can give you all the details, should you need it. Just let me know. 

Thanks. 

Carrie 

From: Bright, Michael (Corker) [mailto'Michae! Bright@cori<ersenate gov] 

Sent: Friday, May 11, 2012 4:24 PM 

To! Moore, carrie 

Subject: JPM 

Hey Carrie. I'm sure tI1s is probably your sooth request today ... but s ttis just a hedge trade that was exceptionally 

poorly executed? CDX basis mistake, of some sort? 

Any insight you col,jd provide woUd be helpful. As I'm sure you can appreciate, my boss is asking lots of qt.estions. 

Thanks, 

Michael 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-00005122 
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From: 

To: 

Sent: 

Subjoct: 

Berg, Jaymin 

<Crurnlish, Fred> 

4/5/20126:26:59 PM 

RE: repons list 

Fyi -the unknowns are due to !istserve recipients so "m not sure who gets it. Also, Doug is listed as a recipient for 

some emails but I don't think his JPM account works. 

Report Frequency Other OCC Recipients 

Firm Stress Results Weekly Unknown 

IB Risk IB VaR and Umit' Update Daily Unknown 

Firmwide Risk Daily Market Risk Limits and VaR Reports Daily Fred Crumlish Christopher Monroe 

Daily Revenue Report Daily Unknown 

MaRRS Stress Reports Weekly Unknown 

Firmwide Risk Dally limits Excession Summary Daily None 

levelllB EMR Monthly None 

level21B EMR Monthly None 

Equity Risk Stripe Daily Elwyn Wong Tom Fursa 

Global ABS Conduit Monthly Report Monthly Tom Fur.. Doug Tornese 

Jupiter, Falcon, & Chariot Regulator Reports Monthly Brad Sry Doug Tornese 

Secondary Marketing Daily Risk Exposure Reports Monthly None 

CIO AFS Securities list Quarterly James Hohl 

CIO Info in Treasury Weekly Appendix Weekly None 

CC Securitization Monthly Review Package Monthly Doug Tornese 

From: Crumlish, Fred 

Sent: Thursday, April 05, 2012 2:03 PM 

To: Berg, Jaymin 

Subject: RE: reports list 

Do you know who is ee'd beside you on eaeh of these? 

~ ape 

..... If you have reeeMd this message in error, please delete the original and all copies, and notify the sender immediately. 

Federsllaw prollibits the disdosure or other use of lllis information .......... 

Frcm: Berg, laymin 

Sent: Thursday, April 05, 2012 2:02 PM 

To: Crumlish, Fred 

Subject: reports list 

Here's the reports I receive: 

Report 

Firm Stress Results 

16 Risk IB VaR and limits Update 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-OOOO5405 
2115 

Firmwide Risk Daily Market Risk Limits and VaR Reports 

Daily Revenue Report 

MaRRS Stress Reports 

Firmwide Risk Daily Limits Excession Summary 

Level liB EMR 

Level21B EMR 

Equity Risk Stripe 

Global ABS Conduit Monthly Report 

Jupiter, FalconI & Chariot Regulator Reports 

Secondary Marketing Daily Risk Exposure Reports 

CIO AFS Secu rities Ust 

CIO Info in Treasury Weekly Appendix 

CC Securitization Monthly Review Package 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-OOOOS406 
2116 

From: 

To: 

Sent: 

Subject: 

waterl'lOuss, Scon 

Brosnan, Mike 

5117120125:12:50 PM 

RE: Your request of last night. re oce response on clo 

Perhaps right after the 2-3 cia ~date. Looks ike you are free. ShaD I cal you ...... n I get back to the office? 

From: Brosnan, Mike 

Sent: ThUlsday, May 17, 201212:06 PM 

To: Waterhouse, Scott 

Subject RE: Your request of last night.. re ace response on cia 

Ok. I sent on to Juie. Will call you later today (not slle on specifics, but we know ttlngs will pop ~). Is there a time 

you want me to call before (leaving 30 mirutes for us to talk etc.)? 

From: Waterhouse, Scott 

Sent: ThulSday, May 17, 201210:27 AM 

To: Brosnan, Mike 

Subject: FW: Your request of last night, re ace re5pJllSe on cic 

Mike - here is Fred's clTonoJogy. His is response to Julies question. 

From: Crumllsh, Fred 

Sent: ThulSday, May 17, 2012 9:50 AM 

To; Waterhouse, Scott 

Subject Your requestoflast night, re ace response on do 

This is in response to YOIl email asking aboutacC supervision between April 16 and May4. This and the following 

message recaps of Oll" recent CIO responses 

In terms of standard MIS. we receive two emalls every day that are relevant to tlis issue. They contain risk information 

for the company overall: 

Firmwide Daity Risk Umits Excessions 

Firmv.ide Daily Market Risk Limits and VaR reports. 

Each email contains a short slll1mary and an attactrnent for the LOBs. AM examiners have access to this email and 

based on their review we decide 'Nhat foUow up is needed, and we also use this to assess trends, etc. 

With respect to the synthetic credit book and the Cia, the daily MTM lmit blew out on 4110 and then snapped back 

We had contacted the bank on April 9 because the press reporting and mart<et comments weren't consistent v.ith_ 

we feH to be the case and began requesting information. After some back and forth we set t.p a meetif'g 'hith seniors. t 

also added an examiner with direct trading experience to help us assess what ...vas going on and help evakJate 

managemerfs responses. Ttls meeting included Ina Drew, John Hogan, and others, and is sllOmariled in my 4/17 

email. In addition to describing the cUTent assessment, Ina Drew indicated that they had begll1looking into what 

happened. as they were concerred that !tis had become public, and wo~ keep us informed. At the time !tis wasn't 

presented as a problem with the position or management of the book. John Hogan also irdicated that the Imit process 

had "worked" to the extent that it had iniUated the conversation reslJting in additional wort< being done on the book. We 

told the bank to keep us infonned and we would tike to see the reslJts. Based on llis meeting, we were led to expect 

some volatility based on "A41at we were told. The bari< didn't provide an ircremental update on their 'NOrk as we 

reqcested. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·OOOOlll4 
2117 

As you know, we also discussed moving ~ the review of ocr CIO MRA to June (post SNC) to encompass llis issue 

and had an exam planned for the UK and US activities in October. 

~ ape 

.... ., If you haw recefved this message in error, pfease deJe1e the original and all copies, aod notify the sender immediately. 

Federal law prohibits the disdosure or other use of this Information. ,.·u 

From: Hohl, James 

Sent: Thursday, May 17, 2012 7:49 AM 

To: Crumlish, Fred 

Subject: Re: Scotts e-mail of 6.33 p.m. last night 

The initial concerns based upon the press reports were about JPMC trading affecting market prices for 

CDSs. Our focus was on sizing the pos~ions and assessing whether JPMC's volume impacted the CDS 

market. We went back and forth w~h the bankers several times, just trying to get clear pos~ion 

information. We continued receiving and monitoring the daily vaR reports, but there was no additional 

daily reporting. There was no discussion of P&L effects before Doug Braunstein's call on May 4th. 

This message is intended for designated recipients only. If you have received this message in 

error, please delete the original and all copies and notify the sender immediately. Federal 

law prohibits the disclosure or other use of this information. 

Before 0416 caN IMth Ina 

«Message: Background and S~porting Data for CIO Discussion of April 9, 2012» « Message: RE: Background 

and Supporting Data for CIO Discussion of April 9. 2012 » 

0416 call presentation 

« Message: FW: materials for FecVOCCIFDIC call at noon today» 

Post 0416 information 

«Message: CIO SynthetiC Creditfollow·Lp»« Message: CIO irtonnation forWedresday»« Message: RE: 

CIO Synthetic POSition » 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION OCC·OO005555 
2118 

From: 

To: 

ce: 

Sent: 

Subject: 

Kil1c:, Mike 

Crumlish, Fred; Hohl, James 

Waterhouse. SCott 

5/9/20124:31:18 PM 

RE: today's meetir{l 

OK.,js James doing first cut as he did last time. 

I lfilerstood Doug's point on oorcentration reserves, bul note thet there weren't any real incernves for traders to find 

the wsimple' solution as 'He discussed in Oll' meeting. 

Problem IMII always be that imit stru:tu-es didn't anticipate a certain type of positions, especially in an environment 

\oVhere limits are created once there are sigrificant exposlles (often JPM does rot institlte Hmits U1ti1 poSitions 

become materia!. .. at which poirt it may be too late). 

I see ttls, as I called it this AM in Oll" internal meeting .... A gro4' of traders ..no _e lI'M'iUing to swaUow the costs of 

exiting a hard to chew position, so instead used models and other analyses to find an alternative an:j more palatable 

risk exiting poSition. This resutted in complex positioling that is row very large and more costlier to exit. If they had 

only just got oul of what they owned it would have been cheaper. Moreover, if they could not get oul, it begs the 

question v.!ly were they allowed to be in so large to begin IM!h (shouldn't there be more reserves because of that?). 

Just a follow 4' thougtl: 

Unlike PIMCO and other real money manager that have investors that can and may IMthdraw .t any time (instimng a 

form of discipline of how much of anythng to hold relative to liqLidation expectations), the bani< is rot exposed to 

exogenous damanels for capital short of a rapid reduction of deposits. Therefore, I thinl< we should be thirl<ing of 

some form of IiqLidity discipline for the CIO ft.n:lion that could be pet in place to help correct reoccurrence. 

From: Crumllsh, Fred 

sent: Wednesday, May 09, 2012 12:20 PM 

To: Kirk, Mike; Hohl, James 

Cc: Waterhouse, Scott 

Subject: todays meeting 

Hi Mike-I mentioned to James on the way back that when we pulthe notes together for the meeting, we need a 

C04'1e of short bLilets 4' front followed by the detail. We need to convey that the bani< caled us because on fu-ther 

analysis the position proved more problematic. 

We 'Nil schedlJe an ,--"date in a week. 

-apc 

.... HJoubavc ~cej"cd this m:ssa~ in error. please: delete the origjrnl amaH copies. ard ootify Ih:: SC'lder in:m:diately. Federal law 

prohibits Ill! disclosure or oller use oflliis i.llfonlnLiolL ••• 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-00005509 
2119 

From: 

To: 

cc: 

Sent: 

Waterhouse, Scott 

<Belshaw, SaIIy>;<Brosnan, Mike> 

<Crumlish, Fred> 

5/10/20126:11:09 PM 

Subject! FW. Braunstein I Cutler call on CIO 

Sally & Mike'-"" had a call from Braunstein ttls afternoon to update us on orgoirg events in the CIO, Crumlish 

provides comments be/ow. I've also pasted in additional notes from Oll' Wednesday meeting on the sLbject. 

Bottom line: the bank's efforts to risk manage its synthetic credit position in the first quarter have not been effective. 

The cUTent position is more risky and less economic than origirally thought. 

Due to issues described be/ow, the bank ";11 report a hgher VAR runber, more RWA, and lower Basel III capital ratio 

(8,4% to 8.2%) than ongirally reported on the eamirgs cal, The 100 will be ptblished tOlight 

The bart<; 'Nill also revise its forward looking outlook for corporate sector earrings, moving it from a positive S200MM 

this quarter to a negative $8ooMM, 

The bank "may" have an analyst call ttls aftemoon at 5:00 to explain. 

Details fo low: 

From: Crumlish, Fred 

Sent: ThulSday, May 10, 20121:45 PM 

To; Waterhouse, Scott 

Subject: Braunstein I Cutler call on ao Importance: High 

Doug Braunstein and Steve Cttfer called to provide an c¢ate' on the CIO synthetic credit position and related 

discloslfi!S. Key points: 

As a nesUl of worK done over the past 24 - 36 hours, JPM became corcemed about the qual~y of the VAR 

calculations. The bank had implemented a new VAR calculator at the begimirg of ths year. JPM decided to 

revert to the VaR model used duirg 2011. This will cause CIO reported average VaR to go up from 70MM to 

130MM end the max from 120MM to 180MM. The charge also adds 35B to Basel III RWA and reduces the 

Basel III ratio from 8,4 to 8.2% 

These nLITIbers are different than those originaHy reported in the eo after the earrings arnourcementlanalyst 

call. Sir-c. the official 100 has rot been filed, management will hgtWght the differences in the VAR, RWA and 

8-111 runbers. 

JPM plans an analyst call today at 5PM. Two messages win be delivered: 

o The company has determined that it has a position that is riskier, more volatile, arKlless economic than 

they thought it had been, Therefore the bank wiH charge its forward-Iooklrg guidance for corporate P&L 

from a $200MM profit to an $800MM /oss. (They may alk.de possible offsets from sales in AFS 

secuities), (Estimated total firm-wide P&L will reduce from approximately $5A biUion to $5 bilfion for 

the seco nd quarter.) 

o The company is goirg back to its hstoricaJ VaR model, so the fiKrg win show adjusted VaR and capital 

numbers. 

Directors have been infonmed. A negutarly scheduled board meetirg is set for today for the directors to 

approve the 100. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI-OOOOOO t 8 
2120 

Further notes: 

This can followed Oll" meetirg of yesterday (notes below) """re the bank went over the illtial res';ts of their review of 

CIO, ard there concUsion that the synthetic credit portfolio has become far riskier than expected. Over the past 24 

hours, company has been validatirg data. The initial \\Qrk on the VaR model irdicated that although it had been 

validated by the model risk grol4', it was not implemented with corsistent: data. Therefore, company is reverting to the 

model that had been in place dlJirg 2011. (JPM was reticent on the specifics of the implementetion issues es this is 

stin ""rk in progress ard aU issues may not be fuly know. however, they were sllficiently concemed10 pul the model 

ard there may have been some "data smoothirg" involved. ) 

Notes from 5-9-12 meeting: 

The synthetic credit portfolio held by CIO has $1.9B MTM losses in 202012 to date (to somewhat offset this in 

202012 net income, the CIO has taken nearly $1B of securities gains from the AFS portfolio). The notional position 

of the synthetic credit portfolio grew significantly durirg 102012 in a what has been a failed aHempt to reduce a cred~ 

hedge by repositionirg the portfolio (described in my email of April 17). The net resL/t is a large complex position that 

hasn't performed as modeled, with t.ne><peCted correlations am ircreased volatility, that will take time to n.n down. 

The nature of the synthetic credit portfolio also caused BaselUl risk-weighted asset to grow about $30B in 10 ard 

another $20B in 20 so far. 

As previously reported, JPMC managers wanted to reduce the HY short risk position they had, but market liquidity and 

perceptiOns (due to AMR ard Kodak BK's plus LTRO) were sldl that the HY indices weren't economical to use to 

redu:e the risk posHion. So trader.; modeled other irdices based upon historical correlations ard detenmined the best 

course of action was to sel11G indices. Ina Drew noted that the old HY synthetic hedge moved in line v.ith the AFS 

portfoio prior to these changes beirg made. John Hogan noted that the firm had underestimated the risks and that 

they woUd exit the strategy ard not reenter it. 

The driving iSSLe, according to DOllJ BralJlStein, became the size of the position. Because of the size, any 

dislocation is magnified, and the ability to exit is hampered. 

The CIO global credit 10% credit spread v.iderlrg (CSIN) limit was breached on March 22, 2012. At that time CIO Ina 

Drew suspended active trading in the instnrnents and began Iooklng more dosely at the drivers of the ongoing limit 

exception. Further increases to the risk position, as seen in the reports, \\>'ere not from neJW trades, blA: rather from the 

convexity of the positions, many of wtich behave fike near or at the money options. FlJ"therv.iderlrg of spreads ";11 

exaggerate this problem; conversely, spread narrov.irg v.i! assist in de-riskirg. AI ffrsl il was lhoughl thallhe excess 

was due to marnel dislocalions lhat \\Quid mean revert; however, after further analysis by lhe lasl week of April il 

became apparent to JPM management that them II\I9re fundamental problems with the portfolio. 

At this time, Risk Managemern has control of the synthetic credit portfoliO, which";U be woem dov.o. While the 

portfofio does have symmetrical risks, JPMC managers are actively reducing the expoSLl'e instead of sitting on it to 

see il the market";l1 tern aroem. The de-riskirg glide path ertails three prorgs. First, the de-riskirg 01 dena (10% 

CSIN). Second, decidirg what to do .,;th sIDrts explrirg in December. Tt1r<!, more Iorg dated issues related to illiqlid 

risks that they can't do much about. There may be more liql.idity reserves taken as a resUt. Asliey Bacon is leadirg 

the efforts to actively reduce the 10% CSWexposure by July 4th. Currently, managers are meetirg twice daily seven 

days a v.eek to update and control this process. Ultimate resolution of the portfolio will take a long time, and there is a 

possibi'ity of losses in billions. 

Risk management is measuring six risk categories for the synthetic portfolio and is stressirg each of them. There is a 

risk that the portfolio could lose $2B lrom here, but these ncrnber.; are evolvirg as risk management better 

und.r.;tards the position ard as risks are Lm/Ound. acc ard FRB v.iU be l4ldated on exposure ard actions 

The review of the situation is ongoing. To date, identified issues inclu:te the followng. There was poor construction 

and execution of the tEdge redLl:tion strategy, whch added to the complexity and size of the position. There was 

over reliance on historical market relationShips, 'Nhich resLlted in excessive price movements Yllhen implied correlations 

increased. There was miscalculation of market and valuation dynamiCS. There INBre insufficiently granJlar limits for 

the synthetic credit book, particularly a lack of notional limits. It took too Iorg to ItAly emersland the portfolio risks and 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-SPI-OOOOOO 19 
2121 

escalate problems. Firalty, the current market environment for these instn.rnents has magrified mistakes. 

In addition to Risk Management's active efforts to reduce the portlolo's risk positions and Utimately wind it down as 

previously described, JPMC has begll1 taking actions to prevent a similar situation. More grartJlar limits have been 

put into place, The valuation, control. compliance, and reportirg framBVw'Ork are being revi8'.Wd and are been 

tightered. An internal aLdit to assess risk managemert processes and financial reporting for CIO mark-to-market 

books is lJI"Kierway. 

JPMC attendees 

Ctief Financial Officer Doug Braunstein 

General Counsel Stephen Cut." 

Chef Investment Officer Ina Drew 

Ctief Risk Office, Jam Hogan 

EVP Corporate & Reguatory Affairs Barry Zlbrow (te.,phone) 

OC C attendees 

Scott waterhouse, Fred Crumish, James Hohl, Mike Kir1< (telephone) 

Fed atteooees 

-opc 

" .. lfyoul'Bve received this rressa~ in error. please delete tl£ origiIw am a11 copies, aoo ootify tte selner irmrediatell. Federal law 

probibits tlE disclosme OT other use of this infonmtion. ••• 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00000020 
2122 

From: 

To: 

Sent: 

Subject: 

Ken. 

Curry, Thomas 

<K1lber. Kenyon> 

5/11120123:12:24 PM 

FW: J.P.Morgan Chase 

FYI.. Okl school s~rvision7 

Tom 

From: Brosnan. Mike 

Sent: Friday, May 11, 2012 10:20 AM 

To: Cuny, Thomas; Williams, Julie 

Subject: Re: J.P.Morgan Chase 

Yes 

At em of day they are good at financial risk mrlJl. But they are human and 1M" make mistakes (big loan losses, tradirg 

losses, litigation etc). But on grand scheme they are good. Ths IMII tunble them - a healthy and good tlirg 

From: Curry, Thomas 

Sent: Friday, May 11, 2012 10:12 AM 

To: Brosnan, Mike; Williams, Julie 

Subject: RE: J.P.Morgan Chase 

Mike, 

Thanks. Isn.t it a ittle mere than embarrassment issue? wt;\e it may rot be material, it does implicate their risk 

managemert abifities doesn.t ~? 

Tom 

From: Brosnan, Mike 

Sent: Friday, May 11, 2012 10:00 AM 

To: Curry, Thomas; Williams, Julie 

Subject: FW: lP.Morgan Chase 

Fyi., intemational colleagues will be askirg and here.,s what I sent to betin. 

From: Brosnan, Mike 

Sent: Friday, May 11, 2012 9:58 AM 

To: 'DanieI.Mestek®bafin,de' 

Cc: Ludger Hanenberg@baflnde; Peter Krusche!@bafin.de; 'Sarah.Dahlgren@nyJrb.org'i Drn P.qark@frbgoy 

Subject: FW: J.P.Morgan Chase 

At this point there is a lot of public information as bank issued 1C>-q filirg and had call with analysts last rigtt. 

The transactions in question .... re part of their asseHabilily management process (aleo) wtichjpmc refers to as the 

chief investment office (cio). Here are my take-aways 

Back in 2007-08 they put on a short credit risk position 10 protect against a declirirg ecoromy. Ths was a 

macro hedge. 

Over the past few years ths hedge wor1<ed as the economy declined, credit spreads widened (causirg gains 

on the hedge) but these gains Ywere of COlJ'se offset as they took credit losses (for example Kodak, American 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPJ-00000031 
2123 

airtines etc.). note, the derivatives positions are mtm Vvtlile the loan portfolio is primarily cost accoLJlting. 

This presents complexities for analysts etc, 

After evaluating macro envirorrnent in 4q11. actions were taken in early 2012 10 reduce lhe short position - -

by entertng long posillon In other credil risk indices. 

The new transactions had different betas and basis risk. 

As recent marks show the bar*. mis-estimated the basis risk (while their $hart position did gain wth recent 

upward shift in credil spreads. lhe long position had losses beyond original estimates). 

the overall impact of recent mar1<s on 1q12 pi! resLAted in a change from cio •• previous estimate of a 

$200mm gain 10 lasl night.s armuncement of a $80Omm loss ($1b sv.;ng). 

The micro positions in question are now in control of risk management, 

The overall resLAt v.;U be a redu:lion in 2q12 earrings, and I lhir/< lhe bar/< has infonned markel there is a geod chance 

the adjustments lI1derway colAd resLAt in some earnings impact for ore or two fUl!.D"e quarters as well. Also, they 

changed risk models wtich v.;H resLAt in higher rwa and lhis v.;U cause tier one ccmmon ratic to drop from 8.4 to 8.2. 

obviously there isn.t a safety issue 'Mth these numbers, but there is an embarrassment issue for bank leadershp 

vAich has overtty expressed pride in their ability to measure and control risk. 

From: Daniel.Mestek@baftn.de [mailto:Daniel.Mes\ek@bann.deJ 

Sent: Friday, May 11, 2012 8:39 AM 

To: Brosnan, Mike; Tlm.P.Clark@ftb.ooY 

Cc: Ludoer.Hanenberg@bafin.de; Peter.Kruschel@bafin.de 

Subject: l.P.Morgan Chase 

Dear colleagues 

As you may know, BaFin is in charge of supervising l.P.Morgan AG, an indirect subsidiary of l.P.Morgan Chase 

& Co, New York. Furthermore, l.P.Morgan Chase.s Frankfurt brandlls under our supervision. 

Regarding the latest news on major losses of l.P.Morgan.s US business, we would be grateful if we could get 

insight into both the background of the transaction(s) leading to the reported losses as well as any supervisory 

action (to be) undertaken by you. 

Therefore, it would be greatly appreciated if you could as soon as possible either provide us with respective 

information in written form or, as an alternative, if we could set up a telephone conference. 

Yours Sincerely 

Daniel Mestek, LL.M. 

8undesanstalt f.r Finanzdienstleistungsaufsicht 

Referat BA 16: Aufsicht "ber ausl"ndische Banken auS Amerika, Schwelz, ASien (ohne arabische Staaten), 

Australien 

Federal Finandal Supervisory Authority 

Section BA 15: Supervision of foreign banks from the USA, Switzerland, Asia (exduding the Arab states) and 

Australia 

Graurheindorfer Str. 108 

53117 Bonn 

Fon: +49(0)2284108-3787 

Fax: +49(0)2284108-63787 

e-mail: daniel.mestek@bafin.de 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00000032 
2124 
Chief Investment Office 

Financial Summary 

MTM 

"" SeWritY Gain. (L.osBea) 

otherRvYenue 

T oIIlIl CIO Revenues TCllaIClOEJ:pentei(Ex IC, Ex FX) 

<NirrtIeadRIJtio 

FX Hedging RadUCllon to EJ:penae Beneftt/(L09') 

MSR 

COL'BOLI 

Total Return Summary 

TolD! Ea::JnOmlc RebJm 

OJIt of C8p1!a1 I 

1M Expert .. (Ex IC, Ex FX) Pre-taiSVA 

ROE 

J month a'fl!rnlgll Aggregate VaR95 

..... 

lAawrnn15%UJ!Slof!:llptal 

2 EOP capillll includes firmwlOe dN'ereH"1CIItJon 

January 

Actual. 

113 

63 

,. 

(36) 

150 

15 

9.74% 

('J 

(10) 

,. 

130 

15 

7 

109 

111"-

52 

471 

{,156 

RANK PRnPRIETARY ANn/nR TRAnI' SFf'RETTNFORMATION 

• January MHII P&Lgaln oIS113mm ptimarlty drM!n by . 

• '111M galns on Agency Pteferre(!, Qedlt CLo. and FIftd IncoIM po!ItIont, 

• January othItI' Rllwnueof S(36}mm IJimarilydUt' to 

(S36)mm ooet!o moneet adjlJlltllle'll on AM whoe bin&, QI'fMt in AM 

Jarluary: 

TAA Ratumaol'$155mmdwlo: 

Credit .. tcleaeelS. Tighter 

spreads on Cloa flEMI' benefited the IXIsllIcm 

Europe: Posliooed to capture short md Europellll intMe&t raIe market sell-off and 

ClJrVie nallenlro due to &trooger economic data and risk In per1phernl 

E!rnp8rMrkell 

Aale: Dr1IIen by FX gill""In I<RW and depo8It mell Jro balances In !he PBOC 

North AI1I2rica: Prtnarily dlNen by ctedd and rmmllPlE!ad, Ughlenlro 

MSR lOh01' (S10)mm due to ttII'Wexllycft'El!\ bydutBtJon 

OCC·S
Chief Investment Office Financial Supplement 

QuIIrt.r1 201._ QUII .... " Q_11e13 -, QlGrt.r1 2010 Ae1uall 2010Actla" 

-

TIll41MTM 13, m "" (201) 329 Sec:uityGl(L) 15 1.201 100 951 ... 

1402 Qm tsal 

Non tntarastRlvlnue ,., 1,'" ,n .. , ... 

letalNiI .. , v. '42 1.142 1.405 

fotal Net Rlv."" 8 .. 1,545 OS< 1,63< ' .... 

-

CornpeI'lsaIiOn Expense (ex q 26 20 (11) 53 ,. 

NonoornpeI188llon Expent18 ;lII 211 lli 2a 0\Ii 

Total NoftI"1III'Vt I • .,." .. (ex K: IX Fl) .. .. 14 ,. " 

o.rtt.dftaUoIICIC 3,00" " ... 412% "''' 

COU/l!Ol' '" 25 85 103 .. MS. 113 (109) " 120 .. • othet RwenIl8 Indl.delr. FX iiiIi Redl.dlon to Cxpen18S 

'1M Amnut by Rwdon !<AMY. 35 21 ,. 5 II 

£orDpe .. 13 12 11 15 

... 2J 33 ,. "0) " , ., (12J (19) 120 

Global Ol!dl: IR\IelDnenta 20 2. ., .2 13 

Ul , Il1J 1 

TAAMTN 1<1 171 165 .. '88 

Atcowtlng R11111ed A4jvstnwnt!l: 

(.)!o1TMN!lIEllp 'J8) '54) (5') '89) MlM u. MlM NH/Exp 110 '" 113 (>1) 188 

FX Hedging MTM ") '" (3<) " 

AgerqPtll'l'em!d 10 5 ,.., 14 

BallkPrel'8I:11!d ,. • '" (10.) 102 EMEA en; Hedge& '51 63 QO) 2. TeR "6) 2 (25) (2) 

OtherSAA MTM • iil 2 ail IIMM"" " .. .. (152'1 .. 

Total MTM ReverU.lB 134 182 '16 (201) ,,. 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION OCC-S
CIO Financial Income - January Actuals 

JjJj 

NA 

Intemational 

DNQ 

Cash Capital Adj Global Management 

Initiatives 

TotalTAA Nil 

Total BAA Nil 

FX Hedging Nil Capital 

FX Hedging Nil RevlExp 

Total FX Hecla'ng Nil 

I!l!M 

TM Realized 

( ) MTM NIIIExp 

TAAMTM 

SAAMTM 

FX Hedging MTM 

Olber RaYlnu, 

tntaroompany Brokerage Fees 

Co&t to Market AdjU8lment 

ORO Tax Gross-Up 

FX Hedging other 

Other 

Actual. 

1 

70 

(17) 

55 

13 

12 

2 

13 

.. 

eo 

(22) 

56 

49 

6 

I 

(0) 

(38) 

1 

3 

(1) 

M 

FX Hedging Reduction to Expense (6) FASB InaffactivellBas (18) 

Sscurities Gainsl(Losaea) 1 B 

COLIiaOLI 16 

MeR (10) 

RANK PROPRIETARY AND/OR TRADE SECRETTNFORMATION OCC-S
Corporate Portfolio Financial Supplement 

Rl!v!mllt! 

TotalMT1I. 

BANK PROPRIETARY ANDIOR TRADE SECRET INFORMATION 

(0) 

(21) 

(10) (1!l) 

OCC-S
lB Recovery Portfolio 

MTM 

ARS 

!B Recovery Portfolio 

Other Revenues 

Securities Gains/(,Losses) 

Other Revenue 

Actua!s 

January 

HANK PROPRfFTARY ANn/Or? TUADr: \:.FTRFT fNFnRMAT1()N 

B 

(l(Y'_,P
2130 
Historical Trends 

allanCI Shift, RWA. NI 

t--- ,,_ i 1400,(: 

I"'·' f\ , .. , I 300.0 1OO]C i 

oS • 1 1000 E 

S 

j eoo.o !. 

"-

... , I I I I .... 

Ilr-I "'. 

...... .. 

.. :,.p-' 

_3m paJtyAM8l. _SlflWA ....... NlI 

EJ(pI:Me &. H.Hcount 

Q3 01 Q2 03 Q.4 at Q2 CO Q4 Qt Q2 Q3 04 01 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 

DOK.yfUtH 

7.,,", 

0.""'" I .:;:--:-

m m m 00 m 00 00 00 00 _ 

2007 1001 :1008 2008 2008 2008 2CDII 20» 2CDII lOOi 201'0 2010 2010 2010 lOU 

__ 

1 Mor'IIhUBOR __ FBdFurtda _5Vf!N!IIS¥iap_10YsarSrowap -30 YaarCt.mIOtOltpon 

DC:ITr.nd 

-I II III :Ei. 1111". H 

..... 00 m m 00 00 00 m _ 

2007 2007 200B :2008 2008 :2008 2O()g 2009 2IXl9 lOOD 2010 2010 3)10 2010 2;>11 

.FASt31 .FA811S OF)(c.pl1edJftg 

OCC·S
Historical Trands 

Economh: PertQrmanee Summary 

""" 1 • 

.... 01 • • ••• 

L,IJ, i",o.: -' .. , 

0.' . 

__________________________________________________________________________________________ _ 

m_ m_ m_ m_ m_ 

.- • T!l.1lng 

ROE & eVA Trend 

a. m m O. Of a _ 

---------------

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 

• "V'!I." AggNpII ...... 

MSRHedglltll 

I'" 

.... , j------.-------- --.. -.. ----.- --a-__ ------.-.--.--------.---.--- .. --------.-- .. -.--1 

(2OCI»IL_-

------------------------------

OCC-SP
CIO Balance Sheet· Regional View 

as of Janua/)' 31st. 2011 

Balance Sheet - Spot Balances (3rd Party) 

(in $ Billions) 

. 

Fed Funds SokllResales 

;: 

Interbank Placings &.oJl. froM'B$hj(J;' 

Whol. Loans 

Balance Sheet - RWA Balances 

(in $l3illiom;) 

DI8cretionary 

SAA 

I"':'" -Redid'" by lb. P.nn..... 

s.._htee .. 'ovlll/pllM

CRP Total '36 

2.8 

296.2 

4,9 

11.2 

North Amortc. E. Asi. SAA CRP Total gS,"¥.\·,·'lIj5'i-i'ilft"'F Wi;;;::;;:;;:, jjIZ" ; "WJIi: 

Fed Funds SoldlResales 

'Inile$tment,.BeOUr1ll$s,,;: 

Interbank Placing. 

. 

Whole Loans 

,liiS 1.t 77 'st,1 

3.0 

. ;:!f·1.,.. 

2,6 

10 

OCC-SP
2134 

s 

i 

!g 

f-

~ U 

"' '" "' g 

'" 0 

~ ~ 

~ 1 

i 

~ ~ 

~ 

'" 
2135 
2136 

• ! 

~~ 

i~ 

i~ 

t~ 

~~ 

~f 

i~ 

t~ ': ro; 

~~ 

ii !. 

~~ 

~i 2. 

t~ 

~~ 

~~ Z 

0 

~ 0 i!~ 

~~ ~ f-

~ U 

~~ '" '" ;~ '" 

~ t~ '" 0 

;~ ~ >-

~ :! ~. fH . til 

... 

~ 

~ 

"' 
2137 
2138 
2139 
2140 
2141 

--- RedKted by tbe Permanent Subcommittee on Investigations 

lEVEl 1 

lEVEl 2 

QUARTER 

2011 CA QUARTERLY SUMMARY 

Global Chief Investment Office 4th Quarter CA summary 

4th Quarter 

Chl&f Investment 01T!ce AMT Hatzopou!os, Alexander X 

CIO AMTDlRECT McMl1r1lJS, Wiliam K 

STATUS Approved 

to manage the investment portfolio in line wth interest rate risk sensitivities hansfer priced by Treasury and market 

firm's duration of equity is (SA) years, and (2.5) years including credit spread duration 

I North America 2011 audi1;s rate<! s.atisfaciolY 

CIO aPPlications rated 'Good' or 'EXcellent' under the Application SecurttJ' Assessment process 

North America Sox financial testing on schedule at 10Q°"f, as of December 31, 2011 

errors o.Mth material financial impact in 2011 

I On,ooillot,,Ch,,01orN Initiative to Increase capabiJitJ' and streamline operating environment on track (APPIA) 

a production support perspective, the Business Process IndeX (BPI), which is used to measure the availability of the CIO 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-SPI-00002481 
2142 

___ Redacted by the Pumanent 

Subcommittee on Investiglltions 

~pp1ications, remains stable at the 99D,4 level. From a risk and control perspective, CORE, Shrek, TEA, Primus and Poplar are in 

ror SOX t9&ting. CIO Technology ito on target to meet the firm·\Mde targets of 100% compl~tion b~ January 31, 2011. There: 'Nere no 

deficiencies identified to date. CIOrTreasury applications in scope for the Monetary Authority of Singapore (MAS) remediation effort 

Include: Shrek, Primus, TEA, TI="A, GFRS, and SLWeb. CIOlTreasury is making good Pfogress atthe and of 04, 2011, 

I 

~ r\udit Continued to hold periodic meetings -Mtf'l key s1akeholders in CIO. The Q3 2011 BGC was held In early November2011. CIQ 

Continues to manage the investment portfolio in line with interest rate risk sensitivities transfer priced by Treasury and mar1<:et 

rpportunity. 

~oing into the new year, the plan is to expand the derivatives trading book to nominal of at !east $47billion by the end of January 2011 

~es~v~~~~c:rti~;~ ~~~n~: !~~!i:~e~~~eh= ~1~c~e~~~~S::~~~;:~~ t~ i:;:ean~ t~i~~c~;i~!e~~as;:~~~~~~a;:~~~ein Market and Crec:it risk. 

~e change to Differential Discounting to OIS curve since November 2011 has had a positive impact of $12mln etyear end. 

~EA Tactk:al (TRR) for Q4 was $1.09 bilHon no, which is strong performance across all businesses. Creditlnvestments ha ... e 

~trong resutts driven by strong performance in mezzanine paper and continued tightening of CLO spreads 

ISAA Portfolio: Cia's ASS port101l0 has a Yalue of approx. $30. 7bm!on, Vitth around 47% of such assets represented by RMBS 

[originated in UK end Netherlands). Clo has unwound long term debt and Govt. Bonds in countries such as Spain and Portugal during 

~e last quarter 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPJ-00002482 
2143 

I I I 

monitored by audit Weeldy memes cons.ist ,P & L variances, cancel and amended trades, 

slgnlflcant issues noted In Q4. Operational KPls and P&L are primarily monItored through the Bee process. 

r.hi,,"",v,,'m""' Office highlights Q4 2011: 

1 • T AA Returns of $457 MM: 

• Credit'COX HY positions 'oNere set up 10 take ad<Jantage of key bankruptcy credit related events 'oNtIich resulted in 'NindfaH gains 

for credit book. 

• ABS and CLO mark:els were relatively quiet. duting the wider mar\(et volablity period and CIO continue to benefit from significant 

amortizations and carry. 

• Europe: Markets have remained vo!atile with ovemanging concern around European debt issues and its political and economic 

impact on the region. 

• CIO prorrted from the widening of US asset swaps, but incurred losses in the s1ructural management book from \\Ijdenlng on long 

, positions and In the FX portfoliO on managibg down-side risK 

I

I • Asia: Gains driven by increase in Nil from long securities positions mainly in ~K, Singapore, Indonesia, Korea, India, arId China, 

• FX gains from cross-currency appreciation in Singapore and currency apprecIation in China 

I • North America: FX gains in long usa positions as EUR weakened \{s USO. Fixed inoome CMBS spreads lightened on the querter 

I and Preferreds were marked higher as equi1y market rallied. Gains from long equity positions as S&P was up 11.15% for the 

I 

quarter. 

• MSR: Loss of $174 MM primarily attributed to duration, offset by MBS BaSIS. 

EMEA CIO partiCipates in a vveek:ly MIS call with MO Audit attends as part of CA There is a raviev.' operational weekty KPI's and 

office metrics including trade capture and VOlumes, P&L end Risk sign-off, FOBO Reconciliations, nostre breaks and system. There rre no significant operational issues for 04. 

'AsIa 

r;-Asia CIO tabled MO and BO metrics in the quarter1y BCC, wtlich includes trade volumes, cancel and amends, late trades, P&L 

! and Risk sign-off, FOBO Reconciliations, nostro breaks, etc. No significant items were noted by Audit dunng Q4 2011 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00002483 
2144 

,Through CA activities, Audit tracks the entry of all audit issues and related action plans into Phoenix, monitor$ the progress through 

completion,of a~on plans and subsequent dosure of Issues in Phoenix, A monthly analysis of open aelion plans is prepered and 

follow up WIth action plan owners performed by audit before the end of each montl'1. 

North Amerlciil 

,No new issues or action plans haVe been a~ded for this quarter, 

~ 

~ new business identified issues end action plans have been added for this quarter: 

• Transfer pricing rates between CIO & Treaaury10r REPO.: Technology are working on providlng an automated solution to II 

ensure that OPICs receives the correct transfer pricing rate on a dally basis. This solution "Will ensure that any re·rates on the 

repos between Treasury and CIO are in sync so that there are no P&L Impact at month end to analyse and adjust for. Action plan 

, is due for completion February 2012. . 1 

: • GLRS Substantiation Review :There is inadequate docume .. ntatJon of CIO EMEA s.ubstantiation procedures !ncl. the methodOIOSYiI 

' used to substantiate each type of GL ale. ThlJS, GLRS Substantiation methods used by cIa EMEA per.s;onnel to be reviewed and 

. document-ed and confirm appropriateness aod consistency. It. Compare substantiation practices used by cia EMEA to cia NA 

and cia ASIA and address inconsistencies, as determined appropriate. ii~, Evatuate the ownership of tt1e substantiation I responsibilities and determine lo\rtIether any changes should be made. Action Plan dUe for completion on 31 may 2012. , 

:There was an audit identified issue raiHd' as part of the Capital Hedging audit report (Report No: G·111OO9). There 7 legal 

entities that were incorrectly inclUded in the capital hedging program Bnd receiving hedge accounting treatment by the cIa despite 

being correctly reported by tt1e loca! LECs as having USD functional currencies, disqualifying them from the program While the 

amounts being reported all related to FX e>:posure alising from USD functional currency entities with non~USD equity positions, their 

removal from the c8p1talhedglng program may require redasSificatlon of amounts historically booked to aCI dating back to May 2006,: 

P:'tentially resulting in a net $27 minion gain ($21 million loss. for the cia and a $48 mll1ion gain for tt1e parent lega! entities ). i ~:~~Z~~i~~!~!~e:x~~~~i:~~ti:~s !Shr~~: :~:r:~~~1 ~~~~ ;O;!Opr;r~r:n~c~~i~~~;b~~~~r:~~~ n~;~:~~~u:~~::~~ I ,ensuring the appropriataness of all LE in the program. The action plan is targeted for completion on 31 March 2012. 1 

:Asia 

'All tt1e issues and action plans raised from the Hong Kong cia Middle Office and Fmance Functions audit (Satisfadory-G.11f005) 

;were complete and Phoenix issues were closed acctlrdlng'Y before target dates 

~........ . ..• :-.........-::::: ==--=.:..~il:t§SS....2I!AI·('~i ___ ..... -:====-=~.~ .... ::= ..... ~_:-~j ! • Front office: Two new treders, Teong Hong and Yen Ping He Jomed HK and SG offices In Q4 2011. There were 2 front office ! 'reder left 'ho firm (HK end J.pon office). I 

_ .. _._. -- ·i=OLCOV;t:iyPs-··-· 

EMR AND' A-UDrr REPORT iSSUES 

·----------··-1 ...... -·i ---_. __ .... __ ... _- -.. _-----_ ... __ ._- .-~----~.--

~orth America ~ NA 

EMEA ~ NlA 

~ia.NlA 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

I 

OCC·SPI·00002484 
2145 

Es 

~ 

has .. en de'eted ftom the plan because aud,t we"" is to be pe~ormed ,n 2012 

10 Comoensation Practicf!!,; Hori'7onta 

fr'hiS has been deleted from the plan because auditwof1( is performed by HR audtteam I . WAocredit 

. IS has been deleted from the plan because auditwor1c. is to be performed in 2012 for GIO. 

·,nt-•. , ta 

[ThIS has been deleted from the ptan because Horizontal not performed in 2011 

10 teMP H rizontal 

This has been deleted from the plan because CIO is out of scope for horizontal. 

~o M~rket Biils Amengmg:n! Hoo~ntal (lShas been deleted from the plan because Horizontal audit not performed in 2011 

MSR 

Fhas been deleted from the plan because auditwor1c. is to be performed in 2012 for CIO. 

8esotYlign aoSi Becove!l: 

rlS has been deleted from the plan because audit work. is to be performed In 2012 for CIO. 

~""",."nve"ment' "mun 

jrhiS has been deleted from the plan because audit work. is to be performed in 2012 for CIO 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OVERAl 

SUMMARY 

OCC·SPI·00002485 
CHIEF INVESTMENT OFFICE - EXECUTIVE MANAGEMENT REPORT 

December 2011 

BANK PROPRIETARY ANDIOR TRADE SECRET INFORMATION OCC-SP
Chief Investment Office 

flnanclll Summary (Corp«ll. Yk*) 

Q!art ... f au.rur z __ 3 Qr.M,", 4 

2DHlIII:tuoh JOHklU8ll; 21011.1.( ..... ,. Aautlt 

IN 11111 

. ,

"III" 1'41 I •• ) =:--l:;;. ,':1 M :) l,'r.) 

TOUlOOt..,.....!&K.n:."., 

.. _ .. 

ToUt Return Summlry 

TMllr-.irb .... 

c.t"'C..-.,I' 

)..-IfI ......... ___ t ... ' 

' ...... Ih 

___ 

...... :iCI'_ 

·_1"'_ ...... l1li 

... 

. 

.. 

. 

" 

'::' 

. Il:) '" 

..., 

.. . 

-lin 

.... .. " 

BANK PROPRlETARY AND/OR TRADE SECRET INFORMATION 

'" 

.. 

.. 

. 

o. 

n 

.. 

0>" ':) 

., 

.. 

.. 

n 

.. 

.• "" ... .,_ ... ... __ \oJ....,.-...,. ..... I ..... Io4 ...... _ .... !A .... ft ............. """UIO"'.'!I44tOlO_ 

.Qowtw.4N11 ___ lIJ ...... Ioopk'_ ... .-.-... .... 6/f_ .. /OI'''''-. .So<WII:J' __ .... of ... II ..... .... ...... ·T ___ .. _· ... ...,iIIOM .... 

lILIW 

.... _ .... "" ...... _(IIIr:t_.,...-.-_ ..... _ • .,.".. ...... "'_ ..... ,., __ ...... 

.. dO'Q"' ... _ •• ........,_*"' ........ _ ... _ .......... ...,j .......... "" .. __ .. 

__ 11_ ............. .... ."_ .... , ....... ..... .. .. .,.,, ..... 

... 1,...1MI_\lM .... ". .... "'IIS ... t_.lOtI.h:II ...... .. "" ..... _ .... Md"'111.",'*"'" ... _ .... _ .. .... 

..... 

___ od_ .. 

.. ...... _ 

.. of"' ___ ."' ...... •• -,_'._.Ih ..... t_I ..... .....,. ........... "" ....... ll.1ft .. IIo ........ 

..-..I$114_"...,....a,-.., .... .-.otlool.., •• """-

OCC-S
Chief Investment Office Financial Supplement [Management View]' 

CbIu'*4 q.M;r .... ' _w, _ .... _ ... , 

BDWII 

TollII¥TM 

Sl!l:r.rltyG/Il) 

M _ 00 • m 

_ • _ 

foI .... lrttef"t-..-..1IIi 

TlIlalHU 

ToklNI'tw.-... 

-----:; _ _ _ m 

7'11 1]5 1,$36 162 I.' .... 

--

D 21 U 19 

10 ---H ---l1 ---ll 

Total trton.,.eU:J:peNlI (a lC,lI'xrx, n PII) 92 91 .. 9 '" 

U.aIII 6,411 }.cal" 

COU'IIOU 44 21 " 25 

MSIIt (1M) (:Ul) 21 10 (tIN) 

·OchIr ......... 'ncluQIsfXm bductlontoTIII1tI 

MlMBmn",WI!MI'" 

NAMlM " tiN} U «I 27 

E ... apr Il'OI (44) (lJ " II 

AN 511 (JIll i. Jt )) 

CilbtiCrC<lltC«e 356 17 4' Gl 

0Wl.t (IlIdItlfIft'lnwdS $ 120 hi 

-, , ____ ' ____ ' ____ ' -------'1l 

r,u¥TM "'Of (195, .42 :to) 179 

A«GUndnlLtef&I.ctAdJlllllatflb: 

HMTMNII/Drp (Ul I'll ('10) In) ()4) 

MfM •. MTM NIII'EqI llt (Ut) 51 UO 12$ 

1.2) (1) .rq 'fUmed (31) (l3J 60f 10 IIItdr.PreftfiW 15 (lOT) 19 61 9' 

. 

I 6 $ I 

(UI (51 14 11-4) 4) 

I'ren;h(1K 14 11) 

T'CII; ill (6) tl (l61 

Q to! 1) 

(ll u 161 (71 .. 

Ol/'llef5AAMTM (II ---ill --Wl -----ilL ----lil 

s.u.MlM P31 (2") .. fU .. 

Toul MTM Revenue 316 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION OCC-SP
Income· December YTD Actuals [Management 

',.:;;, ::::.;., ... : 

,:';r; '('1m"!,;;' :l.:;! 

:j,!','::,;!,Hi 

·"···"il;";,,, 

'. i ;,':n,'.i:lg i:';l.;.g,·,·": 

h".;;.;,;1;;, 

W,i:; 

!i!! 

:mm,',' 

,or,:);,!:,!:;;,' 

!,;:;'!i 

BANK PROPRIETARY ANDIOR TRADE SECRET INFOiuVJATION OCC·S
R", ... nvprv Portfolio Financial 

4 Qtillrtp.r:3 Quarter 2 

Non 

TowtNll 

Tota!tietRewllue 

!GRecol'eryPortfdic:> 

W"," 

Tot,aJMTM 

(2) 

, 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 

(16} 

0 

(16) 117) 

(it) (16) 

(27) (:H) 

" 

85 30 

OCC·SP
..... ,. .......... , .... 

- December 

Sin millions 

BANK PROPRIETARY AND/OR TRADE SECRET [NFORMATION OCC-S
2152 
2153 

'"" "'8 

L~~! 

'''''~ I 

'"" 'd I 

0"".., • : 

4,pq,1 

l 

0"" ~ ~I 

4,p"'I 

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~ ~ ~ ~ ~ a 3 ~ ~ 

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z '", i 

~ "", ; .. " ~ ".;, i 

j ".;, . 

'" I 

'" ~'" i "t:I 

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L ,-'1> f I- ,-'1> ; iii 

u 

~ HHHH '0 

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... {~UI-.cs~) .l!! 

:r 

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~ 

8 

i 

! 

~ 

! 

''<I.", 

''<I.'b 

''<I.'b 

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o~.le 

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'", ~S~~SS~g;§~~~~ ~UOHWf,J!) 

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I 

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! 

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Historical Trends 

E«Inomio PQ'l1onnanOlJSummlliry 

1:100.0-

J .. I 

-. r 

(IIO).O) 

Q1"" "''''''' "",,., "'zoo, Q12010 

... """ 

/ III I I I I .' / / .' 

BANK PROPRlET AR Y ANDIOR TRADE SECRET INFORMATION 

022(110 a32(lIO Ql2(l10 012011 Q2'20U an011 

......... 

....._ .. 

100.0, 

0.01· • - - • • • _ - __ 

""'., ""'., 

I I I / I I I I I I I 

OCC-SP
CIO Balance Sheet· Regional View 

as of December 31 st, 2011 

BANK PROPRIETARY AND/OR TRADE SECRET INfORMATION 

10 

OCC-S
2156 

--- Rtdaded by the PermIMD' 

Sllbeommitfee o. 'natiptloes 

2012 CA QUARTERLY SUMMARY 

Global Chief Invesbnent Office First Quarter CA summary 

________________ ~.9.uarter. 

LEVEL 1 Chlaflnvestmem OfIIce HetzopouJos, Alexander X 

.~~ _~ ___ ___1. ____ ,_ •• ______ ._ STATUS 

-suMMARY OF ACTIvitiEs -.. - SrAKEHoi.oER-MmlNGS----

North America 

CIO continues to manage portfolio positions with significant consideration of Basel III Capita! requirements, resolution and recovery , 

impacts, liquidt1y risk, as well as, enhancing .and building out portfolio analytics for the structural asset allocation process. 

Uquidity Ria:k InfrHtructure; 

Treasury. led initiative 10 build comprehensive firm·wide liquidity risk infrastructure 

CIO engaged in reviewing business requirement and data sourCIng definitions and 2012 planning 

Differential Discounting: 

Implemented successfully in 04 2012 for Equities in Pyramid and all Fixed Income Products, 

GIC Competltive Bidding Process: 

Firm - wide initiatiye to assess risk and related framework by product and region 

Submitted formst assessment identifying business lines """;thin the Bank that engage in competitive bidding transactlons 

Currently looldng at consistency 01 controls across the firm 

VoIcker Rule" 

CIO currently re"ievJing draft: of rule recently released for comment period. 

Technology design to tag trades in accordance with mapping documents completed. Final build-out pending final rule release. 

Continued emphasis on conducting ris~ management acti .... ities that are clearly related to undertying firm wide structural risks. 

Assessing MTM trading activity (# of trades, total notional) relative to underlying structural risk 

U!I&A 

Audit Continued to hold periodic meetings with key stakeholders in CIO. The Q4 2011 BCC was held in February 2012. CIO 

Continues to manage the investment portfolio in line '!'lith interest rate risk sensitivities transfer priced by Treasury and market 

opportunity. 

~or 2012, the business priorities are: 

• Managing portfolio positions wth slgmficent consideration of Basel UI capital, IIquidrty and resolution and recovery Impacts 

Particuler attention focused on the draft Market Risk NPR 

• Implementation of new Finance hierarchy in~line wiih business requirements 

• 2012 SAA Reinvestment program 

• Enhancing and bulldng out portfollo analytlcs for structural asset allocation process 

• Expanding local market presence in concert 'Nith firm wide International groWltl initiati .... es 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00004I64 
2157 

APPIA ABSJCLO Migration 

In January 2012, the CIO's intemational credit portfolio of Asset Backed Securities (ASS) and Collateralized Loan Obligations (CLO) 

'NBf'e successfully migrated from 18 owned applications (Concorde and ISIS) to the APPIA platform. Approximately 1,800 trades with 

S101.9bn original notional were migrated in total. In November and December 2011 an initial migration of 38 ASS and CLO positions 

was performed to assess readiness for the full migration in January and ClO Finance monitored the trades as part of BAU 

month-.end and year-end processes. Audit performed a detailed review of the various aspects ofthis migration and issued a 

Satistadory audit report in March, ..,...;th no reportable issues noted 

~ 

Technology projeots update:-

1. APPIA mlgrrion pru}ect pertains to two sen; of products: (8) Swaps and F&O and (b) Fixed Income Securities and Repo. 

• SWaps and F&O - NI complete, 

• F! Sec and Repo Phase 1 and 2 - Migrations had been completed. 

• FI Sec: and Repo Phase 3 (Japan, Australia, New Zealand, Philippines, Korea and !ndonesia) - Mlgratiol1 completed for 

Phase 3 in Mar 2012. Indonesis roi! out""";l1 be determined depending on regulatory approval. 

2. OPICS migration pro/$et OPICS is selected to be the target platform for money ma~et products (front office to back office). 

The migration approach was confirmed. Revised migrating bmelin-e is listed as below. 

• Phase 1 - Sept 2012 for Bangkok, Manila, Seoul, China & Vietnam 

• Phase 2 - Mar 2013 for Japan and Singapore 

• Phase 3 - May 2013 for India, Jakarta, HI<. Malaysia, NZ, Taipei and Sydney 

3, Athen. mlgrlltlon project Athena team currentiy working on the replan for cash FX migration and target to communicate the 

onboarding schedule in late April 

CIO Technology: 

From a project perspective, the APPIA project {to migrate trades off of IB systems on to a suite of CIO owned systems} is making 

good progress. No significant issues were raised by Aud!t in Q1. Some of the key accomplishments in 01 indude: EMEA ABS/CLO 

Phase2 Migration (112412012); CoreiAPPIA Integration for TBA's" Specified Pools (3/21'2012); and Asia Securities Migration Phase 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-SPI-00004165 
2158 

--"" Redacted by the Permlneat 

Subcommittee 00 InYesCigltiofti 

i 3 (3116f2012). Key in-flight projects include North Ameri~ Toronto Branch Swaps and Securities Migration (plan for May) and I CORE fAPPIA Migration (IAIorlo:ing on on-boarding remaining secu!1tias il"l CORE onto APPlA). From a production support 

II perspective, the Business Process Index (BPI), which is used to measure the availability of the CIO applications, remains stable at 

the 99% !eveL In February, EMEA Shreio:. was down tess than an hour due to 08 log issue, In March 08 outages occurred after a 

! long-running stored procedure filled the DB transaction logs. Stored procedure has been optimized, weekend purge jobs I I restructured, and DB reo-indexing jobs now scheduled to run earlier for longer durabon. From a risk and control perspective, CORE, I Shrek, TEA, Primus and Po~af are in scope for soX testing. CIO Technology is on target to meet the firm-v.tde targets of 35% by 

I June 15th. 

I 

I 

I North America: 

I Market Risk Umits and iotal Retum end Trading Metrics. summaries are reviewed by aucft In addition, weeldymetncs for operations 

I 

are monitored by audit. Weekly metrics consist of , P & L variances, cancel a~d amended trades, mai1<et limits and transaction 

volume. No significant issues noted in 01. Operational KPls and P&L are pnmarily monitored through the 8CC process. , I Chief Investment Office highlights 01 2012: 

I~ I The book value of the Strategic Asset Allocation Portfolio decreased from $2218 402011 to 51598 fOf 10 2012. 

I Attributedto: 

I SalesIMaturities of.GermanfFrench/Canadian Government Securities 

Sales of ASS Credit Card Positions 

I Transfer of CLO's from EMEA to North Amarica 

i MTM Oyerlay oortfoljo 

II (Note this portfolio is 99% trading, 1% Held for Inves.tment) 

MTM Overlay Portfolio Market Value for 10 2012 v.ith a balance of $554M & 40 2011 'With a balance of $1,2338. 

I The main driVe ofthe decrease in this portfolio quarter over quarter is· 

Increase in Short US Treasury & Foreign Government debt positions of ($490M) 

• Sales of CM8S positions of ($90M) 

- Increase in the OCI balance from ($7AM) to (2.3M) is due to the sale of a Private RM8S position 

Corporate Retention Portfolio 

The book value of the CRP Portfolio decreased from $2.78 40 2011 to $2.68 $102012 

No significant variances to note. 

Level 1 CIO+MSR VAR Umit 

MSRVARUmit 

Level 2 MSR 8PV Umit 

International Equity Vega (long only) 

ooly) 

International Equity Vega 

12f31f2011 

Rtmwide stress limit changes. The CIG MTMlllio "it:wa"n,~ease<l 

are now included in this limit. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

313112012 

OCC-SPI-00004166 
2159 

EMEActO participates in a weekly MIS caU 'o'ofth MO Audit attends as pan of CA There is e reviewoperat'ioneJ 'NOO1dy KPl's end 

office metrles induding trade capture and volumes, P&L and Risk sign-off, FooO ReCXInciliations, nostro break.s and system. There 

'Nere no significant operational issues for Q1, 2012. 

DaBy P&L is also monitored. Audit noted the as of March 31 MTM losses of over $500mm 'MIre experienced in the Credt Core ! book. Further follow-up from audit established that the losses 'Nere due to the an increase in spreads on iTraxx. AuditwiU I monitor this portfolio. 

Asia 

-;-Asia ClO tabled MO and BO memes in the quarterly BCC, which includes trade volumes, caneel and amends, late trades, P&L 

and Rj~k slgn.off, FOBO Reconciliations, nostro breaks, etc. No sigMlcant items 'Nere noted by Audit during Q1 2012. 

North Amerlca Through CA activities, Audit tracks the entry of all audit issues and related action plans into Phoenix, monitors the progress through 

completion of action plans and subsequent dosure of issues in Phoenix. A monthly ana1r->is of open action plans is prepared and 

follow up v.fflt action plen owners performed by audit before the end of each month. 

No new issues or attion plans halle been added for thIS quarter. 

There are 3 business identified issues and action plans have been added for this quarter and 1 action plsn where the target date 

has been extended to June 2012 from December 2011 . 

• GlRS Substantiation Review 'There is inadequate documentation of CIO EMEA substantiation procedures inc:!. the 

methodology used to substantiate each type of GL ate. Thus, GLRS Substantiation methods used by CIO EMEA personnel to be 

reviewed and documented and confirm appropriateness and consistency. ii. Compare substantiation practlces used by CIO 

EMEA to CIO NA and CIO ASIA and address lncoosl$tendes, as determined appropriate, HI. Evaluate the ownership of the 

substantletion responsibilities and determine whether any chenges should be made. Action Plan due for completion on 31 May 

2012 

a Modal Documentation: Model documentation is required on SABR, Westend and Primus CMT systems in accord.mce Mode! 

Risk Policy. EMEA CIO to facilitate the overall Model Risk Management process, ensuring updated mode! inllentories and 

follow-up on required documentation, testing, and other requirements mandated by the CIO Model Risk OVersight Group Action 

Plan due for completion on ao June 2012 . 

• ReconciHation of bonds set up in ClOWES: Bonds set up in ClOWES have their Issuer SPN manually attached by ¥Itloever is 

setting up a bond and the incorrect SPN can be selected This causes downstream risk to calculate incorrectly misstating the 

posrtions and risk of CtO, CUffently one SPN needs to be set up and mapped for every different ABS tranche ttlat CIOEMEA 

purchase. The reason for this was a system deficiency in JPM IS that caused SPN to be used as a substrtute for !SIN. It has 

now been agreed that CIOEMEA should now map ali ASS tranches from one issuer to one Issuer SPN This 'Mil have the 

follO'Mng benefits: 

i) Reduce the current number of Issuer SPNs from 941 to 263 

ii)Ehmlnate the need to request a new SPN V¥ith each tranche purchased 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI·OOOO4167 
2160 

I 

I 

I 

I 

I 

I 

i 

! 

I 

I 

I 

itl}Greater accuracy in A8S to SPN mapping jv)The volume of SPNs previously created also meant that details entered on to the 

SPN record were often incomplete - the rationalisation of the ASS SPN process should allow more accurate records to be 

maintained. Action Plan IS due for com~etion on 31 May 2012. 

• Amortlutlon on AFS PortfDl1o va. Cash: Amortizations on the AFS portfolio ere calculated at month end as part of the regular 

contro! procedures around the AFS portfolio. The cash relating to these amortizations isn't necessarily received in the same 

month as when the amortization occurred. This generates a break between the amortizations calculated and the cash received 

whicf't is SUbsequently unsubstantiated. Detaned analysis Qn an [SIN OasiS is undertaken to identity those securities where cash 

received straddles month and and resolutions for any breaks ere assisted by the cash payments team. Th'8 resolution was 

delayed as the ABS migration was delayed last year and rasolution was dependent on that Post ASS securities being migrated 

onto OPICs in 01 '12, once the ba.lancetO have stabilised, further analysis can be undertaken to clear the breaks. Expected 

resOlution date - 2 months post migration. Action Plan currently set 10( June 2012 c:ompletion. 

• ClO CredH-Market Risk and ValuatkHt Practises issued March 2012 rated Needs Improvement identified the following issues: 

• CIO veo practices where a number of risk & valuation models have not been reviewed by Model Review Group and 

included the absence of a formelly applied pOce sourcing hierarchy, insufficient consjderation of potentially applicable fair 

value adjustments (e.g, concentration r9$erves for SIgnificant credit indices positions) and the lack of formally 

documented/consistently applied price testing thresholds, 

• Stress testing where There is no documented methodology to outhne key testing components (e.g computational method 

and shock factors used) or assess limitations such as off·line risk measurement, missing risk fador!> and curves, 

• The SAA boolo; (11408n Notional as at 12/31) does not currently feed the firm wide market risklimit5 and thresholds 

framework and re/evant SAA stress testing resutts are not measured against corresponding ~mits. 

• EMEA ela is ctJrTentty using unapproved models in the calculation of risk (including VaR) and associated rislo; measurement 

methodologies have not been epproPflately documented and/or catalogued. 

I 

1.-

• The control process around the off-line VaR calculation needs to be enhanced to ensure completeness and accuracy of 

Credit trade data used in the offline calculation of VaR. 

'I AU the issues and action plans raised from 2011 audit were compete and Phoenix issues were closed accordingly before tal'ge~.5 dates. 

t 

~ _______ -= _______ ~I>ESSCHANQ.~ ___ ._______ _._ 

I 

! North America: Dave Alexander (CFO), len CIO for RFS end was replaced by David 8jameson who has announced his resignation 

I and will be transitionlng out of this role in the 2nd quarter 

I 

I 

~ -David Bjarnason.{EMEA Accounting Flo/lc.y and Control) is leaving the firm in Q2, 2012. There is currently no indication as to 

whether he" be replaced 

I AsIa· NfA II 

I 

. FOllOW-UPS 

j l~==--=~~====~=-~ Through CA activities, Audit tracks the entry of aU EM~~~~~EPMT~ES audit Issues and related action plans -~=======- into Phoenix, monitors the progress through 

! com~etion of action plans end subsequent closure of Issues in Flhoenix. A monthly analysiS of open action plans is prepared and 

! follow up with action plan owners performed by audit before the end of each month. 

i i No nf!NIlssues or acti{ln plans have been added forttus quarter 

i 

PlAN AND RISK ASSESSMENT CHANGES 

r Not Applicable. No plan or risk changes in 102012. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI·OOO04168 
2161 

aveRA!. 

The following audits were completed during 102012: 

Ncrth America: ASC 815 Hedge Accounting (Satisfactory) 

EMEA: I. ao APPIA Systems Migration (Satisfactory) 

SUMIAARY 

U. CIC Credit" Market Risk & Valuation Practices. (Needs Improvement) 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI·00004169 
2162 

From: 

To: 

Sent: 

Subject: 

Kama1h, Jairam 

<Crumlish, Fred>;<Hohl, James.> 

4/19/201212:51:47 PM 

CIO al'll finn VaR excesslons. - COB 4/17/12 

The Firm's 95% 100 VaR.s of cob 04/17/2012 has incre.sed by $6mm from the prior d'Y's VaR to $134mm .nd 

continues to breach the $125mm Firm Va R limit for the second consecutive day. 

The increase in the Firm's VaR is primarily driven by CIO Synthetic Credit portfolio. Actually, VaR for this portfolio 

declined slightly from the prior day. The stand alone VaR for CIO is $75mm (vs. $95mm limit), 

CIO aggregate stress loss is over 23% of its $158 limit. Also, MtM cs bpv limit is in excession by 1074% and has been 

in excession for 71 days. 

Somethingto follow up in the next MRR or CIO meeting. 

jairam.kamath@occ.treas.gov 

Tel: 212-899-1386 

BB: 202-368-9193 

Fax: 301-433-6238 

This message is intended for deSignated recipients only. If you have received this message in error, please delete 

the original and all copies and notify the sender immediately. Federal law prohibits the disclosure or other use of 

this information. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-OOOO4177 
2163 

From: 

To: 

cc: 

Sent: 

Subject: 

Attachments: 

Anna, Fred, 

Sabatini. Joseph 

Regulater\), Ama <lacuccil>;RegUiater\), Fred X <Crumlish \> 

<Drew, lna>;<.-ogan. John J.>;<VViIJrot, John>;<Goktman, INn J>;<Radin, Neila> 

4/10/20126:17:22 FM 

Background and S~porti~ Data for CIO Discussion of April 9, 2012 

image002.png 

Here is the sLWOrtirg data BOO some commentary as you requested from our can yesterday afterroof\ As we 

iOOicated, you shoLid teel free to corlact Jom Wilmot (212-834-5452), Irv Goldman (212-834-2331) or Ina Drew 

(212-834-5000) if there are arrt questions. I woLid be heppy to coordinate any follow up as weH (212-848-0082). 

Joe 

The table below shows major (aOO tota~ long aOO short risK posmo,,", in imces - aOO totals for long aOO short risK in 

tranches. 

1,...",.,. .. - ILONO SHORT I""""'Tdoi 

--- t: DxHYsoa 05Y 7,6'53,202,000 ., ,3S2,900,COJ 6,490.3]2,000 

120 OSO 772 331 ·1111114SOl31 8939=000 

ox HY S08 05Y Totllll 127903,974 31 -112474350331 15 429 624 000 

OXIO S090SV t: 18,862,564,439 40,911.107,639 -22.048,523,200 

1378820642166 ., 388 447.'98.956 ·9626$.800 

CDXlOS09OSVT"" 1."'7.683.22'''04 ., .,. 358 606..,. .31675","000 

FOX 10 S09 07V r.= 34,937,540,D05 .),8S9,096,COJ 31 ,0S8.,444,005 

, "to.,. 17 , "'" ·,15ROOO ... 'I<' ,.,.""OM ox 10 509 07Y T dal 1194876714.570 .1 161878562 $S 32.998.152005 

OXIGS0910Y r: 78,381 ,380,000 .3.421.154,000 74,960,226,000 

,571l.072188D19 -1574704274019 3.387""000 

OXIGS0910YTottli 1 656 453 568.019 ·157812$428019 78,328,'40,000 

TRAXX MN S09 05Y t: 39,630,967,500 -24,870.950,11'0 14,760,037,500 

1 650 432 937 34S -1 642.896.637 345 7 7363)0.000 

TR""X'" so<ln<VT_ ,1t""ns,,,,,B4< -1 667 SS7 581 ~~ 27~,."",,;nn 

TRAXXMN S0910V 1":'': 26,612,411,648 -10,796,366,846 17,8'16.045,000 

632.4'O.632Jl93 -833.1SL047.CEl3 ·740.41S.000 

TRAXX"'" S0910V Total 851 023043941 -843947413941 17 075630 OOCI 

TRAXx,*, SiS OSY t:: 28,093,325,000 -6,267,S2S,lDJ 21 ,BlS,7'OO,OOO 

315479043750 .J16 931 693 750 -34SSe50000 

lRAXX~S1605YTd:tII 343S1'2 7SO .325 os 318 750 'S 7050000 ,I""",.",""",, 7271.$16.621Jl6O 

.AllcthertnclexPoslions l.220110S59D79 -3271 688 007 f>l7 -51 577 448 599 

, .. ".""",,,P .. 1Ions '0.'91.687.380.138 ·'0.390245.27 ;.232 '01 ... 2'0 .... '" 

Total 01 Tranche Postlons 361996489148 ...J06133417 000 55 ass on: ose 

The rote below describes this credit derivatives activity relative to the overaU CIO activity. 

The Chief Imeslmerl Office heS utiized the "synthetic credit portfofio," wtiell is a portfolio of credit derivatives, to 

construct a hedge against other risks on JPMC's balance sheet. Ttis activity has been part of the CIO portfoUo 

construction aoo risk management since 2007. The related credit derivative instnments offer an efficient means to 

establish protection against adverse credit scenarios and "stress everts-, 

Ttis activity is among the key tools ltilized by CIO to manage BOO hedge stress loss risks. The synthetic credit 

portfofio has benefited the Firm, especiaHy in times of credit market dislocation, sooden spread widering and in the 

occllTence of defau~s, ","ch is typically a catalyst for credH spread \\idenirg scenarios. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPJ-00004312 
2164 

In 03 and 04'11, CIO began 10 reduce the nat stress loss risk profile of the hedges, as more positive macroeconomic 

data in the US and an improvirg situation in ElSOpe posl LTRO marited a reduction to the stress loss protection olthe 

"synthetic credit porttoio," ll1e book, as a dedicated hedge, continues to be short HY and to provide default 

protection. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00004313 
2165 

CIO Risk Committee Minutes -March 18tb, 20}2 

Attendeetl 

Chair: Irv Goldman 

Co;;bair: Ina Drew 

lreneTse 

AchiUes Maais 

Norma Corio 

Richard Sabo 

Neila Radin 

I. Riak (}t:enriew 

Pete Weiland 

Samantha Tocchio 

JohnWlIDlOl 

Pbil Lewis 

A. V AR: P. Weiland discussed the V AR trend for the first quarter highlighting the large reduction in V AR at the end of 

January. The reduction was driven by the implementation of a change to the V AR model for the Credit book in London. It 

was noted that the modeJ change was in line with the V AR methodology recently adopted in the IB and was approved by the 

model review group. 

Action Item: Explanation orrelationsbip between V AR. Slre:ss V AR aOO. Capital. The Quantitative research group and the 

Firmwide Market risk offi~r to discuss with the CIO business. 

B. Streu: The results ofthe Credit crisis stress scenario were reviewed and P. Weiland commented that the positive benefit 

experienced from the Credit Tranche book reduced over the quarter and is now negative. This resuhed in the overall stress 

Joss increasing by S 1.2bln. 

Aetio. Item: Develop proposed thresholds, such as stress advisories. tor the Retirement Plan. 

C. Riak Measures: The key risk positions globally were discussed. It was commented that a trend of exposnres would be 

useful. 

Actiod Item: includc a trcndofthc kcy risks along with thc relevant limits. 

B.RHkLlmlts 

A. Risk Limits: 1beproposed limits framework was presented to the committee noting Lhal a [ull overhaul of all lUll its is 

underway. Over the next few weeks the limits wiU be discussed with the individual regions and presented back to the group 

for approval. It was also noted that In addition to the existinS limits thresholds will be added, such as cm specific country 

risk Ihresholds. P. Weiland raised the issue regarding the existing Single name limits applied to the invesunenl portfolio. It 

was noted thnt some issuers are in exc.ess of the SAA single name limits. It WDS decided to seek approvnl to maintain but not 

incrC3.5e exposures for issuers currently in ex.cess. 

Action IUm: MRM to follow up with the regions to consolidate a proposal for aU single name limits. 

B. Limit EucueJICuoge: The Q4 2011 and Q2 2012 to date Limit CJl.ce:ssc:s and changes were rMcwed, It was noted lhaI. 

wlth the limit fiaInework under review a number of the existing limits, such as the Credit spread BPY limits. are no longer 

appropriate for the current portfolio and will be revised as pan oflhe review. 

m. Risk Politin 

A. Risk policy Review: p. Weiland noted that Donna Reino tlas been named new Head of Risk Policy finnwide. Tn 

conjundioD with Ihe new head of risk policy and the Risk working Group, cm will review all rele'\<1UIt firmwide polities. 

The list of policies in scope was attached in the materials. 

B. Model risk Procedures: The new CIO ModeJ Ptoudure docwnent was distributed to (he group, Doting the appointment 

ofa CIOmodel risk officer as one ofthc major changes to !he prior version. The policy was approved. 

BANK PROPRIETARY AND/OR TRADE SECRET 

lNFORMA nON 

OCC-SPI-00004734 
2166 

1V.l'iBlA 

A. NBlA St.ata.5 Update: I. Goldman noted that two NBIAs are currcntly in progress relating to Whole Loans in ResidentiaJ 

and Commercial Real estate. Both NBIAs are in initial stages and require further work. 

B. Updated NOlA Dor:ument: 1. Wilmot discussed an update to the NBTA document 10 include a Competilive Bidding 

section. This was incompliance with the Finn widecnange. The NBIA change was cirClllated to the Committee for approval. 

V. Operatioa.al Risk 

A. Ioternal Audit: The group was updated on the status of the EMEA Credit Audit. An initial draft was published with final 

close out session to be rompletc:d over the nex:t few days. Documentation was listed as ont of the audit issues. The Scope of 

the review to be discussed with the Audit team. 

Action Item: Follow up on iniLial Audit plan scope. 

VL Regulatory 

A. Volcker Rule: N. Radin noted that ClO shouldstarl to think about how 10 document conformance with the Policy in 

prepamtion for the final rule release, h:veragiog the fonnal from the IR 

Action Item: Legal to follow up on consistency with colleagues in other businesses. 

B. Derivative Activity: The outstanding issue regarding the FASl33 swaps and the novation to the LCH was discussed. 

noting the delay in resolving this issue exJX)SeS the business to counterparty risk in lmns of 'wrong way' risk. 

Action Item: Include a review ofcoonterparty exposure at the Risk COIIUninee meetings, 

vu. Governadee 

A. Investment Committee: The group discussed establishing Il CIO Investment Committee. It was commented that the 

group would not be responsible for the approval of lIBnS8.etions but would be responsible for vetting deals for 

appropriateness of iDvcsttncot mandate. The committee members would be a subsct of the CIO management tommincc. 

B. Rep.tational Risk Committee: CIO to establish a Reputational Risk Committee. The possibility ofteveraging a 

resource that currently chairs the m and OEP committee was discussed. 

vrn. Fiduciary and Compliance 

A. NDA: 1. Goldman discussed the tWTent process which involves the portfolio managers sending requeslS to Legal and the 

CIO CRO. The preference to receive a summary from the por1folio managers was discussed, 

IX. Other Items 

A. Otber Risk Buslneslies: The CIO MRM team performs the risk function for the Global Treaswy and Mortgage banking 

Pipeline/warehouse businesses. Further discussion on whether lhis function should reside wi\h the CIO Market Risk group, 

BANK PROPRIETARY AND/OR TRADE SECRET 

lNFORMA nON 

OCC·SPI-00004735 
2167 

From: 

To: 

s..nt: 

Crumlish, Fred 

<Mclaughlin, Ooug>;<Frake, Ron> 

411912012 5:53:56 PM 

Subject: FW: JPM CIQ IIGS "whale" Irade 

Doug FYI. Ilhought I did copy you on this. 

Ron - just if you're cLiious. 

Prop or not prop, that is tt-e question ... 

From: Crumlish, Fred 

sent: Tuesday, Aprt117, 2012 04:33 PM 

To: Brosnan, Mike; Belshaw, Salty; Pfinsgraff, Martin; Watemouse, scott Cc: Wilhelm, Kurt: Banks, George; Fursa, Thomas; HOhlt James; Kamath, Jairam; Kirk, Mike; Monroe, Christopher; Swank, 

Todd; Wong, Elwyn 

Subject: JPM CIO I IG9 "whale" trade 

On Monday 4/16 OCC and FRS examiners met ",!h Ire Drew and several members of CIO staff and risk maregement 

to discuss the JPM synthetic credit book in view of recent press reportirg. This message provides a summary of OIS 

discussion, followed by a more the detailed sllTlmary. It focuses spedficaHy on recent changes to the synthetic credit 

book. 

JPM's CIO has been using a synthetic credit (credit derivative) portfolio si...,e 2007. It was iritialy set up to 

provide income to mitigate other significant credit losses that wolid surface under a broad credit stress 

scenario, Since it wasn't possible to tailor a specific hedge to the JPM balance sheet as a ..-..tole, this portfolio 

was constn..cted. As the investment portfolio grew in 2007-2009, the synthetic credit portfOlio was used to 

!-edge stress and jump to defalJt exposures in that portfolio as well. 

ClO's credit derivative position was managed to provide around $1 binion to $1.5 biWon income in credit 

stress scenarios against firm wide losses of $5 bilfion to $8 biNion, 

In late 2011, in view of a change in perception in the state of the economy, CIO managers decided to redl£e 

high-yield (Hy) credit protection; however, after tt-e AMR bari<ruptcy and ",th Kodak expected to file for 

bankruptcy, tt-e markets for CIO's HY indices weren't IiqLid enough to use them to UVlind Clas position. 

Tt-e IG 9 index, wIlicl1 is mcch more IiqLid than HY indices, i...,ludes five 'fallen angels" that albwed it to be 

used to reduce a "good part" of CIO's HY poSition, so it was used to reduce the HY protection. 

Tt-e IG 9 market is notiUiqLid as it trades around $10 billion daily and spread changes for this index are in line 

\oVith peer indices. The IG 9 CLIVe has steepened in a move of around 6.5 staooard deviations, and there has 

been strong buying of deferred contracts, implying that the buyers are certain that there .,.;U be no defalJts in 

the next 9 months and nearty certain that there ",II be defalJts next year. In view of events, he..,ver, JPM is 

conductirg a "post mortem~ of the IG 9 situation and its impact and share results with OCC and when 

completed. 

The CIO bagan using crecfrt derivatives around 2007 as part of its mandate to maraga structu'ai bala...,e st-eet 

positions. CIO arty uses credit derivatives on indices, not specific names. lfitially CIO bought protection (shorted 

risk) on mortgages, using ASX, and high yield indices to mitigate some of the firm's bala...,e s!-eet credit exposure. At 

ths time CIO investments were highty co...,entrated in Agency pass-lirough mortgage securities, and the struet ... al 

credit risk was in the lines of business. 

Ttvough the financial crisis deposit inflo'NS combined with lower loan demand 10 leave the firm 'hith significant excess 

funds. As part of its mandate to invest, wt-en appropriate, in high credit quality, liquid investments, the CIO began 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-SPI-000I0490 
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purchasing low credit risk, top of tha capital stnx:ture securi~es to use tre excess fLnds, 'Mlile high quality, thase 

investment securities have more credit risk than tre U,S, Agency pass-ttroughs that continued to be held, so that 

structtral credit risk in the investment portfolio inc:reased along with portfolio growth. 

TlYoughout this tre CIO continued using index credit defalJt swaps (CDSs) to mitigate some of tre strucbral credit 

risk in the investment portfolio and the lines of business other than the investment bank, which manages its own credit 

risk exposLre. VVhUe there are ~qud markets for many credit derivative irdices, the markets are not deep enough to 

fLJIy hedge a multi-trillion dollar balance sheet. CIO's credit derivative position was managed to provide around $1 

biIHon to $1.5 billion income in credit stress scenarios against finnwide losses of $5 biUion to $8 billion. 

CIO managers decided to reduce tre high yield credit derivative protection around Tharl<sgiving last year. After tre 

AMR barl<ruptcy filing on November 29,2011, tre finn profited from its credit derivative positions as anticipated, but 

high yield index derivatives had limited iqLidity as demand irueased, CIO managers thought that it Y.OLJdn't be 

possible to reduce the high yield credit derivative poSition by using the indices that created it; tre best available hedge 

product was the IG 9 index, v.tlich has good liqudity as an investment grade irdex and a tigh yield component as five 

of the index companies are "falJen argels" i.e., companies that have fallen below investmert grade sioce the index 

originated. This was tre reason that JPMCB began seling IG 9 CDSs; going long IG 9 credit risk (seling CDSs) 

wocJd ",ctralize some of the short high yield credit risk position (long CDSs). 

JPM provided tre CIO rational CDS exposures as requested, along with a summary of tre synthetic credit portfolio 

maturity profile and resLlts of a 10% credH spread ""deling (CSVV). The CIO CDS portfolio includes exposure to 

JPMC'S IB along with third parties. The third-party counterparties are all major bark; or broker/dealers. The stress 

reslits show that the CDS portfolio net exposure carrot be judged by looking at rational exposures alone. An 

example given Is the iTraxx Main 2OJun13 position; tre rational exposure is $28 bilion long risk suggesting a loss if 

credit spreads ""den, but the 10% CSW shows a profit of $68 mimon because of eqLity tranche protection that is part 

of the position. 

The synthetic credit portfolio position now provides around $434 minion ircome in the credit crisis stress scenario. 

Very gererally. the portfolio risk profile is short high-yield risk against long investment grade risk and short shortduration (to yearend 2012) investment grade risk against long Jong..duration irnrestment grade risk, I.e. a credit ClJ'Ve 

flattener. The portfolio VaR was $S9.2 million on AprilSth. The portfolio is reported in CIO positiOns and subject to aU 

of the JPMC market risk management systems. 

TlYough the indices used, the portfolio provides credit protection on 588 names. 121 of them are from the IG 9 index, 

Yh'lich ct.JTentfy gives an average $146 milionjlnlp to default at market recovery gain per name. This position is stable 

until December 20,2012 when $32 billion of short-dated protection rols off along ""th $4 billion of protection on IG 9 

eqcJty tranches, and the average jump to defacJt at market recovery becomes a loss of $S72 milHon per name, Before 

that happens, CIO managers feel trey have time to adjl.o;t the portfolio to compensate ";thout roiling the IG 9 market. 

In addition to inc:lusion in the firm-lNide stress scenarios, CIO managers routinely ru1 other stress scenarios to assess 

portfofio performance in a variety of circumstances. The synthetic credit portfolio is seen to provide stress loss 

protection in an 8rnrirom19nt of sigrificanl. credit deterioration with defaults or perception of immireri defalJts, 

CIO manage'" have been surprised that the IG 9 market has been so ""rung to take on and sell so much protection. 

nagardless of what JPMC did. The market is rat iIIiqLid as the IG 9 trades around $10 binion daily. The spreed 

charges for ttls irdex are in line with peer indices. Many market participants have been strong buyers of deferred 

contracts, implying that they hed complete certainty there Y.OlJd be no defalJts in the next 9 months and near certainly 

that next year there";l1 be defaLIIs, The IG 9 curve has steepened in a move of several standard deviations. CIO 

managers said that the curve steepening move was around 8.5 standard deviations from the mean. A review of the IG 

9 situation is being done. and it ""II be shared ""th tre acc and Fed when completed. 

Attendees: 

JPM: CIO aUendees: Ina Drew Chief Investment Officer, John 'Mlmot CIO CFO, AchiUes Macris CIO Managing 

Director EMEA (telepihone), Javier Artajo CIO Managing Director EMEA (telephone), Irv Goldman Market Risk 

Management Managing Director, Pete Weiland Mar1<et Risk Management Managing Director, Keith Stephan Market 

Risk Management Executive Director EMEA (telephone), Greg Baer Managing Director Associate General Counsel, 

Joe Sabatili Managing Director Head Supervisory Relationship 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPJ-00010491 
2169 

OCC atterdees: Fred Cn.rnlish. James Hohi, Mike KirK 

Fed atterdees: Anna lacu:ci, two others 

-ape 

•• If yon rove received this rressage in error, pJeaEe delete the original an:! all copies. an:! rotify tre sen:ler lJllllEdialely. Federal law 

prohibits th;: discloS1Q'e or other use of this inforrmtioll .... 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMA nON 

OCC-SPI-OQOI0492 
2170 

From: 

To: 

Sent; 

Subject: 

From: Waterllouse, Scott 

Brosnan, Mike 

<Ecc~s, Jeorifer> 

5/29/20121:03:19 PM 

FW. May 15 CIO 

Sent: Tuesday, May 15, 2012 4:22 PM 

To: Brosnan, Mikei Belshaw, Salty 

Subject: Fw: May 15 00 

Not SlSe if you wart these. bli here's a more complete st.mmary. 

Sent from my BlackBerry Wireless Hardl'eld 

From; Crumlish, Fre<I 

Sent: Tuesday, May 15, 2012 04:16 PM 

To: Waterhouse, Scott 

Cc: Wong, Elwyn; Hohlt James; Kirk, Mike 

Subject: May 15 00 

OCC/FRB/FDIC met with JPM for a daily update on CIO. (Partial list of attendees at end of 

message). Highlights 

• This update wasn.t supported by quantitative information requested yesterday. 

Bank continues to work on P&L explain and new risk reporting and other information 

described yesterday, and hope to be in a posijion to go over this wijh us later this week. 

OCC wants a risk dashboard and P&L as a basis for discussion 

• Yesterday.s loss was .smaller .• Although daily losses are becoming smaller, 

the total 2Q loss is now around $3B. 

• Company continues to bring new people into CIO, and also borrow risk and middle 

office personnel from other LOBs to help work through pos~ion issues. 

• JPM ran CCAR on the position but it generated a 600MM prom d/t different HY 

and IG spread treatment in CCAR. Company is working on a worse case forecast. 

• Mike Cavanaugh provided an overview of his roll regarding identifying what went 

wrong and what needs to be improved. (Hogan mentioned that he asked all his CRO to go 

back and review their limijs and make sure that they make sense. He wants line of business 

CROs to discuss with CEO and come back with any changes) 

Detailed notes 

Bank believes they can provide us with the daily data we wanted on P&L and risk tomorrow. 

OCC wants a .dashboard. with risk and P&L that can serve as a basis of discussion during 

BANK PROPRlET ARY ANDIOR TRADE SECRET 

INFORMATION 

OCC·SPI·OQOI0657 
2171 

updates. OCC also requested daily P&L since the start of the year. Company is working on 

it and hopes to deliver P&L tomorrow with a risk update later in the week. (SW is providing 

JPM with the distribution channel for OCC). 

Cumulative loss for quarter is $3Bn. 

Daily P&L: Size of daily losses shrinking last couple of days so hopefully +blood in water+ 

is improving. Flat early in day then Greeks couldn+t form govt election announced, risk went 

wider as markets in Europe sold off. P&L -75MM; 40 directional, 32MM of correlation, 40MM 

of series S. Some profit from decompression. 

III government bends 15 wider to Germany. Sov CDS circa 15 wider. 

Not much liquidity today. Took off only 250MM ofiTRAXX Main today. 

10% CSW changes: Cumulative daily reductions = 171MM reductions, offset by SOMM of 

drift. Net reduced 83MM. Current risk roughly 20SMM for 10% CSW. As shock is held 

constant, the 10% shift of wider numbers results in a larger exposure. 

CS01 went from $51 MM to circa $28MM. 

No other risk updates. 

Bank is very cautious about potential unwinds and is open to reverse inquiries, although there 

have been a few from banks. Multiple HF inquiries were characterized as information fishing. 

JPM indicates that if provided a request with pricing and size, JPM will respond. 

Portfolio to theoretical relative value is getting closer to normalization; for the six factors 

excluding directionality. Bank will get back to us with risk numbers and will go thru limit 

structure and risk information at a near meeting (Thurs or Fri) 

Collateral: As of COB of 5/14 is now at 156MM vs 6SMM cob. Friday, Itraxx 10 year, moved 

to $42MM from $10MM. MS largest dispute was $27MM Friday now $46MM. Only MS had 

escalation calls. Head of MS Fixed Income didn+t mention it today on a call with JPMorgan 

though. Generally collateral posted as Cash or Treasury bills. Bank will give specifics to 

counterparty and what is posted. If not cash or TBilis the bank will provide with haircuts. 

Nothing new on RWAlcapital from yesterday. Company is working on. 

Stress: Nothing new to report since yesterday. Bank estimates will take a few days to get 

stress numbers for us. They had running CCAR shocks but this produces a gain of $600MM 

on portfolio. Compression trade offsets directional losses. (CCAR HY widens more than IG, 

generating a gain). JPM is working on a 20rst case scenario. 

Cost of exit today on capital and income. Still being worked on. 

Size of AFS portfolio: Mostly high quality paper. 

Dec 31 $331B 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-SPJ-OOOI0658 
2172 

Mar 31 340B 

May 9 very similar. 

JPM is working on updated security detail we provided, but indicated that CIO.s contribution 

to the liquidity buffer is 20B 

Infrastructure and personnel: Nothing new to report. Quick update: Continue to work on 

data base for historical data; some assistance from CH MO on data staffing. BAU processes 

enhanced from borrowing staff from Asia to Europe. Market risk borrowing James Dwyer and 

Arnaldo to help with review. 2 modeling people assisting, 1 for models, one for VAR. 

Clearing: 

Clearing: Ice: Submit all that they can; most of index positions. Tranches and certain older 

indices don.t clear. Some cps haven.t on boarded onto Ice, so not 100% of eligible 

cleared (Citi and some Soc Gen). On net notional basis 72B of total was eligible, 63B 

ineligible. Gross $116B eligible, and 78% has been cleared. Trades done this week have 

been submitted to ICE clearing process tonight, will find out on Friday. On Friday expecting 

this % to go over 80% 

Legal Entity booking: JPM walked through back office processes. (Separate paper handout). 

This included a description of risk transfer from branch tOI.W.h.illltelifr.iallrllls.(AIIR.e.g.Kllvlllehlli.cllle.).allls. described yesterday. This was done at request of FRB. 

All margining processes are handled on a net legal entity basis centrally by a group in IB 

(both for ICE and bilateral). No disputes with ICE b/c post what you have to post. No 

reconciliation to what ICE asks for vs. what JPM expects to post. Don.t think they look at 

the data that way.bank will confirm that. 

Mike Cavanaugh provided an overview of his roll. He is working to identify breaks in oversight 

and controls. Work streams are being defined. History fact pattern is one stream; 

developing picture control environment (valuation, market risk, models, all controls); 

remediation effort. Can.t put time frame on cOlwletion, but would like to have something to 

have present to investors, and Board. 

Hogan directed all CROs are looking at all key metrics, and then will discuss with business 

CEO and decide if MR thinks they are effective. They will then be review by CRO (Hogan) 

and CEO. 

Bank: Matt Zames, John Hogan, Ashley Bacon, Chetan Bhargiri, Marie Nourie, 

Canvenaugh, Venkar, others from JPM London on the phone. OCC: Scott Waterhouse, Fred 

Crumlish, James Hohl, Elwyn Wong, Mike Kirk 

FRBNY: Diane Dobbeck and others 

FDIC: 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMA nON 

OCC·SPI·OOOI0659 
2173 

Jan·C7·2011 02"59 P'1 JP Mo-gan Chn~ 2129345011 

JPMORGAN CHASE & CO. 

Jon....,. 1, 2011 

Rt: Inmtmtnt PortftlIIo I!IIw:TIlnaIion 

OOlr Mr. Wa!eriIouso: 

WlII'PI'OlD the Ume1hatyav amtyourcollllllllll bllVllpIIrt fI\IoWIng th. ClOlnveItrnont PortfoIa. 0rI1ho ntIII-. Y\III wIIIlnd .... '""_10 Iho Maller Rlqul1ngAllentfon (~deIIII!ed In yaur_ 

dalod, Dooembot a. 2010. _*""_ ~YOUWDUlllllklllOd_IhI._1n mort de\1lll. WI IOdt_ to your --. 

InoR.DIIIW 

ChIeI' Il1YII\mInt 0fII00r 

co: Jamie Oimllll, LaDf J_, BarTy ZUbmW, _ CIJIIIr, DOll; 8ralA'11111n, ROIla'! SUIIIVIn (PfIC). KonnellTEgon (fDICt Joaph Boncan, John __ HllmpoUlDI, Adam GIbaIt, Joo sabollnl 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

1/3 

111 

OCC-SPI-OOO 11198 
2174 

JIJM-C7-2011 02:59 P'1 JP Mc"glln (h2l51:" 2128346011 

JPMorgan Chase & Co, 

Management Response to the Investment Portfolio Examination 

January 7,lO11 

l\oaponBo: CIO will prod ..... Stratogio hset Allocation ~'SAA"l Policy dooumOlll!bat ~ 0111 

tho existiJI& procesa and co_I fnunowork In placeoround tho management of the ilMatmonl 

portfolio. Tho policy wUI describe: 

Gov ....... lIIrIIotIm> for tho SM 

_ ",.Iow end approval p",..,., looludlns DoB m&nllplllllnt 

, lnws1mont obj~ and puametDni Ipplied to 1he portfolio 

Roaponso: CIO hae commenced preparing min .... oftll. wo<kly i5AA Investm.nt l1IOOIinp 

disowsing ~ riok and tho rela1od!llllllApllOlll of1he in_I portfolio. DIIrIIion of 

equity targclll (genenilly in tho form of. ton8") will be docwnootod and IpproprIately sIwod at 

relOYOIlIllIII!l8gemOI1t mootinp, iocl.dinS ... Ior ALCO, for addltional 00II!I_0I1. Tho 

dUllllion ofequity target b oaUIblished by tho Chief lnyeotmont Officer crth. fum and discussad 

end aped to with tho finn', ChlofBxoo1ltlve Officer durin! periodi. buainoss revi .... 

lM>ughout the J'I'III' and 8MuolIy with the Boord of Dlredcr&. 

Rosponoo: In /IIIII~ of1he SM porIlbUo, ClO does not .. t oxpUcil1a!g 1mm_ a1looatiot1 targets. CIO', in_t thooI. nqulrea • ..,.. tlmoly rovlew .i"""...- have 

bbtorlcally boon, and "'" bello", will ccmtlnuo to be, volltll .. Portft>UO '"'I"iremeoto In> analyzed 

within the conteXt of"'" evolving balan .. sheet and Income no and 1he _10 

....,ironment, and appropr!atotnveotmenta ... identified _ on JatI_on of til ... 

rcquiremOlllll and malbt opportunilies .. allahl •• 

_, we<_d tho OCC's 000 ...... and with nopn! to the .pecifio rcqIIOI1li: 

• OVerall pombUo Dbj_ will be utloul,""" In 1he i5AA Policy doeumon~ 

• "Ilzposuro tupta and ... otpmmaten" wlU be oddreaod ihroug!lan SAA rt.k bmowotk 

dooumcnt. Tho porIlbllo man.gat baYe $IIIldatda that .,. aped to with tho Rldt t ..... and 

a doc:umetll desorIblng thoso standards wUI be mado aveUabtc. 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

- - Redacted by !bit" PCflII8nent 

..... inee on ImestigatioM 

2/3 

OCC-SPI-OOOlIl99 
2175 

Jan-C7·2011 02:59 P'1 JP Me"QILII Oue 2128345011 

R.eoIponoe: CIO hal billDrtca1ly llllildldDed • "wItcb IlI1" wlllcI1lDc1udoa below-i_OIl!-

grade aod IIIlIlI'IIied 1OCUritIa. Tho Firm hal DOW Clllbiishod • _ of 0IIIIIrirIa tIIII 011 

oppllcable below-In_ont-arad. ond nOlUllled 1OOIIriti .. OR IOlIOIWd by the Finn', RIIk 

Reportlna and FInance Chaup 10.....,. fWl oompIiaoce with ace BDIIeIIn ZOlJ4.~. 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

3/3 

OCC-SPI-OOOI1200 
2176 

From: 

To: 

Sent: 

Subject: 

Attachments: 

Kamath, Jairam 

Crumlish, Fred; Hohl, James 

5/7/20127:24:09 PM 

RE: cIa Synthetic PositIon 

CIO MtM Stress_ 42612.xlsx 

Per the most recent FSllMaRRS stress report as of 4126112. Cia's worst case MtM stress scenario was the Oil Crisis 

(see attached excerpt). Stress losses of $1.71B exceeded the limit of $lB. Stress loss was driven primarily by the 

NA Strategic Asset ADocation (SAA) book ($724mm) and the EMEA synthetic credit tranche book ($665mm). 

The Oil Crisis scenario assllT1es: 

Severe (+) shock in oil prices (100% rise in oil, vols increase 60%). 

Large (+) shocks in interest rates (2 yr down 30 bps, 10 yr down 53 bps, vols l4' 140%) and inflation 

(details net available). 

Large (-) shocks in equities (down 30%, vol up 10 pts) and EMFX (5%-23% depreciation). 

Small (- or +) shocks in all other asset classes. 

jairam,kamathClpocc.treas.gov 

Tel: 212-899-1386 

BB: 202-368-9193 

Fax: 301-433-6238 

This message is inteooed for deSignated recipients only. If you have received ttis message in error, please delete the 

original and an copies and notify the sender immediately. Federal law prohibits the disclosure or otter use of this 

information. 

From: Crumlish, Fred 

Sent: Monday, May 07, 2012 8:33 AM 

To: Kamath, Jairam; Hohl, James 

Subject: RE: 00 Synthetic Position 

Regarding the Cia, we will need a breakdown of the drivers of sigrificant stress loss f"U11bers. (eg, not just the 

scenario name, but the specific factor driving the change.) 

-apc 

", .... lfyou hwe receiyed Uus nrss.1g1! inerror. please delete fIr orig:nnl anj all caples. alXll.,t~· tle selJ:ier illlm~dJale(y, Fedetallaw 

prowbits t~_~~~~~orolher use ~fthi.s infomBtiou .. ", ________________________ ,_ 

From: Kamath, Jairam 

Sent: Monday, May 07, 2012 6:38 AM 

To: Crumlish, Freel; Hohl, James 

SUbJect: Re: CIO Synthetic Position 

That is indeed a whopper. I don't think we get the daily or the weel<ly PnL reports for cia. 

Chris is working on the weekly slmmary for last week.. He should be sending it out today. Geralym prepared the 

summary for the week before that. She was in Excel trainirg last .....eeK. 

From: Crumlish, Fred 

Sent: Sunday, May 06, 2012 OS:03 PM 

To: Hohl, James; Kamath, Jairam 

Subject: Re: CIO Synthetic Pos~ion 

Just got back from chile and saw this. Also didn't see any emails or weekly sll'l1mary comments sil'l:e I went on leave .. 

-ape 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-000\3762 
2177 

OCC 

202-439-3938 

This message is interded for designated recipients only. If you have received this message in error, please delete the 

original and all copies, am ootify the sender immediately. Federal law prohibits the disclosure or other use of this 

information. 

From: Waterhouse, Scott 

Sent: Fliday, May 04, 2012 12:03 PM 

To: Crumllsh, Fred; Hohl, James 

Subject: 00 Synthetic Pos~ion 

Doug Braunstein and John Hogan called to provide an update on the CIO position. They mentioned that 

if we have been watching the pos~ion reports and P&ls. we would have seen that they have been taking 

some significant MTM losses over the past few weeks. These losses are on positions established some 

time ego. Current losses are approximately $1.6 billion. Doug said that over time, the bank has taken 'a 

couple billion' in gain as an offset to this position. 

But at this point, the remaining position is too large and the bank is trying to reduce risk. John said that 

the long position is sens~ive to a 10% widening in the amount of $900MM. This is hedged with a short 

pOSition in high yields that has a 10% sensitivity of $65OMM, giving a net risk to cred~ spreed widening of 

$250MM. The bank is taking actions now to further reduce the exposure. 

Doug said that the CIO will also close out some bond positions to take approximately $1 B in gains to 

offset this loss. 

John said that Ashley Bacon, in his new role as global overseer of market risk, is introducing new risk 

measures and limits for the CIO. 

The bank will publish its Q on Thursday, and Doug expects that they will make some comment in the 

document. 

Doug wants to have a meeting on Wednesday to discuss the history of the position, its performance, and 

'glide path' to further reduce the risk. He expects that the position will be down substantially by the time 

we get together. This meeting will be with the Fed. Fred - you and James should be prepared to 

attend. let's talk Monday about this. 

Scott 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPJ-OOO 13 763 
CIO VALUATION SUMMARY MEMO 

March 2012 Month-End Results 

April 13, 2012 

JPlVIORGAN CHASE & CO. 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION OCC-SP
J. 

-Contents 

• North America Valuation Results 

• EMEA Valuation Results 

• Asia Valuation Results 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 

JPMOI{(;A,\j CHASE &CO. 

OCC-SP
z 

c 

CIO EMEA Valuation Results 

CredlllndlceS' and Tranches 

Based on independent sourced prices and tolerances agreed with the CIO Front office an adjustment of $(16,9)mm was required. For March 

month end the level of the liquidity Reserve, which "'presents the illiquidity of off-the run positions, was $(186.4)mm_ 

The credit derivative market has been extremely vola61e this month. Initially all sectors of the market tightened on an improved economic 

climate and a more stable peripheral European picture. However, as Central banks moved away from asset purchase programs and doubts 

resurfaced about the Spanish economy markets weakened led by the financial sector. We have also seen an out performance by the High 

Yield indices versus the Investment grade and of the current on-the-run series versus the off-the-runs. 

CIO's reserve policy is to include any series more than 4 removed from the current on the run series. Prior to March month end both index 

and tranche positions of Series 9 of both the ITRAXX and CDX IG were both omitted from the calculation qualifying under this 

as batt( series were stin considered to be liquid. At March month end it was concluded that a reduction in liquidity in the tranches of 

these series w?rranted inclUSion in the liquidity reserve calculation. 

ASS . 

n;;;-majority 01 our ABS (Market priced at fair value and required no adjustment. However, an error in the 

weighted average me of our fixed rate covered bond positions resulted In an adjustment, affecting 14 ISIN's, 01 $4.557.459 (DetailS In table 

below) I 

t-- =:...a-:.':::'::I 

JPMUI{(;AN CHASE &CO. 

BANK PROPRlET ARY AND/OR TRADE SECRET INFORMATION OCC-S
2181 

From: 

To: 

CC: 

Sent: 

Subject: 

Thanks! 

From: Hohl, lames 

Batista, Geralynn 

<Hohl, James> 

<Cruntish, Fred> 

4/19/20127:39:14 PM 

RE: CIO portfolio 

Sent: Thursday, April 19, 2012 3:37 PM 

To: Batista, Geralynn 

Cc: Crumlish, Fred 

Subject: 00 portfolio 

As part of its ongoing process to incorporate additional exposures into the FSI framework, the AFS 

portfolio has been added to the CIO Aggregate stress test. The CIO AFS portfolio consists of $335 million 

high-quality investment securities with MBS remaining the dominant type while CtOs, corporate bonds, and 

foreign government issues are signfficant also. The inclusion of the AFS portfolio results in a dramatic rise in 

stress losses (see chart 1 below) that is not comparable to prior periods .. To adjustforthis change. the cia 

Aggregate loss estimate is subtracted from the series and shown on the "Adjusted" chart (see chart 2 below}. 100% 

of CIO Aggregate losses are assumed to come from the AFS portfolio for simplicity (note that prior week's CIO 

Aggregate loss contribution to Aggregate Bad Case losses was immaterial). 

The above comments reflect the portfolio at year end. We haven't gotten a cia EMR since then; theJanuary 

Treasury one didn't include CIO. I'm following up with John Wilmot about the balance sheet and investment 

portfolio pages that were inthe CIa EMR. 

This message is intended for designated recipients only. If you have received this message in 

error, please delete the original and all copies and notify the sender Intnediately. Federal 

law prohibits the disclosure or other use of this information. 

BANK PROPRlET ARY ANDIOR TRADE SECRET 

INFORMATION 

OCC·SPI·OO021700 
2182 

From: 

To: 

CC: 

Sent: 

Subject: 

Kama1h, Jairam 

Crumlish, Fred; Kirk. Mille; Wetemouse. Scott 

ttlhl. James; Wong, Elwyn 

5118/20122:38:02 PM 

Re; CIO Reports 

I picked up the CID continuous audit report from the IA intranet yesterday. I'll forward it 

separately. 

----- original Message -----

From: Crumlish, fred 

Sent: Friday, May la, 2012 10:30 AM 

To: Kirk, Mike; Waterhouse, Scott 

Cc: Hohl, James; Wong, Elwyn; Kamath, Jairam 

Subject: CIO Reports 

Scott - I went into wisdrn doc 720660 and BOLDED thoSE! items that most directly touch CIO. 

Sorry, wisdm desktop wont let me download. Sheet is called "reports received.xlsx" and while 

it is in the IB folder it covers everything .. ~so, CIO positions wind up in our liquidity 

reports as well, particularly those pertaining to stress test, cfp, etc. I haven'~ balded 

those. 

We had been getting cio emrs but there has been a lag we had asked about. 

This spreadsheet doesn't include corporate wide items such as: 

Continuous Audit sumnaries (quarterly) 

Audi t reports 

The CS.n.. and audit info are probably more important. 

Risk Working Group packages 

DRPC presentations, as relevant. 

Also FJ\STDATA for investment is provided to the eredi t examiners. 

Of course, there will be a number of new adds. Most obviously the daily info from Hogan 

meeting 

I have ec'd Jairam as he has a lot of detailed knowledge on the reporting infrastructure and 

process for FSI, '/ar, and overall mark.et risk including market risk capital. 

From: Kirk, Mike 

Sent: Friday, May 18, 2012 8:48 AM 

To: Waterhouse, Scott; crum.11sh, Fred 

Cc: Hohl, James; wong, Elwyn 

Subj ect: RE: Info needed today 

Scott, 

You may want to have Fred scrub this for what he knows abou~ it. James is not in today, and 

this is his LOB so he would know the details I am miSSing. Fred may too. 

Regards, 

Mike 

eIO MIS Frequency Arrival Date 

Firm Stress Results Weekly Mid week, week following 

MaRRS Stress Reports Weekly Mid week, week following 

CIO AFS Securi ties List Quarterly 

Cle Info in Treasury Weekly Appendix Weekly 

CIO Monthly Valuation Deck Monthly 

Firrnl'lide Risk Daily Market Risk Limits a.nd Va.R Reports Daily T+2 ... 

Firrnwide Model Risk Report Monthly 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-0002 I 723 
2183 

Level 1 EMR Monthly Jrd week of following month 

Leve 2 E:MR Monthly 3rd week of following month 

Daily [>&L Daily Estimate on T, revised on T+1 .'"' 

* Produced T+1, released T+2; we get when finn distribution occurs 

.. * Not sure what we were getting precrisis 

CIO Limits Frequency Unit Limit 

All of CIO 

Aggregate VaR !HTM, Cost, etc.) 

CIODT_ 

CIO North America D T == CIO International D T 

Combined CIO 6: MSR (e) (f) D T _ 

Mark To Market VaR 

CIO D T 160,000 

CIO North America 0 T 22,000 

CIO International D T 160,000 

Stress LOS3 Advisories 

Max Stress Loss - Corporate Scenarios 

Aggregate D T 

HTMMT_ 

Non Statistical Limits 

EMEA 

Credit Spread BPV D T 

Credit Spread 101!! CSW D T 

STOP LOSS Jl..DVISORIES 

Aggregate 

One Day D T 100,000 

Five Day D T 150,000 

Twenty Day D T 150, 000 

HTM 

One Day D T 60,000 

Five Day D T 60,000 

Twenty Day D T 60,000 

REGIONAL LIMITS 

STOP LOSS ADVISORIES NA 

Aggregate 

One Day DT1L Five Day D T 

Twenty Day D T 

MTM 

One Day DTWL Five Day D T 

Twenty Day D T 

STOP LOSS ADVISORIES INTERNATIOIfAL 

Aggregate/MI'M 

One Day DT" five Day D T 

Twenty Day D T 

'ITM 

One Day D T 70, 000 

F1 ve Day D T 10,000 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00021724 
2184 

Twenty Day D T 70,000 

From: Waterhouse, Scott 

Sent: Friday, May IB, 2012 7:43 AM 

To: Crurnlish. fred; Hohl, James; Wong, Elwyn; Kirk, Hike 

Subject: Info needed today 

We need to prepare two table for the comptroller today. 

Table 1 - a list of all MIS we get and when. we get it iemr, d.!lily P&L) 

Table 2 a li.5t of all applicable limits 

We should get examples of each. I need this ASAP. 

BANK PROPRIETARY AND/OR TRADE SECRET 

lNFORMA nON OCC·SPI·00021725 
2185 

From: Kirk, Mike 

To! <Furse, Thomas>;<'Wong, EfwYI"P';<Banks, George>;<Crumlish. Fred>;<Hohl, James>;<Kamath, 

Jairam>;<Monroe. Chrtstopher>;<Tomese. Doug>;<Swank. Todd> 

3ent: 5118/201212:34:27 PM 

Subject: RE: CIO Vatuation Summary Memo· March 2012 Month Era Resuls REVISED 

They were+that.s the point that the bank missed •. same reserving process sholJd apply. 

From; Fursa, Thomas 

Sent; Friday, May 18, 2012 7:53 AM 

To: Kirk, Mike; Wong, Elwyn; Banks, George; Crumlish. Fred; Hohl, James; Kamath, lairam; Monroe, Christopher; Tomese, 

Doug; Swank. Todd 

Subject: Re: 00 Valuation SummaI\' Memo· Mard! 2012 Month End Results REVISED 

The CDX were mar1<ed AFS too? I wolJd imagine these are MTM Lo:ier FAS 1577 

From: Kill<, Mike 

Sent: Friday, May 18, 2012 07:28 AM 

To: Wong, Elwyn; Banks, George; Crumlish, Fred; Fursa, Thomas; Hohl, James; Kamath, Jairam; Monroe, Christopher; 

Tomese, Doug; Swank, Todd 

Subject: RE: 00 Valuation Summary Memo • Mard! 2012 Month End Results REVISED 

They told us about ttis in the meeting in Mid April. 

VWlen we questioned the lack of reserves the bank missed the point. arguing that it was an AFS book and that type of 

lethodology didn.t maka sanse. 

From: Wong, Elwyn 

Sent: Thur.;day, May 17, 2012 8:4S PM 

TO! Banks, George; Crumllsh, Fred; RJrsa, Thomas; Hohl, James; Kamath, Jalram; Kirk, Mike; Monroe, ChT1stopher; Tomese, 

Doug; Swank, Todd 

SUbject Re: 00 Valuation SUmmaI\' Memo· Mard! 2012 Month E!1d Results REVISED 

I read the lrrevised are. 'Mlat does that mean I wonder. With the stroke of a pen they added 186·31 equal 155 mil? 

And that's all they have for cds right? 

From: Banks, George 

Sent: Thur.;day, May 17, 201202:29 PM 

To: Crumlish, Fred; Fursa, Thomas; Hohl, James; Kamath, Jalram; Kirk, Mike; Monroe, Christopher; Wongl Elwyn; Tomesel Doug; Swank. Todd 

Subject: 00 Valuation SUmmary Memo - Mard! 2012 Month End Results REVISED 

Just received a revised CIO March 2012 Valuation Summary (see attached and also uploaded into 

WISDM). Appears that they are revising 1Q12 results? 

Changes from the previous version highlighted in yellow below: 

Credit Indices and Tranches (page 5) 

Original Text 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI-00021894 
2186 

Based on independent sourced prices and tolerances agreed wdh the CIO Front office an adjustment of 

$(16.9)mm was required. For March month end the level of the Liquidity Reserve, which represents the 

illiquiddyof off-{he run posdians, was $(3l.1Imm. 

[he credit derivative market has been extremely volatile this month. Initially ali sectors Of the market 

tightened on an improved economic climate and a more stable peripheral European picture. However, as 

Central banks moved away from asset purchase programs and doubts resurfaced about the Spanish 

economy markets weakened led by the financial sector. High Yield indices have outperformed the 

Investment grade indices while current on-the-run series outperformed the off-the-runs. 

CIO+s reserve policy is to include any series more than 4 removed from the current on the run series. 

Prior to March month end both index and tranche posdions of Series 9 of both the rTRAXX and COX IG 

were both omitted from the calculation desptte qualifying under this crderia as both series were stili 

considered to be liquid. At March month end tt was concluded that a reduction in liquidity in the tranches 

of these series warranted inclusion in the liquid tty reserve calculation 

Revised Text 

Based on independent sourced prices and tolerances agreed wtth the CIO Front office an adjustment of 

${16.9)mm was required. For March month end the level of the Liquiddy Reserve, which represents the 

illiquid tty of off-{he run posttions, was $(186.4)mm. 

The credit derivative market has been extremely volatile this month. Initially ali sectors of the market 

tightened on an improved economic climate and a more stable peripheral European picture. However, as 

Central banks moved away from asset purchase programs and doubts resurfaced about the Spanish 

economy markets weakened led by the financial sector. We have also seen an out performance by the 

High Yield indices versus the Investment grade and of the current on-the ... un series versus the 

1If-the-runs. 

CIO+s reserve policy is to include any series more than 4 removed from the current on the run series. 

Prior to March month end both index and tranche posttians of Series 9 of both the ITRAXX and COX IG 

were both omitted from the calculation desptte qual~ying under this crneria as both series were stili 

considered to be liquid. M. March month end it was concluded that a reduction in liquidity in the tranches 

of these series warranted inclusion in the liquid tty reserve calculation 

George Banks, Jr. 

Office of the Comptroller of the Currency 

1166 Avenue of the Americas. 21st Floor 

New York, NY 10036 

t 212.899.13871 f 301.324.44521 bb 202.256.1966 

george. banks@occ.treas.gov 

This message IS intended for deSignated recipients only. If you have receiv~d ths message in error, please de ete the ongina! 

anc aU copies and notify the serder immediately. Fecer:'!! Jaw prohibits the disclosure or o1her use of Il"is inforrna"lon. 

BANK PROPRIETARY AND/OR TRADE SECRET 

lNFORMA nON 

OCC-SPI-00021895 
2187 

From: 

To: 

Sent: 

Subject: 

Attachments: 

James, 

Kirk, Mike 

<Hohl, James> 

5/9/2012 7:20:08 PM 

RE: Documenl1 

CIO Kirk Edts.docx 

Here are mv edits. I have no attachment to them whatsoever 50 feel free to accept or reject as you please, 

Regards, 

Mike 

« ... » 

From: Hohl, James Sent: Wednesday, May 09, 20122:28 PM 

To: Kirk. Mike Subject: Documentl 

Mike, Here's my first take. Stay offthatleg. JCH 

«File: Docl.docx» 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI·OOO219% 
2188 

Regulators met with JPMC senior managers to discuss the CIO synthetic credit (index credit 

derivatives) portfolio. 

• JPMC's IO-Q tomorrow will disclose synthetic credit losses and the possihility ofmcre 

significant losses to come. Losses since 3/31 are about $1.9B, which are Dot part of J Q 

results. 

• The synthetic credit portfolio is being wound down under the control of Risk 

Management, although this will be a lengthy process. 

• JPMC managers have taken actions to improve risk management (i.e. implemented new 

limit structure to include notional1imites) and to prevent a recurrence. and reviews 

continue to assess the situation and enhance controls. 

JPMC CFO Doug Braunstein called a meeting with OCC and Federal Reserve examiners to go 

over synthetic credit portfolio market losses that win be disclosed in the IQ2012 10-Q tomorrow 

and are much larger 2Q to date than they were in lQ. The synthetic credit portfolio riskweighted asset srew about $30B in lQ and another $20B in 2Q so far. 

The synthetic credit portfolio held by CIO has $1.9B MTM losses in 2Q2012 to date. The CIO 

has monetized near $1 B of gains from the AFS book that are booked thru the coroporation under 

securities gains. The notional position of the AFS and firm wide credit synthetic hedge grew 

significantly during IQ2012 in a failed attempt to reduce credit risk hedging by repositioning the 

portfolio. The net result is a large complex position that didn't act as modeled with unexpected 

correlations and increased volatility that will take time to run down. 

The traders wanted to reduce exposure to HY short position they had but market liquidity and 

perceptions (due to AMR and Kodak BK's plus LTRO) were such that many participants had 

same view and sufficient liquidity was not avai1able to reduce the short. So traders modeled 

other indices based upon historical correlations and determined the best course of action was to 

buy IG indices. Ina Drew noted that the old HY synthetic hedge moved in line with the AFS 

portfolio prior to these changes being made. John Hogan noted that the finn underestimated the 

risks and that tbcy would exit thc strategy and ncver rcenter it. 

Thc driving issue. according to Doug Braunstein. is thc sizc of thc position. Because of thc size, 

any dislocation is magnified, and the ability to exit is hampered. 

The eIO global credit 10% credit spread widening (CSW) limit was breached on March 22, 

2012. At that time CIO Ina Drew suspended active trading in the instruments and began looking 

more closely at the drivers of the ongoing limit exception. At first it was thought by the CIO 

traders that the excess was due to market dislocations that would mean revert; however, by the 

last week of April it was apparent-after further analysis by others within JPMC, that there were 

fundamental problems with tbe portfolio, Further increases to this 'Portfolio, as seen in the 

reports, were not from new trades, but rather from the convexity oftbe positions, many of which 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00021997 
2189 

behave like near or at the money options. Further widening of spreads will exaggerate this 

problem; conversely. spread narrowing will assist them in derisking. 

At this time, Risk Management has control ofthe synthetic credit portfolio, which will be wound 

doWD. While the portfolio does have symmetrical risks, IPMC managers are actively reducing 

the exposure instead of sitting on it to see if the market will tum around. Ashley Bacon is 

leading the efforts to actively reduce the 10% CSW exposure by July 4th. CWTently, managers 

are meeting twice daily seven days a week to update and control this process. Two other aspects 

to winding down the portfolio are managing the risks after significant short positions mature in 

late December and managing the remaining longer~term positions. Ultimate resolution of the 

portfolio will take along time, and there is a possibility of billions more in losses. The glide 

path of deriskins entails three prongs. First, the derisking of delta (10% CSW); second, deciding 

what to do with HY shorts expiring in Dec~ third, more long dated issues related to illiquid risks 

that they can't do much about. May be more liqujdity reserves as a result. 

Risk management bas assembled six risk categories for the synthetic portfollo and is stressing 

each ofthem. There is a risk that the portfolio could lose $2B from here, but these numbers are 

evolving as risk management better understands the position and as risks are unwound. 

Marks of the previous positions were within tolerances. Reserves were taken according to 

olicies in place in January. These reserves were for liquidity. and totaled $30MM. The bank 

has since added S150MM to those reserves. 

JPMC managers seem likely to "take a breather" in their market efforts after tomorrow's 10-Q 

filing announces the siruation to give the markets time to adjust to the news and any effects to 

settle down. 

A review of the siruation is ongoing. To date identified issues include the following. There was 

poor construction and execution of the hedge reduction strategy. which added to the complexity 

and size of the position. 1'bere was over reliance on historical market relationsbips, which 

resulted in e;r,;cessive price movements when implied correlations increased. There was 

miscalculation of market and valuation dynamics. There were insufficiently granular limits for 

the synthetic credit book, particularly a lack of notional limits. It took too long to fully 

understand the portfolio risks and escalate problems. Finally, the current market environment for 

these instruments has magnified mistakes. 

In addition to Risk Managcmcnt's activc efforts to rcduce the portfolio's risk positions and 

ultimately wind it down as previously described, JPMC has begun taking actions to prevent a 

similar siruation. Morc granular limits havc becn put into placc. The valuation. control, 

compliance, and reporting framework have been tightened, and is undergoing further review to 

strengthcn firmwidc. An internal audit to assess risk managcmcnt processes and financial 

reporting for CIO mark~to~marl::et books is underway. 

IPMC attendees 

Chief Financial Officer Doug Braunstein 

General COUDSel Stephen Cutler 

BANK PROPRIETARY ANDIOR TRADE SECRET 

lNFORMA TION 

OCC·SP!·00021998 
2190 

Chief Investment Officer loa Drew 

Chief Risk Officer John Hogan 

EVP Corporate & Regulatory AffairsBarry Zubrow (telephone) 

OCC attendees 

Scott Waterhouse, Fred Crumlish, James HohL Mike Kirk (telephone) 

Fed attendees 

Dianne Dobbeck, Anna, the other guy 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00021999 
2191 

Regulators met with JPMC senior managers to discllss the CIO synthetic credit (index credit 

derivatives) portfolio. 

• JPMC's 10-Q tomon'ow will disclose synthetic credit losses and the possibility of more 

significant losses to come. Losses since 3/31 are ahout $1.9B, which are not part of 1 Q 

results. 

• The synthetic credit portfolio is being wound down under the control of Risk 

Management, although this will be a lengthy process. 

• JPMC managers have taken actions to improve risk management (i.e. implemented new 

limit structure to include notional limi~ and ill prevent a recurrence, and reviews 

continue to assess the situation and enhance controls. 

JPMC CFO Doug Braunstein called a meeting with OCC and Federal Reserve examiners to go 

over synthetic credit portfolio market losses that win be disclosed in the 1 Q2012 10-Q tomorrow 

and are much larger 2Q to date than they were in lQ. The synthetic credit portfolio riskweighted asset grew about $30B in 1 Q and another $20B in 2Q so far. 

The syntbetic credit portfolio beld by CIO bas $1.9B MTM losses in 2Q2012 to date. The CIO 

h_1J$ Jnonetized_~_$l B of gaiIli Jrom .1b~ AFS~Qklhat are booke~U.hru the CQIPporatiOl,Lunder 

seeuriti~ gains. _The notional position of the AFS and firm wide credit synthetic hedge grew 

significantly during lQ2012 in a failed attempt to reduce credit risk hedging by repositioning the 

portfolio, The net result is a large complex position that didn't act as modeled with unexpected 

correlations and increased volatility that will take time to run down. 

Jhe traders wanted to reduce exposure to HY short po~jtion they had but market liquidity and 

perc.eptions (due to AMR and Kodak BK's plus LTRQtwere such that many participants had 

s,!-me view and suffic.ient liquidity was not available to reduce the short. So traqers modeled 

other indices based upon historical correlations and detenniued the best course of actio.Q..~..1Q 

buy 1G indices. Ina Drcw notcd that the old HY synthetic hedge moved in line with the AFS 

portfolio prior to these changes being made. John Hogan noted that the firm underestimated the 

risks and_that they would exit the strategy and never reenter it, 

~A.riving issue a.Qgrr.ID!lg to DQ1!£..J2IJl..1mstcin is the size of the 'p-ositiQ.l1, Bcea@.£-ofthe size 

f!!!Yilisloeation is magnified and the ability to exit is hampered, 

The CIa global credit 10% credit spread widening (CSW) limit was breached on March 22, 

2012. At that time CIO Ina Drew suspended active trading in tbe instruments and began looking 

more closely at the drivers of the ongoing limit exception. At first it was thought by the CIa 

traders that the excess was due to market dislocations that would mean revert; bowever, by the 

last week of April it was apparent-after further analysis by others within JPMC that there were 

fundamental problems with the portfolio. Further increases to this portfolio as seen in the 

reports were not from new trades but rather from the convexity of the positions manY..Qf...wllli;h 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORl\1ATION 

OCC-SPI-00022000 
2192 

behave like near or at the money options. Further widening of spreads will exaggerate this 

problem' conversely spread narrowing will assist them in derisking. 

At this time, Risk Management has control ofthe synthetic credit portfolio, which will be wound 

down. \\-'hUe the portfolio does have symmetrical risks, JPMC managers are actively reducing 

the exposure instead of sitting on it to see if the market will turn around. Ashley Bacon is 

leading the efforts to actively reduce the 10% CSW exposure by July 4th. Currently, managers 

are meeting twice daily seven days a week to update and control this process. Two other aspects 

to winding down the pOltfolio are managing the risks after significant short positions matW'e in 

late December and managing the remaining longer-term positions. Ultimate resolution of tbe 

portfolio will take a long time, and there is a possibility of billions more in losses. The glide 

~of derisking entails three prongs. First the derisking of delta (10% CSW) second deciding 

what to do with HY shorts expiring in Dec' third more long dated issues related to illiquid risks 

that they can't do much about. May be more liquidity reserves as a result. 

Risk management has assembled six risk categories for the synthetic portfolio and is stressing 

each of them There is a risk that the portfolio could lose $2B from here~but these numbers are 

evolving as risk management better undersJands the position and as risks are unwound. 

M.<rrlcs of the previous positions were within tolerances. Reserv_cs were taken according to 

Qlk:ics in place in January. These reserv~.;L.were for liquiditY...1!n.d totaled S30MM. The bank 

has sinee added S150MM to those res~ 

JPMC managers seem likely to "take a breather" in their market efforts after tomorrow's 10-Q 

filing announces the situation to give the markets time to adjust to the news and any effects to 

settle down. 

A review of the situation is ongoing. To date identified issues include the fonowing. Tbere was 

poor construction and execution of the hedge reduction strategy, whicb added to the complexity 

and size of the position. There was over reliance on historical market relationships, which 

resulted in excessive price movements wben implied correlations increased, There was 

miscalculation of market and valuation dynamics. There were insufficiently granular limits for 

the synthetic credit hook, particularly a lack of notional limits. It took too long to fuUy 

understand the portfolio risks and escalate problems. Finally, the current market environment for 

these instruments has magnified mistakes. 

In addition to Risk Management's active efforts to rcduce tbe portfolio's risk positions and 

ultimately wind it dov.rn as previously described, JPMC bas begun taking actions to prevent a 

similar situation. More granular limits have been put into place. The valuation, control, 

compliance, and reporting framework hasY£ been tightened, and is undergoing furtber review to 

strcngthen firmwidc. An internal audit to assess risk managcmcnt processes and financial 

reporting for CIO mark-to-market books is underway. 

JPMC attendees 

Chief Financial Officer Doug Braunstein 

General Counsel Stephen Cutler 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-00022001 
2193 

Chief Investment Officer Ina Drew 

Chier Risk Officer John Hogan 

EVP Corporate & Regulatory AffuirsBarry Zubrow (telephone) 

oce attendees 

Scott Waterhouse, Fred Crumlish, James Hohl, Mike Kirk (telephone) 

Fed attendees 

Dianne Dobbeck, Anna, the olher guy 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFOR\1ATION 

OCC-SPI-00022002 
2194 

From: 

To: 

cc: 

Sent: 

Subject: 

Welch, Robert 

<Crumlist'l, Fred:>;<Berg, Jaymin:> 

<Swank. Todd>;<Atk.lns, Glenn" 

219120122:32:29 PM 

RE: Investment Portfolio AQ Comment for the CA 

SOlUUS ~rCill. I'll edit and iltse" til:: COll1Jl""Clll inlo Ihe AQ section 

Thallk.<; to al!. 

-""-"Origllla! tvlcssnge~---" 

From: Cmmlisit Fred 

Sent Thlll'sdll\'. Fcbmuy 119. 20 t2 !}J I AM 

To: Welcll. Rouen: Ber~ jOl)mill 

Cc: Swmd-:. Todd; Atkins. Glellll 

S\ll~jce{; RE: lll\·eSlln.::!~ f1ortrolio ,&,Q Commen! for til: CA 

Let's Cil!! flln,·stm..'u! portfolio quality SOQug ill Uk';: credit ms. 

CIa is ll\(.' I:msilK:SS Hili\. wI all JPM. JPMCB is what is booked ill tic bank. CJOaiso lias sollle priY!l1c eqllil)' and OtJlef n:JIlbnllkeHgibtc 

lhit'@'. Ja~lJliu or Jam~s Holl! cHnclml(y Ins! yenrs muriJer. but I \\onlda'! \\"Orry nuolll in::llIuill,g il in the RAS. Agree we c:1ll5<lyil's less lhall 

l~jl 

"¥~ [(you h:m.~ received this rrcssag,e in error. please delel':: tle originalllnd all copies. lind 1lotifY the scuder il1JUcciiately, Feder.tllo.w 

prohibits Ilc disclosnre or olber usc: oflhis infonnltiolL *<u 

---·-Origilla! tl:Ie!>"'lgC·----

From: \Vcldt Robert 

SClt: ThlU·sda~·. Fclmmy 09, 2()!2 8:29 AM 

To: Cnllnlish. Fred: Berg. .lnymin 

Cc: SWHlIk. Todd: Aikins. Glenn 

Subjt:Cl: RE: 1m e"IIlCli PIJr\folilJ AQ Commcl!! for lie CA 

__ =: Rtdacte:d by the: Pennflnent 

Subcommitte:r: on Invesligations 

Ok. Jere are the qll;lr!crly classified security figures fromFD starling IcIt to righl wi ~QIO~,.jQll. 

OllefASSCls."SeCllrilicS('B'OfRorse.or'NR') _ 

Olh..'r Assds-Sccuritics ('D') _ 

Say $2.78 of!!1C "ponfolio" is below IG :: <1%,. 

Jmt a poin1 of clarification for m:::. U1S! YCiIr'S comncill rcfen:nccd a $312B CIO ponfoiio and also rcfcrt:Hccd tl~ JPMCB portfolio of SJ(17B 

- (lnIV SJ5--1B/. I dOli! kno\\' \dl:lt lIe difference is. 

llle beJow IG figure las! year was rc!alh'c to the CIO ponfoiio (bUr) not UI:: JPlvlCB. en 

GI~lUl. ! cau do Ihe ell! mlcl pH:)I!.!. Let Ill..' hJJOI\. 

ll~lI\ks Jaymht'Frcd. 

-----Originall\.·lessage----

front Cnnnlish. Fred 

S~l't: ThHfScl:IY. Fcbnmy Ot). 20127:50 AroA 

To: Berg. J,lYlIllll 

Cc: S\\·:\I\];, Todd: Welch. Robert 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFOfu'vlATION 

OCC-SP1-00022350 
2195 

Su~iecl: RE: hlVestll'eli PoI1folio AQ CommenL for tIk:: CA 

TIwOCs Jayrnill Can \\ e say credit quality is "strong" 

Bob ~ If you have the latest fast data, we call put in tbe percentage classified / criticized, 

·apc 

*** Ifwuhave received this n-rssage in error, please delete the original an::! all copies, arrl notifj: the sender innrrdiateiy. Federal law 

prohibilS Il~ disclostue or ot1~r use Oflhis infonmlioll. '** 

-Mw·Origif1(li Mess<'lge~.~-­

From: Berg. Jaymin 

Sea: Wedresday. February O~, 2011 5:43 PM 

To: CJUlIllish, F~ed • 

Cc: Swark Todd 

Stlbject: RE: hlVestrrert Portfolio AQ Commenl.for tlr CA 

Hcre's a paragraph Jet n-r kn:w,' ifyouhayc queStiollS/C01lUl-el1s. 

TIle credit gllali!} of the in .... estnrnl portfolio is satisfactory. TIle ltr.'csl.l1rm portfolio gren' by 15% to $354 billion year over year, 'Th:: 

portfolio is comprised of 36 perceri US goyennrent and agerry securities, while Ire remain:1er is prhmrily in non-ageocy MBS/CMBS alu 

foreign debt securities, The represernation of US Agen:y all:1 Treasury securities has decreased from 45% in Ill! prior year due to Ik ero' s 

fOCllS onpufcbasiug uon~gO\errlIl~lll!ageu::); debt. Low interest rate:. a.ud prepa)urul risk have led Llem to opporllHlistically look to oLkr 

asset classes for hn'cstJnenl pnrc113ses during (be year. l1r portfolio perfonmuce during 20 11 was good ani does oot indicate allY nmerjal 

credit issues ill tlr i[lvesllrenr portfolio. At year em tle lm'eshnent portfolio.bas $5,5 billion in positi,'e otb::r COIIqJrerellSive iOCOlll!. During 

2011, fie portfolio rook $70 mi1Hotl in other than tenlJof'dry inllainrelll (OITI) ,\'rire dow us:. which is the equivalent to .02% of tle portfolio. 

Front CnulIlish. Fred 

Sell: Wedllcsda}, February 08, 2012 1:3..1, PM 

To: Berg. Jaymin 

Cc: S\~aIlk. Todd 

Subject: RE: bl'.'estrrert Portfolio AQ Comrrenr for tre CA 

Well, Ijnstsearded last year's core, alIi tir:rewas llOthlngthere· so perhaps we were edited out as a rowldillgerror last year, ICDpied 

Todd in case 1 missed it. 

Getting this to Ire before )UU leu\ e London would be 'alrad" of mr heigittened e>.pectatlons .. 

*** Jfyou have received this nessage in error. please delete th! original ard all copies. am notifY tle sender hmrediately, Federal law 

prohibits the disclosnre or other me of this infol1fl1llion ,.** 

From; Berg. Jaymin 

Seri: Wednesdav. Febmarv 08, 20121:22 PM 

To: Cnunlish, F~ed . 

SUbject: Re: hl\'estlrerli Portfolio AQ Corrnneri for the CA 

Will tl)' ani work on it before I leave lOniOllSO probabl)- tonight or jammu,," night? 

Do you have last year's aq section by aflY charce tl~t )'Oll could send? 

From Cnmllish. Fred 

Sen: Wedlrsdny. Febmary 08, lOl2 01:19 PM 

To: Berg. Jaymin 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SP]·0002235! 
2196 

St~ieCl: RE: Iu\'es{nell Porlfolio AQ Commelll [or lIe CA 

You really dan', wantthe answer, [amgouJgto fall ontre S\yord so letrre know when you think you cando this by 

-"PC 

"'*'" [fyou 1'D\,c received lIlis llCSsagc iDerror. please delete IIlc original and all copies. and llOtif}"lIk; ~oocr innocdiatc!y, Fedcrnllaw 

prohibits Ire disclosure or other llse of this informatioll *** 

From: Berg. Jaymill 

Sen: Wednesday, Febmary08, 2012 12:52 PM 

To: Cmrnlish, Fred 

Cc:Holll, Jmres 

Subject Re: lIl\'estn-enl Portfolio AQ Comrrentfor the CA 

When do you need this? 

From Crumlish, Fred. 

Sen: Wednesday, Febmary 08, 201212:51 PM 

To: Bcrg. Jnymill 

Cc:Hohl,Jam:::s 

Sllbject: FW: Il1I'estnK:!l1l: Ponfolio AQ COIl1Jrel1/:for the CA 

I always forget about this, We need a short blurb, 

~ llpe 

"'** If you have received this m:ssage in error, please delete the original aM all copies. and ooti(v fhi! sender irnrn::diately, Federal1a\'Il 

prohibits til! disclosrrre or other use oftllis inforrmtion. *'11* 

Front Welch. Robert 

Sell: Wed.uesda), FebmaIy08, 201210:-1--1 AM 

To: CnunHsh. Fred 

Slwject: Itl\'estllli!nl Ponfolio AQ Couuren! for tJ.e CA 

Hi Fred, "as James or SOIOCOn;! else onrOllr team going to be able to dmft a short blurb on In\', Port, qmlity for the AQ scctionofthe Core 

Assessrrellt tlus year? 

'TIJanks,Bob 

BANK PROPRlET ARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00022352 
2197 

From: 

To: 

cc: 

Sent: 

Sllbject: 

Attachments: 

Hi Scott 

Wong, Elwyn 

Waterhouse, Scott; Kirk, Mike: CrumIish, Fred 

I-tJhl, James 

5/16/20128:24:13 PM 

CS01 

1~DIBlmage.bmp 

Given Inw little the Bank has provided us 'Nith concrete metrics, my current understarding is the $50 mil Venkat 

mentioned going to $38 mil yesterday and $34 mil today is the "un-beta adjusted" rurnber - the equvalent of the 

-$46.13 rumber then (this is from the Powerpointthey provided to you) 

If true. it is very meaningfLJ. The Achilles heel (no pun intended) was their old analysis showed short HY (+8.51 CS01)) 

when mapped to IG can have a short eqLJvalent of +42.55 CS01, making them, when beta adjusted, nat that long 

credit risk. As a matter of fact, they were almost "square" at ~$4.31 

But then again it could be an overshoot the other way, if indeed HY reverts back to some of their old relation to IGtheir problem is a huge basis problem. 

Elwyn 

From: Waterhouse/ Scott 

Sent; Wednesday, May 16, 2012 4:09 PM 

To: Wong, Elwyn; Kirk, Mike; Crumlish, Fred 

Cc: Hohl, James 

Subject: RE: Raw minutes from 5/16 00 call 

A couple of adds on the names. Question to all of youwith knowledge, when Venkat said that CS was down from $50 

to $34, how meaningful is that? I.e., how much smoothing (basis, tenor, etc.) goes into that number. jf any? 

From: Wong, Elwyn 

Sent: Wednesday, May 16, 2012 2:59 PM 

To: Kirk, Mike; Waterhouse, Scott; Crumlish, Fred 

Cc: Hohl/ James 

Subject: RE: Raw minutes from 5/16 00 call 

From: Kirk, Mike 

Sent: Wednesday, May 16, 2012 2:43 PM 

To: Waterhouse, Scott; Crumlish, Fred 

Ce: Hohl, James; Wong, Elwyn 

Subject: Raw minutes from 5/16 CIO call 

First half of meeting onty. Not present for second meeting. 

James and Etwyn, if you can correct any errors that may have made it would be greatly appreciated. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI·00023929 
2198 

Regards, 

Mike 

Daily cia update 

Bank: Matt lames, John Hogan, Ashley Bacon, Chetan Bhargiri, Marie Nourie, Greg 

Gunselman7, Diane Genova, Venkat (Venkatakrishnan) 

OCC: Scott Waterhouse, Fred Crumlish, James Hohl, Elwyn Wong, Mike Kirk 

FRBNY: Diane Dobbeck, Marie Davis, Mike 7, 

FDIC: am Arya, John Granis 

FSA: Jim 7 and other representatives unknown. 

P&L data: Still working on report with information that has been requested. Should be 

shortly. Can provide report with P&L numbers starting tomorrow. P&L and Risk combo with 

explain will come shortly. 

Will deliver daily P&L from Jan 1 will be delivered by week end. 

P&L on T+l with explains are possible. T is more challenging, blc NY closes at 7PM. 

Trader estimates and verbal P&L can be given daily. 

Monday loss $328.5MM, Tues loss of $76.4MM 

Today's P&L and Market color: 

P&L today ups $45MM. IG 9 out-performed against on the run (otr) and theoretical 

basket by about 1 bp which explains all P&L Reassuring blc IG 9 has been 

underperforming. 

HY and IG did very little, tranche very insignificant. 

Credit indices closed wider by 2 in Europe and 1.5bps in US. 

AM bot $5B of 5 year (otr) Itraxx protection (the main index). 

PM bot some HY risk in US. 

CS01 is now from a peak of $50 mil to $34mil (so yesterday's note should read $38 

mil instead of $28 mil) 

CSD1 measure started at $5DMM with today's trades down to $34MM. 

IG 9 1 D year vs. theoretical basket is 7bps rich to basket (-7b to basket). 

Collateral: As of Tues, still at $152MM. Across all counterparties except Deutsche Bank 

(DB) have dropped significantly, but DB has some issues with new trades with ITraxx 17. If 

DB is wrong number comes down significantly. Morgan Stanley (MS) collateral differences 

is now only $7MM. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-00023930 
2199 

Valuations to Markit and marks are fairly tight swinging around $25MM. 

Spreads used for tranches the results are reasonable to IB Marks. 

Collateral is paid/Rec in cash (Euro/USD), all counter parties (cp's) have option to 

exchange Treasuries but mostly done in cash so far Table will be provided with CSA 

options for each CP. 

No new information on ICE collateral questions. 

Updates on follow ups: 

P&L items. Committed to report snapshot for T+l tomorrow; including FSA. Plus oral 

statement of T p&L 

P&L back to Jan 1, due Friday of this week 

P&L Explain + risk metrics report will be end of week this week, at latest. Risk metrics 

bank uses to manage the book. Bank has this information in variety offorms and Matt 

and his team wants to clean up and give to FRBNY. Bank will give what they have 

today to manage the book to the regulators today. 

Basel update will walk regulators to all components of market risk by end of this 

week. 

CCAR FRBNY has received projections of income. Matt and team are working on risk 

glide path. Matt wants to look at worst day all the way thru crisis, at numerous 

confidence intervals, and the glide path will be based upon this. Matt will walk FRBNY 

thru this by Friday. 

Provide CCAR risk factors by Friday of this week. 

CIO AFS portfolio liquid asset buffer by asset class. 

o Chetan will send what he has now, can send complete list tomorrow. 

Loss to exit portfOlio: Matt not comfortable with that number until knows what 

aggregate stress was to the worst day. Can't answer cost to get out today until sees 

stress numbers. 

Legal entity P&L explain: Whitefriars. Impacts upon capital on LE. Will give to us 

tomorrow. Will depend somewhat upon capital stress work in progress. 

Limit review: Will be tomorrow. 

Risk Reduction Glide path: 

Immediate objection is to remove directionality. Buying back risk for OTR IG index. 

Long way from achieving, making some progress on 10% CSW (about 40MM so far 

from $209mil yesterday(?). 

Think 10% CSW number is fairly accurate. Certain that they need to be selling some 

every day to reduce risks every day. As Delta is removed will need to get more exact, 

but a while 011 from that. 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION OCC-SPI-00023931 
2200 

John Hogan committed to giving the regulators what the bank has today to us today, with 

appropriate caveats until mgt can scrub it. 

Bank has collected a list of all dealers and hedge funds that have come back to JPM with 

axes; some match JPMC's book some don't. Levels are away from mid market. The original 

risk it is possible that the other side is out there; so more optimistic, but have not 

consummated a deal. 

Mike Kirk 

Cap~al Markets Examiner 

Large Bank Supervision 

Phone: 212 B99-1383 

Fax; 301 433-9209 

Thi~ ~~sQge is illfended fDr deslgnamd recipients "tJly. If you have received this mcrssoge in error, please delete 

the "riginal and 01/ copies ond flO'flfy the 5ender immedlate/y. Federal/ow prohibits the diSl:/C'SUn: or "titer use of 

this Information. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-00023932 
2201 

From: 

To: 

Sent: 

Subject: 

Hohl, James 

Crumlish, Fred; Wong, Elvvyn; Kirk, Mike; Vl.Gterhouse, Scott 

5/14/20127:48;05 PM 

RE: May 14 minutes 

Bank: Mike cavanagh, John Hogan, Ashley Bacon, Chetan Bhargiri, Matt Zames, Diane Gerlova 

OCC; Scott Waterhouse Fred Crumlish, James f-bhl, Elwyn Wong, Mike Kirk 

Fed and FDIC 

... V\lhHe JPMC has made and continues to make significant changes to CiO managers and is using fll1ThVlde resources to address 

issues in synthetic credit portfofio, the MTM losses continue with a $330MM loss today . 

... New Chief Investment Officer Zames is reviewing aU CIO investmenls to assess future actions. Ashley Bacon is leading efforts 

to reduce risks from credit derivatives. 

* Mike Cavanaugh is leading a review of what happened to stren;;Jthen controls. 

'" Bankers are addressing regulators questions and will provide updates daily at 2 p.m. 

P&L today ·330MM; directional70mm; compression high yield \oS high grade ·120; series 9 -$100 similar to Friday. Part of loss 

from weakening after Friday's London close to NY Close. 

All trades booked with JPMC Bank London Branch facing 3rd parties, then back·to~back with VVhitefriars which is a sub of a oold 

co of Reg-K subs to manage risk; the hold co in turn owned by JPMC Bank. Has to do so because Bank couldn't hold HY 

OCC would like a document for each day for P&L and P&L explain dashboard and material positIon changes. 

New trades: Sold COX OTR that reduced 1 OCSW risk by $25MM, still working on this. Risk reduction glide path is lDlchanged 

today. Key focus is on risk directionality at the moment. Once this gets in line wi!! focus on trying to find other side of the trades. 

Some information that the client franchise can help find the other side (end user). Market making busiilesses and market !iquid~y 

do not have enough capacity to get JPMC out of the trades, will need assistance from other side of the trades. Not sure what 

market levels will have to be for mar1<et driven appetite of the other sides of these trades to appear. 

Wide B/O Friday, less today with little trading. Market is testing to see what JPMC will do. Expect BiO to continue narrowing; 

however, markets remain !!koely to move against JPMC. 

Looking at AFS book now to identify if there are any securities they ~don't like" and may sell. Will know more next week. 

Bank win pro\4de an estimate of how AFS sales can cover the synthetic credit portfolio tosses. Regulators want to know the 

effect of changes of the AFS portfolio on the liquidity buffer, 

Think market should have reasons to unwind trades blc JPMC losses are someone's gains so are "hopeful" that can be ability to 

unwind with counterparts 

Capital and RWA numbers will be provided in a few days once glide path of portfolio is determined. Bank is managing to 83. 

RWA on the portfolio is increasing at this time. Using market risk rule on the derivatives (bank wi!! confirm). Bank will provide 

projections of these numbers. 

FRBNY wants to know how the RWA is estimated as they understand models are being workoed on. Ashley Bacon wHl follow up. 

In process of identifying the amount of risk the bank is willing to hold. Trying to be prudent on how much they spend to ufi'Nind. 

Being cautious until dusl settles before decidill9 how much to ul1'Nind because market is reacting to the news. 

IG9 and S9 market prices adjusting to news of JPM and reaction to what they or may not do. Tranche market not running away 

from them thougt1. 

Conateral disputes: Nothing dramatic 1oday. As of COB Friday, $69MM outstanding difference. Flat to prior day. Some 

improvement with MS. At one time widest collateral disputes were $690MM. Morgan Stanley difference was once in excess of 

$120MM. The largest difference was around mid April. 

Improvement was driven by Bank changed their view of the value of the collateral. At the time of original valuation, the bank 

thought the book. was valued correctly, but have changed their view and have agreed 10 counter party levels. 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION OCC·SP]·00025835 
2202 

Part of valuation differences in USD products is due to timirg of NY and LDN close. Current MarklT valuations dosed recently. 

Currently widened to $50MM due to difference in timing between NY and london. 

Synthetic credit book is booked in bank branch in london; risk ~ migrated to JPM Vllhitefriars. VvtIitefriars is a bonk sub, under 

holding company sub created for all Reg K subs held under JPMCB NA. 

P&L in bank is more likely to be flat, most P&L should be in Whttefriars but JPMC will confirm. 

High grade IS booked in same place for risk mgt purposes so book is all in one place. 

Shrek is a deal booking tool. 

Tomorrow bank will walk us thru the operational aspects of the trade for legal booking etc. 

Operational aspects: 7B% of ICE eligible trades are through ICE. Clearings sent weekly; will send tomorrow and expect back 

over BO% when done this week. $73B are eligible, $63B are ineligible (don't clear tranches and some of older indices). 

Bank briefed FSA again today. description of timeline of events. FSA had similar qs that US regulators have. 

One resignation in london MO, getting some help from NY to assISt both MO and technology. Very much engaged with IB for 

knowledge and systems solutions. 

CIO wilt have new CFO, very soon (Marie Nourie). Announcement will be later tOday. Ian Green (for expertise) is embedded with 

Ashley Bacon looking at CIO. Chetan Bharglri named CRO for CIO reporting to Hogan. 

Ashley Bacon will run risk in CIO day to day reporting to Zames, wi!! make decisions on RWA on day to day, gathering group of 

individuals 10 figure out what went wrong and how to do it better. 

Bank wiU provide a CCAR analysis of the synthetic portfolio. 

Don't expect other issues in the rest of CIO. This is largest mark to market portfolio in CIO. ClO book is all very high grade. 

FoUO'N ups: 

1. How much will it cost to get out today under reasonable assumptions (Bacon)? 

2. AFS inventory today and history; and strategies for offsetting strategies (Bharglri)? 

3. How (2) affects liquidity buffer (Tony working fOf Chetan Bhargiri) 

4. P&L Explain (Bacon) and recaps on position (new trades on day). On T basis (based on trader estimate, and will provide info 

on slippage on T+1 

5, Where pal is booked? 

6. B3 Rwo, for Synthetic Book and confidence of estimate (Norrey and Bhargiri) 

7. Market Rule for B1. 

B. Stress testing framework, how thinking of risks. Set of defined situaljons on how look at book. Close to CCAR scenario, am 

other bad and plausible scenarios (Hogan). 

9. Operational Aspects of the portfolio (Phil). 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-00025836 
2203 

From: 

To: 

Sent: 

SUbject: 

Crumlish, Fred 

Waterhouse, Scott 

5/31/20129;45;08 PM 

Re: QA 

No. He spoke of aspacts directly impacting me but he may tell you more. Actually I had no 

surprises .. 

Said we could have been more aggressive on mra followup. I concurred, ':lave him my thought 

process. 

Said we could explore "outsize" gains more, (Amr gain) as it may have indicated sOIDathing to 

raise suspicions, 

USE' comparable process for r:omp risks (us and bank) in my r:ase I t.old I said I should have had 

mikE' or E'h,,.yn more involved. 

vias pleaspri with var paper trail and confirm jairam got. 

Pra~sed wisdm use 

Said he couldn't tell if we could have caught this,I said time will tell as we seek more, 

-apc 

ace 

202-439-3938 

This message is intended for designated recipients only. If you have received this message in 

error, please delete the original and all copies, and notify t:he sender immediately, Federal 

law prohibits the disclosure or other use of this information. 

----- Original Message -----

From: Waterhouse, Scott 

Sent: Thursday, Hay 31, 2012 05:36 PM 

To: Crumlish, Fred 

Subject: QJ>.. 

Anything surprising from Hike? 

sent from my BlackBerry Wireless Handheld 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC·SP[·00026410 
2204 

Chief Investment Office 

Presentation to the Directors Risk Policy Committee 

September 2010 

Ina Drew, Chief Investment 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-00032575 
2205 

Mandate and Approach 

KEY MANDATE: Optimize and protect the Firm's balance sheet from potential losses, 

and create and preserve economic value over the longer-term. 

SHORif'R 

Longer-term Investing 

Priv Retirem Special ;;;:;:~L 

ate ent Investm 

Equi Plan ents m:~;~;; 

ty 

Oversight Managem tnvestme ;:q 

of legacy ant of US nt in l':·;;·:li'r:;m·· 

investme defined stressed ';;";~·m;;;; 

nts and benefit eod 

select pension distresse 

"'w investment d '";·:::i ;:i:; 

opportuni sand opportumt 

stic '" ;:,',; 

investme related to 

et, undef'Ja!u 

edor 

underperformin 

gJPMC 

$4bn $11bn loans TBo :U;;:·:: AUM AUM ·::;,,:i,;· 

Position !nV8stm Group AUocatlon 

mrun- entstn 'n ofvo!atile 

off Fixed formatio componen 

mode income, n-slZe tin 

YTO PE Equities, 'ed mortgage/ 

gains & scope high 

$400m Atternati under grade 

YO, credit 

Projec1e Fcst d return Income: 11% $280mm 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPI-00032576 
2206 

Tactical Positioning 

• CIO positions tactically to complement the core investment portfolio, 

• One example is a synthetic (or derivative) credit position established in 2008 to protect 

the Firm from the anticipated impact of a deteriorating credit environment 

• As credit spreads widened, CIO adjusted the position to capture value as credit 

markets stabilized, 

• These positions reached a maximum 95% VaR of $130mm in early 2009, and have 

since been de-risked to a current VaR level of approximately $50mm, with some further 

risk reduction anticipated. 

• Tactical credit strategies have contributed approximately $2, Bbn in economic value 

from inception, with an average annualized RoE of 100%. 

BANK PROPRlETARY AND/OR TRADE SECRET 

INFORMATION 

95%VaR 

OCC-SPI.00032580 
2207 

Earnings 

• CIO's expertise and product suite have been developed and expanded to 

produce absolute returns through all business cycles. 

• Some volatility of earnings should be expected throughout cycles, 

particularly at extremes. 

• Very low expense base of approximately $300mm, coupled with high 

returns, produces overhead ratios that range from 3% - 10%. 

Total Revenues (in millions) 9,312 

10000 

9000 

8000 

7000 

6000 

5000 

4000 

3000 

2000 

1000 

o 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC-SPJ-0003258J 
2208 

Regulatory Reform 

• CIO activities are not expected to be significantly impacted by Financial 

Regulatory Reform. 

• CIO does not maintain "trading accounts" as defined by Volcker rule: 

o Intent is not to buy and sell to benefit from short-term price 

movements. 

o Activities are restricted to transactions that are clearly and 

transparently associated with the Firm's underlying structural risks, 

and all activities are documented as such. 

• Private equity investing will be impacted: 

o EXisting investments were planned to roll-off prior to effective date of 

the rules in any case. 

o New investments in Private Equity will most likely not be permitted in 

CIO. 

o Retirement Plan investments in private equity and hedge funds are 

expected to be excluded from restrictions. 

• Engaging in preliminary discussions with regulators, in coordination with 

Firm-wide regulatory refonm working group. 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION OCC-SPI-00032582 
2209 

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BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 

__ ... Redacted by the Permanent 

Subtommittee on InvelltigltiOllS 

OCC-S
Chief Investment Office Financial Supplement [Management Viewy 

Tot.",! MTM 

BA!\K PROPRIETARY ANDiOR TRADE SECRET fNFORMATION 
CIO Financial Income - December YTD Actuals 

·"""1"';;""': 

,i';'; 

.. :·:Th; 

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BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 
2213 
Historical Trends 

Economic Peoormal\oo Summary 

__ 

"" Redacted by the Penn"nent 

Subcommittee on Investigations 

. r 

(600,0)-

042010 

• 

Redacted by the 

Permanent Subcommittee on Investigations 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION OCC·S
CIO Balance Sheet - Regional View 

as of December 31st, 2011 

Balance Sheet - Spot Balances (3rd Party) 

(in $ Billions) 

Balance Sheet - BI RWA Balances 

(in S Billions) 

__ 

== Redacted by the Permanent 

Subcommittee on Inve.!ltigation!l 

North America E,urope Asfa CRP Total 

•• i!i'lWktlO';' 

TradingAccountSecurfties 3.6' 14.3 1.8 1.4 21.2 

Cash & Due from Banks 

Balance Sheet - Bill RWA Balances 

(In S Billion,) 

BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION 

10 

OCC-
2216 
CIO Balance SheeURWA 

QUBrlur2 Foreca3fas of5lQ9/Z012 

"N"ortt."ArN,ii<:i .... 

Muns 

Agency CMOs. AAMs a Family 

CorrpBondsil"crnlgnGovBond<;. 

WhoioLoon 

CMas. 

AlIel'lOieS/Tmasurles 

NooAgeooy Prime 3. AL T -A 

fox 

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OlO 

Europe 

UKPnme 

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Du!ehPrnne 

CLO 

HGM 

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MTMO"",rfay' 

InternatkmalRale!ilFX 

Synl/le!wCcocllt 

SaeUll!dCledit 

Fixedl 

__ "_ 

--"-jS:"-" 

U.2 0.7 

7Jj 72 

0.0 143.6 

56 .U 

'.2 

_ •. 

Yield' "" 

BANK PROPRlETARY AND/OR TRADE SECRET INFORMATION 

AVe$p"'adi 

'-' ,bo RWA< RWA NetYi"W Rau(;ep' RegCap' InlTVTl 

Redacted by the 

Permanent Subcommittee on Investigations 

1101.,., 

t':ierf"i:fives 

- ".-- b v." « I""din!! "<»t>. 

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OCC·S
2218 

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2219 

Leva. 1 

2012 CA QUARTERLY SUMMARY 

Global Chief Investment Office First Quarter CA summary 

1st Quarter 

ChleflnveslntontOlfioe AMT HetzapoutlJS, Afexander X 

~~-_£!Q.._-. -----... ---"--~--. MQManu,. WilHam K 

QUARTER STATUS Approyad 

, North Amertc;a 

. CIO conUnue5 to managE portlanD posItions wUh 'SignlRcanl oonsidera:Uon of Basel 111 Capital requirements. resolution and recovery impacts, liquidity risk, 8S wall as, enhancing and building aut portfoDo enalytlcs for the structurel mlset IdloCBtion procss$. 

Uqufdity Risk Inrt.:lstructuFa: 

TreaSlH)' - Jed initiative to buiki comprehen5iv8 firm-vide liquidity risk infrastructure 

CIO engaged In reviewing business requirement and da'la sourcin,U definitions and 2012 planning 

1 OltreJentlal Dlsoountlng: 

Implemented successfully in Q4 2012 for Equities in Pyramid end aU Rxed Income Products. 

GlC Compotltiw Bidding Pf0C8SB: 

! Firm ~ .... de inlt/allve t08sseSS fisk and relaied framework by proQuct and region 

SUbmitted formal aSSEl$sment identifytng bUSiness tine5 Within the- Bank that engage in competitive bidding transactloos 

CUrrently looking at consistency of controls across the fill1l 

~ 

: Volok£l( Rule: 

cIa currently revlewing draft of rule recently released for comment period. 

Technology design tQtag trades in accordance ~1h mapping documents cOmpleted. Final build-out pending final rufe release. 

Continued empha5is on conduding risk management 8Ctiyiti05 that are cleaIly related to. underlying flfm lMde structurel risks. 

: Assessing MTM treding activity (# of trades, tetal nctiona1) relaliYe to underlying structural risk. 

Redacted by Ihe 

Permanenl Subcommittee on Investigations 

BANK PROPRIETARY ANDIOR TRADE SECRET INFORMATION OCC-SPI-000336S8 
2220 

Redacted by the 

Permanent Subcommittee on Investigations .I 

APPIA ABS/CLO Mtgmtfan 

In January 2012, the CIO's intemaUonet credit portfolio of Asset Backed Securities (ASS) and Collateralized Loan Obligations (etC) 

W'itre -succeSSfully migrated from tB owned applications (Concords and ISIS) to the APPIA platform. Approximately 1,600 trades wtth 

$1Q1.9bn original notional were migrated in iotal. In November and OBcBmber 2011 an initial migration of 38 ASS and etO positlons 

was performed to e.S$6SS readiness for the fun migration In January and CIO Finance mon!tored the trades as part 01 BAU 

month-end and year-end processes. Audit performed a detailed review of the var10ltS aspects of this mIgration and issued a 

Satisfactory audit repor1 in March, with no reportable issues noted. 

!!!lA 

Key HBlAs· Asia 

Regul.atary updates: 

; TRhnCllogy projects update:-

: 1. APPfA m/gnrtion project pertains tQ two sets of products.: (a) Swaps end F&O and (b) Fixed Income Sec\'lfiti~s and Rape. 

• Swaps and F&O-AJ1 complete. 

• A Sec and Rapo Phase 1 and 2- Migrations hedb6en completed, 

• FI Sec and Repo Phase 3 (Japan, Austrelilil, New Zealand, Philippines, Korea and Indonesia) - Migfation completed for 

: 2. ~;:~~~!~~!;; ~~: ~~e::~ ~ ~~!e:::~~~~~~r;:d:~~ ~~~~~~ ~=~ (front office tOo back office). The migration approach was confirmed. Revised migrating tlmeline is listed as below. 

• Phase 1 - Sapt 2012 for BangkOk. Manna. Seoul, CtJ;ina'& Vietnam 

• PtJ;ase 2 - Mar 2013 !'or Japan end Singapore 

i 3. AUmr:a~e,:".U:; :~::t ~~:;~~=~~n':;~~:~;~~ ;~:::~~~ ~:r~":~ FX migration end target to t:ommunieate the 

onboarding schedule in late Aprtl. 

! CIO Technology: 

L From til project pe:rspedi've. the APPIA project (to migrate trades: ort of Ie systems on to a 'Suite of CIO owned systems) l$ making 

good progress. No significant iss;ues were faisad by Audit in 01. Some of the key accomplishments in 01 indude: EMEA ABS/CLQ 

Phase2 Migration (1124/2012); CoreiAPPIA In!egratfon for 'T8A's & Spacifiad Pools (31212012): and Asia Securllfes Migration Phase 

BANK PROPRIETARY ANDIDR TRADE SECRET 

INFORMATION OCC·SPI-00033689 
2221 

3 (3/161'2012). Key in-flight projects include North America Toronto Branch Swaps and Securities Migration (plan for May) and 

CORE lAP PIA Migration (Working on on~board[ng remaining securities in CORE onto APPIA). From a production support 

perspective, the Business Process Index (BPI), which is used to measure the availability of the cia apphcations, remains stable at 

the 99% leve!. In February, EMEA Shrek was down less than an hour due to DB log issue. In March DB outages occurred after a 

long-funning stored procedure fined the DB transaction logs. Stored procedure has been optimized, weekend purge jobs 

restructured, and DB re-indexing jobs now scheduled to run earlier for longer duration. From a riSK and control perspective, CORE, 

Shrek, TEA, Primus and Poplar are in scope for sox testing. CIO Technology is on target to meet the firm-wide targets of 35% by 

June 15th. 

North America: 

Market Risk Limit5 and Tota! Retum and Trading Metrics summaries are reviewd by audit. In addition, weekly metncs for operations 

are monitored by audit. Weekly metrics consist of , P & L variances, cancel and amended trades, market limrts and transaction 

.... olume. No Significant issues noted in 01. Operational KPls and P&L are primarily monitored through the BeC process 

Chief Investment Office IljghHght5 01 2012' 

8M Portfolio 

The book value of the strategic Asset Allocation Portfolio decreased from $221 B 4Q2011 to $159B for 10 2012, 

Attributed to' 

Sales/Maturities of GermanlFrench/Canadian Government Securfties 

Sales of ABS Credit Card Positions 

Transfer of CLO's from EMEA to North America 

MIM Oyerlay p0rtf0liQ 

(Note thiS portfolio is 99% trading, 1% Held for Investment) 

MTM Overlay Portfolio Market Value for 10 2012 with a balance of $554M &40 2011 with a balance of $1,233B. 

The maiO drive oftl1e decrease In this portfolio quarter over quarter is' 

Increase in Short US Treasury & Foreign Government debt positions of {$490M} 

- Sales of CMBS positions of ($90M) 

Increase in the OCI balance from ($lAM) to (2.3M) is due to the sale of a Private RMBS position 

Corporate Retention Portfolio 

The book: value oftlle CRP Portfolio decreased from $2.78 40 2011 to $2.6B $102012 

No significant variances to note. 

Le .... eli CIO+MSR VAR Umit 

MSRVARLimit 

Leve! 2 MSR BPV Limit 

3/31{2012 

$145m 

$55m 

$4m 

Intemational Equity Vega (long only) 

only) 

12/31/2011 

$145m 

$90m 

15m 

$115m $11.5m (temporary limit increase for long 

International Equity Vega $4.5m $4.5m 

Flrmwide stress limit cha~ges. The CIO MTM ftmit was Increased to $1b!n and MTM positions in SM, FX capital Hedging and CRP 

are now incllJded in this Ilmit. 

BANK PROPRIETARY AND/OR TRADE SECRET 

ll'.'FORMATION 

OCC-SPI-00033690 
2222 

US Defined Pension and OPES Plans 

Redacted by the 

Permanent Subcommittee on Investigations 

North America 

Through CA adivlties, Audit tracks the entry of all audit issues and related action plans into Phoenix, monitors the progress through 

completion of action plans and subsequent closure of issuQ!s ir'l Phoenix. A monthly analysis of open action plans is prepared and 

(oJ!oy,' up with action plcln owners performed by C1udit before the end of each month. 

No new Issues or actIon plans have been added for thlS qvarter. 

There are 3 business ideniified IssuBs and action plans have been added for this quarter and 1 aelion plan where the target dale 

, has been extended to June 2012 from December Z011 . 

., GLRS Sl.lbst.1nti:.tion Roviow :Thero is Inadequate documentation of CIO EMEA substantiation procedures inc!, the 

methodology used to sUbstantlate each type of GL ale. Thus, GLRS SUbstantiation methods used by C!O EMEA personnel to be 

revlewl3d and documented and confirm appropriateness and consIstency. ii. Compare substantiation practices used by CIQ 

EMEA to CIO NA and CjO ASIA and address inconsistencies, as determined appropriate. iii. Evaluate the ownership of the 

substantiation resporlslbitiUes and deteml!ne whether any changes should be made, Action Plan due for completion on 31-May 

2012 

,., Modo! OocumDnt.1tion; Model documentation is required 01) SABR, Westend and PrimIJs CMT systems in ar;cordance Mod,"1 

Risk Poliey. EMEA CIO to facilitate Ihe overall Model Risk Managsme.nt process, ensuring updated model inventories and 

follow-up on required documentation, testing, and other requirements mandated by the CIO Model Risk Oversight Group. Action 

Pian due for compietion on 30 June 2012 . 

• Reconciliation 01 bonds set up In CIOWEB: Sands set up in ClOWES have theif Issuer SPN manually attached by whoever is 

setting up a bond and the incorrect SPN can be selected. This causes downstream risk to calculate incaneelly misstating the 

positions and risk of CtO. Currently one SPN needs to bo set up and mapped for every different ABS tranche that C!OEMEA 

pUfch"8se. The reason for thts was a system deficiency in JPM 18 that caused SPN to be used as a substitute for (SIN. It has 

now been agreed that CIOEMEA should now map;,11 ASS tranches from one ISSlier to one Issuer SPN. This 'Mil have the 

following benelits: 

i) Reduce the current number of Issuer SPNs from 941 10263 

ii)Elimirrate the need to request a neVi SPN with each lranche purchased 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMAnON 

OCC-SPI-DOD3369I 
2223 

iii)Greater accuracy in ASS to SPN mapping iv)The volume of SPNs previously created also meant that details entered on to the i SP~ record we~e often j~complate ~ the rationalisation of the ABS SPN process should allow more accurate records to be I mamtamed. Action Plan is due for completIon on 31 May 2012 I 

• Amortization on AFS Portfolio V8. Cash: Amortizations on the AFS portfolio are calculated at month end as part of ttle regular I control procedures around the AFS portfoito The cash relating to these amortizatIons isn't necessarily received in the same ) 

mOllth as when the amortization occurred. ThiS generates a break betw'een the amortiZations calculated and the cash received i which is subsequentJy unsubstantiated. Detailed Elnalysis on an lSIN basIs IS undertaken to identity those securities ....nere cash i received straddles month end and resolutions for any breaks are assisted by the cash payments team. The resolution was i 

delayed as the ABS migration was delayed last year.and resolution was dependent on that, Post ABS securities being migrated I onto OPICs in 01 '12, Oflce the balances have stabilised, further anatysls can be undertaken to clear the breaks. Expected I 

resolution date· 2 months post migration. Action Plan currently set for June 2012 completion I 

• CID Creclit~Market Risk and Valuation Practises issued March 2012 rated Needs Improvement identified the fonowing issues: I • CIO VCG practices where a number of risk. & valuation models have not been reviewed by Model Review Group and Ii 

mcluded the absence of a formally applioo price sourcing hierarchy, insuffiCient consideration of potentially applica~e fair 

value adjustments (e.g concentration reserves for significant credit indices positions) and the lack offormaUy 

documented/consistently applied price testing thresholds. ! • stress testing where There is no documented methodology to otrtlme key testing components (e.g computational metllod II 

and shack factors used) or assess limitations such as oft·line nsk measurement, misSing risk factors and curves. 

• The 8M book ($i40Bn Notional as at 12131) does not currently feed the "firm Wide market risk limits and thresholds 1 framework and relevant SM stress tes~ng results ere not measured against corresponding limits. ! 

:t~~d~II~~~~!~~t~o~:~nu~;:~~~:?e~~~~~~ne~~:dC:~~;~~~~~i;~~ke~~clUding VaR) and associated risk measurement I • The control process ar~und the off-line VaR. calculaton needs to be enhanced to ensure completeness and accuracy of 1 

Credit trade data used In the offline calculation of VaR. I 

i <1- All the issues and action plans raised from 2011 audit were complete and Phoenix issues were closed accordingly before target 

: dates 

i [------<--------------------- ! BUSINESS CHANGES l North America: Dave Alexander (CFO), left CIO for RFS and was replaced by David Bjarnason who has announced his resignation I and will be transitioning out of this role in the 2nd quarter. i 

~ 

I - David Bjarnason (EMEA Accounting Polir::-{ and ContrOl) is leaving the firm in Q2, 2012. There is currently no indication as to I whether he'!1 be replaced. I 

I M!,;! - N/A 

I 

I 

i ! 

r-====-~=~==--=~==-==---'-·-~E;~~~~~~Ss~::"------·==·======~==~----"l l._______________________ _ _ ___________________________________________________________________________ i : Through CA activities, Audit tracks the entry of all audit issues and related action plans into Phoenix, monitors the progress through I ; completion of action pans and SUbsequent closure of Issues In PhoeniX. A monthly anatysls of open action plans is prepared and i 

i follow up with action plan owners performed by audit before the and of each month. I 

I No new Issues or action plans have been added for this quarter. 1 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

PLAN AND RISK ASSESSMENT CHANGES I

I -----~- ---------- -- i 

OCC-SPI-00033692 
2224 

The following audits were completed during 1Q 2012: 

North America: ASC 815 Hedge Accounting (Satisfactory) 

EMEA: I. CIO APP!A Systems Migra~on (Satisfactory) 

11. CIG Credit- Market Risk & Valua~on Practices (Needs Improvement) 

BANK PROPRIETARY ~"ID!OR TRADE SECRET 

INFO~\IATlON 

OCC-SPI-00033693 
2225 

From: Berg, Jaymin 

To: <Crumlish, Fred>;<Fursa, Thomas>;<Kamath, Jairam>;<Kirk, Mike>;<Monroe, Christopher>;<Wong, 

Elwyn>;<Hohl, James>;<Tornese, Doug>;<McLaughlin. Doug> 

Sent: 3/6/2012 9:39:30 PM 

Subject: Market Risk Minutes 

Attac;hments: OCCDMRM-666691. DOCK DRF _ ... Red,am by tbe Permanent 

Sabcommittee on InnsticetiDIU 

« •.• » 

Key Takeaways: 

Euro Crisis stress scenario was changed. This caused almost a $2B increase in loss due to the changes in 

scenario composition (due to nature of shocks chosen). 

Aggregate Stress will be changed in the March DRPC meeting. Due to the indusion of many more 

portfolios, utilization will increase dramatically. The current $8B of Aggregate Stress will likely increase to 

approximately $20B. Limits will be adjusted accordingly. 

Methodology 

No changes to VaR methodology 

Euro Crisis methodology changed for stress scenario. The methodology change increased Euro Crisis by 

$L886B. See IB Stress - Proposed Changes to Euro Crisis v2. 

lauren McCaffrey and Ian Greene are the contacts if we want to discuss of shock selection for stress 

grids. acc did e)(am recently. 

The aggregate stress w1l! soon include more books: 

o SAA portfolio, the investment portfolio for the bank {from CIO). will add $10~$12B of utilization. As these 

are mostly AFS, they are part of aggregate stress and not mark to market stress. SAA is usually OCI (Other 

Comprehensive Income). 

PE book will add _ of utilization {includes OEP Partners and lor 2 others}. 

A small book from the Commercial Bank. 

o Small Asset Management book (AM Co-invest). 

o FX Capital hedging book (approximately_ The mark to market piece of FX was always included 

but now accrual positions will also be included. Accrual part is not in tradingVaR, 

More books could be added in the future such as Global treasury book (which is calculated but not 

included). 

Limit Changes 

No changes at IB level for stressorVaR limits. 

BANK PROPRlETARY AND/OR TRADE SECRET 

lNFORl'AA TION 

OCC-SPI-OOOlIJJ9 
2226 

RFS limits were decreased due to model changes that dramatically reduced VaR (from $90mm to 

$55mm). 

CIO limits are in process of being decreased due to model changes. 

Limits will be reviewed (and approved) in March at the DRPC meeting. 

Firmwide VaR limit will likely not change. 

Firmwide VaR averaged $109mm in Februaryversus $126mm in January. The decrease is due to CIO 

credit tranche methodology changes, which were implemented on January 27th . 

There were no Firm VaR or Stress breaches in Feb. 

Average Firmwide MTM stress in February was $358 (vs. a $5.8B limit). 

Average Firmwide Aggregate stress in February was $8.4B {vs. a $9.758 limit}. 

No loss days for the Firm or IB using non-certified P&L in Feb. 

Risk and Finance are working on One Hierarchy Project. They are working to reconcile views (align the 

hierarchies) between Risk and Finance. Volcker rule requires more detailed risk and return metrlts, which is only 

currently possible at higher levels right now, Aligning Risk and Finance wil! allow for back-testing at the lower 

levels. As P&L is currently from Finance and Risk is from VaR, they are not aligned. Alignment must be done in a 

systematic way. 

MRR reports unmapped portfolios to businesses weekly and monthly. 

Unmapped portfolios have different root causes, such as test data being inadvertently sent or a 

non-MTM portfolio feeding into MaRRs. Feeds come from risk systems or risk aggregators and feed into MaRRS. 

As mapping used to be in MO (middle office) and Risk MO has merged into Product Control, the 

responsibility has diminished. JPMC acknowledged that the procedure is too manua! and they are trying to build a 

front end tool to address some ofthese weaknesses. 

This "Portfolio MappingToo]" will create a audit trail and allow a workflow for execution of changesallowing communication between PC and Risk. The tool might begin to rollout in 2 to 3 months {it will be a phased 

approach. 

JPMC said that minor changes were done to the Market Risk Policy on Limit Changes. Although the date 

on the Market Risk Limits document is May 18, 2011, JPMC said there were changes made to the document that 

altered the meeting to align with what is done in practice. However, the policy date was not updated. Examiners 

asked JPMC to review document and check that it aligns with current practice. This will be discussed at the next 

MRRmeeting. 

JPMC reviewed document that reviewed data capture and quality. The diagram was a system flow 

diagram which showed Risk Management Systems to MaRRs reconciliation as well as Risk Management Systems to 

BANK PROPRIETARY AND/OR TRADE SECRET 

INFORMATION 

OCC·SPI·00035320 
2227 

Gl Reconciliation. 

BANK PROPRIETARY AND/OR TRADE SECRET 

lNFOR.,1\1A TION 

OCC-SPI-00035321 
2228 

C) 

Comptroller of the currency 

Administrator of National Banks 

To: File 

From: Jaymin Berg 

Date: 3/1/2012 

JPMC: Lavine Surtani, Matthew lynch, Thomas Lochtefeld 

OC(: Jaymin Berg 

Fed: Jonathan Godinger, Glenn Roder, Irene Sanchez, Anna lacued, 

FDIC: Om Arya 

Subject: Market Risk Reporting 

Agenda: 

Stress and VaR - Firmwide and lB, including breaches to Stress and VaR 

Changes/Proposed Changes to: 

Limits 

• Organization/Hierarchy 

• Definitions of stress scenarios. 

Discussion of changes to aggregate stress: 

• Newly included items 

• Items in discussion 

• Items that are not included 

Loss days for the month 

Discussion of Unmapped portfolios 

Memo 

o A large number of new books feeding downstream systems without any supporting docs, 

risk hierarchy instructions or LOB identifiers and hence sit in suspense and do not feed riSK 

reports. (Continuous audit - 4Q11). 

o What is the current status? 

• Confirm that Market Risk Umits Firm~wide Ri5k Policy ha5 not been updated since 5/18/2011. 

• Has tllere been any progre55 or documentation on the goal to have fewer front office systems (and 

hence, fewerfeed5 into MaRRS)? 

BANK PROPRIETARY ANDIOR TRADE SECRET 

INFORMATION 

OCC-SPI-00035322 
2229 

___ Redacted by the Perm.Mnt 

Subcommittee on lnvt!ltigations 

• Discussion on Data Quality 

o How is the quality of the data received by MRR ensured? 

Key Ta keaways: 

• Euro Crisis stress scenario was changed. This caused almost a $2B increase in loss due to the 

changes in scenario composition (due to nature of shocks chosen). 

Aggregate Stress wll! be changed in the March DRPe meeting. Due to the inclusion of many 

more portfolios, utilization wi!! increase dramatically. The current $BB of Aggregate Stress will 

likely increase to approximately $20B. Limits will be adjusted accordingly. 

No changes to VaR methodology 

Euro Crisis methodology changed for stress scenario. The methodology change increased Euro 

Crisis by $1.886B. See IB Stress - Proposed Changes to Euro Crisis v2. 

lauren McCaffrey and Ian Greene are the contacts if we want to discuss of shock selection for 

stress grids. OCC did exam recently. . 

• The aggregate stress will soon include more books: 

o SAA portfotio, the investment portfolio for the bank (from CIO), wi!1 add $10-$12B of 

utilization. As these are mostly AFS, they are part of aggregate stress and not mark to 

market stress. SAA is usually DC! (Other Comprehensive Income), 

o PE book wiH add _of utilization {includes DEP Partners and 1 or 2 others}. 

o A small book from the Commercial Bank. 

o Small Asset Management book (AM Co-invest). 

FX Capital hedging book (approximately_The markto market piece of FX was 

always included but now accrual positiosn will also be included. Accrual part is not in 

trading VaR. 

D More books could be added in the future such as Globa! treasury book (which is 

calculated but not included). 

Limit Changes 

No changes at IB level for stress or VaR limits. 

RFS limits were decreased due to model changes that dramatically reduced VaR (from_ 

~ ClO limits are in process of being decreased due to model changes. 

limits will be reviewed (and approved) in March at the DRPC meeting, 

Firmwide VaR limit will likely not change. 

• Firmwide VaR averaged $109mm in Februaryversus $126mm in January. The decrease is due to 

CIO credit tranche methodology changes, which were implemented on January 27th • 

There were no Firm VaR or Stress breaches in Feb. 

Average Firmwide MTM stress in February was $3.5B (vs, a $5.88 limit). 

• Average Firmwide Aggregate stress in February was $8.4B (vs. a $9.75B limit). 

BANK PROPRIETARY AND/OR TRADE SECRET 

rNFORMATION 

2 

OCC-SPI-OOOJ5J23 
2230 

• No loss days for the Firm or IB using non~certjfied P&l in Feb. 

Risk and Finance are working on One Hierarchy Project. They are working to reconcile views 

(align the hierarchies) between Risk and Finance. Volcker rule requires more detailed risk: and 

return metrics, which IS only currently possible at higher levels right now. Aligning Risk and 

Finance will allow for back~testing atthe lower levels. As P&l is currently from Finance and Risk 

is from VaR, they are not aligned. Alignment must be done in a systematic way. 

• MRR reports unmapped portfolios to Dusinesses weekly and monthly. 

Unmapped portfolios have different root causes, such as test data being inadvertently sent or a 

non-MTM portfolio feeding into MaRRs. Feeds come from risk systems or risk aggregators and 

feed into MaRRS. 

As mapping used to be in MO (middle office) and Risk MO has merged into Product Control, the 

responsibility has diminished. JPMC acknowledged that the procedure is too manual and they 

are trying to build a front end tool to address some of these weaknesses. 

This "Portfo!io Mapping Tool" will create a audit trai! and allow a workflow for execution of 

changes - allowing communication between PC and Risk, The tool might begin to rollout in 2 to 

3 months (itwil! be a phased approach. 

JPMC said that minor changes were done to the Market Risk Policy on Limit Changes. Although 

the date on the Market Risk Limits document is May 18, 2011, JPMC said there were changes 

made to the document that altered the meeting to align with what is done in practice. 

However, the policy date was not updated. Examiners asked JPMC to re",iew document and 

check that it aligns with current practice. This will be discussed at the next MRR meeting. 

• JPMC reviewed document that reviewed data capture and quality. The diagram was a system 

flow diagram which showed Risk Management Systems to MaRRs reconciliation as wei! as Risk 

Management Systems to GL Reconciliation. 

Follow"up Items: 

1. Next Meeting Date: AprilS. 2012 

BANK PROPRIETARY AND/OR TRADE SECRET 

lNFO&"IATION OCC-SPI-00035324 
2231 

C/O-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

1. Description 

This document describes procedures, roles & responsibilities of CIO's Independent Valuation 

Control Group ("VCG"). 

}> VCG responsibilities: VCG is responsible for ensuring that independently approved 

price sources I parameters are used to record assets and liabilities and appropriate 

adjustments I reserves are made when required, due to material differences between 

VCG and Front Office marks. 

}> Frequency of the process: formal monthly review. Market color obtained more 

frequently depending upon product. 

2. Key people r sources of information 

}> Positions and prices that are subject to testing. Responsibility for the price testing 

process resides in both CIO's Middle Office and VCG. The CIO Middle Office group is 

responsible for the completeness and accuracy of positions and prices. VCG is 

responsible for" price testing and determining whether pricing adjustments or reserves 

are required. 

}> Prices I market value for the transactions from external and internal 

vendors. (Details on section 6.) 

}> Market color information. (Details on section 4.) 

3. Timeline and overview of the independent valuation process 

The CIO valuation process utilizes four main methods. 

3fd party 

prices 

Independent 

and reliable 

direct price 

feeds I 

Cash flow models 

with public 

recognized tool 

(e.g.BondStudiO) 

Internal 

models 

developed by 

CIO 

Independent and reliable direct price feeds are the preferred method for assessing 

valuation. In general, third party pricesfbroker quotes are considered the next best 

pricing source. However. in certain markets where stale or unobservable prices are 

prevalent, alternative methods will be applied to assess valuation. If broker quotes 

are not available, VCG would look to perform discounted cash flow (DCF) analysis 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00052685 
2232 

CIG -VCG Last Update: 05121/2010 

Procedure: Valua"'t"'io"'n-'-P-"ro"'c"e"ss'-_____________ _ 

utilizing an approved model such as BondStudio. Finally, given a genera! absence 

of data associated with an illiquid market, VCG would recommend the development 

of an internal model to provide a valuation based on relevant market inputs and 

standard modeling techniques. Each ofthese methods is discussed in greater 

detail later in this document. 

The time line of the independent price testing process is: 

Pre~month end 

~ 

(1 week prior) 

I I Collect Update Preview with 

Market model traders and 

Color assumptions management 

Incorporate 

new 

products 

4. Market color collection 

2-3 days 

Coilect 

3" 

party 

prices 

~ 

BD 1-2 

I Coilect Run 

CIO models and reconciled decide 

position about 

eventual 

booking 

adjustment 

BD3 

Present 

data 

Market color refers to price or market value information for transactions similar to those CIO has 

in its portfolio. VCG collects this information daily (depending on the frequency of the source) 

from internal J PM sources and external dealer & non~dealer sources such as: 

'» JPM IB color from Inventory offering sheets (mortgage positions). 

'r JPM IB color from bid lists (mortgage positions). 

'» JPM IS research from Morgan Markets (mortgage positions). 

)- Color from CIO front office (all positions). 

» Color from CIO VCG collection (excluding above; aU sources). 

'r Dealer (Credit Suisse, Merrill Lynch, Deutsche Bank, Barclays Capital etc.) research for 

all available products. 

)- Non-Dealer (rating agencies; government bodies; !MF, non-Financial vendors e.g., 

ADCO, LPS; academia etc.) research for all available products 

'» VCG attempts to manually obtain the most recent transaction data in the market that is 

similar to CIO's transactions with respect to, among other characteristics, risk, maturity, 

coupon rate and type of product. 

2 

BANK PROPRlET ARY AND/OR TRADE INFORMATION OCC-SPI-00052685 
2233 

Cl0-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

5. Product coverage matrix 

VCG uses four methods to independently price tested positions based on the hierarchy of 

sources that is presented in Appendix 1. 

The details on how independent pricing information IS delivered to, and stored by, VCG are 

included in Appendix 2. 

6. Third Party Price sources 

Independent prices are obtained from various external sources (Markit, Totem, etc.) and applied 

to CIO positions for price testing purposes. Appendix 3 provides a comprehensive matrix of 

independent price sources. An example of an externally-sourced price grid that is used by VCG 

IS included in Appendix 4: VCG grid IS put together using color bond information in a grid of 

prices for Non-agency. 

7. Independent and reliable direct price feeds 

The Finance Valuation & Policy Group ("FVP") within the Investment Bank (IB) provides 

independent pricing to the VCG team for select CIO products. In this case, VCG relies on the IB 

controls In place regarding the quality of the pricing methodology. In other cases, however, the 

IB FVP team conducts price testing of select positions on behalf of the CIO VCG team. In either 

case, the CIO VCG is accountable for the results of price testing (e.g., that the coverage of CIG 

portfolios is adequate and comprehensive). Refer to Appendix 7 for a product-level summary 

that identifies the type of support that the Investment Bank specifically provides to VCG. 

Additional product level information that pertains to support provided to VCG by the Investment 

Bank is as follows: 

}> Fixed Rate Agency Residential Mortgage Pools TBAs: 

For Agency fixed rate MBS pools (either specified or TBAs), the CIO VCG team 

validates (monthly) a price grid created by IB Middle Office team. The validation is 

performed using Bloomberg and Barc!ays pricing information. An example of the grid is 

on Appendix 6. 

VCG does not receive cusip level information for these pools. It is sufficient for CIO VCG 

to validate the grid and present the total portfolio market value provided by CIO Finance 

team at the BD3 month end meeting. 

Based on this grid, CIO Middle Office assigns the price to the MBS pools at cusip level. 

If any adjustments are necessary, IB Middle Office sends the adjustment value to CIO 

VCG for review and ultimately to the Finance team for booking if necessary. 

~ Equities and equities derivatives 

The CIO equity derivatives group is a price taker from PYRAMID (an IB transaction 

system that uses the standard Black Scholes options pricing model). The prices 

BANK PROPRIETARY ANDIOR mADE INFORMATION OCC·SPI·00052685 
2234 

CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

calculated in PYRAMID are updated bi-weekly wilh volatility updates from TOTEM (an 

independent market data survey service). 

);> Swaps, exchange trade futures and options: 

As a general matter, VCG relies on price testing conducted by IB FVP for these 

products. CIO VCG ensures that the coverage of CIO products is adequate and 

comprehensive. However, with the move to Primus in EMEA, CIO VCG will validate 

inputs that are used to create discount curves and prices used for exchange traded 

products. 

8. Discounted Cash Flow ("DCF") model on BondStudio 

For certain products in CIO, the independent price is determined from the discounted cash flow 

method calculated using BondStudio. The process is comprised of two steps: 

BondStudio is a cash flow too! developed by JPM that is also available to external clients such 

as banks, hedge funds etc. 

Since the color bonds function as a proxy for CIO's transactions, VCG uses the color bond 

market data as inputs to BondStudio in order to calculate yields appropriate for CIO's 

transactions. 

BondStudio Inputs 

- Prepayment model: EPM 

- Default mode: EDM 

both models used with 

BondStudio default settings. 

- Price from the color bond 

Date: last day of the 

month 

BondStudlo Outputs 

-Yield 

- Projected cash flows 

- Prepayment speed 

- Default rate 

CIO population 

Outputs 

-Price 

4 

BANK PROPRIETARY AND/OR TRADE INFDRMATIDN OCC-SPI-00052685 
2235 

CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

9. Internal models 

In cases where a less liquid market exists for a given produd, the bUsiness may use an internal 

model to measure fair value (Appendix 3 identifies those products in which the business uses 

an internal model for such purposes). In this case, it is the responsibility of the business to 

develop the model, as well as to obtain approval for use from the firm's Model Review Group_ 

However, VCG, as a stakeholder in this process, should ensure that all the necessary inputs to 

the mode! are defined and controls around its use are in place. 

10. Price testing procedures - select products 

Procedures that are followed by VCG to independently estimate fair value of tested positions of 

select products are outlined in Appendix 6. 

11. Incorporation of new products into the price testing process 

When a new product is acquired, VCG performs test runs I parallel analyses during the month 

prior to month end. 

12. Preview of price testing results with Front Office & Management 

VCG reviews the intermediary results j inputs for valuation with CIO management and Front 

Office to receive feedback and guidance. 

13. POSition reconciliation 

CIO Middle Office is responsible for generating a file with all CIO positions. In the event of any 

difference, Middle Office is responsible for investigating the difference and generating an 

updated file. 

14. Presentation of results and adjustment decisions 

VCG presents a comparison of Front Office marks and VCG independently sourced prices to 

the following constituents: 

- Front Office 

- Finance (regional CFOs, regional and global controllers) 

- Operating Risk Management 

Price dITferences above the variance threshold listed below are highlighted. The proposed 

adjustments are reviewed with the identified constituents. Meeting notes are documented as 

evidence of the discussions. 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-OOOI2681 
2236 

CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

15. Price Testing Thresholds 

In the case of securities, the VCG price for each CUSIP IISIN is compared to the Trader price 

for that same CUS!P I ISIN and a variance ($ market value and % market value) is computed. 

Thresholds, representing estimates of bid-()ffer spreads, are applied in assessing the need for 

price testing adjustments. 

In the case of price testing results associated with derivatives and/or other, non~CUSIP-based 

instruments, a difference between a trader I system mark and VCG mark will be measured. The 

assessment of whether a price testing adjustment will be passed is determined by considering 

the size of the positions, the liquidity of the market and whether the price would fall within the 

normal bid offer spread of the specific market. The basis for price testing adjustments that are 

judgmentally not passed are documented and explained in a monthly summary that is circulated 

to senior management. 

15. Illiquidity I Concentration Reserves 

In assessing the reasonableness of fair value measurements that are subject to testing, VCG 

will consider whether such measurements appropriately reflect liquidity risk, particularly in the 

case of instruments for which CIO maintains either a significant I concentrated position and/or if 

the market for a given instrument can be observed to be less liquid. In this regard, VCG is 

responsible for calculating I monitoring these reserves and consulting with the business on such 

estimates (see Appendix 8). 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-OOOS2685 
2237 

CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation?-,r~oce=s",-s _____________________ _ 

Appendix 1 - Hierarchy of price sources 

Month: November 2009 

Description of the process: 

~ The hierarchy below was applied to all the cusips_ 

- When the difference between the trader price and VCG price was greater than the 

threshold and the DCF price would reduce the difference, the DCF price was applied. This 

final step is performed given that VCG is comfortable with the effectiveness of the DCF 

price methodology. In addition, VCG has done manual reviews at the cusip level in past 

months which indicated that the DCF price is a better representation of fair value for the 

securities. 

1) FTID flOC 

2)S&P 

3)TREPP 

4) Bloomberg Price 

5)VCG Grid 

6) Discounted Cash Flows 

Specifically for Municipals: 

1)S&P 

2) FT1D, tile rest of the sequence is the same 

Approvedby ________________________________ ___ 

Date of approval: ______________ _ 

BANK PROPRIETARY AND/OR TRADE INFORM"'TION DCC-SP!-00052685 
2238 

CIO-VCG Last Update: OS/21/2010 

Procedure: Valuation !:,rocess 

Appendix 2 - Price sources details: delivery and storage of information 

CIO Technology developed a storage database on IntraspectKm for each of the pricing sources. 

A corporate email was created for eaell of the sources and any flies attached to the email is 

downloaded and stored as read only, so the integrity of the data is maintained. 

Source How it is delivered to Corporate email 

VCG 

FTID/IDC CIO technology emails I VCG~ 

IDC Information to IDC@intraspectkmjpmorganchase.co 

VCG. ill 

Database 

b.ttP:;;;I/intrasoectkri1~ 

chase.com/gm/folderw 

1.11.854989 

r-cs"'&"P,---+"2 files at shared drrv;ee;nV~C~G~-~~:~~;:::~~~ht~tP~s:~/"~m~tra~s~pe~c~tkm~.j~pmmoQirllqa§i]n \\Naeast.ad jpmorg~Ch SandP@intraspectkmJpmorganchase chase.com/gmffolderase.com\AmerIB$\Cio\ ,.&Q!TI 1,11,854994 

TREPP 

Reuters 

~iVe\HPPRODlAgUa\P Sharedrive: 

ositions\Aqua\oata\Pric \\Naeast.ad.jpmorgancnase.G 

§ ~~v~~prb~~~~~~a\POsition 

email from vendor via 

Trader 

from Datawarehouse 

application 

VCGTrePo@intraspectkm.jpmorqanchase. 

QQ!!J 

VCG-ReutersDatawarehouse@intrasD8ctkm.jpmor 

ganchase.com 

s\Aqua\Data\Prices 

httos:llintraspectkm.lpmorgan 

chase.com/gm/folder1.11.854988 

https:llintraspectkm,jpmoraan 

chase.com/gmffolder1.11.854993 

Bloomberg downloaded on Jast day VCG-B!oomberg- https:l!intraspectkrn.jpmorgan 

chase.com/gmffolder~ 

1.11.854986 

of month as of close of Prices@intraspectkmJpmorganchase. 

business by VCG ~QJ:n 

I Pricing VCG-PricingDirect Direct@intraspectkmjpmorganchase. 

com 

httos:lfintraspectkm.lpmorgan 

chase.com/gm/folder-

.L11 .. 854991 

J-si:okers I email from brokers VCG-Broker- https:!/intrasoectkm.lpmorgan 

Prices@intraspectkm.jpmoraanchase. chase.com/gmlfolderK 

QQ!!! 1.11.854981 

BANK PROPRlETARY AND/OR TRADE INFORMA nON OCC-SPI-00052685 
2239 

CIO -VCG Last Update. 05/21/2010 

Procedure:ValU21tio~l'~.!S",''---___ " ____________ _ 

Appendix 3 - Third Party Pricing Source 

BANK PROPRIETARY AND/OR TRADE rNFORMATION OCC-SPI-00052685 
2240 

CIO-VCG 

Procedure: Valuation Proeass 

Appendix 4 - Example ofVCG grid 

Last Update_ 05J21iZO',O 

7817309RAAO 

75 

n 92927XA£4 

60 12b&94Q£1 

l!8461>247K51 

84.594984GAD9 

" " 

72 5252OSAA8 

98 94982FAQ4 

• 1202146VAE6 """"''' 

o 

-99 " 

BANK PROPRIETARY ANDIOR TRADE INFORMATION 

10 

OCC·SPI·00052685 
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C!O·YCG Last Update: 0512112010 

Procedure: Valuation Process 

Appendix 5 - Example of Fixed Rate Agency Residential Mortgage Pools (specified or TBA) grld 

11 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI·OOO52685 
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CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

Appendix 6 - Procedure for independently estimating fair value for select products 

NA 

» CDs: 

The file provided by Middle Office has the coupon rate in the field ·system/trader price", 

therefore VCG estimates the trader pr!ce using Bloomberg and the coupon. VCG also calclHates 

the independent VCG price using Bloomberg and DCF. 

EMEA 

)- Credit Derivatives: 

Indexrfranche Quoted as Spread 

Credit Spread BPV (CSBPV) • Spread Difference 

CSBPV = Notional" Duration/10,OOO 

!ndexfTranche Quoted as Price 

Notional· Price Dlfference/100 

Where we have tranches hedging a main index position, the pIt calculation is a 3 step process 

1. Multiply Tranche notional by Tranche delta, multiply by -1, to give the main index 

equivalent amount of the tranche. Price test (using one of the calculations above 

dependant on whether quote is spread or price) using the index reference level. Repeat 

for each tranche. 

2. Price test tranche notional, using the tranche levels and the correct calculation from 

above. 

3. Sum the values for each tranche in point 1 and add to the main index position. This is 

price tested using the Markit v FO price difference. 

» Swaplions: 

CIO Middle Office provides Vega sensitivities for our Swaption positions and the volatilities that 

have been used to create these numbers. CIO VCG sources independent broker volatilities for 

and calculates a pricing difference based on these parameters. 

12 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-00052685 
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CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

Appendix 6 - Procedure for independently estimating fair value for select products 

{coni' d) 

>- CLO: 

In connection with CLOs that are carried by CIO-EMEA, VCG will: 

1, Corroborate default rate, recovery rate and recovery lag assumptions through a review of 

supporting documentation. 

2. Evaluate the reasonableness of the proxy that was se!ected for purposes of establishing the 

utilized correlation parameter by periodically monitoring the average par subordination of the 

CLO portfolio as compared to referenced tranche. 

3. Assess the reasonableness of the liquidity spread assumptions by: 

• Reviewing the front office analysis that estimates a range within which the selected 

liquidity spread will be determined. 

• Performing a similar analysis involving other iden@ed proxies (CDXIG bond basis, UK 

RMBS market) 

Monitoring broker quotes, other market activity as an alternative means of validating the 

liquidity spread input 

4. Understand the FO rationale for the proposed weighting of CLO Model output. secondary 

market prices and broker quotes. 

BANK PROPRIETARY AND/OR TRADEINFORMATlON 

13 

OCC-SPI-00052685 
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CIO-VCG Last Update: OS/21/2010 

Procedure: Valuation Process 

Appendix 7 

Product Price Tested by IS FVP Price Tested by CIO VCG 

Using IS Data 

Equity Derivatives X 

Swaptions X 

I Exchange-traded products 1 X 

Discount Curves 1 X 

1---- ""---------

Securities (Govt & GoYl Gtd) X 

Credit Indices & Tranches2 X 

'--- I 

1 As we move to the Primus environment this responsibility will transfer to the eIO VCG 

2 This fOrolS a subset o[the data used in !he price testing process 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

14 

OCC-SPI-00052685 
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CIO-VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

Appendix 8 - Concentration I Illiquidity Reserves for CDS 

Price Discovery (illiquiditvl 

Price Discovery reserve is taken under either of the following 2 scenarios: 

1. The price (spread) cannot be observed, or 

2. The index is off the run (an off the run index is defined as: any index older than 4 series 

- for example, the current on the run COX series are 13, therefore, aU indices series 9 

and older are considered off the run, !TRAXX would be Series 8 and older) 

Price Discovery = Net PVBP , sqrt(t) , Spread Volatility in bps 

Where: t is the number of business days since the last external trade (capped at 120 days.) 

Price Discovery reserve is capped at: 5% Credit Spread Widening 

(PVBP 'Intemal Spread in bps' 0.05) 

Concentration 

Excess 5yr Equivalent Position' (5Y Duration 110,000)' sqrt(Liquidation Period)' Spread 

Volatility in bps 

Where 

• Excess 5Y Equivalent Position:::: Net 5yr Equivalent Position - Threshold 

Liquidation Period::; Net 5yr Equivalent Position I Average Daily Market Size 

Threshold and Average Daily Market Size are based on the table below: 

Index Daily Volume Threshold 

On The Run Index 3,000,000,000 500,000,000 

Off The Run Index 3,000,000.000' Series 500,000,000' Series 

Factor Factor 

Series factor = 1 / (On the run series number - Series number) 

Series factor is floored at 1/10. 

Assumptions 

1. The IB policy does not apply to tranches (they calculate a value based on the single name 

and just pass a pricing adjustment). For this exercise I have applied the index calculations to 

the tranches. 

2. The IB calculates the spread vol using a rating bucketed vol based on a basket of names and 

apply this number across all indices. They do not calculate using specific name vols which 

would be more accurate. I need to speak to Pat Hagen to see jf we can produce our own 

number. For purposes of this exercise I heve applied the IB vol to ITRAXX, COX IG & HY. 

15 

BANK PROPRIETARY AND/OR TRADE INFOR! ... IATION OCC-SPI-00052685 
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cia -VCG Last Update: 05/21/2010 

Procedure: Valuation Process 

3. The liquidity calculation contains a variable of when the instrument was last traded. The 18 

has a maximum of 120 days that they use for all calculations, The rationale is that small trades, 

done infrequently should not impact the valuation of these trades, As we are more actively 

trading these instruments in risk reduction mode we may wish to consider a different approach. 

4. A cap is placed on the liquidity reserve at 5% of Credit Spread Widening. This is based on a 

market making business and we can look at whether this is applicable for our style of trading. 

BANK PROPRIETARY ANDIOR TRADE INFORMATION 

16 

OCC-SPI-00052685 
2247 

From: 

To: 

Sent: 

Subject: 

From: Brosnan, Mike 

Brosnan, Mike 

Eccles, Jennifer 

8116120129:55:44 PM 

FW: Important: Upda1e on P&L Marks 

Sent: Tuesday, July 10, 2012 1:00 PM 

To: Crumlish, Fred; Waterhouse, Scott; Belshaw, Sally 

Subject: RE: Important: Update on P&L Marks 

Ok. Pis crisply convey during the right page at 4pm meeting. 

thx 

From: Crumlish, Fred 

Sent: Tuesday, July 10, 2012 12:58 PM 

To: Brosnan, Mike; Waterhouse, Scott 

Subject: Important: Update on P&L Marks 

Importance: High 

Spoke to D. Genova, attny atJPM, regarding the discomfort they had on marl<s and results. 

Bottom line - Company lost confider-,;:;e in march marks. new marks increase loss 472mm for March, Company hasn't 

decided if they should 1) restate or 2) report in 2Q with full disclosure. Currently worl< with external accountants etc. 

Decision hasn't been made. 

More background -

Junior trader had been under pressure durirg March as losses mounted to mark the book in a way that minimized them 

with the view that it would correct by month end. (Traders had been tracking "distance to mid," a number that grew 

during the quarter along with discomfort and tension on desk).) 

At quarter end, junior trader also under pressure. Bottom line is that instead of markirg to mid, in most cases longs 

were marked at offer and shorts as bid, 

VCG (independent price testing) had thair own mid and a series of thresholds in bps. If mar1<s fell within this range 

they, weren't questioned. (there was no dollar cap) 

Note valuation controls have since been changed. 

- apc 

*"'* If}'oll ruwe received this nessage in errOL please delete tre original and all copies, and notify the sender i:mrrediately. Federal law 

prohibilS th: discloslll'e OT other use oftlns inforrrntioIJ. *** 

BANK PROPRlETARY ANDIOR TRADE INFORMATION OCC-SPI-00055687 
2248 

~-~, JPMorganChase 

CATEGORY: 

CONTROLLERS 

CORPORATE ACCOUNTING POLICIES 

l'OLICYNO: 1-0105 

SUBJECT: 

}.0100 General Accounting Policies 

Fair Value Measurements EFFECTIVE DATE: 

ISSUE DATE: 

January 1, 2007 

November 8, 2007 

Accounting Policies Contacts: Kathy Ryan (primary) 

Victoria Sligar (secondary) 

TABLE OF CONTENTS 

I. INTRODUCTION 

II. DEFINITION OF TERMS 

III. SCOPE 

IV. ACCOUNTING POI.ICY 

A. Valuation Premise 

B. Relevant Market 

C. Valuation/Measurement 

D. Valuation Hierarchy 

E. Transaction Cost!; 

F. Other Considerations 

V. CROSS-REFERENCES 

VI. REFERENCES TO AUTHORITATIVE I.ITERATURE 

APPENDIXES 

J. INTRODUCTION 

U.S. GAAP requires or permits via an optional election certain assets and liabilities1 to be 

recorded at fair value. In September 2006, the F ASB issued Statement 157, Fair Value 

Measurements (Statement 157), which provides a single definition and framework for fair 

value measurements to ensure consistency of application. Statement 157: 

BANK PROPRIETARY AND/OR TRADE INFOR,\lATION OCC-SPI-DD056794 
2249 

.-.... , JPMorganChase 

CONTROLLERS 

CORPORATE ACCOUNTING POLICIES 

CATEGORY: 1-0100 General Accounting Policies 

Fair Value Measurements 

POLICY NO: 1,0105 

SUBJECT: EFJ'ECTIVE DATE: 

ISSUE DATE: 

January 1, 2007 

November 8, 2007 

Accounting Policies Contacts: Kathy Ryan (primary) 

Victoria Sligar (secondary) 

TABLE OF CONTENTS 

I. INTRODUCTION 

II. DEFINITION OF TERMS 

III. SCOPE 

IV. ACCOUNTING POLICY 

A. Valuation Premise 

B. Relevant Market 

C. ValuationIMeasurement 

D. Valuation Hierarcby 

E. Transaction Costs 

F. Other Considerations 

V. CROSS,REFERENCES 

VI. REFERENCES TO AUmORITAm'E LITERATURE 

APPENDIXES 

I. INTRODUCTION 

u.s. GAAP requires orpennits via an optional election cerlain assets and liabilitiesl to be 

recorded at fair value. In September 2006, the F ASB issued Statement 157, Fair Value 

Measurements (Statement 157), which provides a single definition and framework for fair 

value measurements to ensure consistency of application. Statement 157: 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·SP1·00056794 
2250 

Defines fair value; 

• Establishes a three~level hierarchy for fair value measurements based upon the 

transparency of inputs to the valuation of an asset or liability as of the measurement 

date~ 

• Nullifies the guidance in EITF 02 R 3, which required the deferral of profit at inception 

of a transaction involving a derivative instroment in the absence of observable data 

supporting the valuation technique; 

Eliminates large position discounts for financial instruments quoted in active markets; 

• Requires consideration of the Finn's own creditworthiness when valuing liabilities; and 

• Expands disclosures about instruments measured at fair value. 

II. DEFINITION OF TERo'\lS 

Fair value 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in 

an orderly transaction between market participants at the measurement date. 

Represents an exit price. The transaction price, or entry price, may in certain cases 

represent the exit price but the entry price should not be presumed to represent the fair 

value of an asset or liability at initial recognition. 

lIigbest and best use 

The highest and best use of an instrument is determined based on its use by market 

participants; where maximum value is derived principally on a standalone basis, the highest 

and best use of the instrument is "in-ex.change"; where the maximum value of the 

instrument is derived principally through its use in combination with other instruments, its 

highest and best use is "in-use." 

Inputs 

Ohsenrable--Observable inputs are inputs that reflect the assumptions that market 

participants use in pricing the asset or liability developed based on market data obtained 

from sources independent of the Firm. Characteristics of observable inputs include readily 

available, not proprietary. regularly distnbuted, and transparent. 

Unohservable-Unobservable inputs are inputs that reflect tbe Finn's own assumptions 

about the assumptions that market participants would use in pricing the asset or liability 

developed based on the best information available in the circumstances. 

Market participants 

Buyers and sellers in the principal (or most advantageous) market. A market participant 

must be independent (not a related party to JPMC), knowledgeable, able to transact (have 

the legal and rlnancial capacity to do so), and w11ling to transact (not forced or otherwise 

compelled to do so). 

Nonperformance risk 

Nonperformance risk refers to tbe risk that the ohligation will not be fulfilled and affects 

tbe value at which a liability is :transferred. Nonperformance risk includes the reporting 

entity's credit risk as well as settlement risk and may include, in the case of commodities, 

the risk related to physically extracting and transferring thc assct to the delivery point. 

BANK PROPRlETARY AND/OR TRADE INFOR,'\IATION OCC-SPI-00056794 
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Unit of account 

The unit of account determines what is being measured by reference to the level at which 

the asset or liability is aggregated or disaggregated for purposes of applying accounting 

pronouncements. 

III. SCOPE 

This policy describes JPMorgan Chase's (JPMC) policy in consideration ofFASB 

Statement No. 157, Fair Value Measurements, which was effective January 1,2007. 

Instruments/transactions [or which a [air value or fair-value-based measurement may apply 

but are not subject to this policy include: 

• Share based payments accounted for in accordance with F ASB Statement No. 123R, 

Share Based Payment (Statement 123R). While certain measurements in Statement 

123R are fair-value-based measurements. they may exclude the effects of certain inputs 

such as conditions, restrictions and other features that would be considered in a fair 

value measurement under Statement 157. 

Instruments valued in accordance with Accounting Research Bulletin No. 43, Inventory 

Pricing. 

Accounting pronouncements that permit measurements that are based on, or use, 

vendor-specific objective evidence of fair vatue. 

Situations where U.S. GAAP provides a practicability exception to the application of 

fair value, for example: 

- Guarantees accounted for in accordance with F ASB Interpretation No. 45 which 

allows for the use of transaction price (an entry price) to measure fair value at 

initial recognition. See also Corporate Accounting Policy #1-0108, 

"Guarantees." 

- Certain disclosures provided in accordance with FASB Statement No. 107, 

Disclosure about Fatr Value of Financial Instruments, where it is not practical to 

measure fair value. Corporate Accounting Policies must be consulted where this 

is detennined to be the case, 

- Certain Asset Retirement Obligations accounted for in accordance with F ASS 

Statement No. 143. Accountingfor Asset Retirement Obltgattons, where fair 

value is not readily determinable. 

- Certnin Contrihutions accounted for in accordance with F ASB Statement No.116, 

Accountingfor ContrIbUtions Received and ContributlOns Made, where 

contributions cannot be measured with sufficient reliability. 

Note: FASB Statement No. 141, Business Combinations, requires the use of fair value as 

the measurement objective, at inception, for certain assets acquired and liabilities a''lsumed 

in a busmess combination (for example, intangible assets) and these assets and liabilities 

are therefore subject to this policy. In certain circumstances, where the valuation 

techniques applied to the asset or liability may be similar to a fair value measurement hut 

fair value is not explicitly the required measurement objective, this policy does not apply 

(for exampte, receivables, notes payable, plant and equipment to be used). 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·SPI·00056794 
2252 

IV. ACCOUNTING POLICY 

The focus of this policy is how to arrive at a fair value measurement. This policy does not 

incorporate.: guidance regarding which instruments are required to be measured at fair value 

or which instruments the Firm has made an optional election to measure at fair value. 

Fair value measurements 

Fair value is the price to sen an asset or transfer a liability in the principal (or most 

advantageous) market for the asset or liability. The sale or transfer assumes an orderly 

transaction2 between market participants. The transaction to sell the asset or transfer the 

liability is a hypothetical Lransacllon at the measurement date, considered from the 

perspective of a market participant that bolds the asset or owes the liability. Therefore, the 

objective of a fair value measurement is to determine the price that would be received to 

sell the asset or paid to transfer the liability at the measurement date (an exit price). 

Because that exit price objective applies for all assets and liabilities measured at fair value, 

any fair value measurement requires identification of the following: 

a, The particular asset or liability that is the subject of the measurement 

b. The valuation premise appropriate for the measurement 

c. The principal (or most advantageous) market for the asset or liability 

d. The valuation technique(s) appropriate for the measurement, considering the 

availability of data Vt1.th which to develop inputs that represent the assumptions that 

market participants would use in pricing the asset or liability. 

A. Valuation Premise 

The valuation premise used to measure the fair value of an asset or liability depends on 

the highest and best use by market participants. If the maximum value is derived on 

a standalone basis, then an "in-exchange valuation" should be applied. If the maximum 

value is derived through its use in combination with other assets or liabilities, then an 

"in-use valuation" should be applied. 'Nbether the asset or liability is a standalone 

asset or liability or a group of assets and/or liabilities depends on its unit of account. 

The unit of account determines what is being measured by reference to the level at 

which the asset or liability is aggregated (or disaggregated) for pwposes of applying 

other relevant accounting guidance. 

The jn~exchange valuation premise is generally applicable to fmancial instruments and 

the in-use valuation premise is generally applicable to nonfinancial assets. However 

the "in~use valuation" premise may apply to financial instruments in certain 

circumstances where (I) it is more reflective of the market participant exit price and (1) 

there is historical evidence to support an "in~use" valuation; for instance, the highest 

and hest use of certain mortgage warehouse loans is considered to be in-use when such 

warehouse loans are pooled for the purpose of securitization. Detailed discussion of 

the application of valuation premise to certain financial instrume[)ts has been inc1uded 

in Appendix A. 

BANK PROPRIETARY AND/OR TRADE INFORMA nON OCC·SPI·00056794 
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B. Relevant Market 

A fair value measurement should reflect an exit price in the principal market for the 

asset or liability. The principal market is the market in which the Finn lransacts with 

the greatest volume or level of activity. 

• If there is DO principal market, the exit price should reflect the amount that would 

be received or paid in the most advantageous market (the market in which the Firm 

would maximize the amount tbat would be received for an asset or minimize the 

amount that would be paid to transfer a liability). 

If there are multiple markets for the same asset or liability, the most likely exit 

market should be considered to determine the exit price and the other exit markets 

do not need to be considered. 

• For assets and liabilities where there is little or no trading, or a one~way market, the 

Firm must make a detemination of what a willing counterparty would offer to 

purchase ao asset or assume a liability. The determination of what a willing 

counterparty would offer to purchase an asset or assume a liability should consider 

all available market information that the market participants would use to price the 

asset or liability. 

A discussion of the application of principal market to certain financial instruments bas 

been included in Appendix A. 

See also discussion of transaction costs below. 

C. ValuationiMeasurement 

Valuation techniques) used to measure the fair value of an asset or liability should 

maximize the use of observable inputs, that is, inputs that reflect the assumptions 

market participants would use in pricing the asset or liability developed based on 

market data obtained from independent sources. Valuations must consider current 

market conditions and available market information and will therefore represent a 

market-based, not entity specific, measurement. 

Fair value should be based on quoted market prices, where available. Jf1isted prices or 

quotes are Dot available, then fair yalue should be based upon internally developed 

models that use primarily market~based or independently~sourced market parameters, 

including interest rate yield curves, option volatilities and currency rates. In certain 

circumstances valuation adjustments must be made to ensure that financial instruments 

are recorded at fair value. These adjustments should be applied consistently over time 

and may include: 

• Credit valuation adjustments ("eVA") are necessary when the market prices (or 

parameters) are not indicative of the credit quality of the counterparty. 

Debit valuation adjustments ("DV A") are necessary to reflect the impact of the 

Finn's own creditworthiness in the valuution of liabilities thllt are CDrried at fair 

value. See furtber discussion ofDVA in Appendix B of this policy. See also 

discussion of Liability considerations below. 

BANK PROPRIETARY AND/OR TRADE INFORMA TION OCC·SPI·00056794 
2254 

Liquidity Vflluation adjustments are necessary when the Firm may not be able to 

observe a recent market price for financial instruments that trade in inactive (or less 

active) markets or to reflect the cost of exiting larger-than-normal market-size risk 

positions, Liquidity adjustments are based upon the following factors: 

- The amount of time since the last relevant pricing point 

- "Whetber there was an actual trade or relevant external quote 

- The volatility of the principal component of the financial instrument 

Costs to exit larger-than-normal market-size risk positions are determined based 

UPQD the size of the adverse market mQve that is likely to occur during the extended 

period required to bring a position doWn to a nonconcentrated leveL 

No adjustments may be made to the quoted price for instruments classified within 

Levell oftbe valuation hierarchy (see discussion of the fair value hierarchy in 

Section N.D. of this policy). 

Unobservable parameter valuation adjustments are necessary when positions are 

valued using internany developed models that use unobservable parameters 

(parameters that must be estimated and are therefore subject to management 

Judgment) as their basis. Risk-averse market participants generally seck 

compensation for the uncertainty associated with the cash flows of an asset or 

liability (risk premium). 

• Uncertainties and customization related to loan securitizalion for loans that are 

expected to be securitized, fair value is estimated based on observable pricing of 

asset-backed securities with similar collateral and incorporates adjustments (i.e., 

reductions) to these prices to account for securitization uncertainties including 

portfolio composition, market conditions and liquidity. 

Restri~ 

There arc generally two types of restrictions: 

Restrictions on sale 

Examples of a re.strlction on sale include restrictions on private placements, 

underwriter lock~up, and volume restrictions. An adjustment must be made to 

the value of the instrument to reflect tbe price adjustment that a market 

participant would make due to the lack of marketability. An adjustment for a 

restriction should be re-evaluated and adjusted appropriately as the time to the 

expiration of the restriction decreases. 

Note: 'When a publicly traded security position incorporates both restricted and 

non-restricted securities, the adjustment for restrictions wiU be applied only to 

the restricted shares. For example, securities subject to SEC Rule 144 

restrictions may have portions of the position that are unrestricted depending 

on trading volume, Additionally, SEC Rule 144 shares may be free to trade if 

a shelf registration has been filed. 

BANK PROPRlETARY ANDIOR TRADE INFORMATION OCC-SPI-00056794 
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Restrictions on use 

An example of a restriction on use would include a restriction on tbe use of a 

physical asset such as land or a building. An adjustment cannot be taken as a 

result of the restric~10D if it is deemed to be a restriction on use. 

The determination of whether a restriction should be incorporatcd in the valuation 

of an asset or liability requires judgment and consultation wltb Corporate 

Accounting Policies. 

• Liability considerations-a fair value measurement for a liability assumes (1) that 

the liability is lransferred to a market participant and the liability to the 

counterparty continues (it is not settled), and (2) that the risk of nonperfonnance is 

the same before and after the transfer. Nonperformance risk or the risk that the 

obligation will not be fulfilled impacts the amount at which a liability would be 

transferred. 

The adjustment to a valuation for nonperformance risk (or the impact of the Firm's 

own creditworthiness) is called the Debit Valuation Adjustment or "DVA." See 

further discussion ofDVA in Appendix B of this policy. 

D. Valuation Hierarchy 

All instruments measured at fair value are required to be classified within a three-level 

hierarchy that is primarily used for external disclosure purposes. The fair value 

hierarchy prioritizes inputs to the valuation of an instrument. "When tbe inputs to the 

valuation fall within different levels of the hierarchy, the level in which the instrument 

is classified is based on the lowest level significant input to the valuation. Where an 

instrument is classified wilhin the fair value hierarchy also impacts the Firm's ability to 

record valuation adjustments, for example, no valuation adjustments may be recorded 

for instruments classified within Levell of the hierarchy. 

Detailed below is a description of the hierarchy levels, the Firm's policies associated 

with the determination of classification. and examples" of products included within 

each of the levels: 

Note: Maintenance of documentation to support the level of classification for a product 

within the fair value hierarchy is the responsibility of the Line of Business Controllers 

andCFOs. 

Levell-inputs to the valuation methodology are quoted prices (unadjusted) for 

identical assets or liabilities in active markets. 

An active market is defined as one in which an accurate daily price can be obtained 

from multiple reliable sources and a fair value measurement (exit price) may be 

anived at without adjustment or tbe use of a modeL 

• No adjustments may be made to the quoted price for instruments classified within 

Levell (for instance, block discounts [size of position discounts] are prohibited). 

• Where a quoted price in an active market is available for the identical asset but is 

not readily accessible for the individual instrument, the Firm may use an alternative 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00056794 
2256 

pricing method (for example, matrix pricing). Where an alternative pricing method 

is utilized as a practical expedient the instruments must be classified in a lower 

level of the hierarchy. 

Examples of Level 1 instruments: 

Highly liquid government bonds, certain mortgage products (for ex.ample, residential 

agency pass·through sccuritics), cxchangc·tradcd equities, and cxchange-traded 

derivatives. 

Levell-inputs to the valuation methodology include: 

• Quoted prices for similar assets or liabilities in active markets. 

Quoted prices for identical or similar assets or liabilities in markets that are not 

active, that is, markets in which there are few transactions for the asset or liability, 

the prices are not current, or price quotations vary substantially either over time or 

among market makers (for example, some brokered markets), or in which little 

information is released publicly (for example, a principal-to-principal market). 

• Inputs other than quoted prices that are observable for the asset or liability, either 

directly or indirectly, for substantially the fu1l term of the financial instrument (for 

instance, interest rates and yield cunres observable at commonly quoted intervals, 

volatilities, prepayments speeds, loss severities, credit risks, and default rates). 

• Inputs that are derived principally from or corroborated by observable market data 

by correlation or other means (market·corrohorated inputs). 

There is generally evidence of two-way flow (purcbases and sales in the market) for 

instruments that are classified within level 2. 

Examples of Level 2 instruments: 

Common stocks traded and quoted on an inactive market in an emerging country, 

privately placed bonds whose value is derived from a similar bond that is publicly 

traded, over·the·counter interest rate swaps valued based on a model whose inputs are 

observable LIBOR forward interest rate curves, resale and repurchase agreements, 

warehouse loans, certain collateralized mortgage and debt obligations, certain highyield debt securities, as well as certain structured liabilities where the inputs to the 

valuation are primarily based upon readily observable pricing informatioD. 

Level3---inputs to the valuation methodology are unobservable and significant to the 

fair value measurement. Falr value for Level 3 instruments is based on internally 

developed models in whieh there are few, if any, external observations. For 

transactions in this category, there is rarely a two·way market, and typically there is 

considerable structuring (making the product largely one-off and JPMC proprietary). 

• Unobservable inputs should only be used when observable inputs arc not available 

(inputs are unobservable when they reflect the Firm<s own assumptions about the 

assumptions market participants would use to price the instrument). 

• The exit price measurement objective remains the same in Level 3; therefore, the 

Firm's own data should he adjusted if there is contrary data indicating that market 

participants would use different assumptions to price the instrument. 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00056794 
2257 

In ccrtain circumstances, an instrument that is classified within Level 3 at inception 

may become more observable as it approaches maturity. In those cases, when the 

unobservable component is no longer significant, the instrument will be transferred 

to Leve12 at that time. 

Instruments for which there is an unobservable input are generally classified within 

Level 3. If thefe is evidence present to demonstrate that the unobservable inputs are 

not significant to the valuation through cvidence such as two~way market trades, 

extensive pricing agency data, broker data or other relevant trade information, the 

instrument may be classified within Level 2. 

Examples of Level 3 instruments: 

LongMdated commodity swaps where the relevant forward price curve is not directly 

observable or correlated with observable market data, shares of a privately held 

company, structured notes with significant unobservable inputs, mortgage servicing 

rights, retained interests in securitizations, and goodwill. 

E. Transaction Costs 

The price in the principal (or most advantageous) market used to measure the fair value 

of an instrument should not include transaction costs. Transaction costs represent 

incremental direct (i.e., invoiced) costs to transact in the principal or most 

advantageous market, are not an attribute of the asset or liability being measured, and 

are reported as direct expenses in the Consolidated Statement ofIncome with limited 

exception (see Corporate Accounting Policy #IMOI07, "Netting of Assets and 

Liabilities and Related Income and Expense"). Transaction costs include, but are not 

limited to, invoiced brokerage and commissions and certain due diligence costs. 

Transaction costs which are incorporated within the bid offer spread (I.e., in~the~pricc: 

brokerage) are reported net within principal transactions and are not separately 

identified for reporting purposes. 

Transaction costs do not include the costs that would be incurred to transport an asset 

or liability to (or from) the principal (or most advantageous) market. Wbere location is 

an attribute of the asset or liability as may be the case for a commodity, the price in the 

principal or most advantageous market used to measure fair value of the asset or 

liability should be adjm:ted for the costs that would be incurred to transport the asset or 

liability to (or from) its principal (or most advantageous) market. 

F. Other Consideratioos 

Cut~offtime 

For instruments for which quotes are available prices must be obtained at the same time 

each business day. TIris includes cases where products are valued using models even 

though market prices are available in other time zones (for example, when trading 

across different exchanges). In addition, prices faT hedges and the items being hedged 

must be sourced at the same time of day. 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SP]·00056794 
2258 

For internal trades between portfolios based in different regions, each side may be 

priced using Lbe closing price obtained at the appropriate cut~off point in the relevant 

region. 

V. CROSS-REFERENCES 

Corporate Accounting Policy # 1 ~Ol 06, "Fair Vulue Option" 

Corporate Accounting Policy #1~0107, "Netting of Assets and Liabilities and Related 

Income and Expense" 

Corporate Accounting Policy #1~0108, "Guarantees" 

Corporate Accounting Policy #1-0112, "Consolidation of Variable Interest Entities" 

Corporate Accounting Policy #2~0301, "Repun;haselReverse Repurcbase Agreements and 

Securities Lending and Borrowing" 

Corporate Accounting Policy #2~0401, "Trading Securities" 

Corporate Accounting Policy #2-0501, "Investment Securities'" 

Corporate Accounting Policy #2-0502, "Securities Acquired in Loan Satisfactions" 

Corporate Accounting Policy #2~0603, "Loan Securitizations" 

Corporate Accounting Policy #2-0604, .... Commercial Lending Facilities" 

Corporate Accounting Policy #2-0605, '"'Consumer Loan Delinquencies, Nonaccruals, 

Charge-OITs, Modifications, Reagings, and Recoveries" 

Corporate Accounting Policy #2-0701, "Long-Lived Assets (Other than Internal Use 

Computer Software/Web Site Development)" 

Corporate Accounting Policy #2-1005, '"'Investments in Nonmarketable Equity Securities" 

Corporate Accounting Policy #3·0601, "Accounting for Structured Liabilities" 

Corporate Accounting Policy #3·0701, "Long-Term Debt" 

Corporate Accounting Policy #6·0101, "Accounting for Lending-Related Fees" 

Corporate Accounting Policy #6--0102, "Interest Income Recognition" 

VI. REFERENCESTOAUTHORITATIVELITERATURE 

FASB Statement No. 107, Disclosure about Fair Value of Financial Instroments 

FASB Statement No. 115, Accountingfor Certain Investments In Debt and Equity 

Securities 

F ASB Statement No. 123R, Share Based Payment 

FASB Statement No. 141 Business Combinations 

FASB Statement No. 143, Accounttngfor Asset Retirement Obligations 

FASB Statement No. 157, Fair Value Measurements 

FASB Statement No. 159, The Fair Value Optionfor Financial Assets and Liabilities 

ASR No. 118, Accounting, Valuation and D;sc!osure a/Investment Securities 

EITF 02-3, Issues Involved in Accountingfor Derivative Contracts Heldfor Trading 

Purposes and Contracts Involved in Energy Trading and Risk Management Activities 

10 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI·00056794 
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APPENDIX A 

Fair Value Measurements for Certain Instroments Carried at Fair Value 

This Appendix is intended to give further background regarding the fair value 

measurements for certain instruments carried at fair value, The list is not meant to be all 

inclusive. 

L Derivatives 

Background 

The Firm makes markets in derivative contracts, transacting with retail and 

institutional clients as well as other dealers. 

• Valuation Premise 

The valuation premise for derivatives is in-exchange. The unit of account is 

the portfolio. 

Relevant Market 

In general, the dealer market is the Firm's princlpal market for derivative 

transactions as the greatest volume of the Finn's derivatives activities occur in 

the dealer market In addition the dealer market is the most advantageous exit 

market for the Firm. 

ValuatianIMeasurcment 

The unit of valuation faf derivatives is the portfolio. The starting point for the 

valuation ofa derivatives portfolio is mid market. As a dealer, the Firm can 

execute at or close to mid market thereby profiting from the difference between 

the retail and dealer markets. If the Finn cannot exit a position at mid market 

certain adjustments are taken to arrive at exit price. (See Section IV.C. of this 

policy for a discussion of valuation adjustments.) 

II. Structured NoteslReposlResales 

Background 

The Finn issues structured notesS as a means to deliver derivative risk to retail 

and institutional clients that wish to invest in derivative risk in a funded format. 

Derivative risk, which may include credit risk, interest rate risk, foreign 

exchange risk, commodity risk and equity risk, is embedded in a debt host 

contract and issued in the Firm's name. The derivative risk is the primary 

driver of the profit and loss. 

Valuation Premise 

The valuation premise for structured note is in-exchange. The unit of account 

is the portfolio. 

II 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·SPI·00056794 
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Relevant Market. 

There is no active secondary market for most structured note products and 

sales to third parties are rare. Dealers (issuers) will provide indicative quotes 

for their own paper and will repurchase or unwind vlith the original 

counterpart), (investor). A dealer generally will not buy instruments issued by 

others. As such, not all market participants operate on both sides of the 

structurcd notes market. 

The principal market for the Finn is the primary (issuance) market for 

structured notes, Market participants include other dealers (issuers) to whom a 

liability could be transferred (who take positions on the liability side of their 

balance sheets). 

• ValuationlMeasurement 

To estimate the fair value of structured notes, cash flows are evaluated taking 

into consideration any derivative features and are then discounted using tbe 

appropriate market rates for the applicable maturities. As the primary risk in 

the "funded derivative" is derivative risk, market participants that issue 

structured notes use the same assumptions in valuation as those used in 

deriving an exit price in the derivatives market. In the absence of actual data 

for liability transfers for this product, the hypothetical transaction is based on 

assumptions in active markets for similar risks (derivative market), 

III. Mortgage Loan Warebouses 

BaCkground 

The Firm purchases and originates mortgage loans for securitization. Types of 

mortgages include: Agency mortgages (conforming mortgages sold to GNMA, 

FNMA and/or Freddie MAC) Alt~A, A1t~B, subprime and commercial 

mortgages, 

Valuation Premise 

The unit of account is the mOl1gage loan. Mortgage warehouse loans are 

valued using an in-use valuation premise as maximum value, [or a mortgage 

loan expected to be securitized, is derived when combined with other such 

loans. 

Relevant Market 

The principal market for a product or instrument is the market in which the 

Firm transacts with the greatest volume or level of activity, The securitization 

market is the principal market for mortgage warehouse loans as securitization 

is the primary exit strategy for the Finn. 

• ValuationlMeasuremen.t 

Fair value is based upon observable pricing of asset-backed securities with 

similar collateral and incorporates adjustments (i.e" reductions) to these prices 

to account for securitization uncertainties including portfolio composition, 

market conditions and liquidity. 

12 

BANK PROPRIETARY AND/OR TRADE INFOfu\1ATION OCC·SPI·00056794 
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Valuation technique 

All mortgage warehouse loans should be priced using a mock securitization 

(bond execution) basis, which is a market approach valuation technique, 

Under tbis approach, structuring models (combined with Rating Agency 

modeling approaches) are used to create representative deal structures, 

including bond levels by rating with loss coverage amounts and reflect the 

"offer" side of the market where the securitization take out occurs. 

IV, Mortgage Servicing Rights 

• Background 

Mortgage servicing rights ("MSRs") represent rights to receive cash payments 

in connection with performing tbe tasks required to service pools of previously 

sold mortgage loans. These cash payments include, but are not limited to, 

negotiated servicing fees, interest earned on escrow balances, late fees, and 

float earnings on principaVintcrest payments. 

• Valuation Premise 

Pooling ofMSRs maximizes value to the market participants by both creating 

less uncertainty in the cash inflows and pennitting the market participant to 

benefit from cost synergies that occur in servicing more mortgage loans. As a 

result of these benefits, market participants see more value for MSRs that are 

pooled in a portfolio than they would for individual servicing contracts, 

Consequently, the highest and best use o[ MSRs [rom the perspective o[ 

marketplace participants is in-use. 

Relevant Market 

MSRs arc not traded actively with readily observable prices; sales arc typically 

negotiated and brokered privately between entities. Trading volume is 

infrequent and unlike the brokering of a financial asset, the entities transacting 

must bave a servicing platform and be able to perform the required servicing.6 

Sales of MSRs are also subject to approval by investors in the mortgagebacked securities issued when the underlying loans were securitized. Based on 

the above, the principal market for MSRs, for the Firm, is a hypothetical 

market wbere the market participants have extensive servicing capabilities and 

benefit from certain cost economies of scale, 

• ValuationlMeasurement 

The vahmtion ofMSRs is generally estimated by calculating the present value 

of the estimated M! future servicing casb flows to be received over the life of 

the servicing contract. The net cash flows are comprised of servicing revenues 

less related costs of servicing. The maximization ofMSR value must either 

increase the cash inflows or decrease the costs of servicing. 

13 

BANK PROPRJETARY AND/OR TRADE INFORMATION OCC-SPJ-00056794 
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APPENDIXB 

JPMC Implementation of DV A 

(Se~ also discussion ofliability considerations in Section IV.C. oftrus policy.) 

In order to incorporate the effect of changes in the Firm '5 creditworthiness in derivative 

valuations, and because there is no industry standard for such calculations, the Firm 

deve10ped its DV A methodology utilizing assumptions that it believes other market 

participants would use to value liabilities due by tbe Firm. 

Specifically, the Finn leveraged its current Credit Valuation Adjustment (01 A) 

methodology used to calculate and record the effect of counterparty credit risk for 

derivative receivables. The eVA is derived by calculating an expected positive 

exposure CEPE) at time of counterparty default (including certain collateral 

assumptions) and applying to it the counterparty's credit spread or a proxy thereof and 

a standard default recovery rate to arrive at an adjustment fOT credit Similarly, DV A is 

calculated as expected negative exposure (ENE) x JPMC's market credit spread and a 

standard recovery assumption. Details for each of these key inputs follow. 

Expected Negative Exposure (ENE) 

The basic huilding block for DV A is Expected Negative Exposure (ENE); that is, what 

the Firm would expect to owe derivative counterparties at the time of its default. This 

is computed by first generating possible scenarios 7 of underlying market factors and 

averaging over all portfolio market-ta-market values, treating positive values as zero. 

These scenarios take into account the impact oflegally enforceable netting agreements 

and existing collateral agreements with the counterparty as well as collateral 

agreements which are probable of being enacted in the event ofa significant 

deterioration in the Firm's credit standing. 

Legally enforceable neUing agreements 

The Firm has master netting agreements in place with virtually all derivative 

counterparties. Upon default or tennination of anyone contract, a master 

netting agreement provides for the net settlement of all contracts with the 

counterparty through a single payment in a single currency. The netting 

provisions in the agreement are legally enforceable and as such would serve 

as a mitigant (a reduction) to ENE to the extent that the Firm had positive 

exposure to the respective countcrparty for other derivative contracts. An 

important assumption that the Finn makes for both eVA and DV A is that the 

Firm would net settle all deals where possible. The Firm believes that this 

assumption is well corroborated by its behavior and the behavior of other 

market participants. The Firm also believes that the incorporation of netting 

agreements into the DV A calculation is supported by paragraph 15 of 

Statement 157 which indicates that the terms of credit enhancements related 

to a liability should be incorporated in the value of that liability. Although it 

deals with presentation, Paragraph 21 ofFrN 39 also ac1mowledges that 

credit risk is best reflected by net amounts under a master netting agreement. 

14 

BANK PROPRIETARY AND/OR TRADE INFOR-MA TION OCC-SPI-00056794 
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Existing collateral arrangements with counter parties 

Consistent with the Firm's approach regarding master netting agreements, 

the Firm incorporates the existence of collateral agreements in deriving the 

ENE. The Firm assumes that a counterparty to which an assignment was 

being made would demand credit protection comparable to that obtained by 

the transferor, thus requiring reflection in the exit price. 

Probable col/ateral arrangements 

In an idiosyncratic default scenario, the Finn also considers the probability of 

new credit enhancements"being required at the time of the credit event.s This 

assumption impacts the exposure (ENE) to Ihe Firm's counterparties as the 

Firm's credit deteriorates. 

As the Firm heads to default idiosyncratically, in order to maintam its 

derivatives franchise the Firm would likely be required by its counterparties 

to either enter into unilateral collateral agreements where there are none, or 

to renegotiate existing collateral agreements to terms more favorable to the 

Finn's clients. For modeling purposes, the assumption is that a unilateral 

collateral agreement, in favor of the client, would be put into place. 

Consideration of the impact of probable credit enhancements within the 

valuation appropriately prevents the recognition of a gain that would not be 

realized due to the imposition of a new collateral agreement. 

'Wbile it is clear that derivative counterparties impacted by the Firm's credit 

deterioration would request additional credit support, there is also evidence 

suggesting that market participants faced with a call for additional collateral 

would also respond by posting collateral in order to protect their derivative 

franchise. The Finn notes that several firms have established AAA-rated 

entities to house tbeir derivatives activity for precisely this reason. 

JPMC Credit Spread 

The second major component of the DVA calculation is the Firm's credit spread. An 

observable market indicator orthe Firm's creditworthiness, the credit spread is the sum 

o[(a) the market risk premium (reflecting the market's perception of the Firm's credit 

risk or the systemic risk) and (2) the real probability of default (the idiosyncratic entityspecific risk factor). 

The Firm currently uses counterpaTty credit spreads from the credit default swap 

market to calculate the eVA. Credit default swap spreads assume a recovery • 

assumption. Many of the Finn's competitors also use credit spreads to asseSs the credit 

risk associated with counterparty receivables. It is therefore reasonable to assume that 

market participants would similarly include the Firm's observable credit spread as a 

key input in derivative valuations. 

The Firm's CVA methodology is based on the best evidence of how sophisticated 

market participants value the credit risk inherent in derivative transactions. The DVA 

methodology applies the same logic where the Firm is in a payable (versus receivable) 

position. In order to validate the reasonableness of the methodology and how credit 

would be considered in the transfer of a liability, the Firm considered recent 

transactions where the impact of the counterparty's creditworthiness was clearly 

IS 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPJ-00056794 
2264 

considered in the unwind price ofa derivative receivable. The Firm believes that where 

an entity is required to assess its own creditworthiness for liabilities which it records at 

fair value, an adjustment similar to that applied for eounterparty creditworthiness is 

appropriate and, although based on limited historical evidence, supportable. The Finn 

believes that this methodology will also be validated by the pricing of future 

unwinds/assignments and as such, the Firm believes that its calculation of DV A-the 

product of the ENE, the JPMC credit spread, and a standard recovery rate-produces 

an exit pricc consistent with that derived by a market participant. 

Other considerations - DVA for structured notes 

In order to assess nonperformance risk for'structured -notes, the Firm leveraged the 

current DVA methodology applied to derivatives with limited modification. 

Modifications were based on the following: 

Cash flows on derivatives may be either positive (inflows) or negative 

(outflows), whereas cash flows on a structured note are all outflow'S. As a 

result, for structured notes, the equivalent of the ENE (within the derivative 

calculation) is the !ibor flat discounted cash flows for the note. 

Due to operational constraints, the DVA metbodology for structured notes 

assumes that there is only one cash outflow which happens at maturity, similar 

to a zero coupon note. 

The DV A methodology for structured notes is based on readily available information 

(data) for the underlying structured notes. The data required is: 1. fair value of the 

structured note in its entirety (excluding the impact of the Firm's credit) and 2. the 

expected maturity of the instrument:' The methodology calculates an adjustment to the 

fair value based upon the Firm's survival probability at the expected maturity date of 

the instrument. The formula is as follows: 

DVA = FV * (I-SP(EM,RR»*(l-RR) 

• FV: the model-based fair value ofthe instrument as reported on the Firm's 

books and records (exclusive of the Firm's credit spread). The fair value 

represents the expected negative outflows as described below. 

• SP(EM,RR) is the Finn's sUfvivalprobability at the note's expected maturity 

EM, which is the equivalent of Lbe JPMC credit spread X a recovery rate RR 

The Firm's use of CDS spreads to calculate the DVA for structured notes is principally 

based on the substance of the instruments being valued. Structured notes can be 

viewed as funded derivatives or hybrid instruments that are similar in many ways to 

derivatives. As market participants within the hypothetical wholesale market for 

structured notes would include other dealers; and as other dealers generally incorporate 

an adjustment for credit risk into the fair value (exit price) of derivatives using 

liquid/observable CDS spreads; the Firm has consistently used CDS spreads to value 

similar risks wiLbin the structured note population. 

16 

BANK PROPRlETARY AND/OR TRADE rNFORMA nON OCC-SPI-00056794 
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APPENDIXC 

Nonrecurring Fair Value Measurements 

Certain assets, liabilities and unfunded commitments are measured at fair value on a 

nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing 

basis but are subject to fair value adjustments in certain circumstances (for example, 

when there is evidence of an impairment or there is a lower of cost or fair value 

adjustment.) 

Examples of instruments that are subject to nonrecurring fair value adjustments 

include: 

• Held-for·sale loans or commitments carried at lower of cost or fair value; see 

Corporate Accounting Policy #2-0604, "Commercial Lending Facilities." 

• Held-for-investment (accrual) loans that are impaired and are written down to 

fair value based on the fair value of the underlying collateral, or based on an 

observable markl:t price; see Corporate Aa;oullting Policy #2-0611, 

"Allowance for Credit Losses." 

Equity investments accounted for either at cost or under the equity method; see 

Corporate Accounting Policy #2~l005, "Investments in Nonmarketable Equity 

Securities." 

• Goodwill and other intangible assets; see Corporate Accounting Policy #2-

1004, "Intangible Assets and Goodwill." 

• Long-lived assets including real estate. fixed assets, assets under operating 

leases, and capitalized software; see Corporate Accounting Policies #s 2-0701 

to 2~0705, "Premises and Equipment." 

17 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-00056794 
2266 

ENDNOTES 

1 The fair value option may also be applied to selected unrecognized firm commitments and 

written loan commitments. 

1 An orderly transaction assumes exposure to the market for a period prior to the measurement 

date to allow for marketing activities that are usual and customary for transactions involving 

such instruments; it is not a forced transaction (for example, a forced liquidation or distress 

sale). 

3 Valuation techniques may include: 

Marki!l approach 

The market approach uses prices and other relevant information generated by market 

transactions involving identical or comparable assets or liabilities and may include use of 

matrix pricing or market multiples derived from a set of comparables. 

Income approach 

The income approach uses valuation techniques to convert future amounts (for example, cash 

flows or earnings) to a single present amount (dlscounted). Valuation techniques include 

present value techniques; option pn·cing models, such as Black~Scholes~Merton formula (a 

closed~form model) and binomial model (a lattice model) which incorporate present value 

techniques, and the multi~period excess earnings method, which is used 10 measure [air value of 

certain intangible assets. 

Cost approach 

The cost approach is based on the amount that current1y would be required to replnce the 

service capacity of an asset (otherwise known as current replacement cost) 

4 The examples provided are generalized across asset classes. Classification within the valuation 

hierarchy is hased on a review of the products and the related facts and circumstances including 

the significance of ally unobservable inputs to the valuation methodology. 

5 Within this appendix, the term "structured notc" is used to refcr structured notes, structured 

repo and structured resales . 

.. Another consideration is that even for an entity with servicing capability, the size of the 

servicing operations may not provide adequate economies of seale in its own servicing cost 

structure. 

7 The final ENE is a weighted average of the results from the two default scenarios (a systemic 

default and an idiosyncratic default). 

8 In tbe systemic default scenario it is much less clear that the Firm's c(}unterparties will be able 

to impose or change collateral agreements in their favor, thus incremental collateral has not 

been considered. 

\I Underlying data collected from the businesses include carrying value, c:xpected maturity and 

Legal Entity (to determine the application of the bank: versus bolding company spread). 

I8 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-00056794 
2267 

From: 

To: 

CC: 

Sent: 

Subject: 

Attachments: 

Williams, Julie 

Curry, Thomas 

Nash, Paul 

6/29/20123:15:58 AM 

JPMC Trades and the Vo!cker Rule Proposal 

JPMC Application of Volcker Rule.docx 

I'm attaching a draft memo that addresses the question you raised re how the Vo!cker Rule statute and proposed 

regLdations would apply to the JPMC trading activities in the news. I'd welcome talking more about this. My big 

take-away is that trying to capture what is okay and not okay with detailed regulatory requirements is futile and 

ineffective. There is a crucial role for supervisory judgments that needs to be escalated. 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-00065656 
2268 

From: Venkatakrishnan, CS <cs.venkatakrishnan@jpmorgan.com> 

Sent: Mon, 02 Apr 2012 21:53:53 GMT 

To: Hogan, John J. <JohnJ.Hogan@jpmorgan.com>; Goldman, Irvin J 

<irvin.j.goldman@jpmchase.com>; Baconl Ashley <Ashley.Bacon@jpmorgan.com> 

CC: Vigneron, Olivier X <oHvier.x.vigneron@jpmorgan.com> 

Subject: PM: eIO DAY 1 

John/Ashley/lrv: Below is an update from Olivier. One source of mode! difference is that the capital models operate at the 

!evel of individual names but the CIO's desk models operate at the level of indices ~~. so the effect of name concentrations 

may be captured differently. We are pursuing the impact and further modeling of this. Venl<at 

From: Vignemn, Olivier X 

Sent: Monday, Aprij 02, 2012 3:15 PM 

To: Venkatekrishnan, CS 

Subject: (10 DAY 1 

HI Venkat, 

Main takeaways' 

Book comprises index trades only (tranclles+ plain indices). AU modelling done on the index spread, single names are 

assumed homogeneous and homogeneous pool model is then used to price tranches and generate index delta. 

Historical regression also gives them a beta adjusted delta for HYvs !G, 

Key takeaway 1: approximation around the dispersion of single names a key source of discrepancies when submitting 

portfolio to large Single name shocks (as does tRC/CRM). More work to quantify impact of this approximation. 

Key takeaway 2: we need to load the book on a "bottom up" sing!!"! name modelling approach that can give single 

name default exposures, as well as a CSW computation that is comparable tothe Credit Trading desk for example. 

To discuss model!!ng merits of cia and its feedback on our IRe spread modelling with the model research group (will 

start with Matthias A, who has been involved by Anll). 

To model in lynx (tool developed by credit trading team) the C!O portfolio. Preliminary dummy trades loaded. Tool is 

ring fenced (l.e. only t will have access). However I will clleck wIth Javier before loading the real notionals tomorrow 

that he is fine for me to go ahead with this. 

On my CSW estimate sent yesterday for Marcil 7th position, j missed the Xover trades, here is the updated estimate when 

including them~ 

Estimated All TranchE'S: 

Estimated COX indlces: 

Estimated ITRX indices: 

Estimated HY COX; 

Estimated FinSub + Xaver: 

-45mCSW 

-350m CSW 

-280m CSW 

+400m CSW 

+150m CSW 

Confidential Treatment Requested by JPMORGAN CHASE & CO. 

BANK PROPRIETARY AND/OR TRADE INFORMA TlON 

JPM·CIO 0007924 

OCC·SPI·00070715 
2269 

Tota!: -125m CSW long (March 7th) 

Face notional by maturlty buckets and !G/HY split. 

25bn short in 1V 15 

15bn short in 2.Y HY, 

17bn short SY HY 

13Sbn long in SY iG 

Olivier 

From: Venkataklishnan, CS 

Sent: 30 March 2012 22:30 

To: Vigneron, Olivier X Subject: FW: cm 100/(1 CSW 

Please see below and let's make sure we speak daily on this! Merd, Venkat 

From: Hogan, Jctm J. 

Sent: Friday, March 30, 2012 5:28 PM 

To: Venkatakrishnan, CS 

Subject: RE: em 10% CSW 

OK thanks Venkat-keep me posted please 

From: Venkatakrishnan, CS 

Sent: Friday, March 3D, 20ll 5;27 PM 

To: Hogan, John], 

Subject: CIO 10% CSW 

Jot1l1: ao's 10% CSW by my group's model ~imate is long 245mm of risk; their own models (run by Weiland) quote $145mm, I 

don't understand the difference in the models and don't know how good a measure of risk lO%CSW is for their book. But I spoke 

to Ash!ey and we agree that 10%C5W has been trending up for eIO, by either their model or ours. Once Olivier spends time in the 

portfolio, we should get a better idea. I also sense from speaklng with Javier that CIO are worried that they may now have to shed 

tranche risk in a tight market. I don't know how real this worry is but 1 wanted to make you aware. I will get a daily download 

from Olivier and keep you and Ashley posted (Ashley is out next week). I may myself go to london mid-week. Venkat 

Please see the CSW1D results for original CIO portfolio and the split portfolio for March 21st. 

Corp PortfoUo 

COB 10-Jan-12 18-.1a"..12 25-Jan-12 31-Ja"..12 2B~Feb~12 21-Mar-12 

CSW1D (MM) 7.2 737 80.6 62.2 150.1 245.2 

Corp Gto Index COmOined 

Portfolio Portfolio Portfolio 

CSW10 (MM) 245.2 252.8 7.6 

Confidential Treatment Requested by JPMORGAN CHASE & CO. JPM~CIO 0007925 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·SPI·00070715 
2270 

This following is based on the latest spilt I received from Patrick Hagan this morning. 

Corp CIO Index Combined 

Portfolio Portfolio Portfolio 

CSW10 (MM) 245,2 213.5 31.7 

From: Huang, Yuan X 

Sent: Friday, Match 30, 2012 10:02 AM 

To: Venkatakrishnan, CS 

Cc: Jia, Keith 

Subject: FW: Marw 21 risk report for eIO and benchmark indices 

We have the CSWlO results for a few days (see row 24 "Spread_lOPcntUp"). If the date you are interested is not included (ex, 

Mar· 7th ), we can generate the results in about half <in hour. 

Regards, 

Yuan 

From: Jia, Keith 

Sent: Thursday, Mann 29, 2012 11:46 AM 

To: Huang, Yuan X 

Cc; Bangia, Ani! K 

Subject: RE: Mar-21 risk report for ao and benchmark indices 

6-day risk report. 

From: Huang, Yuan X 

Sent: Wednesday, Mardl 28, 2012 2:56 PM 

To: Jia, Keith 

Cc: Bangia, Ani! K 

Subject: Mar-21 risk report for eIO and benchmark indices 

Confidential Treatment Requested by JPMORGAN CHASE & CO. 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

JPM·CIO 0007926 

OCC·SPI·0007071S 
2271 

o 

Comptroller of the Currency Administrator of National Banks 

Washington, DC 20219 

MEMORANDUM 

To: Patti Spellacy, Congressional Affairs Specialist 

From: Michael L. Brosnan, Senior Deputy Comptroller, Large Bank Supervision 

Date: **N\A ** 

Subject: Response to Senate Banking Committee: Large Bank Supervision 

Purpose 

This memo responds to your request for information to complete the hearing record for the 

United State Senate's Committee on Banking, Housing, and Urban Affairs in regards to the 

Comptroller's testimony before the committee on June 6,2012. 

Response from Large Bank Supervision 

Questions for the Honorable Thomas J. Curry, Comptroller of the Currency, Office ofthe 

Comptroller of the Currency, from Senator Vitter: 

1. At what point in the process of JPMorgan making this trade and the public reporting of 

the losses did the acc examiners become aware of this trade? 

The OCC knew the bank was planning to modifY its position; however, we were not fully 

aware of the manner in which management chose to do that, or the rapid huild-up in tbe 

size or complexity of the bank's CDS positions in the first quarter of2012. Bank reports 

did not initially fully identify and convey measurements of the change in risk, and bank 

executive management did not understand the full impact of the new exposures. 

Unexpected losses were first identified in late March. The CEO of the era explained 

that these were an anomaly in market prices and that the market would "mean-revert." 

Profit and loss volatility increased in early April leading up to the "London Whale" 

article on April 6, 2012. We spoke with bank management various times in April and 

obtained more detailed information on the position as press reports appeared about its 

positions in tbe market. At the time, management indicated the situation was managed 

and under control. We advised bank management to keep us informed and notify us of 

BA."lK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00074914 
2272 

material changes. The oee began discussing additional follow up actions. From that 

time fOlWard, the losses became larger and the explanation of market anomaly was less 

viable. On May 4, management centacted the ace Ele to notify him of the cbanged 

assessment and the magnitude of losses realized during the second half of April. 

2. Does the OCC examine each of these trades as they occur? Ifnot, how does the OCC 

monitor the risk that the banks it supervises is undertaking? 

The OCC does not examine individual trades (or loans) as they occur. Our role is not to 

approve or manage the bank's risk positions. Rather, we assess the risk management and 

controls over the bank activities. Large banks assume varied and complex risks that 

warrant a risk-oriented supervisory approach. Under this approach, examiners focus on a 

bank's risk appetite and the limits and controls that are designed and implemented to 

identify and control the risks they assume. The OCC recognizes that banking is a 

business of taking risks in order to earn a profit. However. when risk is not properly 

managed, the oce directs bank management to take corrective action. In all cases, the 

OCC's primary concern is that the bank operates in a safe and sound manner and 

maintams capital, reserves and liquidity commensurate with its risk. 

Bank management is responsible for managing risks. The OCC focuses on whether a 

bank has a sound risk management system. A sound program will identify risk, measure 

risk, monitor risk, and control risk. 

Through a combination of discussions with management supported by review of Board 

and management reports, examination activities are targeted based on assessment of risk. 

OCC examiners evaluate policies, procedures, activities and performance. 

In this case, the bank had an experienced management team with a long history of 

satisfactory performance. However, a rapid change in risk-taking behavior by the line of 

business (and risk management and measurement tools that were insufficient for and not 

consistent with the risk being taken) resulted in failure to identify and manage the higher 

risk exposure. The CTO activities were not, historically, considered to be high risk and 

the bank's primary CDS activjties as dealer are in the Investment Bank, not tbe separate 

and distinct CIO. The CIO's historical mandate had been primarily to manage interest 

rate and other bank wide risks and invest the excess of deposits over loans in various 

investment securities. The limit and control infrastructure of the CIO was not built for 

the type of activity and trading volume in synthetic credit positions that occurred in the 

flrst quarter of2012. What occurred was a rapid change in the risk behavior and risktaking that the existing control infrastructure was not able to identify or manage. 

3. How many trades does JPMorgan have of this magnitude and what are the possibilities, 

given Europe and a softening domestic economy that a number of these bets go bad at the 

same time? 

-2-

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-000749J4 
2273 

Trading in these instruments historically occurs primarily in the Investment Bank. where 

the controls are appropriate for the risk and activity. We do not believe that other such 

significant positions exist in the company. Stress testing for a variety of stress scenarios 

occurs regularly, and both European and domestic considerations are among those 

analyzed. 

-3-

BANK PROPRIETARY AND/OR TRADE INFOR.'l-{ATION OCC-SPI-00074914 
2274 

Questions for the Honorable Thomas J. CUrry, Comptroller of the Currency, Office of the 

Comptroller of the Cunency, from Ranking Member Shelby: 

1. In the wake of the JPMorgan loss tbere has been a lot of discussion about hedging 

activities. Many financial institutions develop hedging strategies with interest rate and 

credit derivatives to hedge volatility. 

a. What is tbe oversight process for banks who hedge risk and how are these hedges 

examined? 

As banking is a risk taking business, we fully expect that banks will take actions to 

reduce or eliminate unwanted risk exposures. Hedging actions can take place on a 

transaction-by-transaction basis, or on a portfolio basis, Transaction hedging is easier 

to define and understand as one can see the risk additive transactions being offset by 

risk reduction transactions. 

The concept is the same for portfolio hedging, but the measurement of the correlation 

between the portfolio of risk and the hedge is more difficult to document, as the 

hedging instrument is not always the specific offset to the underlying risk, Similar to 

transaction hedging, we look to understand the nature of the portfolio of risk, how its 

value changes with price or rate changes. We then look to see how tbe bedge 

performs in similar situations. We expect bank reports to document and support a 

strong negative correlation between the risk position and the hedge. 

b. How do you determine whether a particular activity is or is not really "hedging"? 

A hedge position must be offsetting some existing risk exposure. Bank risk reports 

need to identify the underlying position and document its sensitivity to price or rate 

movements. 

2, Given the complexities identified during the hearing with determining whether or not a 

trade is a hedge or a proprietary trade, it appears the real1ssue is whether a trade threatens 

the safety and soundness of the bank, 

a. How do you determine whether tbe trade presents risks to the safety and soundness of 

a hank? 

A trade (or trading position consisting of multiple trades) would present risks to the 

safety and soundness of a bank if the loss exposure materially impacted the earnings 

and capital of the bank. We evaluate risk measures, position reports, and limits 

(including V AR and others estahlished to guard against illiquid or concentrated 

positions) to ensure that the risk appetite is reasonable and would not pose a material 

threat to earnings or capital. Controls should also be in place and be tested regularly 

to ensure that risk -takers operate within their limits. 

4· 

BANK PROPRIETARY AND/OR TRADE INFORMA nON OCC·SPI·00074914 
2275 

Based on the information available at this time, JPMC's earnings are capable of 

absorbing the potentiallosscs from its trading positions with no adverse impact to 

capital. The potentia110sses do not pose a threat to the solvency of the bank. 

b. If a trade does present such risks, what authority do you have to stop or prevent the 

trade from occurring? 

The OCC has a wide-range of supervisory tools that it can use to address an unsafe 

and unsound position that threatens the hank including a temporary cease and desist 

order. A temporary Cease and Desist Order is an interim order issued hy the OCC 

pursuant to its authority under 12 USC 1818(c) and is used to impose measures that 

are needed immediately pending resolution of a final Cease and Desist Order. Such 

orders are typically used only when immediately necessary to protect the bank against 

ongoing or expected harm. A Temporary Cease and Desist Order may be challenged 

in U.S. district court within 10 days ofissuance, but is effective upon issuance and 

remains effective unless overturned by the court or until a final order is in place. 

-5-

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-00074914 
2276 

Questions for The Honorable Thomas J. Curry, Comptroller of the Currency, Office of the 

Comptroller of the Currency, from Senator Brown: 

During the June 6" hearing, Mr. Gruenberg agreed that "historically, including to the present 

day, the biggest risk of banking is the lending activity that is inherent to the banking process." 

In testimony before the Subcommittee on Financial Institutions and Consumer Protection on 

May 9th, the former Chief Economist of the Senate Committee on Banking, Housing, and Urban 

Affairs statoo: 

"In a remarkably understated 2007 annual inspection report on Citigroup, the Federal 

Reserve Bank of New York observed that '[mlanagement did not properly identify and 

assess its subprime risk in the CDO trading books, leading to significant losses. Serious 

deficiencies in risk management and controls were identified in the management of Super 

Senior CDO positions and other subprime-related traded credit products.' By the end of 

2008 Citigroup had written off $38.8 billion related to these positions and to ABS and 

CDO securities it held in anticipation of constructing additional CDOs." 

Testimony of Marc larsulic, Chief Economist, Better Markets, Inc., before the Senate Committee 

on Banking Housing and Urban Affairs Subcommittee on Financial Institutions and Consumer 

Protection, "Is Simpler Better? Limiting Federal Support for Financial Institutions" 9, May 9, 

2012. 

According to accounts of the hearings held by the Financial Crisis Inquiry Commission, two 

witnesses agreed that CDOs were responsible for Citigroup's financial difficulties: 

"[Former Citigroup chief executive Charles] Prince ultimately b.lamed much ofCiti's 

problems on CDOs, whicb he said were complex and entirely misunderstood. He said the 

company, its risk officers, regulators and credit rating agencies believed CDOs were lowrisk activities. As it turned out, they resulted in $30 billion worth of losses ... 

"[Former Comptroller of the Currency John 1 Dugan, too, put much of the blame on 

CDOs, partly as a way of defending his own agency. He said the bank, which the Office 

of the Comptroller oftbe Currency oversaw, did not damage the holding company, while 

Citi's securities broker-dealers, which managed the CDOs and were overseen by the 

Securities and Exchange Commission, were at fault. 

'The overv.rhelming majority ofCiti's mortgage problems did not arise from mortgages 

originated by Citibank,' Dugan said. 'Instead, the huge mortgage losses arose primarily 

from the collateralized debt obligations structured by Citigroup's securities broker-dealer 

with mortgages purchased from third parties.'" 

Cheyenne Hopkins, No One Was Sleeping as CUi Slipped, AM. BANKER, Apr. 8,2010. 

-6-

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00074914 
2277 

Do you agree with the New York Fed, the fonner Comptroller of the Currency, the former Chief 

Economist of the Senate Banking Committee, and tbe fanner CEO of Citigroup that CDOs were 

a substantial cause ofCitigroup's financial difficulties in 2008, resulting in significant support 

from the federal government, including capital injections from the Treasury Department, debt 

guarantees from the FDIC, and loans from the Federal Reserve' 

Yes. Excessive risk-taking in sub-prime collateralized debt obligations (CDOs) was a substantial 

cause ofCitigroup's financial difficulties in 2008. 

-7-

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00074914 
2278 

Questions for the Honorable Thomas J. Curry, Comptroller of the Currency. Office of the 

Comptroller of the Currency, from Chairman Johnson: 

1. Mr. Curry~ in response to my question during the hearing about the risk management of 

JP Morgan Chase & Co. (JPMorgan), you stated that the Office ofthe Comptroller of the 

Currency (OCC) is reviewing "what exactly transpired with the trading operation within 

the CIa's office, and ... looking to make sure that there were appropriate limits and 

controls on those activities in that area and how they compared to other areas within the 

organization." Two weeks later, you stated that '''we do believe, as a preliminary matter, 

that there are apparent serious risk management weaknesses or fai1mes at the bank. 

We're attempting ... to continue to examine the root caUSes for those failures and to 

determine whether or not there are other weaknesses in the bank besides the CIa." 

Do you have any further preliminary conclusions on your review of the hank's risk 

management? 

What gaps have you identified as supervisors? 

Please provide additional detail about what you meant by "serious risk management 

weaknesses or failures at the bank." 

How many staff members are ordinarily involved in supervising JPMorgan, 

especially with regard to the company's risk management, and how many additional 

staff have you dedicated to this review? 

The OCC's supervisory team includes approximately 65 full time onsite examiners who 

are responsible for reviewing nearly all facets of the bank's activities and operations, 

including commercial and retail credit, mortgage banking, trading and other capital 

markets activities, asset liability management, bank technology and other aspects of 

operational risk, audit and internal controls, and compliance with the Bank Secrecy Act, 

anti-money laundering laws, and the Community Reinvestment Act. These onsite 

examiners arc supported by additional subject matter experts from across the OCC, An these examiners are essentially involved in supervising the risk management practices of 

JPMorgan as risk management systems are in place throughout the bank's operations to 

identify, measure, monitor, and control risk. 

We have one dedicated examiner who directly oversees the CIa with support of a team 

of capital markets specialists representing 8 FTEs to review specific capital markets areas 

depending on the topic, We have added staff on assignment from our London team, our 

Risk Analysis Division (quantitative experts), as wen as received assistance from om 

Office of Chief Accountant. 

-8-

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPJ-00074914 
2279 

When do you expect to complete your review? Do you have any further preliminary 

conclusions on your review of the bank's risk management? What gaps have you 

identified as supervisors? 

Preliminary conclusions and gaps identified are as foUows, although we continue to 

assess this matter: 

Oversight of the ChiefInvestment Office was unsatisfactory. The board and 

management failed to ensure that an adequate risk management and control structure 

was in place. The control infrastructure was inadequately staffed and supported. The 

Board and executive management were unaware of the change in risk in the synthetic 

credit portfolio. 

Traders built significant risk positions in the synthetic credit book over the course of 

the first quarter 2012, with most risk assumed in mid-te-Iate March. The book 

hecame very large, complex, illiquid, and difficult to manage, Risk will remain 

elevated for an extended period as traders work to reduce unwanted exposures. 

Model control practices in CIO were unsatisfactory. The VAR model was poorly 

implemented and had not received final approval. Valuation control practices were 

unsatisfactory. Traders intentionally misstated dosing prices to cushion losses mid 

month and month end control processes failed to identify rnismarked position. 

Risk Management was ineffective and irrelevant. Limits were inadequate for the 

nature of the risk. Business level limits were deemed inadequate hy management 

and, in effect, ignored. 

Audit did not identify the lack of relevant risk limits nor the rapid increase in risk. A 

material control deficiency was reported for the first quarter prompting a restatement 

of earn.ings. 

The company is implementing corrective actions. An entirely new CIO seruer 

management group is in place and is undertaking an end-to-end review of all CIO 

processes and practices. Firm wide risk management and processes are also heing 

evaluated and new committees and processes are being put in place. 

Please provide additional detail about what you meant by "serious risk management 

weaknesses or failures at the bank. ,. 

Serious risk management weaknesses or failures at the bank that we had identified at the 

time of the hearing include, for example: 

• The rapid build-up of CDS positions in the first quarter of2012 and bank reports 

that did not fully describe the change in risk resulted in bank management not 

understanding the full impact ofthe new exposures. 

-9-

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00074914 
2280 

• The first line of defense failed given the rapid change in the risk behavior and 

risk-taking by the line of business resulting in the inability to identify and manage 

the higber risk exposure. 

• The second linc of defense, independent Risk Management, was aware of the 

strategy being adopted and failed to ensure reporting that captured the risk these 

positions and establish appropriate risk limits. 

• The third line of defense, internal audit, fuiled to identify the rapidly growing 

positions being taken in tbe first quarter that resulted in the losses during its first 

quarter review. 

• The unanticipated risk exposure cast doubt on tbe effectiveness of the bank's 

model validation process and the independent review process, specificaJly its 

updated Value at Risk (VAR) model. However, the V AR model is only one 

measure of risk and it was not designed to control an active trading desk or the 

positions undertaken by the CIa in 2012. Separate and distinct limits are needed 

to identify, measure, report, and control other risks and these limits were 

inappropriate for these activities. The limit and control infrastructure of the CIa 

was not built for the type of activity and trading volume in synthetic credit 

positions that occurred in the first quarter of20 12. 

How many staff members are ordinarily involved in supervising JPMorgan, especially 

witb regard to tbe c-ampany's risk management, and how many additional staff have you 

dedicated to this review? 

The OCC's supervisory team includes approximately 65 full time onsite examiners who 

are responsible for reviewing nearly all facets of the bank's activities and operations, 

including commercial and retail credit, mortgage banking, trading and other capital 

markets activities, asset liability management, bank technology and other aspects of 

operational risk, audit and internal controls, and compliance with the Bank Secrecy Act, 

anti-money laundering laws, and the Community Reinvestment Act. These onsite 

examiners are supported by additional subject matter experts from across the oce. An these examiners are essentially involved in supervising the risk management practices of 

JPMorgan as risk management systems are in place throughout the bank's operations to 

identify, measure, monitor, and control risk. 

We have one dedicated examiner who directly oversees the CIO with support of a team 

of capital markets specialists representing 8 FTEs to review specific capita] markets areas 

depending on the topic. We have added staff on assignment from our London team, our 

Risk Analysis Division (quantitative experts), as well as received assistance from our 

Office of Chief Accountant. 

When do you expect to complete your review? 

BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SP!-00074914 
2281 

We expect to have largely completed our review by early August, though we also expect 

to still have follow-up on certain issues beyond that timeframe. 

2. In testimony, you stated that "in hindsight, if the reporting were more robust or granular, 

we believe we may have had an inkling of the size and potential complexity and risk of 

the position." You also stated before this Committee, that the "concentrated nature of the 

trading and the illiquidity of [the trading] are red flags that are clearly apparent now." 

What requirements or guidelines does the ace have for granularity of reporting, and 

what does the oee plan to require in the future as a result of these events? What role do 

concentrations and liquidity of positions play in your assessment of trading risks, and 

how will the oec ensure that it can capture such red flags in its supervision? 

What requirements or guidelines does the ace have for granularity of reporting, and 

what does the OCC plan to require in the future as a result of these events? 

We expect risk reports to accurately present the nature and level(s) of risk taken and 

compliance with approved limits. 

What role do concentrations and liquidity of positions play in your assessment of trading 

risks, and how will the ace ensure that it can capture such red flags in its supervision? 

We consider both concentrations and position liquidity when we assess trading activities~ 

We expect that risk limits and controls fully address the nature of risks being undertaken. 

In instances where there is limited market liquidity, or excessive concentrations, we 

expect limits to address the risk and that appropriate valuation adjustments are made. 

4. You indicated that because you may not have been given adequate or accurate 

information by bank management, your supervisory abilities were limited, and that 

"quality supervision is dependent on the quality of information availahle to examiners." 

What is the role of institution-generated information in your agency's assessment of an 

institution's risk management? Please describe the process and importance of how your 

agency independently verifies that any information a company provides is accurate. 

The role of institution-generated information in the aCe's assessment is critical in our 

assessment of the bank's risk profile and risk management processes. We assess 

management's process to develop and maintain management information systems (MIS) 

that will ensure information is timely, accurate, and pertinent. This assessment not only 

includes the processes to develop and test new MIS, but also the reliability of this 

information through the bank's quality assurance process at the line of business level and 

the independent reviews performed by the bank's Risk Management and audit functions. 

We check to confirm that the scope and frequency of these independent reviews include 

verification procedures. for the quality of MIS. In addition, the examiners through 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·SPI·00074914 
2282 

ongoing supervision and target exa.minations perform transactional testing that C{lnfirms 

the accuracy of critical MIS relied upon by bank management and tbe regulators. 

Clear1y there were fails in all these aspects of financia1 and risk reporting and control. 

There should have been on-going review by the bank's risk management and audit 

functions that at least flagged this area for higher-level attention as it changed during the 

fIrst quarter. 

You stated before this Committee that "it does not appear that the [OCC] met the 

heightened expectations" of "strong risk management and audit." Please explain what 

these heightened expectations are, and what steps you are taking to ensure the acc 

meets them. 

The comptroller's intent was that the bank did not meet the acc's heightened 

expectations for strong risk management and audit functions. The acc set higher 

expectations for our large banks as part of our lessons learned from the financial crisis. 

The comptroller described the acc's beightened expectations in his testimony before the 

U.S. Senate's Committee on Banking, Housing, and Urban Affairs on June 6, 2012, 

induding comments on strong risk management and audit. We have communicated the 

importance of meeting these expectations to our large banks and their Boards of 

Directors. We are monitoring, evaluating, and discussing with bank management the 

bank's progress in working towards the heightened expectations and we use the following 

rating table and scale each quarter: 

1. Board Willingness to Provide Credible Challenge 

I--}. Talent Management and Compensation 

~". Risk Appetite - Derming and Communicating Across the C~YL __ -i __ --j 

4. a. Development and Maintenance ofSlrong Audit Function 

b. Development and Maintenance of Strong Risk Management Function 

5. Sanctity of the National Bank Charter 

Rating scale (A-D) for each of the five heightened expectations. 

• "A" indicates the expectation is met. 

"B" indicates the expectation is generally met, or is anticipated being met within 12 

months. 

"C" indicates material steps remain to meet expectation but management has 

demonstrated a willingness and ability to meet the expectation. Completion expected to 

be greater than 12 months. 

• "0" indicates material steps remain to meet expectation and management is either 

unwilling or unable to meet the expectation in the ncar- to medium-term. 

The acc win use its supervisory tools including informal or formal enforcement actions 

to ensure each large bank achieves a strong risk management and audit function. 

BANK PROPRlETARY AND/OR TRADE INFO&'.{ATION OCC-SPI-00074914 
2283 

5. At the Committee's bearing where Jamie Dimon, Chairman oftbe Board, President and 

Chief Executive Officer of JPMorgan testified, Me. Dimon indicated that while the 

company has a compensation c1awback policy in place, that authority has not been 

exercised. For the largest national banks the OCC regulates, are you aware of any bank 

exercising a c1awback of compensation when major mistakes are made? Is it important 

for Boards of Directors of national banks to utilize their clawback authority to deter other 

employees from making the same mistakes, and correct some of the misaligned pay 

incentives we saw leading up t~ the recent financial crisis? 

We are not aware of the use of c1awbacks to date in large national banks. As conveyed in 

the Interagency Guidance on Sound Incentive Compensation Policies (OCC Bulletin 

2010-24), the OCC believes Boards of Directors should use c1awback authority under 

appropriate circumstances. JPMC notified us and subsequently has announced tbat it 

plans to clawback compensation from the individuals directly responsible for the CIO 

losses. The bank's investigation into the matters is ongoing and additional clawbacks 

may be coming. The OCC will review these decisions to ensure tbey are appropriate. 

BANK PROPRIETARY ANDIOR TRADE INFORMATION OCC·SP]·00074914 
2284 

From: 

To: 

CC: 

Sent: 

Wong, El'Nyn 

Waterhouse, Scott 

CrurnUsh, Fred; Hohl, James 

5111/20123:16:38 PM 

Subject: COX IG Series 18 \IS COX HY \oS COX IG 9 

Hi Scott, 

Per your request: 

Based on my understanding, CIO was trying to pare down their long protection (short credit risk) in HY. To do 

so, they woukl sell protection (long credit risk) 

They were of the opinion that HY was cheap and IG was rich. So they took the basis risk by continuing to be 

long HY protection and short IG protection as a proxy. 

JPMorgan Research has the same opinion even on today's research piece: 

They went short protection on two tlings: IG series 9 and "IG others" (latter as described in their presentation 

to you) 

There are two new series every year. The current series number is 18 for both IG and HY, So IG series 9 was 

first traded 4 Y2 yrs ago in Sept 2007. These are static indices in that if names defaulted and for whatever 

reason IDSA eligible dealer poll decided to include or exclLde certain names in the next series, that 

composition of constituents varies from series to series. CIO said IG Series 9 had a few fallen angels 'oNhich 

served as a good proxy for reducing their HY protection. 

IG series 9 would not be traded if not for the fact that tlis was the on-the-run series right in the middle of the 

financial crisis and so to this day people trade it for legitimate hedging of legacy positions. But clearty it is less 

liquid than Series 18 

The matter is further complicated by the only people wining to take the opposite side to buy protection 

referencing IG series 9 were hedge funds, They would only do it on forward basis: something like 9 months 

forward for 1 year (ending in 1 yr 9 months). The rationale for this is economy is zig~zagging right now with no 

imminent default but defau~ will pick up further down the road whan things slow down again So an off-the-run 

series, a knmvn position and a forward, somewhat "bespoke" trade, did them in. 

Irrespective, here is a good general measure: 

COX IG Series 18 trades on a spread basis \OAth a 100 bp coupon. COX HY series 18 trades on a price basis \OAth a 

500 bp coupon. Converting the latter back to yield: 

IG has blown out more than HY. If this relationship holds for JPM's long protection in HY and short protection in IG, 

they lose money. 3127 was the first day Series 18 traded. The relative performance could be more marked going 

further back vvhen these trades were put on. 

(Note: IG series 9 started in the days before the introduction of a coupon onto tha index. So it was and is trading on a 

no coupon, spread basis.) 

I\OAII see if I can find anything on liquidity or performance further back. 

Elwyn 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00081266 
2285 

From} 

To: 

cc: 

Sent: 

Subject: 

Attachments: 

\lsR(Rog} 

StressV.aR 

IRe 

CRM 

.. ,-

Hi Jairam, 

Wong" Et.vyo" 

Kamath, Jairam 

Crumlish, Fred; Kirk, Mike; VVaterhouse, Scott; Hohl, James 

6/8/2012 1 :53:20 PM 

FW: Weekly Capital and RIIW\ Schedule 

Cap.al & LTE Weekly 6,01·12,pdf 

1by29th 

17 

'7 

" 18 

.. 

The above report has (new) carve-out for the Credit Derivative Portfolio It looks like it is a new thirg and in the 

footnotes it said it is subject to revision anyway. 

Do you know if this is somethirg we could have gotten in the past? Reason I ask is because in the SEC briefing, CIO 

was known to be struggling to understand vAly RWA went up despite their risk "reducing" strategy and Verl<at had been 

asked to help even as early as February. 

Yet .. they were piling on trades particularly in Feb and Mar: 

I 'etrieved from the last page of Daily Firmwide VaR Report (CIO section in ExceQ 

CS01 excession {granted \..fi-beta adjusted CS01} -- a Level 2 limit which requires Ina Drew's and frv Goldman's 

signoff 

Jan31: 184% ,in excess for 17 days 

Feb 29: 507%. in excess for 37 days 

Mar 30: 937%, in excess for 59 days 

Umit is $5mil, Jan avg usage is $8,9 mil, Feb is $22 mil, Mar is $38 mil. It's a monotonic increase 

Peter Weiland will be meeting us today at 2:00 pm and I wI! pose that question. Hogan already said as it was not Level 

1, he did not see it. He agreed it was a serious breakdown. 

Elwyn 

Elwyn 

From: Waterhouse, Scott 

Sent: Thur;day, June 07, 2012 12:44 PM 

To: CrtJrnlish, Fred; Wong, Elwyn; Kirk, Mike; Hohl, James 

Subject: fW: Weekly capital and RWA Schedule 

BANK PROPRIETARY AND/OR TRADE INFORMA nON OCC-SPI,00085027 
2286 

From: Gillis, David KF [mailto:david.kf,gillis@jpmchase.com] 

Sent: l'hursday, June 07, 2012 11;38 AM 

To: Dianne,Dobbeck@ny'.frb,org; 'Needham, catherine'; 'Arya, Om P.'; Watert'lOuse, Scott; Waterhouse (Regulator), Scott X 

Cc: Genova, Diane M.; Hili, Erin; Gunselman, Gregg B 

Subject: Weekly Capital and RWA Schedule 

Confidential 

As requested, attached please find the JPMC Weekly Capital Update, Weekly RWA Update, and Spot 

Assets by LOB, dated 6/1/2012, l'hese materials are subject to continuing internal review, I will send 

you an updated weekly report tomorrow and each Friday afternoon thereafter, 

Please contact me at 212-<348-0362 with any questions, l'hank you, 

David Gillis 

David KF. Gillis 

}...fanaging Director & Associate Geneml COlU't>el 

J.P. Morgan 

- - Raladal by the Pennaneat 

SIIbcommittee on In\'estiptioftl 

270 ParkAYc!Rl!. 38th FC New York New York 10017 

da\"id.li,cillis.'il'jpn'Kl-rgan.com ('IN: 212.6~8.0362 ) Cell: •••• 2 Fax: 917 . .j.6~ 0170 

Tht; COUll1.lN::ation tJ fur DtfumntA.lnal ptrrpose~ only. It IS rot nendM;"IS an olfur or sol£itaoon mr tle p\JJCMse or "''1~ of any fnandal m~rd or as 1m ol&:ial coninmtion of nny 

transaction. AIIm:uket prices, data;wl other infQlffi]oon are oot w31T:"lI\l.old as 10 compJ.:teneSS or accur.t~y ani :tre subject to dJangl: wi!houtno(j:e .. "uJy cOllxnmls Of slalrm:nIs rmd>;) 

h<':I-e~do not1lo;'cessm-ilvrefilct thos<: ofJPMorgllnChM>;)& Co. iI.'l.~ubsidnres md afIili.,t.os Thil lrMSmionllByconiallruorm1ti>n!h;.t il:pm~gffi. confidmlial "'~*"prr.ikgOO. 

snd'oreXem>t lium dis-;L~I!re mder appll:'~b~ bw. If}Uu Me mt thtl in!~ed re,;ipi:nr.. you are ~ebyno~d thaI any dIiCh~l\"e, ""pying.. di;:.trihlltDm, or use of the I!IfumlllbJlI 

col)bDe>d ~en(IlCWlIg any re~1ll:le ih::re(ln) IS SlRICTLY PROIDBI1F.D Allh;nl!;h!hN trnn'lml';~ion and MIl" atl.3cltmool3 nrc ooiklwd t(lpe tTu of iany \uuo; Of (lib:r deject !h"t 

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Chase & Co .• Jt~ $ubsid~1res and a.ffih.1!es. a~ appbcable. fur my b~$ or darmg.: ,Vf:UJgJll anyway linm IS me lfyou J;«:er-"Cd!hi;; trarr;rrns:SKlfl In error. p1e.1!C ~di:Jtd)' contact ~ 

send~t:md d>;)slroy!be maltnl.1 n is enbreT)~ wrelher III eJeclrolJli:" Of Iurd copy /"i.lrm.1t 1barJk y..,u Plo:ls~ !~K-r \0 hrlp "W\~w.!pm:>r!?ncom'pa~s'df'l'CJo.~-ures tor dildJsaes reiatmglO 

ElD"Opellll"'g:U~nl.i.:s 

BANK PROPRIETARY AND lOR TRADE INFORMA l'ION OCC·SPI-00085027 
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May 24, 2012 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

REVISED - DRAFT (5124112

J.P.Morgan 

OCC-S
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Executive summary 

Estimate ktual 

512412012 ($82,962) 

Actual lIS. 

EstJmate 

5123/2012 ($119,427) ($116,6B1) $2,746 

Portfolio 

Current1 

23May (1756) (is.B) (166) Total counterparty) 

Largest counte,party MS Largest instrument CQXIG S09 05Y 00-03 

Net Since % Chg. 

(aa5) 117.0 (400%) 

CUrrent Pnor day 

-$29 -$48 

17 13 

27 18 

Nole nl!gatlvf!lposltlve collateral position denotes lower/higher valuation relative to 

counterparty 

INTERNAL USE ONLY 

BANK PROPRJETARY AND/OR TRADE INFORMATION 

DRAFT (5/24/1

1iI Bought protection €1,400mm ITraxx Malll 817 5y 

n Bought protectlOn 51 ,250ml11 CDX IG 818 5y 

Sold protection $495mm CDX HY 818 5y 

l'll New trades decreased risk in 1 O%CSW terms by $5.2mm (new trade 

activity only, does not include changes due to market moves) 

II:l P&L$(83)mm driven by: 

S Widening of 89 in US and Europe $(S9)mm 

il Widening of CDX lG 9 12/17 vs. OTR IG SiB 5y 

!:ll Widening of iTraX)( Main 89 vs OTR 817 5y 

J.PMorgan 

OCC-
Risk and market summary 

CDXHY (275) (20,626) 

ITRAXX MN 65,647 25,901 

iTRAXXXO {8,437} (8,052) 

ITR,.:.;o( FINSUB (2,016) 3513 

Dlroc!Singiu Namo 800 531 

Tot<li 122,930 57,249' 

Itraxx XO 

Itraxx Fin 

Subtotal 

,-

0 

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"' 

" r S95yr BI.0 86.4 

« 8910yr 159.5 159.2 

0 

CDXHY S18 5 yf 670.0 676.6 

0 

iTraxxMain S175yr 174.5 181.0 u 

u 8910yr 2115 2180 

ITra::<xXover 51? 5yr 717.5 743.0 

>" 

Z 

r 

BANK PROPRIETARY AND/OR TRADE INFORMATlON 

70 385 

(10,8) (162) 

2.7 150 

(02) (0.7) 

(03) (17) 

(299) 29 

Spread 

5/22112 4/30/12 

118.5 94.7 

86.4 68.1 

158.2 119.4 

674.8 

171.5 

209.0 

710.0 

5797 

140,5 

1705 

650.0 

443 

(2aO) 

185 

11 ) 

(21) 

(HO) 

3/30112 

91.5 

70.8 

113.1 

578.D 

125,C 

1510 

6:3.0 

584 

(1,762) 

a 

531 

(1,397) 

REVISED - DRAFT (5/24112) 

(0.2) (13.2) CI.4) (18.1) 550 

0.8 141 12,8 127.6 1.50 

00 00 (DA) (i.5) 550 

0.0 00 0.4 13A 450 

(0.3) (20,6) (0.3) (lD.6) 6.92 

0.7 (154) 21.4 122.1 

Beta 

CDX HY IIG 6.40 

!traxx XO/Main 3,80 

14.1) 13.9) 1.7 

(61) 

(1.9) 

25.8 

7.6 

(1.9) 

319 

3.0 

43 

(21.8) 

04 

05 

(07) 

9.5 

13.7 

28.5 

13,9 

162 

21.7 

.l.P.Morgan 

OCC-S
Notional overview 

OtherlG 4,155 

High Yield {18,044) 

ill 

J Note PosfliveINeg.1t1ve roHona! data denotes long/short fisk 

z 

INTERNAL uSE ONLY 

BANK PROPRIETARY ANDIOR TRADE JNFORMATION 

9,295 

NoLanal 

Nobonal 

ITraxxMam 54,948 

__ 

HY 

iTialC< 36,395 

CCXiG S09 07Y 34,193 

COX IG S09 10Y 

IG9 

IG S09 07Y 

IG 80910Y 

IG9 

DRAFT (512411

J.P. Morgan 

OCC·S
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Synthetic credit book - key metrics 

$3,500 $3333 $2,000 $3,000 £1,800 

$2,389 $1,600 $2,500 52,222 $2,196 $1,400 

$2,000 81,200 

$1,000 

$1,500 

$1,000 :::: j $400 

$500 $200 

$0 $0 ' 

4130 5118 5121 5122 5123 5124 

m -=1"" 140 "" - , ' "I-I-J- , --, --I- 120 120 .- - - - _. -, _. - .- - -- - .- --- - _. = = = -_ = = "" = 1:: 

60 - _. - - - -

40 -- -- - -- - -- -- - -- -- - - - - _. 60 

20' , '" - " " ,,' " " , , 

40 

-I r- -r r -r T T -) T T -r T -r --r -I 

20 

a 0 a a 0 0 0 a 0 a 0 a a 0 a 0 

o rl N m m 0 rl ro rl 

_ - - rl rl rl rl rl N - -------

iNTERNAL USE 

BANK PROPRIETARY AND/OR TRADE INFOR\1ATION 

DRAFT (5/24/12

$1,860 

$1,550 

$1,41D $1,420 -$1,360 $1,340 

4130 5/18 5121 5f22 5123 5124 

5/9/2012 5/14/2012 

J.P.Morgan 

OCC,S
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DRAFT (5/24/12

Summary of Synthetic Credit Book - historical stress 

III Pricing to equilibrium: In addition to below risk factors, some indices will lose value as they move from richness to fairness 

.. Synthetic credit book exposed to six: risk factors - Each factor represents a directional exposure 

III In the short-to-medium term, these exposures can be partially mitigated - But not eliminated 

1. Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

3. High Yield vs.lnvestment Grade 

4. Illiquidity of older Indices I 

Tranches 

(On-the-Run V5. Off-the-Run) 

5, "Super senior" debt vs. "equity" 

positions (Tranches) 

6. Default risk 

(Risk on ind!vidua! names) 

INTERNAL USE:: 

W If credit spreads widen across markets 

If credit spreads of long-maturity positions get wider 

relative to short-maturity positions 

If high yield positions outperform investment grade 

positions relative to their portfolio weighting 

If credit spreads of the older index (the 

index) widen relative to issued indices (the 

more "on the run" indices) 

ii Ifthere is an increase in the correlation implied beW/eon 

defaults among names within the tranches 

If credit events happen to companies for which we have 

"sold protection" 

Portfolio worst day 

Sum of worst case 

$296mm $3,20Dmm 

Dmm 89mm 

2,072mm 1.441mm 

43mm 1,085mm 

505mm 505mm 

NA NA 

J.P.Morgan 

BANK PROPRJETARY AND/OR TRADE JNFORMATlOr; OCC-
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DRAFT (5/24112

Summary of Synthetic Credit Book - statistical stress 

" Pricing to equilibrium: In addition to below risk factors, some indices will lose value as they move from richness to fairness 

" Synthetic credit book exposed to six risk factors - Each factor represents a directional exposure 

" In the short-to-medium term, these exposures can be partially mitigated - But not eliminated 

1, Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

3, High Yield V5, Investment Grade 

4. Illiquidity of older Indices I 

Tranches 

(On-the-Run vs. Off-the-Run) 

5, HSuper senior" debt vs. I'oquityu 

positions (Tranches) 

6, Default risk 

(Risk on indlvldual names) 

INTERI\AL ONLY 

In If credit spreads widen across markets 

m !f credit spreads of positions get wider 

relative to positions 

If high yield positions outperform investment grade 

positions relative to their portfolio weighting 

m If credit spreads of the older index (the 

index) widen relatiVe to more-recently issued indices (the more "on the run" indices) 

rn Ifthere is an increase in the correlation implied between 

defaults among names within the tranches 

Ill! If credit events happen to companies for which we have 

«sold protection" 

Est, total diversified 96% Joss potential 

$170mm H10mm 

140mm 160mm 

1.0BOmm 810mm 

SOOmm 1,400mm 

490mm 490mm 

291mm 291mm 

1.P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·S
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Synthetic Credit risk factors details 

__ _ 

90.0% percentile 

99.9% percentile 

DOl,Yllside Case A j DO'iVllside Case 8 2 

1.28 1,100 

3.09 

N/A N/A 

2,360 

2,671 

4,415 

m Credit spread widening (Directionality) - Net directional loss estimate assumes correlation based on 1 yr data 

Maturity mismatch (Curve) 

DRAFT (5/24/12

Volatility measured as relative movement of longer maturity spread vs shorter maturity spread adjusted for overall drift 

if,! Combined across asset classes assuming zero correlation 

iliI High Yield VS. Investment Grade 

Volatility based on relative spread moveillent netted for overan directionality 

19 Assumes zero correlation between these differences for US and Europe 

Illiquidity of older Indices/Tranches (On-Ihe-run/Off-the run risk) 

Series 9 is assumed as the off·the-run position 

Risks are combined assuming zero correlation 

HSuper senior" debt vs. Ilequity" positions (Tranches) - Risk factor based on extreme movements of correlation as seen 

during the credit crisiS 

Default risk (Risk on individual names) - Exposure based on comprehensive simulation of default risk using capital model 

II Diversified sum All above risk measures combined assuming zero correlation 

j DlVersiflod sum of 95.0'% percentile; 2 Divep?;ifled sum of 99,9% percentlia 

lNTERNAL lJS[ O\JLY J.P.Morgan 

RANK PROPRIETARY AND/OR TRADE INFOR;\1ATIOC: OCC-S
2295 
2296 
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Agenda 

Directionality 

" Tranche Risk " Default profile " Limits 

.. Differences Summary .. Daily trades (May 24, 2012) 

III Synthetic credit risk overview 

'" Daily price testing Index 

" Daily price testing - Tranche 

NTERNAL USE ONLY 

DANK PROPRJETARY AND/OR TRADE INFORl'V1ATlON 

Page 

10 J.P.Morgan 

OCC-S
Curve exposure (Investment Grade COX and iTraxx Series 9) (cob 5/23/12) DRAFT 

x 

o 

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<, 

$mm) 

300 

200 

100 

o 

(100) 

(200) 

(300) 

(400) (500) 

SIJOrlrisk 

.,dJ'lr··· 

Notional (Sbn) PV 10% CSW($mm) 

Maturity Current DcltaAdj (Smm) Spot DayChg. 

$456 $70 . $2.1 

Dec. '17 47 56 (2,653) (396) (14.3) 

Net (466) (122) 

Notional (€bn) PV ,0°/" CSW{$mm) 

Current Delta Mj ($mm) Spot DayChg. 

€17 (€31) $1,641 $7B ($1.4) 

13 27 (2,303) (377) (6,6) 

balance sheet carrYing value 

USE ONLY 

Net (454) (8.0) 

RANK PROPRIETARY AND/OR TRADE INFORMATION 

Daily($OOO) wm Smce 4/30 

(95,059) (1,373,947) 

Above P&L based on an indlcalive aUdbution 

model and may not match representative 

trade P&L estimation 

ft250 t- 50-;:;;-

:;200" 1. 0 8: 

ISO i [ 

:::) 

5ep-07 Sep-08 Sep-09 5ep·l0 Sep-l1 

25°'1 tOO 

I 

.Eso 

.,0]:: 

00 

Vi 

(W) 

II!' Our curve risk arises from the portfolio 

bebg ::.hort risk in lesser maturities (Pre Dec 2018) and long risk in greater 

maturities (post Dec 2016) 

fa Our exposure to this is approXimately 

$Bmmm loss per bp In steepening In IG9 

with a forward long of$34mm 

Volumes 

1WeekTotaJ 1M Daily Avg 

Since 4(30 

Days to Liquidaton 

(20% daily avg. vo!.) 

(mm) 

NotIonal 

Volumes 

1Weei<Tota) 

1MD811yAvg 

Since 4/30 

B,603 

1,972 

39,433 

B3 

Jun. '13 

€16,912 

7,873 

1,171 

22,542 

20,631 

2,314 

41,990 

102 

Jun. '1

.12,985 

2,214 

317 

5,932 ',I 

0-,-- (4D) Days to Liquldation 72 205 

Sep-07 Sep-OB Sep-09 Sep-lG Sep·l1 (20% daily avg. vol) 

($mm) [).ac '12 '17 Slope HIS Loss His. Gain 

CS01 $5.0 ($17.3) ($22) ($201) $1,957 

Spread 165bPs 218bps 54bps 63bps (34bps) 

11 .IP.Morgan 

OCC-
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Investment Grade vs. High Yield (Compression) (cob 5/23/12) 

cox HYfLCDX 

iTRAXX MN/FINSENiSQVX 

ITRAXXXOIFIN SeB 

($mm) 

10% CSW 

CSW10% Change 

Close of Day 

Close of Week 

Since April 30 

CDXIG 

$47,727 

(22.2) 

(2678) 

6.1 

(162.2) (141.51 

iTraxx:MN 

(E1,444) 

1.3 

23.5 

455 

1285) 

174 

CDXrlY 

($7,101) 

2.4 

1561 

0.2 

(9.3) 

167) 

iTraxx:XO 

(E4,917) 

2.0 

138.1 

P&L ($OOOs) 

Compression CDX1Gvs. HY 

iTraxx MN VB, XO 

other 

DaJly VlTD Since 4/30 

(144,921) (436,564) (134,901) (133,124) 

(9,045) (321,601) 

Above P&L based on an Indicative aUribulron 

2,000 1 -HY·IG-HV/IGRJlio r 

1,000 -I 6 

50: _ __ '_Y' _. 

3/07 3/08 3/09 3/10 3/11 3/12 

IGV5. HY ratio S.71x 4.00x: 9,23x 

12 

750 

500 

250 

DRAFT (5/24/12

Ii We are long investment Grade and Short 

High Yield such that we lose if High Yield 

widens (narrows) less (more) than a ratio o

5,1 to Investment Grade 

Volumes 

1WeekTotai 

1M Dally Avg 

Since 4/30 

Days to Liquidatlon 

(20% daily svg. vol) 

Volumes 

1WeekTotai 

1M DailyAvg 

CDXIG CDXH

139,034 21,37

21,033 3,13

400,944 57,84

11 

iTraxx MN ITraxx 

80,692 20,71

13,647 4,13

csw 1 0% CharlQe Since 4/30 255,086 

1 

75,37

Close of Day 3.1 1.2 Daygtoliquidation Close of Week 28.5 (4.8) .::(2:,:O.::%:.,:d"o"'IIYc:a::v::;.g.:,::V:::oi.::J _______ Since April 30 187.9 (68) 

Ir-HERNAL USE ONLY 12 J.P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-S
Off-the-run index risk (cob 5/23/12) 

NoVonal ($bn) PV 

CUrrent Delta ,Adj. ($mm) 

CDXIG9 46,989 55,960 (2,653) 

iTrBxx 89 16,340 34,572 (2,303) 

Total 63,329 90,533 (4,956) 

Change 

Close of Day 0.5 Close of Week 16,9 

Since April 30 20.0 

Change 

Close of Day 0.' 

Close of Week 0.3 

Since Aprd 30 1.9 

o 

Z 

l.U 1 PV represents balance sheet carrying value 

INTERNAL USE ONLY 

CS01 ($mm) 

Spot OayChg, 

(25) 0.5 

(17) 0.4 (42) 09 

1 9 

(13.0) 

(101) 

(0.0) 

0.6 

10.8 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

Above pel based on an indicative atinbutlOn 

model and may not match representative 

trade P&L esUmatlon 

_5'fOTR _lOY59_OTRjS9 300 - 60 

200 20 

10 

150 

(20) 

100: (40) 

so I (fiD) 

o -- -r -- t [ (80) 

Sep-07 Step-DB Sep{)9 Sen-lO Sep-ll 

_SI'OTR _10YS9_OTR/S9 

200 .! 30 

150 -1 , 

I L 0 

100 I (10) 

50·[ f·(2D) 

(3D) (40) 

Sep-07 Sep-OB Sep.(l9 Sep-I0 Sep·ll 

13 

DRAFT (5124112

m This refers to the risk that we hold large, 

concentrated posItions in off-the-run indices in 

IG COX and iTraxx 

($mm) IG 9 10yr IG 16 5y

Notional $46,989 $39,389 

Volumes 

1WeekTotai 20,631 139,034 

1 M Daily Avg. 2,314 21,033 

Since 4/30 41,990 400,944 

Days to liquidation 102 

(20% daily I'lvg, Vol.) 

(Emm) MN S91Dyr MN S17 5 y

Notional E16,3'O (E15,300) 

Volumes 

1WeekTota! 2,214 80,692 

1M DailyAvg 317 13,647 

Since 4/30 5,932 255.086 

Days to Liquldat,on 258 6 

(20% daj(y avg. vor) 

J.P.Morgan 

OCC·S
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Directionality (cob 5/23/12) 

(400) """ N N N 

(100) 

(200) 

(300) 

(400) (500) 

(6CD) 

§ ;; ;; 

(700),.... (" N N 

§ S ;; 

12/31/11 

o 

(20) 

(40) 

(60) 

(279) 

N N N N 

?J 

N N 

,. 

(80) 

(100) 

(120) (140) 

(160) 

(180) 

(200) 

..... N N N N (\l N N 

;:: ;:: ;;;; ?5 

12J31f11 4130/12 

(110) (1591 

INTERNAL USE ONLY 

N N N 

N N N 

,. iii iii 

N N N 

5i ii5 

5/23/12 

(185) 

IJANKPROPRIETARY AND/OR TRADEINI'ORMATION 

Daily ($DOOs) WfO Since 4/30 

638 (370,055) 

Above P&L baaedpn an indlcatlVo attribution 

model and may not match rf!presentative 

trade P&L estimation 

300 

25(] 

200 

15(] 

Sep-07 Sep-OO 

12/31/11 

120 

15(] 

100 

50 

Sep-DB 

12!31f11 

173 

Sep·09 Sep.10 Sep-11 

4130112 5/23/12 

95 118 

Sep-09 Ssp.10 Sep-11 

4130/12 5(23/12 

141 181 

14 

DRAFT (512411

J.P.Morgan 

OCC-
Tranche Risk (cob 5/23/12) 

CDXIG Super Senior 

CDXiGTotal CDXHY Junior CDXHY Super Senior 

CDXHYTotal 

i7raxxJllnior iifa)'X Super Senior 

iTraxxTo!al 

Grand total 

Since April 30 

10% Corr01 

Change 

VVeek To Date 

0-35% 0-22% 

22-100% 

Long iG 9 

0.12 

-2,92 

Long ITraxx 9 

Super 10yr 

-15 

0,30 

37 

G 

(28) 

Short -0,06 

0.32 

Short 

0,22 

11 

0,16 

__ 

x 

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« 

j Correiation data as of COB .:1/4 

INTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE fNFORMATION 

Daily ($OOOs} WfO Since 4/30 

TBU T8U T8U 

Above P&L based on an indicative attribution 

Graphs of 10% correlation shift 

Theoretical max gain/loss based on 10% 

Corr and Spread graph 

15 

DRAFT (5/24/1

CiO Vol traded since Apr 301/) 

Implied DeUy, weekly PIL 

J.P.Morgan 

OCC-
x 

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Default profile (cob 5/23/12) 

#Names 

# or wI default 

Portfolio names loss risk Portfolio (today) 675 90 Portfolio (pos/Dec '12) 672 258 

!G90nly{today) 121 1GB only (post Dec. '12) 121 121 

2 Boston Scientific 

Corporation 

(245.9) 2. Goodrich Corporation (5364) 

3 Oirectv HOldings Lie (239.3) 3. S Corporation (533.7) 

4. Nabors industries, Inc (232.5) 4. Baxter Internatlonal inc. (5336) 

5 The Gap, Inc (222.1) 

($mm) 

1m penal Chemical (1.5) 

Madls Sa (14) 

3 Hanson Limited (0.1) 

4 L'P.j"r Liquide Societe (0.0) 

Arlonym 8 Pour L'Etude Et 

L'ExploitatJon Des Pro cedes 

5. Bristol-Myers SqUibb 

Company 

2 flltadis Sa 

3. Royal & Sun Alliance 

Insurance Pic 

4 The Royal Bank Of 

Scotland NV 

5 Deutsche Bahn 

.Aktrengesellschaft 

(0.0) 5. Hanson Umited 

INTERNAL liSE ONLY 

(532.6) 

(1.4) 

(05) (04) (01) 

16 

BANK PROPRIETARY AND/OR TRADE INFOfuvlATION 

DRAFT (5124/1

"G'tlin 

552.8 1, BrunsWlckCorporatlOn 

532.6 2 The New York Times 251

Company 

3. Gannett Co., inc 532.3 3 The TlxCompanl8s, 235

Inc 

4 lennar Corporation 5315 4 Dean Foods Company 231

5 Belo Corp 5302 5. Inc. 222

2 Gdf Suez 580.6 2 Gdf SUez 580

3. Unicredit, Societa Per 5072 3 Banca fv10nte Dei 465

Azjon' Paschl Di Siena SP.A 

4 Banca Monte Dei 489 9 4. Banco Bilbao Vizcaya 461

Pasch1 01 Siena S,P A Argentaria, Sociedad 

Anonima 

5 Banco Bilbao Vizcaya 4858 5 Unicredit, Sodeta Per 458

Argentaria, SOCledad Azoni 

Anonima 

J.P.Morgan 

OCC·S
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Limits 

Lirnit(Smm) 

CS01 Unadjusted 

CDXHY CDXLCDX CDXIG 

iTraxx MN 

iTra»::XQ 

iTraxx Fins ub iTraxx Finsen 

CSW10% 

CQXHY 

CDXLCDX CDXIG 

iTraxx MN iTraxx XO iTraxxFinllUb iTraxx Finsen 

Large Index Nationals 

CDXIG 9.7Y 

CDXIG.9.10Y 

lTraxx 39 7Y 

iTraxx 39 10Y 

INTERNAL USE ONLY 

Usage Synthetic 

Sr23/12 limIt 

7.2 B.6 

(0.0) 1.8 

(290) 39.4 

(11.6) 23.7 

2.7 3,3 

(0.2) 0.6 

0.3 0.5 

4558 496.0 

(03) 0.1 

(499.1) 549.0 

(2938) 434.0 

185.1 201.0 

(11.1) 27.0 

8.4 12,0 

34.2 342 

47.0 B1.0 

5.4 5.4 

13.0 13.0 

BANK PROPRIETARY ANO/OR TRADE INFORMATION 

DRAFT (5/24/1

Usage Synthetic 

lImlt{$mm) 5(23/12 limit 

V.R 156.9 180.0 

compres&ion 

US Com pression Limit 4554 4960 EUR CompressIOn Limit 174.0 174 a 

Tranche LImits 

10%CorrS:-uft (174.0) 175.0 

Steepen10% 

CDXHY (802) 64.0 CDXLCDX 02 05 

CDXIG (419.8) 436,0 

iTraxxM\I (1713) 265.0 iTraxxXO 58.8 65,0 

iTraxxFinsub (22.4) 30.0 

I Traxx Fins en 4.2 6.0 

17 .IP.Morgan 

OCC-
o 

z 

Differences summary 

Counterparty 

CA 

BBVASA 

ONF'P 

DOA BPLC 

CBKAG 

CGML 

em 

CS! esx OBKAG G5! 

HSBcB) 

HSBCUS 

N'L! MSCS 

MSIL 

NOMURAI? 

RBSR..C 

SGCl8 

Series 091f1dex Other index 

Subtotal 

8y Famly 

COXIG 

CDXHY 

ITRAXXMN 

rrRAXXXO 

Ci1g.in OnTR5Y 

$urnDf 

MTM 

(32) 

a 

382 

35 

(105) 

(1) (6) 

(115( (207) 

(54) 

384 

(27) 

12 

(7) 

130 

(95) 

124 

74 

Sum of CP Sum of MTM 

MTM Drff 

(32) 0 

0 0 

391 (S) COX HY &09 O5Y 15-25 

43 (9) CDX HY soa 05Y 10·15 

(103) (2) fTRAXXMNS0910Y 22·100 

(2) 0 cox IG S09 a5Y 00-03 

(7( 1 cox IG S18 05Y 

(129) 14 CDXIGS0910Y 10-i5 (208) cox HY $11 07Y 

(52) (2) cox iG S0910Y 15-30 

379 5 

(26) (1) 

9 

(9) 2 

5 (C) 

113 17 

(92( (3) 

128 (5) 

74 0 

Series 09 Index 178 

II""::.;:!) \1.xJ."'J Other Index 

144 4 

(162.9) 

(01) 

13 

(17.4) 

. Subtotal 

By 

COX HY 

rrRAXX MN 

Chg, dUB to OnlR 5Y 

523 

(221) 

(0.1) 

22 

232 

(17) 

50 

Sumof CP 

(2) 

15 

(604) 

401 

11 

221 

(16( 

41 

lndex-!G 

lrKiox-HY 

Tranche 

4 IN T ERN A L US [ 0 N L Y upward to cap, Posl:ive number 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

Y:bps 

1 bps 

$2mm 

12 

(O) 

27 

11 

11 

(2) 

9' 

Marl<it 

Marnt 

Dealer quotes 

DRAFT (5/24/1

Notes 

Aggrogate max.: 

Aggregate max: 

Per p;Jstlon 

J.P.Morgan 

OCC-
DRAFT (5/24/12

New trades 

Ffevious Closing 

Traded Traded Ftevious Day Closing Spread 

Dat, Risk Notional Fl"oduct M3tunty Counterparty Ftice Spread Day Friee Spread Frice (bps) 

24-J\t'ay-12 LONG 15,000,01)0 COX m S18 05Y 2D-Jun-17 JPMCB NY CDS (1-fT' tn, 93.06 92,625 93.31 24-N'Ey-12 LONG 50,000,000 CDX HY 818 O5Y 20-Jun-17 JPMCB NY CDS (1-fT' In, 9275 92.625 93.31 24-Wtay-12 LONG 25,000,000 COX HY S18 05Y 20-Jun-17 JP\lJlCB NY CDS (HY lno 9:]00 92,625 93.31 

SHORT CDX IG S10 05Y 20-Jun-17 DOACHti,RLOTIE 119.50 122.25 110.00 

24-rl/ay-12 LONG COX HY S18 05Y 20.Jun-17 SOCGEN 93.3B 92.625 93,31 

24·l\Iay-12 Sh'ORT (50,000,000) COX HY S18 05Y 20-Jun-1? DEUTSCHE LON 93,38 92.625 93.31 

24-rv1ay-12 LONG 25,000,000 COX HY S18 O5Y 20·Jun·1? JPI\1CB NY CDS (I-N ]n, 93.30 92.625 93.31 

24-May.12 LONG 10,000,000 CDXHY S1805Y 2O-Jun-17 JPMCB NY CDS {HY lno 93.44 92.625 93.31 

24.M:Iy-12 LONG 65,000,000 C:JX HY 518 05Y 2D-Jun-17 JPrv1CEl NY CDS (HY In< 93,50 92.625 93.31 24·Mly-12 10 LONG 50,000,000 COX HY S1£l 05Y 2D-Jun-17 NOIVlJRA LON 93,31 92.625 93.31 24.May-12 11 LONG 85.000,000 COX HY S18 05Y 20·Jun·17 JPrvcs NY CDS {HY Irl! 9356 92.625 93.31 

24-N'ay-12 12 LONG 40,OCO,DOQ CDXHY S18D5Y 20--Jun·17 JPrv1CB NY CDS (HY In< 9344 92.625 9331 

24-WEly-12 13 ,-ONG 20,000,000 COX HY S18 D5Y 20-Jun-17 JPMCB NY CDS {HY [Il< 93.30 92625 93.31 

14 LONG 50,000,000 COX HY S18 05Y 20·Jun_17 JPMCEl NY CDS (HY In, 9350 92.625 93,31 

24-lv'ay-12 15 25,000,000 COX HY S18 05Y 2D-Jun-17 NY CDS (HY In, 93,31 92625 83.31 24-N'ay-12 16 LONG 50,000,01)0 C::X m 818 05Y 20-Jun-17 BARCLAYS NY 93,38 92.625 83.31 24-rv'ey-12 17 ;"ONG 25,000,000 CJX HY S18 05Y 2D-Jun-17 9325 92.625 9331 

18 LONG 250,000,000 CDX IG 518 05Y 2D-Jun-17 emBANK NY 117,63 122.25 118.00 

24-rv'Dy-12 19 SHORT (250,000,000) WX iG 51 8 05Y 20-Jun-17 NOM.JRA LON 118,00 122.25 118.00 

24-rv'By-12 20 SHORT (500,000,000) cox IG S18 OSY 2'J-Jun-17 BNPLDN 117,99 122.25 11800 

24-rv'By-12 21 LONG 250,000,000 CDX iG S16 OSY 20-Jun-17 BARCLAYS NY 118,1)0 12225 118.00 24-rl/ay-12 22 LONG 250,000,000 lTRAXX MN 817 05Y 20-Jun_:7 BOA Cf-1A.RLOTTE 183.25 1SO.00 173.60 

24-r....1ay-12 23 SHORT (150,OOO,OOO) Il'RAXX MN 817 05Y 20HJun_17 CITlBANK NY 174J5 180.00 173.60 

24 LONG 200,000,000 rTRAXX MN S17 05Y 2O-Jun-17 BNPLDN 182.75 180.00 173.60 

24-flk.y-12 25 SHORT IlRAXX MN 817 05Y 20-Jun·17 GJ\lPLDN 180.00 180,00 173,60 

24-lIay-12 26 SHORT IlRAXX MN 817 05Y 20-Jun-17 Bf\lPLDN 176.00 180.00 173.60 

24-ilAay-12 27 SHORT I'TRAXX MN 517 05Y 2O-Jun-17 BI'JPLDN 176.50 1SO.DO 17360 

24-MW-12 28 SI-DRT ITAAXX MN 517 05Y 20-Jun_17 BI'PLDN in.OO 1eDDO 17360 24-Nhy-12 29 SH:JRT (250,000,000) ITRAXX MN 817 05Y 20-Jun-17 BNPLDN 182.00 180.00 173.60 24-lvIay-12 30 LONG 50,000,000 iTRAXX MN 817 05Y 20-Ju!l-17 JPlVJCB - LON CORP 10300 180.00 17360 

24-Wray-12 31 SHORT (250,000,000) ITRAXX MN 817 05Y 20-Jun_17 CmBANKNY 176.75 180.00 17360 

x 

0 

z 

INTERNAL USE ONLY 19 1.P.Morgan 

BANK PROPR1ETARY AND/OR TRADE J:'IFORMATlON OCC-S
Daily price testing - Index 

x 

o 

z 

C08,2012-05-23 

Series 09 Index 

COX IG SOg 10Y 

COX IG 809 OlY 

CDXIG S09 Q5'{ 

ITRAXX rvlN 509 05Y 

lTRAXX rvlN S09 1 aY 

fTRA,xx tv1N SD9 D7Y 

other Index 

COX!G S18 05Y 

COX HY SOB 05Y CDX IG 817 05Y 

COX HY S09 05Y 

COX HY 811 DIY 

CDX HY S11 05Y COX iG SOO 07Y COX HY 818 05Y 

CCX IG S16 10Y 

COX!G S1410Y 

COX iG S15 10Y COX HY S14 03Y 

CDXf-fY soa 07Y 

COX!G SOl 07Y 

COX lCDX SiD 05Y 

COX HY SiD 07Y COX Hi S16 05Y 

COX Hi S17 OSY 

COX \G S14 05Y 

COX!-f( SiD 05Y 

COX HY S15 05Y 

COX HY 814 05Y COX iG S15 05Y 

i fNTERi\AL USE O\jLY 

45,465 

33,099 

(31,675) 

21,283 

16,340 

6,TJ3 

39,389 

15,430 

8,338 

5,600 3,703 

994 

434 

340 

302 

257 

(54) (73) 

(180) (704) 

(5.&17) (7,657) (9,134} 

(9,618) 

(11.977) (17,159) 

RANK PROPRIETARY AND/OR TRADE Jl'<FORMATJOl'< 

(2268) spread 162.8 

(831) spread 121.8 

184 spreEld 89,8 

(229) spread 162.9 

(B66) spread 220.3 

(1.97) spread 194.8 

(1890) spread 122.3 

(0.12) price 100.1 (3.55) spread 115.1 

prICe 100.3 pnce 9a.6 price 101,1 

(009) spread 166.8 

(0.13) price 92.6 

(D.23) spread 150.3 (0.10) spread 139.8 

004 spread .8 001 price i01.!) 0.04 prtce 98.4 011 spread 1288 0.13 price 

0.56 prfC€ 100.6 

220 price 96.4 

2.44 prICe 93.9 

233 spread 89.3 0.98 price 101.8 

2.96 price 97.9 

3.30 pnce 99.3 

6.01 spread 99.8 

20 

DRAFT (512411

Tota! 

158.8 158.1 

117.9 118.1 31.99 27.84 

85.6 852 (7.57) (6.65

164.1 1629 (2.57) (1.42

217.1 220,3 (3.2) 27.52 23.18 

193.6 (1.2) 2.42 1.43 118.3 1183 100.1 100,1 3.09 2.97 

111.1 111.3 (3.9) 14.37 12.54 

100.4 1003 (10.1) 3.34 3,01 

98,7 (2.4) 2.81 1.66 

:01.1 101.2 (5.2) 0.79 0.64 

135.1 135.0 2.74 2.70 

932 93.2 1.96 1.83 

143.3 142.6 (7.0) 1.60 1.49 

133.9 135.1 (5.9) 1.07 0.98 

1373 140.1 (44) (018) (0.16

101.4 28.8 0.23 0.22 

98.6 (13.5) (O.4a) 

142.8 141 1.54 48 

101.5 2.5 0.31 0.25 

1O:J9 (11.0) (6.37) 

97.0 97.1 (19.3) (42.49) 

94.6 94.5 (176) (42.95) 

00.3 87.8 (6.B4) (5.68

101.8 101.8 (237) (1.39

98.5 98,6 (57.12) (54.15

S9.1 99.8 (48.62) (45.32

96.4 97.0 (20.29) (17.2B

J.P.Morgan 

OCC-S
a 

z 

'" ,. 

" o. 

Daily price testing (cont'd) - Index 

COB" 2012-05-23 

A-oduc\ 

USD Factored Creda Spread CIO Quote r..tarkit Quote ICE QUote 

NotiDnal ($ mm) BPValue ($ mrn) Frice Type (LON Close) (NYfLON Close) {NY/LON Close) 

Other Index 

CCIX IG 816 05Y 

rrRAY..X MN 816 O5Y 

fTRAXX MN 815 05Y 

rTAAXX FINSUB 814 05Y rTRAXX FiNSUB S16 05Y rTRAXX MN S15 07Y rrRAXX MN 506 10Y 

ITRAXX FINSUB 817 05Y 

rTRAXX FINSUB S07 05Y 

fTAAXX XO 517 05V 

ITAAXX FINSl-El S15 05Y 

rTAAXX F1NSUB S08 O5y 

rTRAXX FiNSEN 517 05y 

rrRAXX FiNSlJB 511 05Y 

rTRAXX FINSU[I 810 05y 

ITRAXX MN 816 10Y 

fTRAXXXO 81505Y 

ITAAXX rvlN S15 1ay 

rrRAXX F1NSUB 809 05Y 

ITRAXX 1\1\1 S15 O3Y 

ITRAXX XO S16 O5Y 

ITPAXX MN 817 ooy 

By Family 

COX", CDXHY 

ITRAXXMN 

rTRAXXXO 

USE ONLY 

(18,229) 

13,563 

5,110 

1,642 1.316 1,114 

100 

76 

(513) 

(1,702) 

51,826 

(20,327) 

41,607 

(8,437) 

7.19 

(565) 

(192) 

(OA8) 

(052) 

(058) 

(0.04) 

(0.03) 

0,00 

0.19 

0,19 004 

029 

022 

021 

12' 

054 

1.46 

022 

071 

204 

7m 

(3651) 

10,63 

(1068) 

2,76 

spread 

spread spread 

spread spread spread 

spread spread spread spread spread 

spread 

spread spread 

spread 

s.pread 

$pread 

spread spread 

spread 

spread spread spread 

price 

spread spread 

109,8 106,0 180.'1 180.3 

1827 183,1 

503.0 502.5 

525,0 523,8 

2010 198.7 

221.0 227,3 

503,0 501,2 

5813,0 4n3 

738.6 739,1 

519,0 5149 

445,0 431,7 

298,5 295.9 

4B1,5 484.6 

461,0 460,9 

195.6 194,9 

652.3 653,8 

201.1 202,7 

4380 4434 

159.0 155.4 

706,3 707.3 

180,0 180.0 

Change In the OnTR5Y Contract 

122,3 118,3 

92,6 93.2 

100.0 180.0 

738.6 739,1 

21 

105,8 

180.4 

1827 

738.6 

1956 

652.3 

201,1 

7003 

1800 

118.3 

93.2 

1BOO 

73B)5 

BANK PROPRJETARY AND/OR TRADE INFORMATION 

DRAFT (512411

M::lrkfT Spread M3.rkfT FV PI! Exceedm

Cifference Change (5 mm) Cap ($ mm

0.4 (0,69) 

0.23 

0,62 0.36 

(2.3) 1,35 

6.3 

(0.10) 

05 0,09 

(0.75) 

(0,50) 

(0.75) 

3.1 0,69 

(0.1) (0.02) 

(0.5) (0.79) 

1.5 0.80 1.0 2.36 

5.4 120 

(3,6) 

1.0 

0.0 0,10 

(15,3) (162,92) 

0.0 (0.i5) 

0.5 1.2ti 

1.06 

(0.23

0.04 

(0,10

1.G3 

1 C8 

(2.19

J.P. Morgan 

OCC·S
DRAFT (5/24112

Daily price testing - Tranche 

COB: 2012-05-23 Total Tranchej 2!L24 ! 18.40 I 

USDFao\ored Credit Spread CiOQuote Adj Tranche A'iced Independent Index Spread I'vt:!rkrr FV PJ Exoeeding 

Roduct Notional ($ mm) BPValue ($ rnm) Type {LON Oose) (based on Ref Index) Quote O:ange Change ($ rnm) Cap ($ rnm) 

Series 09 Tranche 

cox.!G S0910Y 30-100 16,565 (2.54) upfronl+100 (3.4) (3.4) 

CUX IG S09 OTY 30-100 11,121 (0.47) upfront+100 (2.2) (2.2) (3,9) 1.82 

COX IG SOS 10Y 00-03 2,018 (4.81) upfront+5QO 12,9 73.8 (3,9) 18.76 113.76 COX tG S0910Y 07-10 775 (1.85) upfront+500 0.4 9,3 (3,9) 7.22 522 

COX \G S09 10Y 03-07 60 (0.19) upflOnt+500 29.9 31.0 (3,9) 0.74 COX \G S09 07Y 03·07 (215) 0.39 upfront+500 6,6 7,1 (3,9) (150) 

coX IG 509 05Y 30·100 (260) 0,00 upfront+100 (0,6) (0,6) (4,1) (0,00) 

COX IG S09 07Y 00-03 (331) 1.11 vpfront+500 55.0 55.9 (3,9) (4,29) (229) 

CQX.IG 509 07Y 07·10 (365) 0.26 upfronl+500 (5.8) (5,5) (3,9) (1.02) cox fG S09 05Y 03-07 (1,395) 0,19 upfront+500 (2,5) (2,5) (4.1) (0.80) cox IG S09 07Y 10·15 (1,970) 0.76 upfronl+100 0.4 0,5 (3.9) (2,93) (0.93) cox IG S0910Y 10-15 (1,900) 2.74 upfront+100 11,0 11.5 (3,9) (10.69) (8.69) COX: IG S09 Cl5Y 07-10 (2,045) 0.Q3 upfront+500 (2,9) (2.9) (4,1) (0.14) COX IG $09 Cl5Y 00-03 (2,719) 5.88 upfront+500 17.8 18.2 (4.1) (24,16) (22.16) COX IG S09 05Y 10-15 (2,905) 002 upfronl+100 (06) (06) (4.1) (007) COX IG S09 10Y 15-30 (3,800) 236 upfronl+100 1.3 1,5 (39) (9.20) (7.20) COX: IG 809 07Y 15-30 (6,965) 1.01 upfronl+100 (1.6) (1.5) (3,9) (3,88) (1.88) COX IG S09 05Y 15-30 (12,215) 0.04 upfront+100 (0,6) (0,6) (4,1) (0,17) 

ITRAXX MN 80910Y 22-100 20.7n (7.05) spread 70.0 73.4 (3.2) 22.39 20.39 

rTRAX:X rv1N 809 07Y 22-100 14,252 (1.82) spread 33.5 35.4 (1,2) 2.23 023 

ITRAXX MN 809 05Y 22-100 8,935 (0.15) spread 9,5 9,9 1,1 (0.17j 

rrRAXX rv1l\! 809 1DY 00.03 1.422 (1.H) upfront+500 73.7 74.3 (3.2) 3.76 178 

ITRAXX MN S09 10Y 06-09 478 (0.77) upftonl+300 30.B 319 (32) 2.46 0.46 

[TRAXX MN S09 05Y 06-09 428 (0.09) upfronl+300 {2.3) (2,2) 1.1 (0,11) 

ITRAXX MN S09 05Y 09-12 352 (0.04) spread 60.5 62.8 1,1 (0.05) ITRAXX I\ftN S09i0Y 09-12 296 (0.39) spread 620.0 630.4 (3.2) 1.25 

Y- fTRAXX 509 07Y 09-12 227 (0.19) spread 421.5 432.6 (1.2) 0.24 

a ITRAXX MN S0910Y 12·22 195 (0,16) spread 308.5 316.4 (3.2) 0.50 

z !TRAXX 809 10Y 03·06 6 (0.02) upfront+500 41.7 42.8 (3,2) 0,06 '" " J.P.Morgan " INTERNAL USC ONLY 22 

RANK PROPRIETARY AND/OR TRADE INFORMATION OCC-S
Daily price testing (cont'd) - Tranche 

X 

D 

Z W 

'" 

COB: 2012-05-23 

USDFactored Credit Spread 

Product Notional ($ mm) BPValue ($ mrll) 

Series 09 Tranche 

fTRAXX MN S09 07Y 06-09 (31) 0,00 fTRAXX MN 809 D5Y 12-22 (157) 001 

ITRAXX MN 509 07Y 03-06 (201) 031 

fTRAXX, MN S09 D5Y 03-06 (453) 039 

fTRAXX MN 809 07Y 12-22 (566) 026 

fTRAXX IVIN S09 07Y 00-03 (843) DBB 

ITPAXX MH S09 05Y CO-03 (3,712) 6.31 

Other Tranche 

cOX HY S10 D5Y 35·100 3,744 (0.05) COX HY S09 05Y 35-100 3,051 (O.O1) COX LCDXS1005Y 15-100 2,852 (011) 

CDXHY 810 05Y 15-25 2,063 (122) 

COX KY S10 07Y 35-100 1,452 (O.19) 

COXHY S1Oa7Y 10-15 1,360 (0.38) 

CDXHY S11 05Y 15-25 1,015 (0.78) 

CCX HY S09 05Y 2&-35 875 (0.01) COX Hi SOB 05Y 25-35 663 (D.OO) COX HY S10 05Y 25-35 655 (0.07) 

CDXHY 511 05Y 35-100 508 (002) 

CDXHY S11 05Y 10-15 405 (019) 

COX Hi S10 e7Y 15-25 3B5 (0,39) COX KY S08 e7Y 25-35 282 (0.08) 

COX Hi S10 07Y 25-35 265 (0.17) 

COX Hi S11 05Y 25·35 250 (0,05) 

CDXHYS1005Y10-15 232 (0.15) CDXI-f( SOB 07Y 15-25 225 (0,19) 

INTERNAL USC 

RANK PROPRIETARY ANDIOR TRADE INFORMATION 

CIOQuots 

PrICS Type (LON Qose) 

upfront+300 12.6 

spread 34.5 

upfront+500 22.8 

LJpfront+500 1B 

spread 1 [J9.0 

upfront+500 64.4 upfron!+500 40,9 

pnce 105.2 

102.9 

price 104.9 price 916 

pnce 111.0 

pnce 7.3 

price 78.2 

price 102,9 price 100A price 103.B price 1071 

price 136 price 56.4 

price 104.3 

price 96,1 

price 104.3 

pnce 208 prICe 84.5 

23 

DRAFT (5/2411

Ad) Tranche A-iced Independent Index Spread MarkiT PI PV Exceeding 

(based on Ref Index) Quote CIlange Change ($ mm) cap ($ mm) 

13.2 

36.1 

23.5 

19 

195.5 

65,0 

41-2 

1052 

102.9 

104.9 

91.6 

1iO.9 

7.1 

76.0 

102.9 100.4 

103.8 

107.0 

122 

56,0 

104.1 

95.9 

103.7 

20.7 

S4.0 

(1.2) 

11 

(12) (12) 

1.'1 

(10,1) 

2.5 

(24) 

(11.0) 

(11.0) 

(5,2) 

(10.1) (25.0) 

(24) 

(52) 

(52) 

(110) (13.5) 

(11.0) 

(52) 

(2.4) 

(13.5) 

0.01 

(0.38) 

043 

(0.32) 

(1.20) 

7.0G 0.08 

(026) 

2.94 

2.14 

4.19 

4.09 

0.13 

001 

0,17 

0.09 

0.97 

4.26 

1.10 

1.83 

0.27 

0.36 

254 

5.08 

0,94 0,14 

2,19 

2.09 

2.26 

0.54 

J.P.Morgan 

OCC-S
" o 

z 

'" ," Q 

DRAFT (5/24/12

Daily price testing (cont'd) - Tranche 

COB- 2012-05-23 

LlSD Factored Credit Spread CO Quote Adj Tranc::he Prioed Independent Indel( Spread rv'arkfT FV PV Exceeding 

______ N:Jtionai ($ 8PValue ($ (based on Ref ___ 

Other Tranche 

CDXIGS070T( 07-10 110 

CDX LCDXS10 05Y 12-15 110 

cox HY S08 DlY 35-100 109 COX IG S15 D5Y 15-100 100 

COX HY 811 07Y 35·100 96 COX HY SOB alY 10-15 47 

CDXHY S11 OlY 10-15 17 

COX KY S07 07Y 15-25 cnx. KY S07 OTY 35-100 

CDX IG SOl OT( 15-30 

cox IG SO? OT{ 30..100 

COX IG S08 OT'( 03-07 

COX IG S08 OT{ 07·10 COX IG SOG OT{ 10·15 

COX IG S08 OTY 30-100 COX IG S10 D5Y 03-07 COX IG SiD 05Y 07-10 cOX HY 811 OlY 15-25 (30) 

COX HY S09 Q5Y 10-15 (71) 

COX HY SOB 05Y 35-100 (94) 

COX IG 815 051' 0Q.-03 (195) COX IG S08 OTY 15-30 (375) COX HY 508 05Y 10-15 

cC\X HY S09 OSY 15·25 

COX HY SOB 05Y 15-25 

[TRAXX MN S15 07V 22·100 

ITRAXX MN 815 05Y 22·100 

ITRAXX MN 515 03Y 22·100 

rTRAXX MN S061DY 03-06 

ITRAXX MN 806 10V 06·09 

INTERNAL USE ONLY 

(812) 

(1,055) (1,410) 

2,517 

2,454 

378 

189 

25 

(004) upfron\+5oo 

(0.03) pnce (0.01) pnce 

(001) upfront+25 

(0.02) pnce (0.04) pnce 

(0.00) price (0.01) price (0.00) price 

0.00 upfronl+100 

(0.00) up1rom"100 

0.00 upfrot"lt+500 0,00 upfront+500 

(000) upfront+100 

(0.00) upfront+100 

0.00 llpfronl+500 

(0.00) lIpfront+500 

0.02 pnce 0.06 price 0.00 price 

0.66 llpfront+50D 

0.04 upfront+100 

0.19 price 0.33 price 

001 price 

(084) spread 

(OA9) spread 

(0.02) spread (0.23) upfront+GOO (0.11) upfront+3oo 

(4"0) 

102.9 

108.9 

02 

110.4 

32.1 

6A 

92.5 

106.6 

(1.2) 

(1.3) 

5.4 

(5.3) 

(GA) 

(U) 

(2.5) (49) 

49.8 

31.8 

100A 

36,0 

(1"8) 

9S.4 

g9,4 

100.3 

65.5 

455 

15.5 

41,6 

28,9 

24 

(4.6) 

102.3 2"5 (0.07) 

108.9 (13.5) 0.10 

0.2 (3A) 0"'" 

110.4 (2A) 0.04 

31,5 (13.5) 0.56 

65 (2A) 0.01 

96.0 33.7 (0"22) 

106.8 33.7 (0.01) 

(13) 14.1 0.00 

(1.3) 14.1 (0.01) 

12.6 (31.7) (0.01) 

(3.0) (317) (0.07) 

DA (31.7) 0.01 

(1.6) (317) 0,01 

(2"3) (4"2) (0"00) (4.9) (42) 0"00 

50.1 (2A) (006) 

32.7 ('0"') (062) 

100A (25"8) WOO) 

36.6 (3.4) (2,24) (0.24) 

(1.5) (31.7) (1.15) 

93.9 (25.8) (4.89) (2.89) 99.7 ('0"') (3.33) (1.33) 

100.2 (258) (0.21) 

68<8 (23) 1.96 

47.5 OA (0"'8) 

17.1 (3.6) 0.07 

41.2 6.3 (1A5) 

28,5 5"3 (0"70) - J.P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-S
DRAFT (512411

Daily price testing (cont'd) - Tranche 

COB: 2012·05·23 

USD FactoreJ Credl! Splead CO Quote AdJ Tranche Priced Independent Index Spread MlrkiT W FV Exceeding 

__ 

. 

___ NotIOnal ($ Cap ($ 

x 

o 

2 

Other Tranche 

rTAAXX MN 815 mY 01-06 13 

rTAAXX MN 506 10Y 09-12 

rTAAXXMN S0610Y 12-22 

ITRAXX MN 80610Y 22·100 

iTRAXX MN S07 10Y 0(3...09 

rrRAXX Iv1N S07l0Y 09·12 

ITAAXX MN S0710Y 12·22 

ITRAXX MN S07 10Y 22-1 co 

ITAAXXMNS15D3Y 00.03 (88) 

rTAAXX rv1N soo 10Y 00·03 (131) 

ITRAXX rv1N 815 Q7y 03-06 {2-15) 

ITRAXX MN 515 05Y 00-03 (327) 

ITRAXX rv'N S15 07Y 00-03 (371) 

By Fami!y 

CCXHY 

COX [; 

rrRAXXMN 

14,226 

(6,967) 

45,815 

I INTCf.1N/\L l)S[ ONLY 

BANK PROPRIETARY ACiD/OR TRADE INFORMATlON 

(002) upfrontt5DO 

(000) spread 

(0.01 ) spread (000) spread 

(000) upflonl+300 

(O.OO) spread 

(0 spread 

000 spread 

0.15 

0.12 upfront+500 

0.43 

0.42 upfront+500 

OAO upfront+5DO 

(341) pncr;; 

5.59 sp,ead 

(3.83) spread 

9,5 10.3 

633.0 615.0 6,3 (002) 

299.5 291.6 6,3 (O.09) 

64,8 62,5 6.3 (003) 

2eA 29.2 6.6 (0.02) 

615.5 62;)A 6.6 (0.01) 

285,0 291.2 6.6 (0.00) 

64,3 66.6 6.6 0.01 

47.S 48.8 (36) (055) 

74.8 7A.5 6.3 0.78 34.5 35.7 (2,3) (1.00) 

6i.5 62.1 0.4 0.15 

68,5 69.3 (2.3) (0.93) 

Change due to the OnTR 5Y Index 

92,6 932 932 

122.3 118.3 1183 (4.0) (2211) 

1130,0 180.0 180,0 0.0 (0.05) 

25 J.P.Morgan 

OCC-S
x 

Q 

z 

" " 

Volume and activity update 

ITraxx MN S09 618,556 522,199 

COXIG S18 390,008 NJA 

iTraxx MN S16 292,720 NIA 

iTraxxMN 817 351,346 NJA 

COXIG 617 239,782 2,100 

CDXIGS16 178,415 NIA 

,CDXIG S15 174,828 8,303 

CDXHYS17 72,421 650 CDXHYS10 71,049 45,217 

iTraxxXOS16 63,13213 NiA iTraxxXOS17 72,023- NJA 

CDXHY 509 52,839 34,355 

iTra:o:FJnSubS17 25,771 WA 

Source. DTCC (week erding 5/18/12) 

INTERNAL USE ONLY 

BANK PROPRIETARY ANDIOR TRADE INFORMATION 

DRAFT (5/24/1

17,076 12,705 2.77% 2.43% 

221,241 NJA 56,73% NJA 

7,532 NJA 2,57% NIA 

197,567 NJA 56.23% NIA 

19,678 137 8,21% 6,50% 

697 NIA 0_39% NIA 

866 NIA 0.50% NJA 

4,924 NJA 6,80% NJA 

722 130 1.02% 0.29% 

1,110 N/A 1.74% NJA 

47,157 NJA 65.48% NJA 

673 40 1.27% 0,12% 

4,904 NIA 19,03% NJA 

28 J.P.Morgan 

OCC·S
2314 

DRAFT (5122112) 

J.P.Morgan 

BAl\"'K PROPRIETARY ANDIOR TRiffiE D-.TfORJ"fA nON OCC-SPI-00089239 
2315 

Executive summary 

LargestGDunterp(lrty 

Largest Instrument ~ 

Se#115bn~ 

B<1)'$3!mHY 

RoII;>art...DyWIq"id D:"'''''rtaFl184bnof 

01Rooe~to<mre iTraxx~S16toS17 

OqIillOlrtt...-run 

ill Gough! proteo:tion €100mm FINSU8 817 5y 

II< SOld protectIOn S5QOm CDX HY S 14,11:\ 17. 5y matuf1ty 

If Boughtprntection€1,750mmiTrax>:MN S165y 

INTEFINAL L'SE O'JLY lE><i>e-cle<ljod~y 

BANK PROPRIETARY AND/OR TRADE n-.'FORMATION 

($10.2t",) 

$05bn 

(€04bn) 

fO.1bn 

(€16bnj 

DRA.FT (5(22112) 

.. Ne'W trades r<)duO<:!d fisk In 10%CSWtef1'1'"rS by $87mm{new trade 

actMtyonly, does not 'r1Cludechanges duero marketrnoves) 

II P&L!i{140.7)mmdrwNlby 

• Undetpel'formanceollG912f17vs OTR5y (45mmJ 

.. Compres$l<InlnUSHYvs lG{6~m[;'1) 

I! lGtranches (10mm), as eqwty curves sleepened and super senior 

widened 

In" Grade vs HY(US) 

Long CDXIGS1705Y 

Long:CDXIGS1BOSY 

LOllg ITRp.;:()(MNS1605Y 

Short ITRPXXMN S17 05Y 

33,628 

23.453 

~.806 

OCC-SPJ·OOO8923'i 
2316 

Risk and market summary (cob 5/21/12) 

D""c:lS'''gle Nam~ 

Tot..1 

UA!,\""K PROPRIETp,RY Al'-'D!OR TRADE INFO~\{'-\ nON 

(332) 

3~ 7 

DRAFT (5122112) 

""" 0.'" 

JI'Morgan 

OCC-SPJ-OOOi(9239 
2317 

DRAFT (5/;22112) 

Notional overview 

R~'l"K PROPRIETARY AN'WOR TRADE I},."TOfU..iA.TION OCC-SPI-CXXlR9239 
2318 

Synthetic credit book key metrics 

BAO'lK PROPRIET.-\RY A.,"'ID!OR TRADE INFORi-{A nON -_ .. Redacted bytbePennaneot 

SubcommiHte on Investigations 

DRAFT (SI22f1.Z) 

JP.Morgan 

OCC-SPI-00089239 
2319 

DRAFT (5122112) 

Summary of Synthetic Credit Book historical stress 

Pricing to equilibrium: In addition to below risk factors, some indices wil110se value as they move from richness to fairness 

l\l: Synthetic credit book exposed to six risk factors - Each factor represents a directional exposure 

2,Maturitymismatch 

(Curve) 

It! Ifcr~dilspreat!soflong-maturity positions get wider 

relative to short-matlJrrty posnfoflS 

3. High Yield vs.lnvestl1lellt Grade III Ifhigh yield positiolls outperform Ilivestment grade 

positklllsrelativelolherrpo;tfoliowefghting 

4. illiquidity of older Illdices I Ii' Ifcredit spffiads of the olderil1dex (the "off-the--run' 

Tranches index) widen relative to more-recently issljed 1I1dices (the 

(OrHhe+{un '15. OfHhe-Hun) more '00 the run" indices) 

5. "Super !>enior" debt vs. "equity" );! If there is an increase in the correlation implied between 

pOSItions (Tranches) defaults- among names within thetranches 

6. DElfault risk 

(R:skonmdIVldualnames) 

BANK PROPRIETARY ANTI/OR TRADE J},TORMATION 

IE: If c~dn events happen to companies for which we have 

·soidprotection· 

Portfolio worst day 

Sum of worst case 

37mm 

3,921mm 

68mm 1.252mm 

505mm 502mrn 

NA 

J.EMorgan 

OC'C·SPI-0008"9239 
2320 

DRAFT (5/22.112) 

Summary of Synthetic Credit Book statistical stress 

;:!l PTiclng to equilibrium: In addition to below risk. factors, some indiCes will lose value as they move from richness to fairness 

It Synthetic credit book exposed to six risk factors - Each factor represents a directional exposure 

w In the short-to-medium term, these exposures can be partially mitigated - But not eliminated 

2. Mah.Jritymismatch 

(Curve.) 

3. High Yield vs. Investment Grade 

" Ifcreditspf€ads of long-maturity positions getw'ider 

reJatrvetoshort-ma\urrtypositlOf\S 

~ If high yield positions outperform mvestm~nt grade 

positionsrelatiV!ltothelrportfollow~lghl1r>g 

4_ Illiquidity of older IndicDs I !t:. If cr"djt spreads of the old"T indel( (the "off_the_run' 

Tranches index) widert r<,latrve to more-rec.ently ISSUed Indices (the 

(On-the-Rufl 'IS. Oft-the-Run) more 'on the run" indices) 

5. "Super senior" debt vs. "equity" " Ifthere is an increase in the correlation implied between 

POSitIOns (Tr1lm;hes) defaults among names within the tranches 

6. Default risk Icl. If credit (,vents hapP'!n to companies for which we have 

(Rlskonindi\lldualnames) "soldpmlectmn" 

Est total diversified 95% loss potential 

BANK PROPRlEV·..R,Y AND/OR TR.."..OE J}."'FORtl--tATION 

140mm 150mm 

1,030mm 1.130mm 

490mrn 850mm 

490mm 500mm 

291mm 291mm 

S1,430mm , $1,600mm 

.J.I?Morgan 
2321 

Synthetic Credit risk factors details 

99.9%percelllile 

DOWI1Slde Case A' 

Downside Cilse B' 

3.09 

NIA 

2,550 

3,081 

5,175 

R Credit spread widening (Directionality) - Net direcUonalloss estimate assumes correlation based on 1yr data 

$ Maturity mismatch (Curve) 

DRAFT (5122/12) 

s VolatJ!!ty measured as relative movement of longer maturity spread ',IS shorter matunty spread adjusted for overall drift 

>il Combined across asset classes assuming zero correlation 

l'! High Yield vs.lnvestment Grade 

w Volatility based on relati"e spread movement netted for overall directionality 

el Assumes zero correlation between these differences for US and Europe 

E\ Illiquidity of o!derfndicesfTranches (On-the-ruru'Off·the run risk) 

III Series 9 is assumed as the off·the--run position 

II! Risks are combined assuming zero correlation 

1\1 "Super senior'" debt vs. "equity" positions (Tranches) - Risk factor based on extreme movements of correlation as seen 

dunng the credltcnsis 

III Default risk (Risk on individual names) - Exposure based on comprehensive' Simulation of default risk using capita! mode! 

I> Diversified sum" All above risk measures combined assuming zero correlat!on 

J.P.Morgan 

BA't'-."'K PROPRIETARY AND/OR TRADE INTOR.\{,:I,rlON 
2322 

Curve exposure (Investment Grade CDX and iTraxx Series 9) El!l!l~III1.iiill 

DANK PROPRIETARY Al~DiOR TRADE INFORMA T10N 

AboV(lPM based on an ind;caVve attl!bulion 

modaiandm"ynolmaldlrepresenls/we 

IrarfeP&Lesilmi3[ion 

VCiU'nes 

1W"ekTotal 

1M DadyAiJg. 

Sl~Cfi 4!.lO 

Oa\!sto L.lquldabo:J 

EE.~ua!lyavgvol.) 

o 13224 

1,fo97 1,696 

30,1330 28,892 

3,284 2,375 

1MDariyAYg 2~7 

11;),656 4,372 

91 262 

J.I'MOTgan 

OCC-SPI-00089239 
2323 

Investment Grade vs. High Yield (Compression) 

m~A)';XMNJflNSE:N/SOVX 

ITRAXXXOIFIN SUR 

BA}."K PROPRIETARY ANTI/OR TRADE INFORMt\TIO~ 

~1l!IIII_1IIl 

(292) AbDVeP&LlJasedonQ{)md,eaVw!"tlnbulJol1 

model and may not mf)tch fep¥eseniiJIlVe 

!radeP&Lestrmal!()11 

DRAFT (5/22112) 

CDXIG COXHY 

125, 133 ~8,O~5 

17,968 7,646 

316,892 4.11,671 

15 

ITra».MN ;Tra~XO 

83,546 21,600 

12,225 

209,001 

IF-Morgan 

OCC·SPI-OOOR92J9 
2324 

Off-the-run index risk 

nAKK PROPRJET ARY ANDIOR TRADE I}lFORMA TlON 

AboveP&LbllSBdof!anmdlcallVBallnbulJOn 

modei a'ld may nrX match repres",nia/;1fe 

ITadeP&L GS~mDtJO,1 

D~ys to I.IQuld~tiort 

(20% dmly Ilvg vol) 

DRAFT (5/22112) 

1.696 

2B,892 316,882 

IP.Morgan 

OC'C-SPI-00089239 
2325 

Directionality 

e-oo) 

(100) 

(orn) 

(""I 

BAN""K PROPRIETARY AND/OR TRADE [NFOR.."{ATJON 

AbowP&L basodona.'1indlcabVf!atinbuDOf) 

modaiandmaYllolmalchrrz,pmsenlaflve 

tmdeP&Lesl,ma(:on 

o ~ --,~~."----~----,-----

Sep_tJ7 Sep-oo 8<>1'_09 Sep·10 

11 

DRAFT (5t22112) 

J.P.Morgan 

dC'C-SPI-OOOS9239 
2326 

Tranche Risk 

jTla):XSuperSe~lDr 

027 

Slnc""'!?'::I::"~ .. _____ ~2._60 __ "~5~" 

DANl( PROPRIETARY ANT)lOR TR.A.DE TSFORMATION 

model flrJdmeynolma(ch represenlallVe 

IradaP&Lesilmaban 

Graphs of 10% correfCltion shiff 

12 

DRAFT {Sf22112} 

C/O va! froded since Apr 30'11 

ImplIDd Daily, weekly PIL 

IP.Morgan 

OCC-SPI-00089139 
2327 

Default profile 

ComrnU'1'ca1Jo'1s,l.lc 

3 M,edVlla$tENort!1Jlmenca, (1709) 3 Ro~mAl1dHaas (6702) 

Company 

BAN"KPROPRlEIARY ANTI/OR TRADE ll'."'FORMATlON 

3 lIzClalbome,inc 

4. Gannett Co., Inc 

5 LennarCorpnraiion 

3 Umc"'d!t,So~etaPef 

Aioon> 

4_ 8am:aMlIltf'Dei 

Paschl DIS!efla SPA 

DRAFT (5f22112) 

Company 

3 lhe1jxCompan,es, 

Inc 

4 DeanFoodsCompany 

5 leml~(}-Inland Inc 

5 [Janc~ Mont .. De, 

Pasch'O,SlenaSPA 

J.P.Morgan 

4484 

OCC-SPI-00089239 
2328 

Limits 

CS01 Unadjusted 

CDXHY 

CDXLCDX 

CDXIG 

,Tra;«WiN 

CDXIG 

ITraxxMN 

LargelJ'ld<.xNotionals 

CDXIG97Y 

,Tra:<;o;SS10Y 

Usage SyntheTIc 

(119) 

(02) 

C.3 

1913 

(143) 

85 

4960 

C1 

470 BiO 

54 54 

BA};l< PROPRIETARY A1',,TI)IOR TRADE INFORMA. TIO:N" 

EUR CompresslOll Lim'! 

SleepE!l10% 

CDXHY 

14 

Synthetic 

dB4 5 ~96 0 

{i882) 

(69A) 

C1 

(4301) 

(1752) 

612 

(253) 

DRAFT (Sr22(12) 

.lEMorgan 

OCC-SPJ-00039139 
2329 

Differences summary 

I~ 

(113) (111) I" (1) (1) 

(7) I~ 

(278) (?&1) 

(217) I"<} 

I<>O} 1M} 

~2 

(22) "" I~} 

" (1) 

I'} 2 

I~ 

CD 

BANK PROPRJETARY ANDIOR TRADE 1}"1-'ORMATION 

!TRft.XX"",,SO()WYOS09 

CClXtfI' S0905Y 10;.25 

CQ>\H\'SOI.IOSY 10-15 

IffiAXXI.'NS09iGYll,lOO 

CiJXIGS0905YOO-03 

CffilGS0910Y 1(',.15 

~lt{S11t)7Y 

C!lXK3SCl910YiS-3Cl 

~-""" 

Byr..,.jy 

=" ="' "''''X''' ChgduetGOr.TRW 

(618) 

'ffi , 

271 

I"} 

1,320 '"

DRAFT (5/2211 Z) 

"" 2 (1) 

, 

" 

,-, " --42 

lP.Morgan 

OCC-SPI-DOO89239 
2330 

Agenda 

Page 

" .IP.Morgan 

BAKKPROPRlETARY A:!\'DiOR TRADE I},TOR.\{J\nO~ OCC-SPI-00089239 
2331 

New trades 

j~T!CRNAL 

BAN"X. PROPRIETARY AhTOiOR TRADE Th"'FOR.\·LATIO~ 

:<D-~·16 

2O-D",;.16 RNI'LCN 

2)-I:cc·16 

2()'Cl3c·16 

eweeN 

~Cec·16 IJN?Lt::t.i 

2O-c..c-16 BNPLCN 

RCA CHARLOTTE 

8NF'lctl 

18200 

18200 

DRAFT (5122112) 

J.I'Morgan 
2332 
2333 
2334 

DRAFT (Sf22112) 

Daily price testing - Index 

1598 

"''" 893 

1541 ",,, 2193 

194:1 

OIherlndex 

[:[lX;/G51B85'i 

fiXHI'S0805Y ,~ 

1116 

CDXKi S0905Y ',003 (671) (6313) "" CDXH'i 511 07Y (64) ,~ 616 

CDXHYS110W 1010 " (068) 

COXKlSffi07Y "" "" 2;;;; 

m 052 

(027) 

1363 

101A ffi' 

932 

SlX""d 

95T 

'" ~, 

re, 1O'G 1017 1mB '" -g~ g 98;> 004 

IP.Morgan 

BANK PROPRfETA,RY il,NDlOR TRADE rr..'FORM.-\11ON OCC-SPI-OOOR9239 
2335 

DRAFT (5122112) 

Daily price testing (cont'd) - Index 

ITR<\XXRNSUaS1405Y 

fffiAXXnt.Sua.SiG05Y 

(14) 

rmAXX FINSIJ5 817 05Y 

lTRAXXM-lS0610Y " rTMXX "JNSUB SJ7 OS'( 

sprBad 7430 

"'" spmad 5200 ,0< spiBad '"'" (118) I''''" (044) 

spf!'.ad " 0.2: 

spread 

,~; 

'26 sprwd I~' 1945 I~' 

'" spleacl "'" ilS72 

spread "'" 

n, 5pr""d (102) (231) (220) 

on spread ,~o 1556 I'~ (14,,) (111) 

2'1 spread leeS ro9S 

6.97 $pre~d 179,3 {(3) (207) 

Change in Ihe OnTR5YC"ntr~c:I 

(.3875) spread 12JS 1181 1181 

m '"' (10016) 

(1100) spread 1796 '''' ",.-""d "" (558) 

1.PMorgan 

BA}'"'K. PROPRIETARY A,~-P!QR TRADE I1{FORMAT10N OCC-SPI·OOOR9139 
2336 

Daily price testing - Tranche 

Series 09 Tt<lnche 

CDXIGS(E1Cl'f30-l00 1$,555 (279) '-'I'j,on:+10) 

CCXIG SD30!Y 30-100 (050) upf"'"H1OD 

CDXIGSO!l10YCO-()3 2,018 (431) uplmnH500 

CDXIGSC!91OY 01·10 m (lll2) upf,oot.,r-.m 

CDXIGSC91GY03-07 (018) upfr"n-[;<5DO 

CDXIGS09DTY03-07 0.3B upf,oIlH600 

c;rD!;1G S09115Y 30-100 (293) ,-,pf,,,,,t+100 

CU'<1GS09DT'( 00-03 (331) 103 "pl'""t+5oo 

COXIGSC907Y 07·10 I"'l ''" uplfonl<&:» 

CDXlGS0905Y [13.-07 (1,)95) upfwm<600 

CCXIGSOOOT'( 1()'15 0,970) ee, uptmnt+l00 

CCXIGSro10Y 10-15 (1.980) 274 upfrom+l00 

COXIGS0905'(07.1l) upf,,,,,!+500 

C(l.'(JGSOOOsYOO--1Xl upf,<:<ll+500 

CD(IGSOOO5Y10-15 (2.'Xl5J upff orr!+100 

CCil(IGS09HJY15.3(j (3,roJ) Uflfrot1l+1DO 

CGXIGS0907'( 15-3D (6,955) uptron\+l00 

CD(1GS09lliYl5-30 (~2215) upfr"""+l00 

f!AAXXfn'tS0910Y22·100 (7.10) spread 

rTRAXXIMSOOfJ7Yll·l00 14,461 (lB9) spr ..... d 

lTRAXXIINSOOO5Y22··mJ S,006 (021) sp,ead 

fTRI\XXr.NS031DYOO·OJ 1,«3 (120) upfr<>f'lt+500 

ITRAX,,<p.,f>,lsrn10YOO-Q9 (075) upf'orrr.-<-3IXI 

ITRI>.XX'-"JS0905Y D€--OO ~ (009) "pftom~3C(J 

ITRAXXIMSOOI1iY09-12 ~" sp,eBd 

fTAAXX r.NSC91OY 09-12 spread 

ITRAXXr.NSOOON W·12 (019) Sl'r"",d 

rTRA)C"~S0310Y12·22 (Ol5) spr""ld 

rTRAXX:~SD91!lY03-05 (OO2) upf,onIt500 

DA},'K PROPRIETARY ANDiOR TRADE INFORlvtADON 

(35) 

(22) (22) 

(06) (06) " 

(57) (57) 

(25) (15) 

I'~ (29) 

'" (06) (06) 

I)~ ('~ " IO~ ," '"" ~, 

,CO 

'" '" (20) (21) 

730 

" 

(76) 

(23) 

(2.3) 

(23) 

(26) 

(lS) 

(28) 

(26) 

(i5) 

(26) 

(23) 

(15) 

(15) 

(15) 

(23) 

(26) 

(15) 

(08) 

(04) 

OC 

(DB) 

(08) 

CO 

00 

(O.S) 

(O4) 

(oa) 

(DB) 

(099) '" 

(oro) 

1258) 

lOSS) 

(023) 

r21') 

(620) 

(00.<) 

(979) 

(D.Oj) 

(OOO) 

(000) 

'" 

DRAFT {5122112} 

(058) 

(DiU 

(420) 

(7.79) 

.IP.Morgan 

OCC-SPI-OOOS9239 
2337 

Daily price testing (cont'd) - Tranche DRAFT {5f22112) 

L1SDFac'ored Cc»ciit Spre,.,-j AdIT'~ncheR"",ed independe"l\ hdexSpread M>,krrFV tV &;ceedlng 

=""-____ -'''''''oo'''ffi'''-f(''"'~''', LI,'C:,::,:v,,,,'oo',]!(lmm) Ff,eeType (LONChse) (based 00 Ref hdex) CimnjJe OW'9~{.$ta"ll) Qlp($rrrn) 

Series 09 Trant;;he 

rmAXX lIN S09 DSY 1:<.22 

JTRlI.XXM'lSCEOlYOJ.-!16 

JTRlI.XXIN'ISC!305Y[}3-06 

fTR.O.x,;;:U<SC907'l12:i.2 

rTR<>.XX 1/NSQ9 DlYOO·03 

(160) 

(2001) 

(~60) 

(575) 

(e53) 

ITRAXXl>'NSD9C6Y 00.03 (3,767] 

Other Trarlche 

CDXH'( SlOD5Y 35-100 

COX HY S09 05Y 35·100 

,.rn:lCDXS100SY15.100 

CDXHi S1005Y 15-25 

CCXff( SlQ07Y35-·100 

CD.XH'(S100Ti1D·15 

CCXH'(S11 05Y 15-25 

COXH'f SQ9D5Y25-35 

CIXHY SOB05Y25-3S 

CDXHYS1005Y 25-35 

l.ClXK'(S11D5YJ5.-100 

C[l)(HYS11r:t5'(10-15 

CC(\1Y S10DlY 15-25 

COXK'!' SOOOTY 25-35 

CDXHi S10iJ1Y 2$·35 

CD(HY S11 rJ'i'( 75-35 

CDXHY 510('5" 11}.15 

CDXHYSOB07Y15-25 

3.7M 

"'" 

1,360 

BA!'\l( PROPRIETARY Ao"ID/OR TRADE INFOR:\.{ATION 

Celli 

D27 

(OY.'j 

(QO') 

(012) 

(1.?il) 

(019) 

(03S) 

(0[12) 

(DOt) 

{OOO) 

(017) 

(038) 

(OOll) 

(OlB) 

lJpf,,,n!F300 

spread 

upfro"t;500 

l!rf,ont.so.J 

spread 

upf"",H500 

uphont-tBOO 

1079 

"" 

751 " 

107 0 

m 

1037 

,ag 

" 

1107 

" 

1029 

'005 

00 

(04) 

00 

(04) 

(04) 

000 

(012:) 

001 

(011) 

(039) 

JP.Morgan 

OCC-SPI-00089239 
2338 

DRAFT (5f22f12) 

Daily price testing (cont'd) - Tranche 

USOf-adDfe<j Oed~Spr""d COQoo!~ Ad:Tra",d>eF'TlCod indepcndenl hdExS>,!eacl MlMTFV FVr",~,,<>d..,g 

._. __ ~'::'~(S ".-,,) _BPV~t""(! ~L_~':..!rE:....Q-~~:=LJ~~ed 0" ReI .!2~e~~ __ Quot~ ._.~~~?': ,~~g_":J!~~~$Im1) 

U'..x.:Hi SiJ70n 35-100 

CDXIGSOSDIY1D-15 

cox IG SCl8 07'( 30-100 

Cll'\IGSlOCl5YD3-07 

C[J)(IG S100SY Or· 1:) 

COXlffS1107'( 15-15 

cr.xIf(S09Q5Y15-25 

CI.l\If(SOS(5Y15--25 

ITRAXX~S150TY 22-100 

(004) ",p1m"l+-5oo 

110 (003) 

100 (001) 

(30) 

(71) 

(001) 

(002) 

(om) 

(000) 

(0 ~1) 

(COO) 

GOO upjm'll+100 

(000) uplmn1+100 

O()\) "pffOnl->5(l() 

000 uplront+500 

(000) ''I'/'onI+100 

(000) \FP''O'1I+1oo 

000 uplromt500 

(000) uplro"tiOOJ 

ow 

000 

{s·~} p"ce 

(195) upfrom+500 

upfmnl+l00 

(812) 

(O.~) sp,,,,ad 

(050) 

(002) 

(023) 

(01;) 

BAN'KPROPRlETARY AND/OR TRADE IhTORMATlON 

985 
2339 

DRAFT (5122112) 

Daily price testing (cont'd) - Tranche 

Other Tranche 

ITW>..XXl<t.lS1S03Y03-06 (002) u!,Ir"'~'<600 '" m,/l,XXJR>j50610YQ9-12 (ClOO) $p,e~d eM, (002) 

ffi'lXXIil'JS0610Y 12·Z2 (ClOl) spmact (012) 

IlRAX,XM\lS0610YZ2.jOO (000) "" (000\) 

rTRAXXWNS0710Y 00-09 (000) uphom+300 '" (001) 

1l'RAXXII.'f,iS071DYD9-12 (0 DO) 6371 (001) 

r-RAXXM'!S071QY12-:z:? {OOO} sp'''ad '''' (000) 

fi1<A.XXWNS0710Y22·Hll 000 SPI",,1 

r.-RAXXM'!S15O:WOO-03 I"" Ujllw~lt500 (20) (031) 

!,RI\XX,""S0610Y 00-03 (132) upffO'1t+'.lOO 

ITAAMM'!S150lY03-06 (24~ up!ront-t&lO 361 (14) " (Dt>B) 

lTRAXXM'!S1505YOO-03 1=1 wpfrom.,.r-.>OO 02' (12) 

ITAAXXM'!S15071 00-03 (377) upirom-tSOO (H) 

Change due to the OnTR5Ylndel: 

1-4,229 i3~6") 932 932 

($.987) I'" (1651) 

46.489 (437) spread (OJ) 

25 .l.I'Morgan 

BANI:: PROPRIETARY AND/OR TR.lI.DE INFORM.&.TION OCC-SPI-000!<9239 
2340 

DRAFT (5122112) 

Volume and activity update 

,Tra:o:MNSD9 517,046 13,460 218% NIt, 

CDXIGS16 333,402 141,462 N" 4243'';' NIA 

,Tia)O(Mf\lS16 296,060 NIA 

'TraxxMN-S17 4005% 

CDXJGS17 1,996 10,196 424% 

COXIGS16 178.638 NIA 

175,372 8,303 656 NIA NIA 

72,824 650 373% 3118% 

70,470 /'7,260 ,<5 64,662 NIA NfA 

60,580 32,567 

53,980 35,413 232 80 0:>3.% 

NIA NIA NIA 

"--" ~-.-----"-

" .1EMorgan 

BANK PROPRIETARY AI,<'D/OR TRADE IN""FORMATIOK OCC-SP1-OOO89239 
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DANK PROPR1ETARY AND/OR TRADE lNFORMATIOl'l 

DRAFT (5123112

J.P.Morgan 

OCC,S
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Executive summary 

Actual lIS. 

Estimate A:::tual EstJmate 

512312012 ($119,427) 

Portfoiio Net Since % Chg 

22May (157.1) (18.0) (0.7) (18.7) 135.6 (46.3%) 

30-Apr (292.6) 258.2 (125.1) 133.1 00 

Note" CSW 1 0%: negative figures denote long risk position 

1 Expected today 

Desc:ription Current Prior day 

Total (CIO - Couhterparty) $25 -$48 

Largest counterparty MS 32 13 

Largest instrument Otller 28 -64 

Note negatlv(:!/posltlve collateral pOSition denotes lower/higher valuation relative to 

counterparty 

INTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFOlUviATfON 

DRAFT (512311

!'II Bought protoction €250mm ITraxx Main 817 5y 

1'J 8oLlghtprotection $2,100mm CDX iG 818 5y 

a Sold protection $510mm COX HY S18 5y 

III New trades Increased fisk in 100/0CSWterms by !E2.5mm (new trade 

activity only, does not include changes due to market 'lloves) 

u P&L$(119.5)m::1 driven by: 

III Compression $(42)mm globally m Widenmg of IG 9 12J17 'IS, OTR IG 818 5y $(49)mm 

!II EqUity tranche super senior widening $(25)mm 

J.P.Morgan 

OCC-S
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Risk and market summary 

CDXHY (810) (20,B58) 72 396 435 2,386 

ITRAXXMN 88,631 26,850 (11.3) (16.8) (2BO) (B,857) ITRAXXXO (8,555; (8,140) 2B 15.5 183 178 

ITRAXXFINSUB (2,856) 373 (0.2) (0.7) ;11) (315) 

Direct Singie Name 

Total 

CDXfG S09 D5Yusels!l bela Dro 5 

1 TBU _ table shown includes notional and risk factors for bath and tranches cOmbined 

Note: pos!t!vefNegatlve notional data denotes long/shalt risk, PosltlVe/Negative eso"] denotes shortJlong risk 

8etJ3s are comput8d off on Ihe run iG (818) 

(0.6) 

4.B 

0.0 0.1 

COXIG 5185 )of 

S95yr 

6910yr 

118.5 118.0 123.2 9-1.7 91.5 (53) (6.6) (0.5) 

CDXHY S185yr 

iTra;.xrvBln iTraxxXover 

INTERNAL USC ONLY 

86.0 87,4 92.2 68.1 70 e 

1580 157.7 160A 119.4 113,1 

671.0 

5 

209.0 

710.0 

678.2 

1805 

218.5 

744.0 

720.7 

1823 

219.8 

756.5 

579,7 

1405 1705 

(350.0 

578,9 

1250 

151.0 

6130 

(B.9) 4.5 (4.3) 12.5 

64.0 

30 

(5.3) 

16.9 

33.1 

(07) 

(2.7) 

(10,5) 

435 

5.8 

8.6 

(2.8) 

tladir,g and volatility 

DANK PROPRIETARY AND/OR TRADEINFORMATIOl\ 

DRAFT (512311

Change since 4130/12 

CS01 CSW10% Bet

9,7 32,9 i.::m 

(497) (12) (26.1) 55

85.7 12.3 127.0 15

(7.7) (O_3) 5.5

5.3 0.4 4.5

(0.2) (201) 5,9

21_0 133.0 

J.P.Morgan 

OCC-S
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Notional overview 

Note: posltlvelNegative notional data denotes long/short risk 

INTERNAL IJSE 

DANK PROPRlETARY AND/OR TRADE INFORMATIOI\ 

DRAFT (512311

Notional 

IG 9 82,460 

Other IG (14,500) 

High Yield {20,609} 

Notional 

iTraxx Main 54,948 

iTraxx 

Total EqUity Mezz SenIOr 

!G 9 (5,940) (1,355) (33,020) 28,435 

fG 95 yr (22,400) (3,570) (18,560) (270) 

IG (340) (195) (245) 100 

HY 17,789 4,291 4,203 9,295 

iTraxx 36,395 (3,230) 440 39,185 

LCDX 

COX IG S09 07Y 34,193 

CDXiGS0910Y 80,989 

iG9 82,460 

J.P.Morgan 

OCC-S
DRAFT (5123112

Synthetic credit book - key metrics 

3,500 

3,000 $2,912 

1800 -I $1,500 $1,550 

1400 

2.500 $2,126 1200 

2,0 1000 

1,500 800 

600 

1,000 400 

500 200 

JIIil 

4/3012012 5/1812012 5t2212012 4/30/2012 5/18/2012 5/Z2/2012 

Note: HistOrical and Statistical Stress use prior methodolDgy, To be updated .... 1th new methodology in fdlure distribution, 

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I3ANKPROPRIETARY AND/OR TRADEINfORMATIO!\ 

160 

J.P.Morgan 

oee·SP
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DRAFT (512311

Summary of Synthetic Credit Book - historical stress 

III Pricing to equilibrium: In addition to below risk factors, some indices will lose value as they. move from richness to fairness 

III Synthetic credit book exposed to six risk factors - Each factor represents a directional exposure 

win the short-to-medium term, these exposures can be partially mitigated - But not eliminated 

1. Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

J. High Yield vs.lnvestment Grade 

4. Illiquidity of older Indices J 

Tranches 

(On-the-Run VS. Off-the-Run) 

5. "Super senior" debt vs. "equity" 

positions (Tranches) 

6. Default risk 

(Rlsk an individual names) 

Ill!! If credit spreads widen across markets 

l!lI If credit spreads of long-maturity positions get wider 

relative to positions 

If high yield positions outperform investment grade 

positions reiative to their portfolio weightlng 

If credit spreads of the older index (the 

Index) widen relative to more-recently Issued indices (the 

more "on the run" indices) 

m If there is an increase in the correlation implied bemeen 

defaults among names within the tranches 

r,'I If credit events happen to companies for which we have 

"sold protection" 

Portfolio worst day 

Sum of worst case 

Note, 5/22 values under hew methodology, 4130 values under prior methodology, To be updated. 

INTERNAL USE ONLY 

$347mm $162mm 

Omm 89mm 

2.254mm 3,921mm 

70mm 1,252mrn 

505mm 502mm 

NA NA 

J.P.Morgan 

BANK PROPR1ETARY AND/OR TRADE lNFORMATION OCC-S
DRAFT (512311

Summary of Synthetic Credit Book - statistical stress 

" Pricing to equilibrium: In addition to below risk factors, some indices will lose value as they move from richness to fairness 

" Synthetic credit book exposed to six risk faclors - Each factor represents a directional expo sur" 

III In the short-to-medium term, these exposures can be partially mitigated - But not eliminated 

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1. Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

3. High Yield V5, Investment Grade 

4. Illiquidity of older !ndices / 

Tranches 

(On-the-Run vs. Off-the-Run) 

5. "Super senior" debt vs. "equity" 

positions (Tranches) 

6. Default risk 

(Risk on individual names) 

iii If credit spreads widen across markets 

m If credit spreads of long-maturity positions get wider 

relative to short·maturity positions 

fa If high yield positions outperform investment grade 

positions reiative to their portfolio weigtlting 

f!!! If credit spreads of the older index (the 

index) widen relative to monHecently issued indices (the 

more "on the run" indices) 

lID Ifthere is an increase in the correlation implied between 

defaults among names within the tranches 

/ill If credit events happen to companies for which we have 

"sold protection" 

Est total diversified 96% loss potential 

Note: 5/22 values under new methodology, 413Q values under pnor methodology. To be upoated 

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BANK PROPRIETARY AND/OR TRADE INFORMATIOI' 

$200mm $430mm 

150mm 160mm 

1.170mm 1,130mm 

500mm 650mm 

490mm 500mm 

291mm 291mm 

J. P. Morgan 

OCC-S
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DRAFT (512311

Synthetic Credit risk factors details 

.. ,_ ."_" __ ". __ 

90,0% percentile 1.28 1,150 

99,9% percentile 3.09 2,510 

Downside Case A 1 N/A 2,801 

Downside Case 8 2 N/A 4,635 

iii Credit spread widening (Directionality) w Net directional loss estimate assumes correlation based on 1yr data 

'" Maturity mismatch (Curve) 

ttl Volatility measured as relative movement of longer maturity spread VS. shorter maturity spread adjusted for overall drift 

B Combined across asset classes assuming zero correlation 

.. High Yield VS. Investment Grade 

a Volatility based on relative spread movement netted for overall directionality 

!Ill Assumes zero correlation between these differences for US and Europe 

.. Illiquidity of older IndiceslTranches (On-the-runIOff·the run risk) 

lJl Series 9 is assumed as the position 

U!l Risks are combined assuming zero correlation 

m: uSuper seniorll debt vs. l¢equityll positions (Tranches) - Risk factor based on extreme movements of correlation as seen 

during the credit crisis 

f1i Default risk (Risk on individual names) - Exposure based on comprehensive simulation of default risk using capital model 

ill Diversified sum - All above risk measures combined assuming zero correlation 

1 Diversified bum of 95.D"h percentile; f. Diversified sum of 99,9% percentile 

USE ONLY J.P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATlON OCC-S
2349 
2350 
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Agenda 

.. 

" Directionality 

II Tranche Risk 

" Default profile 

II Limits 

" Differences Summary " Daily trades (May 23, 2012) 

.. Synthetic credit risk overview 

III Daily price testing -Index 

.. Daily price testing - Tranche 

INTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFORJv!ATION 

Page 

10 J.P.Morgan 

OCC-S
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Curve exposure (Investment Grade CDX and iTraxx Series 9) (cob 5/22/12) 

Short risk 

j_1 ,I '. '-'I ,I J ,I ,Ell 'I ,- ,- ,. ,., (100) 

(200) J

j 

LaHQ rISk 

(300) (400) 

(500) 

Notional (Sbn) 

Maturity GUfrent Delta Mj 

Dec. '12 ($33) ($145) 

Dec. '17 47 55 

Daily ($000) wrD Since 4130 

__ (42,846) __ (1,373,947) 

Abovf.l P&L bal:::ed on an indicative attribulion 

_300.j 

elISO- -50_ & 

I I 0 i 

1 < 

] .. (100) 

5ep-07 Sep-Q8 Sep·09 Sq:l-io Sep·l1 

Notional (€bn) PV 10% CSW ($'l1m) 250 BO 

Current Delta Adj. ($mm) Spot Day c;ng. 

€17 (€31) $1,628 579 SO.1 

13 27 (2,181) (370) 12.2 

Net (449) 122 

]2QO 

.ssa 

Sep+07 Sep-oa Sep"09 Sep·10 Sep·ll 

(40) 

S OUf curve risk arises from the portfolio 

being short risk in lesser maturities {Pre 

Dec 2016) and long risk in greater 

maturities (post Dec 2016) 

EI Our exposure to this is approximately 

$8mmm loss per bp in steepening in IG9 'With 8 forward long of $34mm 

Volumes 

1WeekTotai 2,8413 18,035 

1 M Dally Avg. 1,684 2,084 

Since 4/30 33,877 36,654 

Days to LlqUidatlon 97 113 

(20% daify avg. vat.) 

,------ 

Volumes 

1WeekTotal 6,170 2,381 

1M Daily Avg. 1,095 292 

Since 4/30 20,277 5,262 

Days to liquidation 77 222 

(20% dallyavg. vo!) 

11 J.P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·
Investment Grade vs. High Yield (Compression) (cob 5/22/12) 

x' 

0 

z 

I 

!TRAXX MN/FINSEN/SOVX 

lTRAXXXOfFIN SUB 

COX1G 

$51,427 

CS01 (24.2; 

10%CSW (273,9) 

CSW10% Change 

Close of Day 16 B Close of Week (169.4) Since April 30 (147.6) 

($mm except ITraxx MN 

Notional (",'84) 

CS01 1,2 

10% CSW 20.4 

CSW10% ChancJe 

Close of Day (08) Close of Week 74,0 

Since April 30 184.B 

if'.;T[RNAL liSE ONLY 

BANK PROPRIETARY AND/OR TRADE iNFORMATION 

465 

(275) 

172 

CDXHY 

($7,2"11) 

2,5 

155 9 

(46) 

(11 8) 

(69) 

ITraxxXO 

(E4,917) 

21 

1369 

(65) (64) 

(80) 

CDX!Gvs. HY (8,568) (134,901) (133,124) 

lTra)O(MNvs,XO (35,465) (9,045) (321,601) 

Other 1,257 (975) 18,161 

Above P&L basfJd on an mdlcelive attribution 

2,000 J _HY¥;_HY/IGR;-JtiO['12. 

3/07 3jOa 3/09 3/10 3/11 3/12 

1,000 

7sa 

500 

250 

MN vs. XO ratio 4.14x 3.5Bx. 10,OBx 

12 

Volumes 

lWeekiotal 

1M 8ailyAvg 

Since 4130 

Days to liquidaTIon 

(20% daily evg vol) 

Volumes 

1WeekTotai 

1 M Daily Avg, 

Since 4/30 

Days to liquidation 

(20% daily avg. vol) 

DRAFT (5/2311

a ratio o

CDXIG CDXH

143,561 23,56

19,926 3,05

366.695 54,04

13 

iTraxx MN iTraxx

93,918 24,60

13,210 4,14

236,648 71,54

.lP.Morgan 

OCC-S
Off-the-run index risk (cob 5/22/12) 

x 

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Cha'1ge 

Close of Day (0.5) Close ofWee'f. 16.5 Since April 30 195 

Change 

Close of Day (0.1) CJos e of Week 0.1 Since Apnl 30 1.5 

j PV represents balance sheet carrying value 

USC ONLY 

BANK PROPRlET ARY A'JDIOR TRADE INFOJUV!ATJOt\ 

0.3 

(149! 

(12.0) 

0.0 

34 

100 

DRAFT (512311

represenfati'le 

syom lOY 59 18.035 

150 i ,0 1M DallyAvg 2,084 19,926 

'00 ) , (20) Since 4/30 36,654 366,695 

, ·(40) 113 11 

so I (50) (20% dally avg. _____ _ 

; (80) 

5ep-07 Sep-oS 5ap.{lS sep-l0 5ep-ll 

j_SYOIH 

30 Volumes 

20 1WeekTotai 2,381 93,918 

;0 1MOailyAvg 292 13.216 

(IO) Since 4/30 5)62 236,648 

(20) Days to Llquidaton 284 

(30) (20% dallyavg vor) 

(40) ------

Sep"OJ Se;J.DS Sep-C.9 Sep-IO 

13 .IP.Morgan 

OCC-S

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Tranche Risk (cob 5/22/12) 

CDXIG Super Senior CDXIGTotal CDXHY Junior 0-35% 37 

COX HY Super SenIOr 35-100% 8 

CDXHYTotal ---4-5 

iTra;xxJunior 0-22% (26) iTraxx Super Senior 22-100% 

-

10% Corr01 

Change 

WeekTo Date 

Since I\pril30 

10'5;0 CanOi 

Change 

Long IG 9 

SuperSr 10yr 

(18) 

0.12 

-2.92 

Long iTraxx 9 

Super 10yr 

-15 

Short 

0-30 

25 

-0.06 

032 

8ho1 

0-22 

11 

Week To Date 0.30 0.16 

______ 

, COrrelation data as of COB 4/4 

INTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

Daily ($OOOs) wm Since 4/30 

TBU TBU TBJ 

Above P&L based en af] indicative attribution 

representativa 

Graphs of 10% correlation shift 

Theoretical max gain/loss based 0/1 10% 

Corr and Spread graph 

15 

DRAFT (512311

CIO Vol traded since Apr 3011' 

Implied Daily, weekly P/L 

J,P.Morgan 

OCC-
DRAFT (5/23/12

Default profile (cob 5122112) 

# Nam as P&L given # Names P&L given 

# of wi default default w/default default 

Portfolio loss risk gain risk Avg Max Portfolio (today) 675 90 585 $156 $639 

Portfolio (post Dec. '12) 672 258 (240) (599) 414 133 639 

IG9 only (today) 121 0 0 121 260 553 

IG9 only (post Dec, '12) 121 121 (460) (599) 0 

H. J. Heinz Com pany (253.0) 1 capital One Bank (5986) 1. R R. Donnelley & Sons 552.8 1. BrunswickCorporation 

(Usa), National Company 

2 Boston Scientific (2459) 2. Goodrich Corporation (536.4) 2. UzCla:borne, Inc 5326 2 The New York Times 251

Corporation Company 

3 Directv Holdings Lie (239.3) 3. Mcdonald'S corporaton (533.7) 3. Gannett Co., Inc 532.3 3, The "DxCompanI8s, 235

Inc. 

NOlbors Industries, Inc, (232.6) 4. Baxter Internationallno (5336) 4. Lenner Corporation 531.5 4 Dean Foods Company 231

The Gap, Inc. (222.1) 5. Bristol-Myers Squibb (532.6) 5. Bela Corp 5302 5. Temple-Inland Inc 222

Company 

Madls Sa (14) 2 Pltadis Sa (14) 2 Gdf Suez 5806 2 GdfSuez 580

Hanson Limited (0.1) 3, Royal & Sun .AJliance (05) 3. Sodem Per 5072 3. Banca Monte Dei 465

Insurance Pic Alioni Pas chi Oi Siena SPA 

4 L',A,ir Liqulde Societe (0.0) 4. The Royal Bank Of (04) 4. Banca I'vbnte Del 489.9 4. Banco Bilbao Vizcaya 461

!V1onyme Pour L'Etude Et Scotland NV Pas chi Oi Siena SPA IVgentaria, Sociedad 

L'ExpJoitation Oes Procedes k10nima 

x 5 Deutsche Bahn (0.0) 5, Hanson Limited (0.1) 5 Banco Bilbao Vlzcaya 485.8 5. Unicredit, Societa Per 458

0 Aktiengesei!schaft kgentana, Sociedad Man! 

z A.rIomma 

«! INTERNAL USE ONLY 16 J.P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATlOt-; OCC·S
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Limits (cob 5/22/12) 

Usage Synthetic 

UJ1l1t($mm) 5f21!12 limit 

CS01 Unadjusted 

CDXHY 76 8.6 

CDXLCDX (0.0) 1.8 

CDXIG (309) 394 

ITra:o:MN (11.9j 23.7 

iTraxxXO 2.8 3.3 

ITraxx Fins ub (0.2) 06 

iTraxxFinsen 0.3 0.5 

CSW10'% 

CDXHY 4848 496,0 

CDXLCDX (03) 01 CDXIG (51 OJ) 549.0 

iTraxx MN (3001) 434.0 

iTraxxXO 191,3 201.0 

ITraxx Fins ub (14.3) 27.0 

iTraxx Fmsen 8.5 12.0 

Large Index Notionals 

CDXIG97Y 34.2 342 

CDXiG.9.10Y 47.0 61.0 

iTraxx 89 7Y 5A 54 iTraxx 89 10Y 13.0 '3,0 

ii'>jT[RNAL USE O\lLY 

BANK PROPRIETARY ANDiOR TRADE INFORMATION 

DRAFT (5123112

Usage SyntheTIc 

Limlt{$mm) 5rz1f12 Limit 

VaR 156,5 180.0 

Compression 

US Compression limit ,8,5 ,960 

EUR Com pressIOn limit 176.9 1740 

Tranche Llmlts 

10%CorrShift (188.2) 1750 

Steepen10% 

CDXHY (69.4) 640 

CDXLCDX 0.1 05 

CDX!G (430.1) 4360 

iTraxx MN (175.2) 2650 

iTraxxXO 61.2 65.0 

iTra::o::Finsub (25.3) 300 iTra::o::Fir.sen 4.3 6.0 

17 J.P.Morgan 

OCC-S
Differences summary 

($mm) 

Sum of Sum of CP Surnof MrM SumofCP 

nstrument Sum of MTM MTM Sum of MfM Off 

x 

a 

z 

BBVASA 

BNPP BOA BFlC 

CBK}l.G 

CGML cm CSI CSX 

DBKAG 

OSI 

HSBCEU 

HSBCUS 

MLI MSCS MSIL NOMURAIP 

RBSFLC 

SGCIB 

Series 09 index Other Index Subtotal 

By Fam'ly 

CDXIG CDXKY 

ITRAXX MN 

ITRAXXXO 

Chg, in DnTR 5Y 

355 

55 

(105) 

(2) 

(6) 

(130) 

(200) 

(46) 

399 

(13) 

12 

(7) 

5 

177 

(93) 

126 

73 

(48) 

CDX IG S09 10Y DO-OJ 

(0) fTRAXX i\1N 806 10Y 06-09 

372 (16) COX Hi 80905Y 15-25 

65 (11) COX HY SOB 05Y 10.15 

(97) (7) ITRAXX MN S09 10Y 22-100 

(1) (0) COX IG 8DS 05Y 00-03 (6) 0 CDXIGS1805Y 

(141) 12 COX IG 80910Y 10-15 (209) COX If( 811 07Y 

(54) 6 CDX \G S09 10Y 15-30 

386 11 Other 

129) 17 Total 

6 4 

(10) 3 

5 10) 

145 32 

(91) (2) 

127 (1) 

74 (1) 

(29) (19) 

(0.2) 

15 

(7.1) 

By Fami1y 

COX IG 

COX HY 

rrRAXX MN 

Chg. due to OnTR 5Y 

(37.5) 

20.3 

(1,388) 

60 70 

(21) 0 

26 15 

(549) (558) 

412 416 

9 

208 216 

0 (14) 

34 37 

1.601 1,574 

402 377 

NTERNAL USE ONLY Note:asofS121/12 18 

1 Negative numberimp!ies marks are 100 low - P&L adjusted lIpvtard to cap: POSitive number 

implies marks are too high - P&L reduced to cap 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

12 

110) 122) 

13 

9 

(5) (4) (6) 

15 

13r 

26 25 

DRAFT (512311

.IP.Morgan 

OCC-S
x 

o 

z Q 

< 

New trades 

23-Way-12 LONG 23-May-12 lONG 

22-May-12 LONG 23-May-12 SHORT 

23.Way-12 SHORT 

23·May-12 SHORT 

23-r\l'iay-12 10 SHORT 23-rv'ay·12 11 SflJRT 

:z3..wey-12 12 Sf-KJRT 

22-We.y-12 13 SHORT 

22-1\oB.y-12 14 SHORT 

22-NEy-12 15 SHORT 

16 SHORT 17 SHORT 

23-WBy-12 18 SHORT 

19 SHORT 

23-!\I'I3y-12 20 LONG 

iNTERNAL ONLY 

110,000,000 cox Hi 81605y 

100,000,000 COX Hi 51 B O5y 

330.000,000 COX Hi S18 05Y 

COX IG S1I) 05Y 

CJX IG S18 05Y 

COX IG 818 05y 

GJX IG SHl 05Y 

COX IG S18 O5Y CDX IG S18 05y 

COXiG 818 05y COXGS1805Y 

COX IG S18 a5Y coX IG S18 a5Y COX lG S18 05Y 

lTRAXX MN 817 05Y 

IlRAXX MN S17 05Y 

250,000,000 lTRAXX MN 817 05Y 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

20-Jun-17 

2D-Jun_17 

2D-Jun-17 JPfVlC8 N1' CDS (HY In' 

20-Jun-17 SOCGEN 2:J-Jwn-17 BOA CH'lIRlOTTE 20-Jun-17 BOA CH'lIRLOTTE 20-Jun-17 NOWIJRA LON 20-Jun-17 SOCGEN 20-Jun_17 SOCGE.f\.j 20·Jun-17 SOCDEN 

2D-Jun·17 SOCGEN 

20-Jun-17 elTIBANK 20-Jun-17 BARCLAYS NY 2:J-Jun-17 MS CAPSVCNY 20-Jun-17 BNPLDN 20-Jun-17 BNPLDN 

20-Jun·17 NOMJRA LDN 

19 

DRAFT (512311

R"eyious Closmg 

Traded Traded Ftavious cay Qosing Spread 

(bps) 

93.75 92.63 93.75 92,63 

9376 93.75 92.63 

120.75 115.00 122.25 

121.50 115.00 122.25 

12150 115.00 12225 

122.00 11500 122.25 

120.75 11500 122.25 

120,50 115.00 122.25 

115.50 115,00 122.25 

116.00 11500 12225 

115.75 115.00 12225 116.88 11500 122.25 

117.25 115.00 122,25 

177.75 170.75 180.00 

1n.75 170]5 180.00 

1£l1.DO 170.75 1BO.Oo 

J.P.Morgan 

OCC-S
DRAFT (5123112

Daily price testing Index 

COB. 20,2-05-22 Total 

USD Factored Cred:tSpread CIO QUote rvtlrkjtQuote tCEQllote WarkiTSpread MorkITPV FV Exceedin

A-oduct NJtianai ($ mm) BPValue ($ mm) TypE' (LON Close) (NY/LON Close) (NYfLON Close) Difference Change (S mm) cap ($ rrrn

D9lnde)( 

COX 1G S0910Y 45,485 (22.136) spreild 153.8 157.7 156,5 3.9 

COX iG 809 07Y 33,099 (8.34) spread 114,8 117.7 117,0 2.9 

COX IG 8m DSY (31,675) 1136 spread 83.5 86.8 86.0 3.3 

rrRAXX MN S09 05Y 21,581 spread 155.4 155,4 155.4 0.01 

ITRAXX MN S09 10Y 16,569 spread 212.0 208.8 212.0 28.75 24.33 

fTRAXX MN SOB 071 6,827 spread 185.6 185.1 086 

other inde)( 

COX IG 818 05Y 41.489 (20,01) spread 115.0 118.4 11113 3.4 

COX Hi S08 05Y 15,430 (0.12) price 100.1 100.1 100,1 (15.9) 198 1.85 

COX IG 517 05Y 8,338 (3.67) spread 1083 111.5 111,6 3.2 (1187) (1004COX HY S09 05Y 5,686 (0.33) pnce 100,5 100A 100A 25.2 (B36) (803COX Hi 811 07Y 3,703 (1.16) price 99,1 98."1 12.3 (1<.34) (13.18CDXHY 811 05Y 994 (0.15) price 101A 101.2 101,2 12,2 (1,87) (1.72COX IG SOB 07Y 434 (0..09) spread 159.5 135.4 134,5 (24.1) 210 2.05 COXiG Si6l0Y 302 (O.23) spread 136,5 142.7 142,7 0.2 (146) COXIG S1410Y 257 (O,18) spread 123.8 134,0 134.2 10.2 (169) CDXIGS1510Y (54) 0.04 spread 127,5 137.0 138,5 9,5 039 0.37 

COX I-rY 814 03Y (73) 0,01 price 101,8 101,4 29,5 0.23 022 

COX Hi' S18 osy (170) 0.07 pnce 93,8 93,3 93.3 11.0 072 0.65 

COX HY SOB D7Y (180) 0..04 price 98,9 98,6 11.7 0.42 0.38 COX IG S07 07Y (704) 0,11 spread 121,5 143.6 22.1 242 2.37 

COX LCDX S10 05Y (1.165) 0,13 pnce 101.8 1015 24,8 3.16 3,09 

COX H( S10 OlY (2,049) 0,58 price 101,1 101.0 5.5 321 263 CDXHY S1605Y 224 pnce 97.3 97.1 97.1 7.5 1680 14,57 

CDX Hi' S17 05Y 249 price 950 94.6 946 g, 2341 2092 

COX IG 814 05Y (7,657) 234 spread B4,O 86.8 86,6 2.8 652 535 COX Hi' S10 05Y (9,134) 0,99 pnce 102.0 101.8 101,8 21.7 2142 20.43 

COXhY S1505Y (9,618) 3.DO pm:e 98J3 98.5 98,6 7.2 2155 1855 COX HY S14 05Y (11,977) 3.34 price 100.0 99.7 99,8 9.3 3098 2764 COX!G 815 OSY (17,159) 6.04 93.5 96.4 97.0 2.9 17,53 14,51 

x 

0 z 

INTERNAL USE 20 J.P.Morgan <, 

BANK PROPRIETARY AND/OR TRADE INFORMA nON 
Daily price testing (cont'd) - Index 

x 

o 

z 

Q Q 

COB. 2012-05-22 

rTR.A.XX MN 516 05Y 

ITRAXX MN S15 05Y 

ITRAXX FINSUB 814 05Y 

rrRAXX FINSUB 816 05Y 

ITRAXX MN S15 07'( 

ITRAXX MN S06 10Y 

rTRAXX FINSUB 817 05Y rTRAXX FINSUB 507 D5Y 

ITRAXX XO 517 D5Y 

rTRAXX FiNSUB S15 OSY 

!TR.A.XX FINSUB 508 05Y 

JTR.A.XX F!NSEN 817 05Y 

rTRAXX FINSUB 812 05Y 

ITRAXX FINSUB 810 05Y 

rTRAXX MN S1610Y 

rfRAXX XO SiS 05Y 

rTAAXXMNS1510Y 

n RAM FINSUB S09 05Y 

fTRAXXiVNS1503Y 

rTRAXX XO S16 05Y 

ITRAXX MN 817 OSY 

By Family 

CDXIG CDXHY 

rrRAXXM'J 

lTAAXXXO 

USE 

5,181 

1,665 

1,335 

1,129 

102 

77 

(119) 

(555) 

(2,159) 

(3,584) 

(6,274) 

(15,276) 

53,926 

BANI( PROPRIETARY AND/OR TRADE INfORMATION 

spread 

spread spread 

(0.53) spread (059) spr9ud 

(004) spread 

spread 

sptead 

0.20 spread 

019 spread 004 spread 029 spread 

0.29 spread 

0.21 spread 

1.27 spread 

0.55 spread 

1.49 

029 spread 0.73 spread 

2,11 spread 

7.02 spread 

(37.79) spread 

1097 price 

(11.03) spread 

2.00 spread 

DRAFT (5123112

Total [nde 

171.2 171.0 1712 1,'[5 174.5 174.0 174,5 081 

474.0 '802 (307) (282

496.0 499.6 3.6 (192) (1,65

1918 100.3 0.84 054 

211 B 2188 (028) (026

474.0 479.7 5.7 (019) 

559.0 449.5 (0.10) 

705.5 706.0 705.5 0.10 

490.0 492.1 2.1 041 0.31 

416.0 409.7 (6.3) (022

280.0 279,7 (03) 10) 

452.5 461.3 8.8 200 189 

432,0 436.7 4.7 1.00 0.89 

186.4 185.5 186,4 (1 (0.50

621,0 620.5 621.0 

192.8 193.9 192.8 0.87 

<109.0 418,9 8.9 226 2.15 

149.B 147,1 (196) (1.60

673.8 672.9 673.8 (lOS) 

170.8 170.8 170,8 011 

Change In the OnTR 5Y Contract 

115.0 l1BA 118.3 3.4 

938 93.3 933 110 

170.8 170.8 170.8 0.0 (017) 

705.5 706.0 705.5 0.5 152 

21 .l.P.Morgan 

OCC·S
DRAFT (512311

Daily price testing - Tranche 

USDFactored Credit Spread CIO Quote AdJ iranche Priced indepl;l1dent fridex Spread rvt:llklTPJ PV 8o:;GeetJlng 

"od_"o_, __ , _____ ($ 'nm) O!Value ($ __ (LON ($ mm) 

Series 09 Tra nche [ 45,"1 31.4'1 

COX lG S09 10Y 30-100 16,565 (263) upfront+100 (3,5) (3,6) 39 (10,36) (836) COX iG S09 on 30-100 11,121 (050) upfront+100 (22) (22) 2,' (1.48) 

COX IG S09 10Y 00-03 2,018 (4.70) upfront+500 72.5 72.0 3,9 (18.48) (16.48) 

COX iG S0910Y 07·10 T75 (1.82) upfront+500 7,8 7.2 3,9 (7.16) (5.16) 

COX IG S09 10Y 03-07 60 (0,19) upfion!+500 29.1 28.4 3,9 (0.73) 

cox. iG S09 on 03·07 (215) 0.39 upfront+500 6,0 5.7 2,9 1.13 

eM IG SGg 05Y 30·100 (260) 000 upfron!+1DO (0.6) (0,6) 3,3 000 

cOX IG S09 87'( 00·03 (331) 111 upfront+5DO 64.2 53.S 2,9 3,25 1.25 

cox IG S09 07Y 07·10 (365) 025 upfront+5DO (6,1) (62) ',9 0.76 

COX lG S09 05Y 03-07 (1,395) 0.15 vpfront+5DO (2.6) (2.6) 3.3 0.50 CCX'. IG S09 OTr 10-15 (1,970) 0.76 wpfront+100 0.1 0.0 2.9 2.2<1 0.24 

CO>< IG 50910Y 10-15 (1,980, 275 upfront+100 1G.2 3.9 10.62 8.82 

COX IG 509 05Y 07·10 (2,045) 0.02 upfronl+5DO (2.9) (2.9) 33 0.08 cox IG S09 05Y 00-03 (2,719) 6.12 up:ron!-l·500 17,13 17.3 3.3 20.46 WAG 

COX IG S09 05Y 10-15 (2,905) 002 upfronl+100 (0.6) (0.6) 3.3 0.05 

cox. iG SOg 10Y 15-30 (3,800) 2.55 upfront+1DO 1.2 10 3,9 10,02 8.02 

cox iG S09 'J7Y 15-30 (6,965) 1 upfront+100 (1.7) (1.7) 29 2.97 0.97 

coX IG 809 a5Y 15-30 (12,215) 003 lJpfront+1DO (0.6) (0.6) 3.3 0.12 

ITRAXX MN S09 i0Y 22-100 21,068 (715) spread 69.8 68.3 (3.3) 23.23 2123 

I7RAXX MN S09 07Y 22-100 14,451 (1.85) spread 32.4 30.<1 (04) 0.79 

iTRAXX MN S09 O5Y 22·100 9,060 (0.15) spread 9.4 8.6 (0.0) 0.00 

rTRAXX MN 809 10Y 00-03 1,442 (1.21) upfront+50Q 73.7 73.5 (3_3) 3.92 1.92 

tTRAXX MN GOO 10Y 06-09 485 (078) upfror'1t+300 30,B 30.6 (3.3) 2.55 0.55 

ITPAXX MN 809 Ci5Y 06-09 434 (0.10) upfroht+300 (2.1) (2.2) (0,0) 0.00 

iTRAXX MN SD9 05Y 09-12 357 (004) spreal'i 64.5 58.7 (0.0) 0.00 

rTRAXX MN 809 10Y 09·12 300 (0.40) spread 621.5 607.7 (33) i.29 

JiRAXX MN 809 orr 09-12 230 (0.20) spread 417.5 400.1 (0."1) DOS 

x ITRAXX MN S09 i0Y 12-22 198 (016) spread 3088 303.0 (3.3) 0,51 

a 

z IfRAXX MN 809 lOY 03-06 6 (0.02) upfront+500 41.13 41.7 (3.3) 0.06 

Q INT[RNAL US[ ONLY 22 J,P.Morgan <C 

BANK PROPRIETARY AND/OR TRADE INFORMATIOK OCC-S
Daily price testing (cont'd) - Tranche 

DRAFT (512311

COB: 2012-05-22 

USD Factored Credit Spread CIO Quote Adj Tranche R-K;ed Independent Index Spread Markrr p..j FV Exceeding 

A"oduct Notionai ($ mm) BPVaiue ($ mm) Price Type (LON Close) (based on Ref Index) Quote Change Change ($ mm) Cap ($ mrn) 

x 

o 

z 

Series 09 Tranche 

rTAAXX MN S09 07Y 06·09 

ITRAXX 1V1N S09 D5Y 12-22 ITAAXX MN S09 07Y 03-06 

fTAAXX S09 O5Y 03-06 

ITAAXX MN S09 07Y 12-22 

fTAAXX MN S09 07Y 00-03 

rrRAXX MN 509 05Y 00-03 

Other Tranche 

cox HY 810 05Y 35-100 COX HY S09 05Y 3S-,1OO 

COX LCDXS10 05Y 15-100 

COX HY 510 05Y 15-25 CDXHY S10a7Y 35-100 

CDX HY S10 07Y 10-15 CDXHY 511 05Y 15-25 

COX HY SD9 05Y 25-35 COX HY S08 05Y 25-35 

CDX Hi S10 05Y 25.-35 

coX HY 811 05Y 35-100 

CDXHY 811 05Y 10-.15 

COX HY S10 D7Y 15-25 COX HY 508 on 25-35 

cox HY 810 07Y 25-35 

CDX If'( 811 05Y 25-35 COX If'( S10 05Y 10·15 

COX HY SOB 07Y 15-25 

I INTERNAL USE ONLY 

(32) 

(160) 

(204) 

(459) (574) 

(855) 

(3,764) 

3,744 3,051 

2,852 

2,063 

1,452 

1,360 1,015 

875 

663 655 

508 

405 

385 

282 

265 250 

232 225 

BANK PROPRIETARY ANDiOR TRADE lNFORMATION 

0.00 upfront+30CJ 0.01 spread 

031 upfronli500 

0.39 upfront+500 

0.27 spread 

0.99 upfront+500 

6.41 upfron!+500 

(0.05) prICe 

(001) 

(011) price 

(122) prICe (020) price 

(0.38) price 

(0.79) price 

(0.01) price 

(O,()Q) price 

(007) price (002) price 

(0.19) price 

(039) price 

(0.08) prICe 

(0.16) price (0.05) prICe 

(O.15) prICe (0.19) prICe 

12,9 12,3 

35.0 31.8 (0.0) (0.00) 

22.9 222 (0.4) (0,1.'3) 

1.8 1.2 (0.0) (0.00) 

190.0 182.0 (04) (0.11) 

64,4 63.9 (0.4) (0.42) 

40.8 39.8 (00) (0.03) 

105,3 105.3 21.7 (U5) 

1029 102.9 252 (020) 

105.0 105.0 24 B (2.63) (0.63) 

91.8 93.1 21.7 (26.48) (24.48) 

111.3 111.3 5.5 (1.08) 

76 7.5 5.5 (2.11) (0.11) 

7G.2 77,6 12.2 (9.59) (7.59) 

102.9 102.9 25.2 (0.21) 

1005 100A (15.9) 0,01 

103.8 1041 21.7 (1,54) 107.1 107.1 12.2 (021) 

13,8 13.4 12,2 (2.28) (0.28) 

58,5 58.1 5.5 (2.15) (0,'\5) 

104.3 104,8 11.7 (0.95) 

97.2 96.9 5.5 (O.OIJ) 

104.3 104.1 12.2 (0.6<1) 

20.6 22.1 21.7 (3.23) (1.23) 

84.5 85.9 11.7 (221) (0.21) 

23 J.P.Morgan 

OCC-S
DRAFT (5/23/1

Daily price testing (cont'd) - Tranche 

COB' 2012-05·22 

USD Factored Qedl! Spread CIO Quote Ad) Tranche Fttced indepe1dent hdex Spread rv'arkrT FV FV Exceeding 

($ mm) BPVa)ue ($ mm) A-ice on Ref Index) QUote c,r.ange Change ($ mm) Cap ($ mm) 

x 

o 

z 

o. o 

< 

Other Tranche 

110 

COX LCDX SiD 05Y 12-15 110 

COX HY S08 07Y 35-100 109 

CDX IG S15 05Y 15-100 100 COX HY 811 07Y 100 96 

cox: looN S08 07Y 10-15 47 

COXHY 511 07Y 10-15 17 

COX Hi S0707Y 15-25 COX HY S07 Oly 100 COX IG S07 OTY 15-30 

CD)( fG S07 OTY 30·100 

cox IG 508 OTY 03--07 

COX IG S08 07'1' 07·10 

cox: IG S01) OTY 10-15 

COX iG S08 07Y 3G-100 

COX fG SiD 05Y 03-07 

COX fG SiD 05Y 07,10 coX Hi S11 aT'( 15-25 (30) cox KY S09 O5Y 10,15 (71) 

cox Hi' S08 05Y 35·100 (94) 

COX IG 815 05Y 00-03 (195) 

COX lG S08 OTY 15-30 (375) 

COX HY S08 05Y 10·15 (812) 

cox Hi S09 O5Y 15-25 (1,055) 

cox KY SOB O5Y 15-25 (1,410) 

iTRAXX rvtN S15 Oly 22·100 2,552 

rTRAXXMNS1505Y22-100 2,4813 

rfRAXX rv1I'4 815 o3Y 22-100 

[TRAXX MN S06 10Y 03-06 

rTRAXX MN BOG 10Y 06-09 

INTERNAL USE OI\J.LY 

383 

191 

26 

BANK PROPRIETAR Y AND/OR TRADE INFORMATION 

(004) upfront+500 (4.4) 

(0.03) pnce 102.8 

(0.01) price 108.9 

(0.0;) upfront+25 0.2 

(0.02) price 110.7 

(0.04) once 32.1 (000) price 6.6 (001) price 92.5 (000) price 106.6 

0,00 upfront+100 (1.3) 

(0.00) Upfro;lt+100 (1,3) 

0,00 I..<pfront+500 5.8 0.00 (56) 

(D_DD) upfront+100 (0.7) (D.OO) upfront+100 (1.7i 

0,00 upfront+500 (2.6) 

(ODD) upfront+500 (49) 

002 pnce 51.0 0,06 pnce 31.6 

DOD pnce 100.5 

0,64 upfront+"JOO 35.0 

0.04 upfront+100 (1.9) 

0.20 pnce 98.3 

0.33 priC£l 99.3 

0,01 price 100.3 

(0.84) spread 68.8 

(O.50) spread 48.5 

(002) spread 17.0 

(0.23) upfront+500 41J (0.11) 28.9 

24 

(5.1) 22.1 

102.8 240 (0,70) 109.1 11.7 (0.09) 

0.1 2.9 (0.04) 

110.B 12.3 (0.21) 

33J1 11.7 (OA9) 

6.7 12.3 (D,05) 

96,0 32.6 (D.2i) 

106.8 326 (0.01) 

(1A) 22.1 0.00 

(1.3) 22.1 (0.01) 

11.3 (24.1) (0.01) 

(3.7) (24.1) (0.05) 

0.0 (24.1) 0,01 

(1.6) (24.1) 0.01 (2.6) 24 0.00 

(4.9) 24 (0.00) 

51.3 12.3 029 

35.4 25.2 1.55 

100.4 (15.9) (0.00) 

34.5 2.9 1.(35 

(1.6) (24.1) (0.88) 

93.!:i (15.9) (3.12) (1.12) 

1007 25,2 8.32 6.32 

100.2 (159) (014) 

61.4 (14) 1.19 

42.4 (DA) 0.21 

14,2 (2.7) 0.06 

40.1 7.0 (1.64) 

27,2 7.0 (0.79) . 

J.P.Morgan 

OCC·S
DRAFT (512311

Daily price testing (cont'd) - Tranche 

COB: 2012-05-22 Tota! Tranche 

USDFactored Credit Spread CIO Quote Ad) TI anche Priced independent Index: Spread tlarklTP\! F\I Exceeding 

Product Notional ($ mm) BPValue ($ f'rIm) ----"" Price Type (LON dose) (based on cap ($ mm) 

X 

o 

z 

'" 

Other Tranche 

rTRAXX MN S15 mY 03-06 rTRAXX MN SD610Y 09·12 

ITRAXX MN Sooi0Y 12·22 

\TAAXX MN SD6 10Y 22-100 

rTRAXX MN S07 10Y 06-09 

ITAAXX MN S07 10Y 09-12 

ITAAXX MN S07 10Y 12-22 

fTAAXX tVoN S07 i0Y 22·100 

ITAAXX MN 815 03Y 00·03 

fTRAXX I\I1N 806 10Y 00-03 

rrRAXX MN S15 07Y 03-06 iTRAXX MN 515 05Y 00-03 

ITRAXX MN 815 07Y 00-03 

By Family 

COXHY 

CDXIG 

rrAAXX MN 

INTERNAL USE ONLY 

13 

189) 

(132) (249) (332) 

(376) 

14,226 

(6,987) 

46,456 

BANK PROPRIETARY AND/OR TRADE INFOR.'v1ATJON 

(002) upfront+500 

(000) spread 

(0.01) spread 

(0.00) spread 

(0.00) upfront+300 

(0.00) spread 

10.00) spread 

0,00 spread 0.15 upfront+500 

0.13 upfront+5CO 0.42 upfront+500 0.43 upfront+500 

0.40 upfront+500 

1341) price 

594 spread 

(3.S9) spread 

10,8 92 (27) 

634.5 589.0 70 (0.02) 

299,8 277.6 7.0 (010) 

64,5 57.2 7.0 (0.03) 

28.4 27.9 6.9 (0.02) 

617,0 59R5 6.9 (0.01) 

285.3 716.1 6.9 10.00) 

64,1 61.5 6.9 0.01 

49.3 47.4 (2.7) 1041) 

74,6 73.6 7.0 0.B8 36.1 34.2 (1A) (0.59) 

62.6 61,1 (0.4) (0,18) 

69.6 68.3 (1.4) (0.57) 

Change due to the DnTR 5Y Index 

93.8 93.3 93.3 110 

115.0 11B.4 118.3 34 20.30 

170.8 170.8 170.6 0.0 (0.06) 

25 .T.P.Morgan 

OCC-
x 

o 

z 

'" 

Volume and activity update 

ITraxx MN S09 616,556 522,199 

COXIG 818 390,000 NfA 

iTraxx MN S16 282,720 N/A 

ITraxx MN 817 351,346 NfA 

CDXIGS17 239,782 2,100 COX1GS16 178.415 NfA CDXIG S15 174,828 IU03 CDXHY 317 72A21 650 

CDX HY SiD 71,049 45,217 

iTraxxXOS16 63,828 NfA 

ITr<Jxx XO 817 72,023 NfA 

CDXHYS09 < 52,839 34,355 

iTraxx FinSub S17 25,771 NfA 

Source: DTCe (weeK erding 5/113(12) 

INTERNAL uSC 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

DRAFT (5/23/1

17,076 12,705 277% 2.43% 

221,241 NfA 56.73% N/A 

7,532 NfA 2,57% NfA 

197,567 NfA 56.23% NfA 

19,678 137 8.21% 6.50% 

697 NfA 039% N/A 

866 NfA 050% NfA 

A,924 NfA 6.80% NfA 

722 130 1,02% 029% 

1,110 NfA 1.74% Nfl, 

47,157 NfA 6548% NfA 

673 40 1.27% 0,12% 

<'1,904 NfA 19.03% NfA 

26 J.P.Morgan 

OCC-
2368 

DRAFT (5f2S/12) 

J.P.Morgan 

OCC-SPI-0008935J 
2369 

Executive summary DRAFT(5!2St12) 

;; f30Jght protec;oon $1,2~OmmCDX 1(; 318 by 

JP.Morgan 

BA:t<KPROPRIETARY Al>'1)!OR 1R/\.DE TNfORMATIOK OCC-SPJ-0008935J 
2370 

Risk and market summary 

$95,.,-

8910yr 

8185,.,-

ITlauMain S175yr 

BAKK rROrRn~TARY A., ..... 'DiOR TRADE D\'FOR~1ATIO~ 

864 

1582 

DRAFT (5!25112) 

.J.EMorgan 
2371 

Notional overview DRAFT (5/25/12) 

BANK PROPRIETARY AND/OR TRADE INTOR.\{ATIO-S- OCC·SPI·oonR9351 
2372 

Synthetic credit book - key metrics 

"ID 

1<>0 

100 "" 

BANK PROPRIETARY AND/OR TRADE r.-.'FORMA nON 

S/9j20U 5/14/2011 

DRAFT (5125f1Z) 

5!Zl/l012 

lEMorgan 

OCC-SPI-0008935J 
2373 

DRAFT (Sf25f12) 

Summary of Synthetic Credit Book historical stress 

$I Pricing to equilibrium: Tn addition to below risk factors, some indices will lose value as they move from richness to farmess 

m Synthetic credit book exposed to six risk factors - Each factor represents a directional e;<posure 

In the short-to~medlum term, these e~posures can be p~rtially mitigated - But not eliminated 

2. Maturity mismatch 

(Curve) 

3. High Yield vs. Investment G(arl~ 

4. ltIiquidity of older Indices f 

Tranches 

{On"the·Run vs. Off-the-Ru"} mDre "on the run~ indices) 

S. "Super senior" debt vs. "equity" ~ !f there is an increase in the correlation implied behveen 

pOSItions (Tranches) defaults among names within the tranches 

DA},l( PROPRIETARY ANn'OR TRADE ImOR\{AT10N 

~ If credit event5 happen to companies for Which we have 

"sold protectIOn' 

Portfolio worst day 

Sum of worst case 

14mm 89mm 

2,077mm 1,441mm 

186mm 1,oeSmm 

Sl}5mm 505mm 

NA NA 

.ll'Morgan 

CXT-SPJ-OOOi<935J 
2374 

DRAFT (5125112) 

Summary of Synthetic Credit Book statistical stress 

W Pricing to equilibrium: In additlon to below ris~ factors, some indices wiillose value as they move from richness to fairness 

l:\ Synthetic credit boOK exposed to six risk factors - Each factor represents a directional exposure 

III In the short-tO-lTledium term, these exposurES can be partially mitigated - But not eliminated 

2. Maturity mismatch !II Jf credit spreads [If long-maturity positions get wider 

(Curve) rolabvelosnort-maturitYPosltiofls 

3, High Yield VS. Investment Grade i!1 If high yield posItions olltperform investment grade 

posilions relative to their portfolio weighting 

4. Uliquidfty of older Indices! ~ If credit spreads of the older index {the 'off-the-run' 

Trall!:hes index) widen relahve to more-recently issued indices (the 

(On-the--Run. \IS. Off·the-Run) more "on the /lJr'l' indices) 

5. "Super senior" debt vs. "equity" Ii; !fthere is an increase in the correlation imp'leO between 

positions (Tranrlles) defaults among names within the tranche ... 

6. Default risk 

(Riskoninolvidua!names) 

BANK PROPRtETARY AND/OR TRADE Th:rORMATlO~ 

!Ii If credit events happen to companies for which we have 

":'>oldproteC\l(ln" 

Est. total diversn~d 95% loss potenti.al 

140mm 16Dmm 

1.060mm 810mm 

510mm 1,40Dmm 

490mm 490mm 

291mm 291mm 

$1,33Dmm 

.lEMorgan 

OCC"SPI·00089351 
2375 

DRAFT (5f25f12) 

Synthetic Credit risk factors details 

99.9% peroer1tile 

DOW!1side Case A' 

DOW!1slde Case 82 

309 

NfA 

NfA 

2,:140 

2,711 

4,475 

J:I' Credit spread widening (Dlrectlona!!!y) - Net dlfedional loss es!lmate assumes correlation based on 1yr data 

is Maturity mismatch (Curve) 

Volatility measured as relative movement of longer matunty spread 'IS shorter matunty spread adjusted for overall drift 

Ii! Combined across asset classes assuming zero correlation 

II! High Yield vs. Investment Grade 

Ii Volatility based on relative spread movement netted for overall directionality 

!II Assumes zero correlation between these differences for US and Europe 

III Illiquidity of older Indicesrrranches {On-the-runlO:Hhe run risk) 

I!l! Series g is assumed as the off"the-run position 

DI Risks are combined assuming zero correlation 

iii: "Supef senior" debt \IS. "equity" positions (T ranches) Risk factor based on extreme movements of correlation as seen 

during the credit crisis 

II Default fisk (Risk on individual names) - Exposure based on comprehensive simulation of default nsk using capital model 

II! Diversified sum ~ All above risk measures combined assuming zero correlation 

~P.Morgan 

BANK PROPRIETARY AND/OR TRADE ll'oTORMA.nON OCC·SPI-D0089351 
2376 

BANK PROPRIETARY AN""DiOR TRADE Ii"FOR'vlATJOX o('c-srI·O()0893~1 
2377 
2378 

Agenda 

H!l Off-the-run Index risk 

s; DlrectlOllalrty 

~ Tranche Risk 

"" Defaultpronlil. 

1:11 limits 

Differences Summary 

r;, Daily trades (May 25, 2D12) 

Synthetic credit risk ovef\liew 

!'< Daily price testing -Index 

Daily pricetestmg-- Tranche 

BANK PROPRlETARY ANDIOR TRADE ll\"'FORMATION 

Page 

10 J.rMorgan 

OCC-SPI-0008935J 
2379 

Curve exposure (Investment Grade CDX and iTraxx Series 9) (cob 5124(12) 

DA},"'K PROPRlEL\RY AND/OR TRADE J},'FOR..\1ATION 

Move PM based on an indlC<?lIve altnbution 

model and may not match rnpres'i'n/airve 

IroooP&Les/JmaiJoI1 

Volumes 

1WeekTotai 

1M Da;lyAVQ 

11.264 19,388 

2AS8 

45,865 

7,S12 1,967 

'.13,875 5932 

68. 219 

OCC-SPI-0008935J 
2380 

Investment Grade vs. High Yield (Compression) (cob 5124112) 

cox HYJLCDX 

I'RJ\X.X MN!FIt-.iSENtSOVX 

ITRAXXXOIFIN SUS 

BA};K PROPRIETARY A,'-<'DiOR TR.4.DE Th..TFOR.\iAT10N 

lira>:); MNvs XO 

_~B.:_ 

(2B[)) AboveP&Lbas,"donaf1mdlca~ve"trl1bu:lOn 

171 modelandmaynolmstchmpres!3ntiltive 

ImdeP&l es11malion 

DRAFT (S/25/12) 

~--

CDX!G CDX HY 

1WeeKTt>!al 137,037 

22,042 

430,747 ID,389 

11 

8~J49 70,458 

lA,291 

277,51<1 

1 

IP.Morgan 

OCC-SPI-00089351 
2381 

Off-the-run index risk (cob 5/24/12) 

BAK'KPROPRIETARY A.~'DjOR TRADE L)...,'FOR-M..I\TION 

AboveP&Lbasedonanmd'celwellltnouDon 

modi# afld may nol. match IEpres~ntatJ~8 

ImdeP&Laslimaiion 

4{) Volumes 

(<OJ 

~------'-'--'-'-----" (~I 

13 

1WeekTotai 

1P1o'OallyAvg 

DRAFT (512.5112) 

45,flGS 

1,957 

.IP.Morgan 

OCC-SPI-OOOR9351 
2382 

Directionality (cob 5124112) 

BA}''KPROPRlETARY Al'.'DIOR TR.A..DE l}.:"'FOR.."lvfATlON 

Abow P&L bas,,,,j on 1m ;ndIC/MIWf1 affnbutK'" 

modfJ and may nol male?' (BpffiS""Ii',~v", 

lradeP&Lesflm1<flOn 

DRAFT (5125/1 2} 

.l.P.Morgan 

OCC-SPI-0008935J 
2383 

Tranche Risk (cob 5/24/12) 

SmceApnl3:) 

SinneApnl3;J 

I"-;'E"'NAL 

BANK PROPRIETARY A}.'D/OR TRADE INFOR.lI.1ATlON 

AbOYElP&Lb(lseciolJallmdJcallVe1lt!nb!l/'oll 

modol and may no! m'llcn repmSfintatlVe 

lrad'" P&L e$lImailOn 

Grilphsof10% correlalionshift 

Theoretical max gaiMoss bawd on 10'% 

CorrandSpreadgraph 

DRAFT (5125/12) 

c/o var traded since Apr 30''' 

Implied Daily, O\.-eekly Pit 

~P.Morgan 

OCC·SPI·OOO89351 
2384 

Defaul! profile (cob 5124112) 

~ L-3 Cornmuolcslions 

Corpo'a~on 

5. Nabol'!> Industn~~, inc 

(2176) 4 

(212 7) 5 Baxter l!ljern~t<Onallnc ~ 51 5 3) 

BAl\K PROPRIETARY A.,"lDiOR TRADE INFOR.\-1ATION 

DRAFT (5f25f12) 

'* 13eloCorp 4 Ten>pi&lnlandlnc 

3 Ufllcmdrt,S')CletaPer 3 BancaMonteDelPssch, 

4 Banr:a Monte Oei Paschl 4804 6 ~ 

5 Urocre",t,SDCi,,:aPer 

!\zIOfll 

J.P.Morgan 

QCC·SPI·OOOS9351 
2385 

Limits 

CS01Uncadjusle<l 

COXHY 

COKLCDX 

,Trax:tMN 

'TraxxFmsub 

liraxxFIf'sen 

CSW10% 

CDXLCDX 

,TraxxXO 

ITrsxxFinSlib 

ITraxxFlns€f1 

Largelndex Notionals 

CDXIG97Y 

(02) 

0.3 

(112) 

CDXIG910Y 470 

,TraxxS9n 54 

Syntl>euc 

86 

" 

06 

05 

5490 " 

2010 

BA---"':;K PROPRIETARY AND/OR TRADE INFORMATIO}; 

DRAFT (5125/12) 

Synlhel<C 

180.0 

Compression 

US ComprEssion Limit 

EURCompressmnL,mlt 

Trancl>elimits 

10% CorrShtlt 

Steepen10% 

CDX!W 

CDXLCDX 

CDXIG 

fTra>xMN 

iT«l:O:XO 

17 nMorgan 

OCC-SPI-00089351 
2386 

Differences summary 

BA~T PROPRIETARY A};LVOR TRADE lNfOR-1.1A nUN 

" (7) 

" 

DRAFT (5/25/12) 

OCC-SnO()Of;9:<51 
2387 

DRAFT (5125/12) 

New trades 

,IPMorgan 

llA.N"K PROPRIETARY AND/OR TRADE tNFOR-\1ATION OCC-SPI·QOOft9351 
2388 

Daily price testing - Index 

Ch<mse il\ ttl<! OnTI< SY Contract 

1180 1175 

pnce 933 

sp"",d 1736 

5;'"""j 7154 

DAN1( PROPRIET/I.RY A,'\T[)IOR TRADE INFORMATION 

(23) 

(03) 

20 

'" 0') 

00 '" 

DRAFT (5!2.Sl12.) 

1.7G 

(2!()) '" 

.II'Morgan 

OC'C-SPI-00089351 
2389 

DRAFT (5!25/12) 

Daily price testing (cont'd) Index 

,~o 

SHO 

t94f> 

me ~" 4950 .", " 0' (1140J 

5104 (O6) " O~ 4370 ''''" \71) ,,; spI<'.ad '"" 2m 

4.'lUI " 

'" spread """ 12$ spoead "'" (23) 

s;>read "" "" (0.3) 

'" spread 19S~ " '" s;>read on spread 1489 (37) 12'") spread "".3 " 1.'" spread 1736 

Cban!!" In tbe ann:< 5YCarrtrad f-i~ 

(3621) sprMd 1180 1175 "OJ i758 

1052 "'~ '" (44) 

(3'0) '"Pread 00 

'" 

BA.1>.;:""K PROPRTETARY A!>lDfOR TR.A"DE INFOR..\iA..T[ON 
2390 

Daily price testing - Tranche 

Serjes1l9TRlnche 

CDXIG$[81OY30-100 16,565 

CDXIG sm 07Y 30-100 11,121 

CDXIGSmlOYOO-03 2,018 

CDXIGSC91QV07·10 m CDXIGS091QYQ3..07 

cDXIGS090n03.(J( 

CDXIGS0905YJO.-l00 

CDXIGS0901Y~ 

CDXIGS090lY0710 

CDXIGSCl905Y03-{l7 

CDXIGS090TV1D-15 

CDXIG S0910Y 10·15 

CDXIGS0905Y07·1J 

CDXIGS08[l5yro03 

CDXIG S090SY 10·15 

CDXIGS091DY15-3J 

CDX1GS0907Y'~ 

CDXjGS0905Y15.3Q (12215) 

TTRAX.>(MN ,,0J910Y 22·iOO 20773 

jTRAXXMN SQ90Tf 22·1C(l 14249 

lTRAXXM'lSD9(l5Y7.?-1DO 

!TRAXX MN S09 my OO-ro 1 422 

lTRMXMNS09{V!' 00-09 

tTRAXXMNSC9(S'(D9-12 352 

lTRAXXMNSO(llOY[B.12 

!TR.A.XXMNS0907YDS-12 

BANK PROPRIETARY A},"I)tOR TRADE n-.'TORMAnO}l' 

CIOO""te 

0<) 

~~ 

U;>l<onl+100 (0" 100 M' ,;,; (59) OJ, (25) 

'SO upjront+l00 03 

upfmn1+100 

""froc,b-GtXl "" (29) 

"p~onh5OD 165 

00' upfront+l00 ~~ 

'" 1m upfrorrt+l00 (16) 

0.07 upfrM1+10il (0" 

(24) 

'" 

4180 

(016) .'1085 

(OIL'') 

22 

DRAFT (5(25112) 

AdjT",m'_""'P'lCed irx:Jep.mdeni tkrkLTPV rVEx<::eedtI>J 

(H) 

(22) (0.22) 

~') 

)" 

(09) 

(05) "" 12" (0.001 

'" OJ, 12') (22) (0-15\ 

os 

(09) (060) 

(29) (22) 

(2" (12.76) (1075) 

(2:'» ~'"' (09) 0-24\ (074) 

(15) 05 o~'r 

(06) 12" (015) 

"" "" '" (O~ 

(J4) ," (3.5) 

OJ' (35) 

(24) (OA) O~ 

"" (OA) 002 

614.8 (35) 

"'" ~" (3::') 

(35) 

JP.Morgan 

OCC-SPI-0\108935J 
2391 

Daily price testing (cont'd) - Tranche 

serles09Trallche 

ITRAXX "IN srn orr 05-<.)9 

fTRAXX MNSCE05Y 12"22 

tTRAXX.MNSC907YG3-OO 

ITRAXX MN SC9 05Y = lTRAXXM.\lS0907Y12·22 

jTR./'VtXMNS090TfOO-Q3 

ITRAXX MN S09 05Y 00-03 (3712) 

other Tranche 

CDXHYS10CI5Y3s.-1()) 

CDXHY S!J9CSY 35-100 

CDXLCDXS1005Y1S-100 2,1352 

CDXH'r'S10ffiY1S-25 

CDX\-!YS101JT'(35·100 "'" COX HY S10 rJTY 10-15 

CDXHYS1105Y1S-25 

CDXH'f5C!JffiYZ>-35 875 

COXHI'SC8(l'5V2S-35 

CDXHYS10Q5'(2S-35 = "" CDXHYS11D5Y35-,OO ;;00 

CDX HYS11 05Y 10-15 

CDXKYS10WY15·25 '" CDXHYSOOwy-;::s.J5 '" COXiWS10rJTYbJ5 = CDXHY5'1D5Y25-35 ,., CDXHYS1005Y1Cl-j5 '" CDXHYSQS07Yl5-25 '" 

BANK PROPRIETARY AI'\,'D!OR TRADE INTOR!I.1A nON 

up'lrorJ!+5i'Xl 

~C6) 

(OOi) P""" 

(011) pm.. lM9 

(122) 816 

{Ole) 

(009) 

(orr) 

DRAFT {S12S112} 

(OA) (2.76) lOll'» 

(07) 

"'" (006'1 

'" (4.34) (:;'>34) 

(46) '" ". (2.791 (079) 

'00' 

104.0 

'" ,,, ~"" ('~ 1.78 

(146) 1.18 

(4.6) 

'00' " "" 3.' 

8<5 (146) 

1.P.Morgan 

OCC"SPI-00089351 
2392 

DRAFT (5125112) 

Daily price testing (cont'd) - Tranche 

Cred~ Spread CIO Doote Ad) Tranche Priced ir<lependBnt im"" Spread MilfklT PV PV E~ceediog 

Notlonfll($mm) BPValue($mm) PnceType (tONGI""",) (bosed ",n Rei Index) Chahge CI'-ange($mm) C""($,,,m) 

other Tmnche 

CDXIGS070lY07-10 

COX LCDX S10 O'5Y 12-15 

COX HY SOB 07Y 35-100 109 

CDXIG S1505Y 15-100 100 

CDXHYS1107Y35-100 

CDXHYSOOO7Y10-15 

CDXr!YSll0!Y1G-15 

CDXHYS0707Y15-25 

CDXHYS0707Y$-100 

CllXIGSD707Y15-X) 

CDXIGS0707'(Xl-1JO 

COX1G SOB 07Y Q3.{l7 

GDXIGSOOa1Y07_10 

CDX1GSOe07Y10-15 

GDXIG SOS07Y30 100 

CDXIGS1005YCl3-07 

00;(1G5101$(07·10 

CD,>;f1YS11 07Y 15-25 (30) 

CDXHYSIJ905Y 1()'15 (71) 

CDXHYSOB05Y3&-l00 (94) 

CDXIGS1505V= (,195) 

CDXIGSOB07YI5-3J (37!l) 

COXHY SDS05Y10-15 (812) 

CDXHY SDIl05Y 15.-25 

CDXHY SOOroY 15-25 

ITRAXX MN S1507'( 22_100 

ITRAXX Mf,[S15!l5Y;Q.l00 

ITRAXXMNS1503YZ2·'OO 

ITRAXX MN S0610Y ro-os 

ITRAXX MN S!J61DY IJ6-.OO 

BAl'.'K PROPRIETARY AA'DfOR TRADE INFORM:ATION 

(001) 

(001) 

'Oro) 

(004) 

(000) 

(001) 

(000) 

(000) 

0'" 

(000) 

~'"} 

0'" 

(OOO) 

uplmro!+500 

P"~ 

lJpfmrl,+25 

u¢ror1i+100 

lffifror.Hloo 

lJpfron!+~ 

P""" lJpfront+SOO 

"1'110111+100 

spreaci 

spread 

"",.d 

upfronl+5OJ 

upfron(+:oD 

(41) 

'00' 02 

1104 

'" 

"Bd '" 

(12) 

(13) 

(54) " 

(0.4) 

"" (2~ 

(49) 

'" (18) 

@o 

'" '" 155 

'" 

24 

(48) 

0.' (0.02) 

(145) '" " (000) 

1105 {2~ 

'" 1146} 

(26) 

'''' m" 

(13) 

(13) 

(34) (OOO) 

(1.5) " '" (2') 

(49) 

(2.6) " 

~n 

(81.7) 

0" 

(15) (?77) " (1(0) 

(817) (1491) (12.91) 

(01) (0.23\ 

'00' (0.55) 

'" 0'" M1 

15.5 ." (1.79) 

'" (OSI) 

l.P.Morgan 

OCC-SPI-00089351 
2393 

DRAFT (5f2511Zj 

Daily price testing (eanl'd) Tranche 

Cre<htSplead AdITronct-,e, Priced irriep<lnoonl lrd<:>xSpread lIlarklTPV PVE.xcr1"""'9 

Not,onai is mill) BP Val"" (S mm) Prr"" Type (LON CJO>;e~ (based on R", Ir>d"x) Change Ct-.ange ($ mm) Cap ($ mm) 

Other Tranche 

iTRAXX MN SIS D3'f 0-.,.00 

lTRAXX,MN S0610Y 09-12 

ITIlAXXMNS/Xi 10Y 12·:>:( 

ITRAX)( MNS0610Y 22_100 

ITRAXX MN sm 1iJY ()6.09 

ITRAXX MN S071OY()3.12 

'TRAXX M>"[S[!7 lOY 12-22 

'M) 

(131) 

(245) 

(327) 

1371) 

14,226 

(6,9S7] 

BA}.'K PROPRIETARY AA'D!OR TRADE 1!>'FORMAT10N 

upfrPnt+5CO 

~p_d 

(001) """""d (000) spread 

(000) up,mnh3CO 

(Oro) spre.>d 

~OOI 'e-

''''' 015 

012 ,'-' upfronl+50..1 

UIlfmnl<SOO 

upf'ant<500 

pr<ee 

SPf<'t!iri 

(386) 

"" 590 {O()4) 

6150 '" " '~I M' " '" " "" on (056) 

N" 

'" '" 01l 

'" {OG) 

(11) 

Change due to the QnTR 5Y Index 

1175 "" 117.3 

1736 

J.P,Morgan 

OCC-SPI-00015935J 
2394 

Volume and activity update 

fTraI<lMNS:)D 522,199 

39J,008 

292,720 

rTral<l!l.,""S17 351,346 

CDXIGS17 

CDXIGS16 178,415 

CDXIGS1S 174.878 8,303 

COXHYS'7 

CDXHYS~O 4~',217 

53,828 Nfl>.. 

ITlaxxXOS17 NfA 

COXHYSOg 34,355 

.Tra);:<FlnSubS17 

Sc::llrce DTCC(_e~"r<!'r1g5l1Bl12) 

17,0"16 

221,241 

7,532 

197,567 

19,57(1 

697 

866 

1,110 

en 

4.904 

12}05 

NfA 

N!A 

NtA 

130 

NfA 

NiA 

NfA 

102% 029% 

174% 

DRAFT (5f25/11) 

16 .IP.Morgan 

BANKPROPRrETARY A}""D/OR TRADE INFORMATION OCC-SPI-00089351 
z 

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o 

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a 

z 

>-

> 

r 

o 

w 

May 29, 2012 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

DRAFT (5/29/1

J.P.Morgan 

OCC-
" oc 

o 

" 

oc 

" r 

o 

" o 

o 

; .. 

w 

" 

z 

r 

" 

Executive summary 

Estimato /\ctual 

2910512012 ($88,003) 

213/0512012 $15,627 513,780 

(]rectlonal 

compression 

Series 09 

On/OffRun 8/lsls 

CLJrvelother 

Tranche 

IR 

Other P&L 

VCGAdj 

Actual 'IS. 

Est:mat8 

($1,847) 

($3,840) 

($39,971) 

$7,535 

($28,042) 

($3,213) 

($10,922) 

($282) 

($340) 

($8.130) 

Net Since 

CSW10% Trading lengthening change 3D-Apr 

29May (202.3) NIA NIA NIA 90A 

28May (176.0) (192) (7.1) (26.3) 116.6 

3D-Apr (2926) 227.0 (137.4) 904 0.0 

%Chg 

3D-Apr 

(30.9%) (39.9%) 

figures 

close plus current day trades only. 

I Expected today 

Current Pnor day 

70tai (CIO - coun1erparty) $25 -$10 

Largest cnunterparty MS 39 15 Largest instrument ITRAXX MN S09 1 OY 22-100 26 -6 

Note: negatlve/posltive collateral position denoles lower/higher valuation relative \0 

counterparty 

INTERNAL USC 

BANK PROPR1ET ARY AND/OR TRADE fNFORMA nON 

DRAFT (5129112

Sold protection $315MM COX.HY.18 5y 

m Sold protection $250MM CDX,iG.18 5y 

lllI Bought;Jrotedion EUR20MM FINSUB.17 5y 

!Gi Sold protection EUR20MrvlITX.M:...I.9 5y VS. delta 

II[ 80ug ht protection EUR250MM ITX MN 9 5y 22-100% ys. delta 

Ii! Bought protectioll EURBQOMM lTX.MN,17 5y 

Sold protection EUR600MM XO.17,5y 

lI! New trades reduced risk in CS01 terms by $O.064mm 

fI P&L $(88)mm driven by 

!i:i Compression HY YS IG, XO vs Main, ($40MM) 

D On/Off Run Basis, ($29MM) 

Tranches, tighter spreads in short-dated 0-3%, ($12MM) 

J.P.Morgan 

OCC-S
o 

r 

« 

o 

eo 

u 

Q 

;: 

i': 

z 

r 

w 

Risk and market summary 

JTRAXXMN 80,800 

ITRAXXXO (6,092) 2.0 

CDXLCDX 2,387 (O.(l) 

ITRAXX FINSEN (436) 0.2 ITRAXX FIN SUB (2,831) 353 (0.2) 

SrNXWE 0 0 0.0 

600 524 (0,2) 

(0.0) 

Note: 

Spread 

COXIG 

(223) 

125 

(0.1) (0) 

0.5 5 

(0.7) (11) 

0.0 0 

(1.7) (20) 

(DO) 

(36-2) 6.9 

79 

0 

(20) 

0 

(1) 

(0.0) 

0.0 0.0 0.0 

0.0 

'.0 

(O.2) 

D.' 

(14) 

(O1) 

00 

0.0 

00 

(00) 

(1,5) 

(13) 

S95yr 1143 85.2 1)5.4 68.1 70,8 (1.0) 7.1 

S9l0y 156.8 159.4 159.1 119.4 113,1 1,9 15,8 

CDXHY 8185 yr 650.0 669,7 519.7 578.9 14,3 (49.7) 26,1 

iTraxdv1ain Si7 5yr 17D.5 1745 174.5 140.5 125,0 1.7 (5.2) 

S910yr 697.5 715,0 717.5 170.5 151,0 10J (15.5) 

ITraxx)iowj 2065 211.5 211.5 550.0 613.0 (7.4) (4.2) 

Source: Market data - J,P. Morgan hwestment Bank (as of New York close) 

2 Estimated based on end of day may fiuctuate based on end-af-day trading and volahhly 

INTERNAL USc:. ONLY 2 

12,0 

7.7 

15.2 

llANKPROPRIETARY AND/OR TRADE INFORMATION 

DRAFT (512911

15,2 1,50 

(1.2) (6,3) 5,50 

(0.0) 5.50 

0.2 59 3.00 0.4 1.9 Hl 4.50 

0.0 0.0 0.0 OA 1.00 

704 

(248.13) l?D.1l 

J.P.Morgan 

OCC·S
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OtherlG 2.155 

High Yield (17,554) 

• 

____ 

H 

________________ 

* 

___ __ 

(4,859) 

9,295 

440 38,935 

Long Short 

2,391 (4,649) 

Notional 

(32,722) 

34,193 

46,989 

IG9 

Note: Positive/Negative notional data denotes long/shQrt risk 

!NTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

DRAFT (512911

Notional Notional 

IG9 82,460 IG9 (34,000) 

other lG (14,500) OtherlG 16,655 

High Yield (20,609) High Yield 3,055 

--------------------------------------------

ITraxx Matn (26,662) 

iTra;.:x CrossOver (6,864) iTraxxXO 2,005 

Total Equity Mezz Senior Total 

IG9 (5,940) (1,355) (33,020) 28,435 IG9 0 

fG 9 5 yr (22.400) (3,570) (18,560) (270) /G 9 5 yr 0 

IG (340) (195) (245) 100 IG (20) 

HY 17,789 4,291 4,203 9,295 HY (20) 

ITraxx 36,395 (3,230) 440 39,185 iTrax:< (230) 

Long Short 

FtnSub 3,061 (4,649) 

LCDX 4,075 i1,608) 

CDXIG S09 CDXIG S09 OlY 34,193 CDX IG S09 10Y 80,989 

IGg 82,460 

J,P.Morgan 

OCC-S
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DRAFT (512911

Synthetic credit book key metrics 

$3,500 $3,331 52,000 $3,000 :::::·U' $2,500 

J11."[1l1j'. ::::: J111[I1 $2,000 $1,000 $1,500 $BOO $1,000 $600 " SSOOl $400 5200 $C I $0 4/30 5/18 5/21 S/22 5/23 5/24 5/25 5/28 'i/29 4/30 5/18 5/21 sin 5/23 5(24 5/25 5/28 5/29 

Nole" Histoncal stress excludes risk factDr for single names Latest historical and statistical stress reflect Improved granularity .n risk factors: measures have been revised from 

30 Apr 2012. 

200 

180 160 140 120 100 

80 

60 

40 

20 

o 

N N 

o 0 

N N 

o 0 

"'''' 

a 0 0 0 0 0 000 0 0 000 Lf1 111 III 

:NTERNAL I.;SE 

160.0 

140.0 

120.0 

100.0 

80,0 

60,0 

40,0 

20.0 

0.0 

5/9/1012 5/14/2012 5/21/1012 

J.P.Morgan 

BANKPROPRlETARY AND/OR TRADE INFORMATION OCC·S
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Summary of Synthetic Credit Book - historical stress 

m:I Pricing to equilibrium: In additlon to below risk factors, some indices will lose value 85 they move from richness to faimess 

ill Synthetic credit book exposed to risk factors - Each factor represents a directional exposure 

S In the term, these exposures can be partially mitigated - But not eliminated 

1. Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

3. High Yield vs. Investment Grade 

4. XQver VS. Itraxx Main 

5. Europe vs US 

6. Illiquidity of older Indices I 

Tranches 

(On-the-Run vs, Off-ln.-Run) 

1. "Super senior!! debt vs. Hequityll 

positions (Tranches) 

8. Default fisk 

(Risk on individual names) 

III If credit spreads widen across markets 

m If credit spreads of long-maturity positions get wider 

relative to pOSitions 

Ill! If high yield positions in US outperform investment grade 

positions relative to their portfolio weighting 

1m If high yield positions in Europe outperform investment 

grade positions relative to their portfollo weighting 

!liI If positions in Europe outperform positions in US relative to 

their portfolio weighting 

1m If credit spreads of the older index (the "off-the-run" 

index) widen relative to more-recently issued indices (the 

more "on the run" indices) 

m If there is an increase in the correlation implied between 

defaults among names within the tranches 

II If credit events happen to companies for which we have 

"sold protection" 

Portfolio worst day 

Sum of worst case 

revised from 30 Apr 2012 

5 

$2B7mm 

7mm 

2,OS9mm 

1S9mm 

11mm 

SOSmm 

NA 

$1,923mm 

BANK PROPRIET ARY AND/OR TRADE INFORMATION 

DRAFT (SI2911

$3,272mm 

89mm 

2,92Smm 

437mm 

39mm 

1,08Smm 

50Smm 

NA 

$8,352mm 

.J.P.Morgan 

OCC-
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Summary of Synthetic Credit Book statistical stress 

m Pricing to equilibrium: In addition to below risk factors; 50me Ind!ces wll! lose value as they move from richness to m Synthetic credit book exposed to risk factors - Each factor represents a directional exposure m In the term, thase exposures can be partially mitigated - But not eltminated 

1. Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

3, High Yield vs.lnvestment Grade 

4. XOver vs, Itraxx Main 

5. Europe vs US 

6. Illiquidity of older Indices! 

Tranches 

(On-the-Run vs. Off-thewRun) 

7. "Super senior" debt vs. "equity" 

positions (Tranches) 

8. Default risk 

(Risk on individual names) 

9 If credit spreads widen across markets 

B1l !f credit spreads of positions get wider 

relatlve to Short-maturity pOSitions 

f'iI If high yield positions in US outperform investment grade 

positions relative to their portfolio weighting 

l'f,j If high yield positions in Europe outperform investment 

grade positions relative to theif portfolio weighting 

I! If positions in Europe outperform posItions in US relative to 

their portfoiio weighting 

iil If credit spreads of the older index (the "off-the-run" 

index) widen relative to more-recently issued indices (the 

more "on the indices) 

Ii:i If there is an increase in the correlation implied between 

defaults among names within the tranches 

mI If credit events happen to companies for which we have 

"sold protection" 

$170mm 

150mm 

930mm 

200mm 

50mm 

510mm 

500mm 

291mm 

DRAFT (5/29/1

$710mm 

160mm 

1,120mm 

300mm 

4DOmm 

810mm 

500mm 

291mm 

Portfolio worst day o L __ ______ J 

w 

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Note: Stress results reneet improved granulanty in risk factors; measures have been revised from 30 Apr 2012. Sum of worst case 

lJSE ONLY 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

i 

______ $_2:8_o1_Olm • .$4:291mrn 

J.P.Morgan 

OCC·S
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Synthetic Credit risk factors details 

___ __ 

" 

___ __ 

99.9% percentile 

Downside Case A \ 

Downside Case 82 

1.28 

3,09 

NJA 

NIA 

2,170 2,801 

m Credit spread widening (Directionality) - Net directional loss estimate assumes correlation based on 1 yr data 

" Maturity mismatch (Curve) 

DRAFT (512911

Volatility measured as relative movement of longer maturity spread vs. shorter maturity spread adjusted for overall drift 

Combined across asset classes assuming zero correlation 

" High Yield vs. Investment Grade 

m Vo!atility based on relative spread movement netted for overall directionality 

Assumes zero correlation between these differences for US and Europe 

'" Illiquidity of older IndioeslTranohes (On-the-runIOff-the run risk) 

Iii Series 9 is assumed as the off·the-run position 

m Risks are combined assuming z.ero correlation 

IISuper seniorl ) debt vs. lIequityH positions (Tranches) Risk factor based on extreme movements of correlation as seen 

during the credit crisis 

m Default risk (Risk on individua! names) - Exposure based on comprehensive simulation of default risk using capital mode! 

n Diversified sum All above risk measures combined assuming zero correlation 

Diversified sum of 95.0% percentile; 2 Diversified sum of 99.9% percentile 

iNTERNAL USE ONLY J.P.Morgan 

BAClK PROPRIETARY AClDIOR TRADE INFORMATION OCC-S
2403 
2404 
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Agenda 

INTeRNAL 

'" Directionality 

Tranche Risk 

Default profile 

Limits 

III Differences Summary 

" Daily trades (May 28" 2012) 

Synthetic credit risk overview 

I!! Daily price testing index 

.. Daiiy price testing - Tranche 

LY 

BANK PROPRIETARY AND/OR TRADE INFORMA nON 

Page 

10 J.P.Morgan 

OCC-S
Curve exposure (Investment Grade COX and iTraxx Series 9) (cob 5/29/12) 

x 

o 

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200 

10: •. ,Il'1nr1f'-"'" 

(100) 

(200) 

Notional ($bn) PV 10% CSW($mmj 

value 

BANK PRDPRJET ARYAN D/DR TRADE JNFORMA TID}! 

Daily ($000) vvm Since 4/30 

4,423 65,881 ,419,475 

AboV8 P&L bi:lsed on an mdicalfve attribution 

Sep,07 Sep"(}8 5ep·09 Sep+l0 Sep-ll 

"'ti!OO '60 " ," 4t;g. 

fso" 

(40) 

Sep,()7 Sep·OS Sep-09 Sep·l0 S"p·ll 

($mm) Dec'12 Dec '17 SlopE! Hs. Loss Hs Gain 

CS01 $54 ($17,5) ($23) ($92) $2,122 

Spread 150bps 209bps 59bps 63bps (34bps) 

11 

Ii Our CUNe risk arises from the portfolio 

being short risk in lesser maturities (Pre 

Dec 2016) and long risk in greater 

maturities (post Dec 2016) 

III Our exposure to thiS is approximately 

$8mmm toss per bp In steepening In IG9 

With a forward long of $33mm 

(mm) DeG. '12 Dec. '17 

Notional 

Volumes 

1Week Total 8,417 10,947 

1MOailyAvg. 1,709 2,324 

Since 4/30 1\2,094 47,601 

Days to Liquidation 96 101 

!20% del'!. avg vol) 

Volumes 

1WeekTotai 4,966 670 1M Daily Avg 1,183 277 

Since 4/30 25,243 5,932 

Days to Liquidation 70 23B 

(20% daily avg. vol) 

.IP.Morgan 

OCC-
" 0 

z 

I 

Investment Grade vs. High Yield (Compression) (cob 5/29/12) 

if!!plotion " 

Decompression 10% CSW 

COXIG 

COX HY/LCDX 

ITRAXX MNfFINSEN/SOVX ITRAXXXO/FIN SJB 

CDXIG 

($mm) IS17/S18) 

Maturity 2110312017 Notional $44,977 

CS01 121.0) 

10% csw 1241.4) 

CSW10% Change 

Close of Day 10.2) 

Clos e of Week: (241.4) 

Since April 30 (115.1) 

$mm 

(4s5) 

406 

(218) 

114 

CDXHY 

(S17) 

20/12/2016 

($7,101) 

2.5 

150.9 

10.8) 

150,9 

(120) 

I$IIPOlilliflli&P&C( "'" '. 

P&L ($000') Daily \l\fTO Since 4130 

Compression (39,971) (39,682) (499,473) CDXIG vs. HY (20,605) (25,324) (184,150) 

jTra)O( MN V5. XO {13,670) (14,493) (334,717) 

Other 18,161 

Above P&L based on an indicative attn"bulfon 

mode! and may not match representative 

trade P&L estlmalion 

2,0001 -HY.IG--HYjIGRatio r 1Z 

1,500 

1,000 

SOD 

0 

l/07 310' 3/09 3/10 3/11 3/12 

CUrrent Historical 

($mm) CS01 Spread LosS Gam 

IG(S17/S18) (21.0) 117 

HYIS17) 2.5 

($mm except iTraxx MN iTraxxXO 1,00Q"1 r12 

notional) IS161S17) IS16) 750 

Maturity 21/03/2017 2011212016 50a Notional 1€6,044) 1€4,417) 150 

CS01 39 1.9 0 

10% CSW 66,3 119.6 3/07 3/08 3/09 3/10 3/11 3/12 

CSW10% Change Current Historical 

Close of Day 7.6 (06) ($mm) CS01 Spread Loss Gam Close of Week: MN (S16/817) 

66,3 119.6 3.9 171 

Since April 30 230.7 1253) XO(S16) 1.9 698 1$162.0) $1,892.1 

MN vs. XO ratio 4,09x 3.sax 10.0al( 

INTERNAL USE 001LY 12 

BANK PROPRIETARY AND/OR TRADE INFORJVlATlON 

DRAFT (512911

!Gommentllr:ll 

.. We are long Investment Grade and Sho

High Yield such that we lose if High Yie

Widens (narrows) les6 (more) than a rat

5.5:1 to Investment Grade 

CDXIG CDXHY 

($mm) (S171318) (S17

Notional $44,977 ($7,101

Volumes 

1WeeKTotai 79,649 8,896 

1M DaUyAvg. 21,256 2,938 

Since 4/30 446,344 62,940 

Days to Liquidation 11 12 

(20% dally avg. vol.) 

iTraxx MN iTraxxXO 

(€mm) (S16/817) (S16

ana! (£6,044) (£4,417

Volumes 

1WeekTota! 63,403 15,198 

1M Dally Avg. 14,246 4.029 

Since 4130 300,051 86,738 

Days to liquidation 2 

(20% daily avg. vol.) 

J.P.Morgan 

OCC-S
Off-the-run index risk (cob 5/29/12) 

x 

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iTraxx 59 

fotal 63,.168 90,500 

ChangEl 

Close of Day (0.0) 

Close of Week (254) 

Since April 30 197 

Change 

Close of Day (00) Close of Weak (17.5) 

Since April 30 1.7 

PV represents balance sheet carrying value 

iNTERNAL USE ONLY 

(0.1) 

117.4) 

IBB) 

0.5 9.5 

13.4 

BANK PROPRIET ARY AND/OR TRADE INFORMATION 

250 40 200 20 

'0 

150 -(20) 

100 _ (40) 

50' (60) 

(80) 

Sep-07 SeJ)..(J$ $ep-09 .5ep·l0 Sep-ll 

200 I . 30 

20 

'10 

190 flO) 

50- QO) 

(30) (40) 

13 

DRAFT (512911

off-the-run rndlces

Volumes 

1WeekTotai 10,947 79,649 

1M Daily Avg, 2,324 21,256 

Since 4/30 47,601 

Days to Liquidation 101 9 

(20% dally avg. vot.) 

Volumes 

1WeekTotai 670 63,4C3 

1M DallyAvg 277 14,246 

Since 4130 5,932 300.051 

Days to Liquidation 298 7 

(20% dally avg. Vo!) 

,J.P.MDrgan 

OCC-
Directionality (cob 5/29/12) 

N N N N N N N N N N 

§ S 

0 

(100) (200) (300) (400) (500) (600) (700) 

N N N N N N N N N N 

§ 

0 

(20) 

(40) 

(60) (80) 

(100) 

(17.0) 

(140) 

(160) (180) (200) 

N N N N N N N N N N 

" § 0 

z 

w 

Q 

BANK PROPRlETARY AND/OR TRADE lNFORMATlON 

Above P&L based on 8n indicative attribution 

model and may no! match repressntB/IVEI 

trade P&L estimation 

300 

250 

200 

150 

100 

50 

Gep-07 Sep-08 Sep-09 Sep-1D Seo-11 

250 

200 

150 

100 

50 

Sep-07 Sep·06 Sep-09 Sep-1D Sep-11 

DRAFT (5129/1

.IP.Morgan 

OCC·S
Tranche Risk (cob 5/29/12) 

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COX.IG Super Senior CDX.!G Tota! CDX.HY,Junior COX.HY Super Senior CDX.HY Total 

:TraxxJunior 

iTraxx Super Senior 

iTraxx Total 

Grand total 

10% Corr 01 

Change 

WeekTo Date 

Since Apnl 30 

10% Corr 01 

Change 

Week To Date 

Since April 30 

! !NTCRi\AL l;SE 

0-35% 38 

0-22% (29) 

iG 9 Short 

1Dyr 0·30 

(18) 25 

-0.22 0,00 

-326 037 

0.28 -0.04 

-072 ·0,90 

BANK PROPRIETARY AND/OR TRADE INFORMA TJON 

Above P&L based on an indicatl'le attr1bu{wn 

Graphs of 10% correlation shift 

T}feoretical max gainlloss based on 10% 

Corr and Spread grap!1 

15 

DRAFT (5129112

CIO Vol traded since Apr 30th 

Implied Daily, weeX/y PIL 

J.P.Morgan 

OCC-S
Default profile (cob 5/29/12) 

# Names P&L given # Names 

# of wI default default wl default 

Portfolio names loss risk Avg Max gam risk 

Portfolio (today) 675 75 ($45) ($221) 600 

'12j 672 255 (235) 417 

121 0 121 121 121 (441) (565) 0 

';'.' 

National Asso 

2 L-3 Communications (217.5) 2 Comcast Cable 

Corporation CommunicatIOns, Lie 

Boston Scientific corporation (21S.2) 3 WymhUc 

4 Holdings Lie (2138) 4 Rohm And Haas 

5 Nabors Industnes, Inc (202.8) 

Pre June 2013 {Smm} 

1. Imperial Chemical Industries (1.6) 

2 Altadls Sa (1.6) 2 Altadis Sa 

3. Hanson L:mlted (0.') Royal & Sun Aillance 

Insurance Pic 

4 L'Alf Liquide Socleie (0.0) 4 The Royai Bank Of 

Anonyme Pour L'Etude Et Scotland N.V 

L'Expioltation Des Procedes 

5 Deutsche Bahn (0.0) 5 Hanson limlted 

x Akiiengesellschaft 

0 z 

I INTERNAL USE ONLY 

BANKPROPRJETARY ANDiORTRADE INFORMATION 

P&L given 

default 

--:4V'QMax 

£155 $635 

132 636 

278 520 

0 

(515.2) 

("5.1) ('"01) 

(16) 

(07) 

(06) 

(0,1) 

16 

DRAFT (512911

Gain',,;'· ' 

Pre December 2012 

1 Liz Claiborne, Inc Brunsv/.ck Corporation 

2, Gannett Co., Inc 519.1 2 The New York Times 

3. Lennar Corporation 518.7 Inc 

4. Belo Corp. 517.3 4. T8mple·lniand Inc 

5. Limited Brands, inc 510.2 5 Dean Foods Company 

Gdf Suez 577,8 GdfSuez 

Societa Per 503.3 Banca Manto Dei Paschl 

AzlOni 

Banca Monte Dei Pasch! 486.7 

Oi Siena S PA 

5, Banco Blibao 481,9 

Argentana, Anonima 

Oi Sleni3 S P.A 

4 Banco Bilbao Vizcaya 

Argentaria, Sociedad 

Anonima 

5 Unlcredlt, Socleta Per 

AzlOni 

J.P.Morgan 

OCC-S
x 

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Limits 

Umlt($mm) 

CS01 Unadjusted 

CDXHY CDXLCDX CDXIG 

iTraxx MN 

iTraxxXO iTraxx Finsub 

iTraxx Fins en 

CSW10% 

CDXHY 

CDXLCDX CDXIG 

iTraxx MN 

iTraxxXO 

iTraxx Finsub 

iTraxx Fins en 

Large Index Notionals 

CDXIG.9.7Y CDXIG.9.10Y 

iTraxx S9 7Y iTra:xx 891 OY 

INTERNAL esc ONLY 

Usage Synthetic 

5/29112 Limit 

6.9 8.6 

(0.0) 1.8 

(28.1) 39.4 

(8.4) 23.7 

2.0 3.3 

(0.2) 0.6 

0.2 0.5 

406.8 496.0 

(0.3) 0.1 

(484.8) 549.0 

(222.8) 434.0 

124.9 201.0 

(10.8) 27.0 

5.2 12.0 

34.2 34.2 

47.0 81.0 

5.4 5.4 

13.1 13.0 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

DRAFT (512911

Usage 

Limit($mm) 5129/12 Limit 

VaR 152.5 180.0 

Compression 

US Compression Limit 406.5 496.0 

EUR Compression Limit 114.1 174.0 

Tranche Limits 

10% Carr Shift (179.4) 175.0 

Steepen10% 

CDXHY (85.3) 64.0 

CDXLCDX 0.2 0.5 CDXIG (395.7) 436.0 

iTra:xxMN (143.5) 265.0 

iTra';()(XO 30.2 65.0 

iTra';()( Finsub (21.3) 30.0 

iTraxx Fins en 2.6 6.0 

17 J.P.Morgan 

OCC·S
x 

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Differences summary 

Sum of Sum of CP 

BOA 60 60 

9FLC (98) (93) 

CBKAG (2) (1) 

CG"'-

cm 

CSI 

CSX (45) 

OBKAG 362 

GSI (27) (27) 

HSOCEU 0 9 HSBCUS (7) (9) 

"'-I 

MSCS 185 146 

MSIL (92) 

,\'OIVlIRAIP 115 

RBSFLC 73 73 

SGClB (65) (<0) 

CDXHY 

lTRAXXMN 

ITRAXXXO 

Chg. OnTR 5Y 

INT[RNAL USE O".JLY 

SUm of MTM 

, 

(5) 

(0) 

0 

4 

(3) (0) 

(1) 

3 

(0) 

39 

(1) 

5 

(0) 

(25) 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

DRAFT (5129/1

Sum of 

COX I-If S0805Y 10-15 9 15 

ITAAXX MN S09 10Y 22 ... 1 DO (506) (532) 26 

COX iG 509 05Y 00-03 369 315 (6) COX IG 318 05Y 10 1 

COX IG SOg i0Y 10-15 219 216 

GOX HY 811 07Y (6) 8 

COXiG G0910Y 15·30 41 30 3' 

Fa'lliiy 

COXHY 

ITRAXX MN 

Chg. due to OnTR 5Y 

upward to cap, Positive number 

OCC-S
DRAFT (512911

New trades 

LONG 50,000,000 cox HY 818 O5Y BOA CHI\RLOTfE 94.19 93.75 9' 00 

LONG 25,000,000 COX HY 818 05Y 2D-Jun-17 NOMURl>, LON 9394 93.75 94.00 

LONG 50,000,000 COX HY S18 O5Y 20·Jun-17 BOA Ci-lARLOTTE 94.19 93.75 94.00 

SHORT -75,000,000 cox HY 518 D5Y 20-Jun-17 MSCAPSVCNY 9400 93.75 94.00 

LONG 40,000,000 COX HY 818 05Y 20.Jun·1? NOII.'1UM LDN 9400 93.75 9400 

SHORT -50,O(X),OOO cox HY S1B D5Y 20-Jun-17 BARClAYSNY 94,1) 93.75 94.00 

LONG 50,000,000 w-X HY S18 O5Y 2Q.u'un·17 BOA CHARLoTTE 94,13 93.75 94,00 LONG 40,000,000 COX HY SiB 05Y 20-Jun-17 NOJl.'1UAA LON 94.06 93.75 94.00 

10 LONG 85,000,000 CCX HY 81 B 05Y 20-Jun-17 NOrvP.;RA LDN 94.19 93:15 94,00 

11 LONG 50,000,000 CDXHY S10 05Y 20-Jun-17 NOMURA, LON 94.00 93.75 9·<1,00 

12 LONG 250,000,000 cox IG S18 05Y 2Q..Jun·17 BOA CHARLOTTE 115.75 117.50 117.00 

13 LONG 50,000,000 !TRAXX F!NSEN 817 Q5Y 20·Jun·17 CSFB INTL LDN 293.00 294.00 200.00 

14 LONG 50,000,000 fTRAXX F1NSEN 817 05Y 20-Jun-17 JFMCE3 LON OK lNDG< LON 291.00 294.00 200.00 

15 SHORT rTRAXX FINSEN 817 05Y 20-Jun·17 80CGa-J 291 CO 294.00 290.00 

16 SHORT ITAAXX FlNSEN 817 05Y 20·Jun-17 MS CAPSVC NY 292.CO 294.00 29000 17 SHORT rTAAXX FINSEf'..lS17 05Y 20-Jun-17 BARCLAYS NY 29100 294.00 200.00 18 LONG rrPAXX F1NSENS17 05Y SOCGB>J 293.00 294.00 200.00 

19 SHORT -20,000,000 ITAAXX RNSUB 817 05Y 20·Jun·17 SOCGB-J 488.50 491.00 485.00 

2{J LONG 160,000,000 rrRAXX MN S0910Y 20-Jut1"18 BNP LON 20600 206.75 206,13 21 SHORT -150,000,000 ITRAXX MN 817 05Y 2Q..Jun·17 elTlBANK NY 169.50 169.50 16944 22 SHORT -250.000,000 rrRAXX MN 517 05Y 20·Jun-17 BOA CHI\RLOTTE 16950 169.50 169.44 23 SHORT ·250.000,000 ITAAXX MN 817 05Y DEVfSCHE LON 16750 169.50 169A4 

24 SHORT .150,000,000 lTRAXX MN 517 05Y BAReLA. Y S NY 167.50 169.50 169.44 25 LONG 50,000,000 rrRAXX XO 817 05Y 20-Jun-17 BNPLOO 69300 700.DC 693.75 

26 LONG 50,000,000 rrRAXX XO 817 05Y 20-Jun-17 BNPLON 687.00 700,00 693.75 

27 LONG 50,000,000 fTAAXX XO 517 05Y 20·Jun·17 BNP LDN 688.00 700.00 693.75 

28 LONG 50,000,000 rrRAXX XO 817 05Y 20·Jun·17 BNP LON 693.00 700.00 693.75 

29 LONG 50,000,000 fTAAXX XO 817 05Y 2o.Jun·17 BNP LON a93.CO 700.00 693.75 

30 LONG 50,000,000 rrAAXX XO 817 a5Y 20-Jun-17 BNPLOO 693.GO 700.00 693.75 31 LONG 50,000,000 rrRAXXXO 817 O5Y 2Q..Jun·17 E3NPLctJ 681.CD 700.00 693.75 

32 LONG 50,000,000 lTRAXX XO 817 D5Y 20·Jun-17 BNPLDN 68B.CO 700,00 693.75 

33 LONG 35,000,000 ITRAXX XO 817 05Y 20-Jun-17 emBANK NY 693.50 700.00 693.75 

3' LONG 50,000,000 fTRAXX XO S17 O5Y 20-Jun-17 BNP LON 695.00 700.00 693.75 

35 LONG 50,000,000 ITAAXX XO 817 OSY 20·Jun·17 BNP LON 690.75 700.00 693.75 36 LONG 65,000,000 rrRAXXXOS'i7G5'( Za-Jun-1? emBANK NY 695.00 700.00 693.75 37 SHORT -336,000,000 ITAAXX MN 809 05Y 20-Jlin-13 UBS LDN 149.00 152.50 151.25 

3B LONG 20,000,000 ITRAXX r...w 509 05Y 00·03 2Q..Jun-13 UBS LON 38.13 313.50 38,25 

INTERNAL GGE O.\lLY 19 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC·S
DRAFT (512911

Daily price testing - Index 

OJB: 2012-05-29 

Series 09 Index nS11 a.6S 

COX n SOOl0Y 45,485 (22.70) spread 159.0 158.3 1588 

COX 13 B0907V 33,099 (8.271 spread 119.0 117.9 1182 

CDXn S0905Y (31,675) 179 spread 79.5 81.5 61.9 

rrnAXX MN S09 05Y 20,781 (220) spread 151.3 1494 1513 

tTRAXXMN S0910Y 16,479 spread 206.1 207.3 2061 

ITAAXX MN sa9 07Y 6,707 spread 183.4 182.5 

Other Index 

COX 1381805Y 36,639 (17.58) spread 117.00 116.68 116,75 COX I-1Y BOO 05Y 15,430 (009) price 100.06 lCXU1 100.06 

COX G S17 05Y 8,338 spread 109.50 109.42 109.50 

COX HY S09 05Y price 100.44 100.53 100.45 COX Hi S11 on priCE:! 99.25 99.15 

COX HY S18 OSY price 84.00 94.13 94.06 

COX IiY S11 05Y price 101.44 10154 101.48 COX G 508 D7Y spread 1:33.75 134,26 135.00 

COX G S16l0Y spread 143.00 14195 141.88 COX 13 514 i0Y spread 133.00 132.48 135.63 

CDxnS1510Y 0.04 spread 136.25 136,35 137.38 

COX HY S14 03Y 0.01 pnce 101.81 101)J1 

CDXHYSOBO"N 0.04 PriCO 00,88 98.99 

COX G 507 07Y 0.11 spread 137.00 141.86 

COX LCOX S10 05Y 0.12 price 101.50 101.51 (0,12) (8,06) 

rox KY S10 07Y 0.58 priCe. 101.38 101.31 1,33 0.75 

COX KY S16 05Y 2.25 pnce 97.B1 97.67 97.80 4.2 9.36 7.11 

aJX KY S17 05Y 2.49 95.25 95.39 95.34 (900) (6.51) 

COX G S1405Y 2.33 spread 83.00 84.75 84.32 4.08 2.92 COX KY S10 051' 097 pnce 102.06 102.01 101.94 5.1 4.92 3.95 COX KY S15 051' 3.00 price 99.13 99.14 99.23 (OA) 

COX HY 514 Q5Y 3.33 price 100.25 100.25 100.34 (01) 

COX 13 515 Q:5Y 6.01 5pread 93.25 94.43 94.13 1.2 7,081 4,08 COX K3 S1605Y 719 spread 10350 10371 103 88 02 1.51 

x 

0 

z 

;! USE ONLY 20 J.P.Morgan 

DANK PROPRIETARY AND/OR TRADE INFORMATION OCC-S
Daily price testing (cant' d) Index 

x 

o 

2 Q 

Q INTERNAL IJSE: ONLY 

0.04 0.22 

o 

1.25 

0.55 

147 

022 071 

1.M 

RANK PROPRIETARY AND/OR TRADE INFORMATION 

spread 

spread spread 

spread 

spread spread 

spread 

spread 

spread 

spread spread 

spread spread spread spread spread 

spread 

DRAFT (5/29/1

172 83 17194 172.83 

485.00 487.39 

507.00 507.18 

693.75 694.43- 693.15 

192.54 1(19,44 

210.44 217.92 

485.00 482,84 

570.00 454.48 

290.00 268.57 

501.00 500,11J 

427.00 415.23 463.50 469.42 

443.00 445,16 

100,63 187,59 186.63 

608.75 607.13 608.75 

19275 195.03 192.75 

420.00 427.00 

142,64 140.73 

661.25 660.50 661,25 

1fl944 169 09 

21 .IP.Morgan 

OCC-S
DRAFT (5/29/12

Daily price testing - Tranche 

001'1: 2012·05·29 

Ser1e-i·btfTrar.che 

cox n S0910Y 30-100 16,565 (2.76) IJpfrol1!"'100 -3,4 ·3.4 (87) COX!G S09 01Y 30-100 11,121 (0,06) upfront"'10Q -2.2 ·22 (1.1) 

COX IG 809 lOY 00-03 2,018 (467) upfront+500 71.9 72.2 (0.7) 

COX IG S09 iOY 07-10 775 (1.S1) upfron!+500 7.4 7.' (0.7) 

COX IG 309 10Y 03-07 6O {O .. 18J upfron!+500 29.4 29.7 (0.7) 

cox IG 809 D7Y 03-07 6.1 6.' (I, 

COX i3 S09 05Y 30·100 ·0.6 -0.6 2.0 

cox lG SOg OlY 00-03 53.S 54.2 (1.1) 

COX G S09 DIY 07·10 -5.9 -5,7 (\.1) 

CDX G sa9 05Y 03·07 -2.4 -2.4 2.0 

cox IG 309 D7Y 10-15 0.4 0.4 (1.1) 

CDX K> SOS10Y 10-15 10.6 (0,7) CDX i3 $09 05Y 07·10 -2.8 -2.6 2.0 

COX IG S09 05Y 00-03 15.9 15.5 2.0 11AOI 9AO 

cox iG S0905Y 10·15 -0,6 -0.6 2.0 

COX 10 809 lOY 15-30 1.2 (0.7) 

COX i3 S09 D7Y 15-30 -t.S -1.6 (1.1) CDX G 309 05Y 15-30 -0.6 -0.6 20 

ITRAXX MN S08 lOY 22-100 66,1 65,5 1.1 

fTRAXXMN80907Y 22-100 29.1 30.1 (0_9) 

ITAAXXMN 809D5Y 22-100 7.5 8.1 (1.8) 

fTRAXX MN S09 10Y 00-03 73.2 73.2 1.1 

ITRAXX MN S09 10Y 06-09 29,5 296 11 

rrRAXX MN S09 05Y 00-08 -2.3 -2.2 (18) 0.13 

fTRAXX MN 809 D5Y 09-12 49,0 51,3 (18) 0.06 

ITRAXXMN 50910Y 09-12 599.0 589.7 1.1 

fTRAXX MN S09 OT'( 09-12 3910 3953 (0.9) 17 fTRAXX MN S0910Y 12-22 290.0 2946 1.1 (016) fTRAXX MN 809 'lOY 03-06 40' <05 11 (002! fTRAXX MN S09 D7Y 06-09 11.4 11.7 {O_S) fTRAXX MN S09 QSY 12-22 26,0 274 fTRAXX MN 509 DlY 03-06 21.1 21.4 fTRAXX MN 809 05Y 03-06 03 05 

x 

ITRAXX MN 509 OlY 12-22 1750 176.0 

0 

fTRAXX MN S09 D7Y 00_03 63.1 634 

z fTRAXX MN 509 05Y 00-03 38.3 387 (IB) 

w 

" J.P.Morgan INTEHNAL USE ONLY 22 <1 

flANKPROPRJETARY AND/OR TRADE JNFORMATJON OCC·S
x 

o 

z 

Daily price testing (cont'd) - Tranche 

pr.:e prie,) 

prk::e 

pnee 

pffGe 

pfief) 

prJe,. 

pileD 

pnce 

prfee 

USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFOfu'>1A nON 

91}3 

111.2 

8A 

78.6 

102B 

1004 

103.1) 

1070 

13.9 

58,1 

104.3 

97.4 

104.4 

103 

34.5 

·4.1 

102,9 

1011,9 

02 

110.6 

32.1 

7.1 

325 

1Q6.5 

-1.3 

5.0 

.0.4 

1.7 

·2.4 

-4.9 

1004 

-LOl 

98.6 

111,:;( 

8.5 

78,3 

100.3 

104.1 

1070 

137 

56$ 

104.8 

97,5 

I.1S.9 

--'1.3 

102.3 109.1 

0.1 

110,7 

33.8 

7.3 

106.8 

-1.:;1 

64 

.5.2 

-0.3 -1.7 

-],2 

-4.8 

32.5 

100,3 

-1.B 

95.5 99.8 

23 

u 

Q 

u 

Q 

U 

Q 

1.2 

U 

Q 

U 

U U U U U 

DRAFT (5/29/1

J.P.Morgan 

OCC-S
Daily price testing (cont'd) - Tranche 

o 

z 

Ii-ITERNAL USE ONLY 

BANK PROPRIETARY ANO/OR TRADE INFORI>1ATION 

(OAO) spread 

(002) spread 

(0.24) upfront+500 

(0 11) upfront+300 

(002) upfronl+500 (000) spread 

(0,02) spread 

(000) spread 

(DOC) upfront+300 (0.00) spread (000) spread 

0.00 

0.16 

0,13 0.43 

0.44 

0.42 

DRAFT (5/29112

41,0 41,7 

14.5 14,3 

40.3 39,4 

27.8 26.9 

80 7.8 

B12.0 554.6 

289.0 275.7 7.5 

609 56.8 7.5 

27.3 27.7 6.1 

594.5 594.0 61 

274.5 276.1 6.1 

60A 61.2 6.1 

46.1 45.9 (1.9) 

74,3 73.6 7.5 

33.5 34.1 (3.2) 

604 6G.6 (09) 

6B.1 68.5 

Change due to the OnTR5Y Index 

84,0 94.1 94.1 (3.3) 

1170 1167 116.8 (0:';) 

169,4 169.1 1694 (OA) 

24 JP.Morgan 

OCC·S
Volume and activity update 

ITraxx MN S09 616,556 522,199 

CDX1GS18 390,008 N/A 

iTraxxMN S16 292,720 N/A 

ITraxx MN 817 351)346 

CDXIG 517 239,782 2,100 

CDXIG S16 178,415 N/A 

CDXIG SiS 174,828 8,303 

CDXHY S17 72,421 55e CDXHYS10 71,049 45,217 

iTraxxXO 816 63,828 N/A iTraxxXO 817 72.023 N/A 

CDX HY S09 52,839 31J,355 

iTraxxFinSub 817 25,771 

Source. DTCe (week endirog 5/18112j 

INTERNiU O:\jL Y 

BANK PROPRJETARY AND/OR TRADE INFORMATIOK 

DRAFT (5129/1

17,076 12,705 2.77% 2.43% 

221,241 NIA 56.73% N/A 

7,532 N/A 2.57% NIJ\ 

197.567 N/A 56.23% N!A 

19,678 137 8.21% 6.50% 

G97 N/A 039% NIA 

866 N/A 0.50% N/A 

4.924 NIA 6.80% N/A 

722 130 1,02% 029% 

1.110 N/A 1.74% N/A 

47,157 N/A 65.48% N/A 

673 40 1.27% 0.12% 

4,904 NIA 19.03% N/A 

26 .IP.Morgan 

OCC-S
; 

7 

o 

u 

o 

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.' 

> 

o 

x 

" 

May 16, 2012 

BANK PROPRIETARY AND/OR TRADE INFORMATIOO: 

DRAFT (5/1611

IP.Morgan 
Executive summary 

45,661 

Portfolio Net 

iSMay (2470) 2.6 (178) (15.2) 

30-Apr (2926) 172.4 (1267) 45.7 

Description 

Total (CIO - counterparty) 

largest counterparly Deustche Ban k 

Since %Chg 

45,7 (15.6%) 

0.0 

DRAFT (511611

lIll New trades redl.!Ced rrsk in 1 O%CSW terms by $43mm (new tn.de activity only, 

doss not include changes due to market moves) 

New trade activity: sold €4.9bn iTraxx OTR Syr, bought $3OOmm CCX HY 5y 

P&L+$45mm- Driven Dutperformance of COX IG 59 in US and short dated 

S9 equity !ranches, on Greece/Hellenic Telecom fears 

HY) - Europe losses more than offset by 

underperformance 

!ll! VARover limit ($174mrn VEl. $160mm) 

Spread (bps) CS01 Spread P&L 

5i15 5/16 ($mm) change ($OOOs) 

COX iG 509 trade 

Directionality (49,390) 

55,296 

Largestlnstrument COX HY S08 05Y 10-15 18 19 iTraxxS09 trade 

o o 

" " 

u 

o 

;:: 

w 

z 

" 

Reducecomp-essionrisk 

rn Sell$11.5bnIG 

II Buy $3tn HY 

Reduceoosstradesacro$ !II B'Jj€3.7bnofiTraxxFinS"Jb 

existing inventory m Sell €2.9bn iTraxx XO 

RoHpartlallyllquld OTRindexto !:3 CorlJert€18.4bnofITra>:x 

more:iqLidon-the-run 

fl!l Increased iTraxx MN 17 51' short risk outright by €4 9bn 

III Reduced COX HY 816 51' outright by $100mm 

!:lI Reduced COX HY 517 5y outright by $200mm 

INT[RNAL USE ONLY 1 Expcctcdtodajl 

BANK PROPRIETARY Ao;DJOR TRADE INFORMATlON 

$8.5bn 

$500mn 

(€40Ornm) 

€OOmn 

Directionality 

run 

Curve 

Tota! iTraxx S09 trade (8) 

Jov Grade YS HY (US) 

Long. COX 18 817 05Y Long CDXiG S18 05Y 

Shert: COXHY 817 05Y 

Subtotal 

lnv Grade vs HY (Europe 

Long ITRAXXMN S16 05Y 

Short ITRAXXMN S17 05Y 

Short. ITRAXXXO S16 05Y 

Subtotal 

TotallGvs. HY(C) 

Tranche 

ITRAXX5yr 0-3 vs 10y22-100 

COX HY syr 1 0-15 vs. 15-25 

Tota! Tranche (D) 

110 116 

638 

173 

174 

701 

111 

117 

652 

176 176 

702 

(3.6) 1.357 

(5.o) 1.476 

27 13.988 

(6.6) 3230 

3.5 2.611 

21 0815 

(32,665) 

(17,001) 

18,151 

(31,51S) 

(4,942) 

(8,305) 

37,502 

24.255 

(21,352) 

9,136 

1,701 

(10,514) 

13,741 

30.175 

2,022 

32,197 

:\ 

.J.P.Morgan 

occ-s
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Risk and market summary 

iTRAXXXO 5,131 

CDXLCDX (1£.1,229) 

0 

ITRAXXFINSUB (2,861) 

SOVXWE 

Total 

Memo: COX fG S09 

CDXiG 8185 yr 

S95yr 83.8 83,8 

8910yr 149.7 148,3 

CDXHY S18 5 yr 637.0 672.0 

iTtaxx Main 817 Syr 1777 174.0 

S910yr 211,7 213.5 

iTraxx Xaver S17 5yr 741.6 733.0 

INT[HNAl USE Ol'iLY 

BANK PROPRJET ARY AND/OR TRADE r!'FORMATJON 

0 

0 

10) 

82.0 

147,0 

655,0 

1686 

208.1 

716.0 

DRAFT (5/16/12

1366) 41 

191 

(0) 

8 

117) (e) 

46 

(112) 

681 7:],8 (12,6) (0) 16.9) 

119.4 113.1 (2.6) 63 7,B 

5797 57B.g 406 278 20.1 

1405 1250 45 67 6.8 

170.5 151.0 (26) 135 96 

6500 613.0 275 25 2.5 

Data feed not provided for 

J.P.Morgan 

OCC-S
IT' 

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Notional overview 

other iG (22,962) 

High Yield (20,388) 

iTraxxMain 

iTraxx Cross Over 

IG9 

Memo'fG 95yr 

IG 

HY 

r-inSub 

LCDX 

COX IG SD9 05Y COX iG S09 07Y COXIG S09 10Y 

IG9 

INTERNAL USE ONLY 

Notional 

40,963 

(6,804) 

(360) 

17,769 

2,661 (4,648) 

4.075 (1,688) 

(32,723) 

34,193 

80,989 

[lANK PROPRIETARY AND/OR TRADE INFORMATION 

100 

9,295 

DRAFT (5/16/12

00 Risks. Directional, curve, run, forward default exposure 

when IG S 09 5 yrs matures in December 2012, 

In Contributes to IG vs. HY position as well 

Ghdepath Target 

US and 

III Buy $3bn HY ($500mm achieved) 

Long Investment Grade risk and sho;i high yield risk at a 

speclfiod ratio 

m Glidepath Target 

/IJ1 Sell f2. 9bn iTraxx XO (f60mm) 

Convert €18.4bn iTraxx MN $16 to S17 [(f1.6bnJ] 

i!:I Long i!lvestment Grade and short lower quality names In 

Europe 

Ii!;! Typically short risk in equity and Juniortranches and long risk 

In senlOrtranches 

m In High Yield, long r;sk across the capital structure 

IO! Flattener on PinSubJdelta hedged long-super senior on LCDX 

!Iii Gfldep8th Target: BUy $3.5bn of iTraxx FinSub 

J.P.Morgan 

OCC-S
Curve exposure (Investment Grade COX and iTraxx Series 9) 

Q 

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det.iI(] 0'/0 

811011 risk 

-'Q-"O-'O'""'='::J'O,O-;'-,O 

;::"-, 

PV 10% CSW($mm) 

(Smm) Spot DayCllg 

€17 (€30) $1,613 $76 ($0.1) 

13 27 

BANK PROPRIETARY AND/OR TRADE INFORMATIOK 

Oaily($OOO) WTD Since 4130 

51,906 (244,978) (998A01) 

Above P&L based on an mdicBijlJe allribulion 

350 --Svr -_:lOyr _s}10yr !CO 300 

]:250 " 

:;;200- °i 150 

, [srif 

.g 50·' 

0 

Sap-OJ Sap-DB 5!!p-09 Sep-l0 

Sep-07 Sep-GO Sep-{J9 Sep-l0 Sep-ll 

($mm) CEc'12 Dec'17 Slope Hs Lo!;;!;; His. Gain 

CS01 $53 ($17.8) ($23) ($150) $2,072 

Spread 158bps 214bps 56bps 63bps (34bps) 

vvith a 

Volumes 

1WoekTotai 

M Da;ly Avg, 

Since 4/30 

Days to LiqUIdation 

(20% dailyavg. vol.) 

(mm) 

Volumes 

1WeekTotai 

1M DailyAvg 

Since 4/30 

Days to Liquidation 

(20% <1\1g. vol) 

8,595 12,259 

2,117 1,309 

30,830 18,619 

77 309 

10,000 2,383 

665 218 

14,107 2,881 

gO 297 

l.P.Morgan 

OCC·S
Investment Grade vs. High Yield (Compression) 

Compression 

CDXIGvs HY 

iTraxx MN 'IS. XO 

WTO Since 4130 

(86,869) (318,401) 

67,709 38,305 (50,220) 

(37,092) (133,624) (29-,284) 

cox HY/LCDX 484 other 1,264 8,351 23,025 

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ITRAXX MNIFINSENISQVX 

lTRAXXXO/FIN SUB 

($mm) 

w,atunty 

Notional 

CS01 

10% CSW 

CSW 10% Cr.ange 

Close of Day Close ofWee!< Since April 30 

CSW10% Change 

Close ot Uay 

Close of Week Since April 30 

I 

If'HERNAL U8E ONLY 

CDXiG 

$20,110 

(9,3) 

(10',5) 

(13) 

5.2 

21.8 

(3,1) 

(53.6) 

1,2 

83.3 

110.8 

BANK PROPRIETARY AND/OR TRADE INFORMATlOl\ 

(350) 

174 

CDXrlY 

($1,771) 

2,7 

1678 

1.1 

7,2 

5.0 

2,1 

143.2 

1.2 

3.7 

(1,7) 

Above P&L based on an indICative attdb1l1{on 

2,000- -HY.IG --HY!IG R<ltlo ( 

1,500 1,000 

500 

0 

3/07 3/0B 3/09 3/10 :jjll 3/12: 

!G V5. HY ratio 5.131x 4.00x 9.23x 

1,000 12 

3/08 3/Q9 3/10 3/1.1 3/12 

($mm) CS01 

MN (816)817) 

XO (S16) 

MN vs. XO ratio 

(3.1) 174 

2.1 733 ($230.5) $2,131.7 

4.2n 10.08x 

DRAFT (5116/1

/JI We are long Investment Grade and Short 

High Yield such that we lose if High Yield 

Widens (narrows) less (more) than a ratio o

5.1 to InvEstment Grade 

CDXIG CDXH

Volumes 

1WeekTotai 135,647 15,48

1M Da:lyAvg 15,717 2,29

Since 4/30 223,134 30,48

Days to Liquidation 

(20% daily a'/g vol) 

tTraxxMN iTra»:X

Volumes 

lWeakTotel 86,018 24,90

Daily Avg 11,136 3,65

Since 4/30 142,730 46,93

Days to LlquidatlOn 

(20% daily avg. Vol.) 

j,P.Morgan 

occ·SP
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Off-the-run index risk 

Change 

Close of Day 0.2 Close of Week 2.1 

Smce Aprii 30 , 0 

Change 

Close of Day 0.2 Close of Week 0.9 

Since IIDnl 30 1.5 

l PV represents balarce sheet carrying value 

INTt:RNAL USE ONLY 

BANK PROPRJETARY AKD/OR TRADE INFORMATIOt; 

00 

1.4 

29 

01 

5.5 

7.4 

DRAFT (511611

Since 4/30 

(84,701) 

ThiS refers to the risk that we hold 

Above P&L based on an mdlcatlVo altribatlOn 

mode! and may nd match representative 

trado P&L cst,matlOn 

-SYOTfi _10Y59 __ OlRj59 

300-, "(60 

250 40 

20 

Volumes 

1Week Total 1 M Oa:ly Avg. 

200 

150 100 

i20j Since 4/30 

Days to (20% daily evg. vol) 

Sep-07 Sep·OB Sep-O'J Sep-10 Sep·l1 

250 50 

40 

200 30 

150 rII#""''''''''-.I1111111T 

o 

100 (10) 

50 

(40{ 

5!!p·07 Sep-OB Sep-D9 Sap-I0 Sep-ll 

Volumes 

lWeek Tota! 

lMDailyAvg, 

S:nce 4(30 

Days to LiquidatJon (20% dady avg. voi) 

12,259 

1.309 

18,619 

309 

2,383 

218 

2,881 

393 

135,647 

15,717 

223,134 

4 

86,019 

11,136 

142)30 

J.P.Morgan 

OCC·S
o 

,-

':; 

D 

o 

oc 

U 

D W 

r 

z 

r 

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Directionality 

(400) 

N N N N N N (\i N N 

§ ;; S ?j :;f 

':2/31/11 ..:1/30112 5/15/12 

153 (293) (247) 

C 

(100) (200) 

(300) (400) 

(SOD) 

(600) (700) 

g § NNNNNN('.IN 5 ?i ?5 i?i 

4130/12 5/15/12 

(4BO) (577) 

0 

(20) 

(40) 

(60) 

(80) 

(100) (120) (140) (160) 

(180) 

(200) 

N N N N N N N N N 

§ ;; ;;;l 

12/31/11 4/30/12 5115112 

(110) (159) (1B3) 

INTEf<NAL USC 

BANK PROPRIETARY AND/OR TRADE 11\FORMA TlO1\ 

Daily ($OOOs) INfD Since 4130 

(116,669) (356,166) 

Above P&L based on an indlcfJtive altnbution 

representative 

300 

250 200 

150 

lDO 

50 

Sep-oe Sep-OO Sep-1O Sep-11 

12/31/11 4i30/12 5/15/12 

120 95 117 

250 200 

150 

100 

50 

Sep-OB Sep-09 Sep-1D Sep-11 

12131/11 4130112 5/15/12 

173 141 174 

DRAFT (511611

J.P.Morgan 

OCC-S
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Tranche Risk 

Index name 

CDXIG JUnior CDXIG Super Senior CDXIGTotal CDXHY Junior CDXHY Super Senior 

CDXHYTotal 

iTra:o::Junior 

iTraX)(Super Senior 

iTrax:< Total 

Grand total 

10%Corr01 

Change 

Week To Date 

Since Apnl 30 

10% Carr01 

Change 

Week To Date 

0-35% 25 0-22% (32) 

22-100% 

Long IG 9 Short 

TBU TBU TBU TBU 

Long lTr8::o.:9 Short 

TBU TBU 

« 

o SinceApcr TBU !,lcc3c.. D _____ ----o 

" " 

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1 Correlation data as of COB 4/4 

INTERNAL uSE ONLY 

BANK PROPRIETARY AND/OR TRADE INFOR'vlATION 

Daily (SODOs) WTD Since 4/30 

TBU TBU Tau 

Above P&L based on an indicative attribution 

Graphs of 10% correlation S/lift 

Theoretical max gain/loss based on 10% 

Corr and Spread graph 

DRAFT (511611

CIO Vol traded since Apr 30lh 

Implied Daily, weekly PIL 

J.P.Morgan 

OCC-S
DRAFT (5/16/1

Default profile 

"Loss Gain 

Pre Decem b ;;:lIe Decem ber 20 12 (Smm) Post Decem ber 2012 (lm

1 R.R Donnelley & Sons 467 9 1 BrunsWick Corporation 26

Corporation Company 

2 Geiest:ca Inc (1690) Com cast Cable (69t:l 0) 2 Radian Grollp Inc 409,0 2 -:-he New York TIJ":les 25

CommunicatJons, Lie 

3 /lJlied Waste North America, ('152.9) 3 Roh:n And Ha.ilS (6840) 3 LizClarborne, Inc 4057 238 

'cc Company inc 

c "t Falifax Financial Holdings (149.1) 4 F\,o Tinto A8an Inc (68001 4, Gan'le\t Co., inc -4017 4. Dean Foods Company 237

oc 

0 J. HeinzCompany (100.1) 5 Wells Fargo & (G532) '" 5 8e:o Corp 3951 5, Ten1ple-lniand Inc 22

Company 

"' 

Post June 2013 (Sm

L Gas Natural Sdg, S A 626

Gdf Suez 5550 GdfSuez 555

3 Royol Dutch Shell Pio (34.0) Unicredit, Socleta rer 476.3 Edp - Energies De 473

Man! PartugaJ,SA 

4 British Sky Broadcastln(J (33.7) 4 t:3ritlsh Sky (33 T) 4 Edp - EnerQI8s De 473.9 4 Portugal Telecom 471

Group Pic Broadcasbng Group Pic Portugal, SA International Finance 

B.V 

5 Teil3fonaktiebolaget L M (32"6) 5 Telefo1aktlebo:aget L M (32 G) Por,:ugal Teiecom 5 5 Banca Monte Dei 437

Ericsson Ericsson Interr,atianai Finance Pas chi OJ Siena S.P.A 

if\TERN/\L USE: Ot\JLY " J.P.Morgan 

BANK PROPRIETARY ANWOR TRADE INFDR,1ATIO),; OCC-S
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Limits 

limlt($mm) 

GS01 Unadjusted 

CDXHY 

COXLCOX 

CDXIG 

iTraxxMN 

iTraxxXO 

'iTraxx. Flnsub 

iTraxx Finsen 

CSW10'% 

CDXHY 

CDXLCOX 

CDXiG 

iTra:o:.MN 

iTraxxXO 

iTraxx Fmsub 

iTraxxFlnsen 

Large Index Nationals 

CDX1G9.7Y CDXIG.9.10Y 

iTraxx 89 7Y iTraxxS910Y 

INTLRNAL USc:. ONLY 

usage Synthetic 

SJ15J12 Limit 

78 8.6 

0.0 18 

(322) 39.4 

(161) 23.7 

2.8 33 

(0.3) 0.6 

0.3 0.5 

484.3 496.0 

(00) 01 

(5480) 549.0 

(3660) 434.0 

191.0 201.0 

(18.5) 27.0 

8.3 12.0 

342 342 

81.0 81.0 

54 5.4 

130 13.0 

DANK PROPRIETARY AND/OR TRADE INFOfu\1ATlON 

DRAFT (5/16/1

Usage Synthetic 

lifTllt($mm) 5/15f12 limit 

VaR 174.0 160.0 

Compression 

US Compression limit 4843 4960 EUR Com pression L,ml! 174.5 2280 

Tranche Llm!ts 

10%CorrShift (162.2) 1750 

Steepen10% 

CDXHY (622) 640 COXLCDX 0.0 05 

CDXIG (446.1) 436.0 

iTra;.x rV'N (2079) 265.0 

I ,raxxXO 61.2 65.0 i,raxxFinsub (25.3) 30.0 

17"raxxFlnsen 1U 6.0 

10 J.P.Morgan 

OCC·S
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Differellces summary 

Sum of SUmofCP Surnof MTM 

BOA 58 53 COX HY S0805Y 10·15 35 

8PeC (5B) (55) «) IfRAXX MN $09 i0Y 22-100 

CBMG (1) (1) 0 COX IG 809 DSy 00-03 

CGML (6) (7) COX IG 818 05Y 20 

CIT! (282) (294) 12 COX IG 809 10Y 10-15 200 

C5( (201) (207) 6 COX HY sfi 07Y (3) CSX (53) (56) COX IG S0910Y 15-30 18 

DBKAG 527 417 110 

GS( (4) (25) 21 

dSBCEU 16 16 0 

HSBCUS (7) (11) 4 

MLI 5 5 (0) 

MSCS 163 iS6 7 

1v1Sll (B8) (B7) (2) 

:-.xJMUAAIP 124 119 5 

RBSA...C 100 104 (4) 

SGQB (50) (26) (24) 

IVarkfT FV PJ Exceeding 

Series 09 Index 

O:her Index Other index 

Subtotal Subtotal 

By Family 

CDXIG 

CDXHY 

JTAAXXXO 

ITRAXXMN 

Chg. in OnTR 5Y 

(826) 

1165 COXHY 

(152) 

182 

569 

rTRAXX MN 

Chg.dueto OnTR5Y 

INTERNAL USE ONLY Note:Asof5!15/12 11 

,_.S 

9.3 

Surnof CP 

1B 

(565) 

422 

29 

197 

(21) 

19 

POSition 

Tye; 

Index-IG 

index-HY 

Tranche 

j Negative l1umberimpliesmarts are too low - P&L adjusted upward to cap; Posi(IVe number 

implies marks are too high - P&L reduced to cap 

BANK PROPRIETARY AND/OR TRADE NFORMATlON 

DRAFT (5/16/1

18 

4 

8 

(3) 

3 

18 

(1) 

Posrtlon Independent 

Source Notes 

Y>bps Marnt Aggreg<;t:e max,: 

1 bps Mar)o:jt Aggregate max. 

$2rnm De.alerquotes Perr:ostion 

J.P.Morgan 

OCC·S
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DRAFT (511611

Summary of Synthetic Credit Book risk factors 

WI Pricing to equilibrium: In addition to below risk factors, some indices will lose value as they move from richness to fairness t3 Synthetic credit book exposed to six risk factors - Each factor represents a directional exposure 

ill In the short-to-medium term, these exposures can be partially mitigated - But not eliminated 

1. Credit spread widening 

(Directionality) 

2. Maturity mismatch 

(Curve) 

3. High Yield vs. Investment 

Grade 

4. Illiquidity of older Indices / 

Tranches 

(On-the-Run vs. Off-the-Run) 

5. "Super senior" debt vs. 

"equity" positions (Tranches) 

6. Default risk 

(Risk on individual names) 

iNTERNAL USE ONLY 

'" If credit spreads widen across markets 

If credit spreads of long-maturity positions get wider 

relative to short-maturity positions 

If high yield positions outperform investment grade 

positions relative to their portfolio weighting 

Iffi If credit spreads of the older index (the "off-the-run" index) 

widen relative to more-recently issued indices (the more "on 

the run" indices) 

.. If there is an increase in the correlation implied between 

defaults among names within the tranches 

ill If credit events happen to companies for whioh we have 

"sold protection" 

$1,110mm 

150mm 

1,060mm 

770mm 

490mm 

291mm 

Est. total diversified 95% loss potential L. .. _._._ ... ... _._ 

12 J.P.Morgan 

BANKPROPRlETARY AND/OR TRADE INFORMATION oee-sP
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Synthetic Credit risk factors details 

__ __ 

90.0% percenti!e 1,28 1,460 

t -_ -_ -_ j_ J 

97.51'10 percentile 1.96 2,140 

99.9%1 percentile 

Downside Case A 1 DO\\l1lside Case 8 2 

3.09 

NIA 

NJA 

3.300 

3,871 

6,655 

hlJ Credit spread widening (Directionai!ty) - Net directional loss estimate assumes correlation based on 1yr data 

rn Maturity mismatch (Curve) 

DRAFT (511611

&i Volatility measured as relative movement of longer matunty spread VS, shorter maturity spread adjusted for overall drift 

fa Combined across asset classes assuming zero correlation 

" High Yield vs. Investment Grade 

s Volatility based on relative spread movement netted for overall directionality 

fJ Assumes zero correlation between these differences for US and Europe 

OJ Illiquidity of older Indices/Tranches (On-the-run/Off-the run risk) 

ill Series 9 is assumed as the position 

Risks are combined assuming zero correlation 

tt (lSuper seniorll debt vs. lIequity" positions (Tranches) - Risk factor based on extreme movements of correlation as seen 

during the credit crisis 

II] Default risk (Risk on individual names) - Exposure based on comprehensive simulation of default risk using capital mode! 

iJj Diversified sum - AI! above risk measures combined assuming zero correlation 

Diversified sum of 95.0% percentile; 2 Drversified Bum of 99_9% percentile 

I..;S[ ONLY 13 lP.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-S
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Agenda 

INTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE Ir-iFORMATlO:; 

Page 

14 J.P.Morgan 

OCC·S
x 

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New trades 

2 SI-lORT (500,000,000) rTRAXX MN 517 05Y 

3 SI-lORT (500.000,000) rTRAXX MN S17 05Y 

4 SHORT (500,000,000) rTRAXX MN 517 05Y 

5 SHORT (500,000,000) fTRAXX MN 517 05Y 

6 SHORT (500,000,000) fTRAXX MN 817 05Y 

7 SHORT (150.000,000) ITRAXX MNS17 05Y 

8 SHORT (500,000,000) fTRAXX MN 817 05Y 9 SHORT (250,000,000) rTRAXX MN S17 05Y 

10 SHORT (250,000,000) fTRAXX MN 517 05Y 

11 SHORT (250,000,000) rTRAXXMNS1705Y 

12 SHORT (250.000,000) ITRAXX MN 517 05Y 

13 SHORT ITRAXX MN S17 05Y 

14 LONG 100,000,000 COX KY 51605Y 

15 LONG 100,000,000 CDX KY 517 05Y 

16 LONG 100,000.000 COX HY S1705Y 

iNTERNAL USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

ZO·Jun-17 OTlBANK NY 

2O-Jun-17 ClT,SANKNY 2O·Jun-17 aTlBANKf\!'Y 

ZO-Jun-17 aTlBANr< NY 

2O-Jun·17 anBANr'\ NY 2O-Jun-17 ClTlBANr'\l'f'Y 

20-Jun-l? UnBAN'r\ NY 

2O-Jun-17 BNP LON 

20-Jun-l? BNP LON 

20-Jun-17 BNP LON 20-Jun-17 BNP LON 

20-Jun-17 BNP LON 2O-Jun-16 90A CH.ARLOTIE 

2O-2ec-16 BOA Cf-Ll\,RLOTTE 

20-See-i6 BOA CH.ARLOTTE 

15 

DRAFT (5116112

Traded Traded PrevDay Prev Day Closing Closing 

179.75 175.13 17775 

179.50 175,13 17775 179.38 175.13 177 75 

1B1.oo 175.13 17775 

180,CO 175.13 177,75 

179.75 175.13 17775 

180.00 175.13 17775 180 50 175.13 177 75 

180.25 175.13 177 75 

150 00 175.13 17775 

180.50 175,13 177.75 

180.25 175,13 17775 

96,63 97.19 96,75 

94,25 94.81 94,31 

94,19 9481 94.31 

,IP.Morgan 

OCC-S
2437 
2438 
DRAFT (5116112

Daily price testing - Index 

COB.2012·05·15 TotallndexL 120'''1i l8.93

USD Factored Crend Spread CiO Quote Iv'larkit Quote ICE Quote I\.'larkfT Spread WarkTTFV NB:ceeding 

R-oduct Notional ($ rrm) BPVnlue ($ mm) Pnce Type (LON Close) (NYILON Close) (NYILON Close) D:fference Change ($ mm) Gap ($ mmSeries 09 Index 

COX IG S09 10Y 78,397 (3973) spread 148.3 149.5 1.2 COX lG S09 87Y 33,099 (84D) spread 114,3 113.5 114.4 (0.6) COX )G 509 OSV 192 spread 83,8 84-1 848 D.4 0.75 

fTRAXX MN 509 O5Y (237) spread 153.1 156.9 1531 3.8 (8,93) 

rTRAXX MN S09 10Y 16,589 (888) spread 2:2,6 213.8 2126 1.1 (10,08) 

rrRAM MN SOB 071 6,835 (2D2) spread 190,1 189,8 (OA) 0.73 

Other Index 

COX HY S0805Y 15,430 price 100,1 100,1 100.1 COX IG S18 05Y 1 ,772 spread 115,8 117,3 117.4 COX fG 517 05Y 8,338 (3.68) spread 111.2 111.0 COX I-IY SOg 05Y 5,506 price 100,5 100A 100 4 11.6 (3,97) 

CDXI-IY 811 07Y 3,703 pnce 99.1 98.7 4.1 COX HY 811 05Y 994 (0.16) prICe 101.6 101.3 1012 23,6 CDX IG S08 07Y 434 (0.09) spread 160.3 101,7 1305 (28.5) 2.50 2.4G COX IG S16 10Y 302 (0.23) spre;;ld 139,4 140.4 1405 1,0 (023) (0.12CDXIGS1410Y 257 (018) spread 128.8 129.4 1302 0.6 (0.11) (0.02

COX IG S1510Y (54) 0.04 spread 130.3 134.1 133.8 3.8 0.16 0.14 

COX HY 814 03Y (73) 001 price 1020 101.3 671 0,54 0.53 COX HY 'S08 D7Y (HID) 0.04 price 988 95.8 (0.01COX HY 818 D5Y (5DO) 0.19 price 93.6 93.1 93.1 1.77 

COX iG S07 OlY (7D4) 011 spread 122.3 141.5 19.3 2.14 209 

COX LCDX S 1 0 05Y (1,165} 0.13 price 10Hl 101.6 17.3 2.24 2,18 COX HY 810 07Y (2,D49) 059 pnce 101.3 100,9 13.1 7.68 7.09 COX HY S1G Q5Y 2.31 97.2 970 969 48 11.10 8.79 COX HY 517 05Y 2.72 price 94.8 94.5 94,5 8.7 23.67 20.95 

COX IG 514 05Y 235 spread B8.3 89,5 80.3 1.2 2.92 1.74 

CDX KY 810 05V 1.00 pnce 101.9 101.9 101.7 4.1 4.07 3.07 COX!-f( S15 05Y 3.01 price 98.7 98.5 98,3 5.6 17.02 14,00 COX HY 814 05Y (12,074) 3.37 pilCS 99,8 99.7 99.6 1.9 6.26 2.89 COX IG S15 05Y (17,409) 6J4 spread 97,3 99.4 99.1 1.1 6.19 3,72 

iNTERNAL USE O:\JLY 15 ],P.Morgan 

BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-S
DRAFT (511611

Daily price testing (cont'd) - Index 

cos: 2012·05·,5 Total 

USD Factored Credit Spread CiO Quote tv1arK:: Qwots ICE QUote 1v'orkrr Sri ead Pi Exceeding 

16"(2) spreecr 1744 

TRAY,):'. MN S1('i criY (196) spread 176.3 177.1 1763 0.9 (173) (0-75

IT.><AXX FINSUB 511, 05Y 1,557 spread 457.0 7.3 

iTRAXX FINSUB 316 05Y 1,336 soread 468.0 493.2 

rTRAXX MN 815 DiY 1,131 spread 137,0 193.0 2.39 209 

ITRAXX F!NSi..JB 05Y 396 spread "-71.0 A74.2 (0.56) (048

ITAAXX MN SOb 10Y 102 spread 2161 2198 3.7 (0.15) (0.13

rTRAXX Mi'l 814 05Y C.OO spread 17G}] inO 10 0.00 0.00 

lTRAXX S07 05Y 0.00 spread 556.0 1.399 (014) (0.14

rTAAXX XO S 17 05Y C 19 spread 739." 733.8 7391 02) iTPAXX ;::;NSliB S15 05Y spread 4850 484,1 [";'RAXX ;::INSLJ8 SOG 05Y 004 spread 413.0 40:)9 1) (0.48) (045

f:'R,tl,XX ;:,NSCN 317 05Y (70G) 029 spreac: 2860 287.5 15 044 0'0 

ITRAXX FINSJB 812 05Y (991) 023 4520 454.3 2.3 0.41 

rTRAXX FINScJB S10 05Y 821 sprGad 1,420 Qa.3 (132) (272

ITRAXX MN 51610Y 127 spreea 190 G )905 :10; (0$3

fTRA;:,X. XO S 15 05Y 055 sDread (349.5 649.2 

ITRAXX MN S1510Y 149 spread 00.8 198.0 i9GJ3 1 Q7 

fTRAXX FINSUB SOD 05Y (2,162) C23 spread 422.0 41 (i0,G) (234

iTRAXX MN S 15 03Y 073 SP;811d 149,2 149 J 

:TRAXX XO S 1 G 05'( 212 spread 704,0 7040 (936) C? 24

(7,75?) 356 sp:ead 175.1 1740 (1.2) (4.17) (239

Change inthe OnTR5YContract 

55,871 (40.22) spiead 115.1l 117.3 j174 

CDXH'( 1142 once 93.6 93.1 931 

lTRAXXXO 286 spread /39,] /33.8 73':].1 

iTRA>'V,(MN 53) spread 1740 1751 (1.2) 18.16 

L L .( 19 .l.P.Morgan 

BANK PROPRIETARY AND/OR TRADE 
DRAFT (5/16/1

Daily price testing - Tranche 

COB: 2012"05·15 Total TranChel (5o.4J)1 

USD Fac!ored Q-edi! Spread Cio QUD!O Ad] Trunche Priced index Spread fkrldT FV J=\I §«;:eeding 

Product Notlona! ($ rnm) BPVa!u'i! ($ mm) Frlee Type :LOi'lOosflj (based on Ref ImIs>:) Quota Change Change ($ rrrn) Cap ($ mm) 

Series 09 Tranche 

CDX1G $0910Y 30-100 

COX !G 509 OTT 30-100 COX !G S09 10Y 00-03 

COX!G S0910Y 07·10 

ca< IG S09 10Y 03·07 

CO;;<; IG S09 QT{ 03·07 

COX jG 809 05Y 30·100 

COX iG S09 alY 00·03 

COX!G SG9 07Y 07-10 Cox.!G 509 85Y 03-07 COX!G 8(}9 OTT 10-15 CDXiGS0910Y 10-15 CDX IG S09 05Y 07·10 

COX IG S09 ':;SY 00-03 COX IG 809 05Y 10-15 

COX fG S0910V 15-30 COX fG S09 07Y 15·30 CDX ]G S09 05Y i 5-30 

liRAXX MN S09 i0Y 22·100 

[TF<AXX MN 809 07Y 22-10D 

rTRAXX !vl!'J SOg 05Y 22-100 

rrRAx.x 509 10'( 00·03 

ITRAXX MN S09 i0Y 06-09 

rrRAXX IJJ..j 809 05Y 06·09 rrRAXX i\I1N S09 05Y 09· i 2 

fTMXX MN 509 10Y 08-12 

r:AAXX WiN 809 Oly 09-

fTRAXX rv'K"l 809 1iJY 12·22 

;:RAXX MN SD9 10'{ 03-06 

i i\l T 

16,565 

11.121 

2.018 

775 

60 

(215) (260) (331 ) (365) 

(1,395) 

(1,970) (1,960) 

(2,045) 

(2,719) (2,905) 

(3,800) 

(8,965) 

(12,215) 

21,093 

14,469 

9,071 

1,4.44 

485 

434 

358 

300 

230 

198 

DANK PROPRIETARY AND/OR TRADE INFORMATION 

(2.41) upfronl+10D 

(039) upfron\+100 

(5.01) upfron\+500 (1.95) upfronl+500 (0.20) upffOn!+500 

041 upf ront+5fJO 

0.00 qjf ro,\+1 00 

1.24 upfrvnt+500 

0.27 upfrontt500 

0.14 upfront+500 0.77 upfront+100 

288 vpfror'lt+l00 

004 upfront+'3-JO 

62'1 upfron!+500 

002 upfronl+,OO 

2.39 upfront+100 

0,85 upfror:t+l00 

0,05 lJpflont+100 

(6.99) spruad 

(1.83) spread 

(0.19) spread 

(129) 

(Q 79) upfrol'\t+300 

(0,09) wpfronl+300 (0.05) spread 

(0,41) spread 

(020) spread 

(Q,16i svead 

(0.G2) upfro;1!+50J 

{3.9} (3.9) 

(2.3) (2.3) 

72.4 72.7 

0.6 

28.6 28.0 

6.1 6.5 

(0.6) (0.6) 

54,3 55,1 

(6.4) (6.2) (2.71 (2,7) (0.21 (0.1) 

9.G 9.8 

{3,D) (3.0) 

,f,S lB.1 

(06) (0.6) 

0.5 0.6 

(1.9) {1,9) (0.6) (0.6) 

67.4 09.2 

:]0,0 33 G 

7.8 8.2 

73.5 

302 309 

(2,3) (2.2) 

69.0 71,5 

523.5 626,8 

425,5 4M,3 

3015 305.6 

40.2 40.9 

20 

'.2 

(0.6) 

1.2 

(O,6) 

0.4 

{OJ)) 

(0.6) 

0.4 

(0.6) 

"1.2 

0.4 

0.4 0.4 

1.2 

(0,6) 

0.4 

11 

(0.4) 

3." 

11 

3.8 

3.8 

(OA) 

U 

0.24 

(6.14) 

(2.40} (0.24) 

(0.25) 

0.00 

(O.77) 

(0,17) 

0.05 

(OA8) 

3.53 

0.01 

245 

001 

2.93 

(0.53) 

0.02 

(7.94) 

0.66 

(0.71) 

(U7) 

(0.90) (0.35) 

(0.17) (0.46) 

8m 

(0.02) 

(<114) 

(OAO) 

153 

0.45 

0.93 

(5.94) 

J.P.Morgan 

OCC-S
Daily price testing (cont'd) - Tranche 

x 

Q 

<{ 

COB; 2012-05-15 

::'toduct 

Series 09 Tranche 

ITRAXXMl'.JSD907Y WOO 

ITRAXX r.AN SQ905V 12·22 

fTRAXX rvIN S09 OlY 03-06 

rrRAXX 1.1N S09 OSY 0:3-06 

[TRA.XX 1\111\1 SQ9D7Y 12·22 

lTRAXX tiN 809 C7Y 00-03 

fTRJ\Xi\ 101N 809 Q5Y 00.03 

Other Tranche 

cox HY S10 05Y 35·100 

COX f-rl sa9 05Y 35.100 

CDXLCDXS10Q5Y 15-100 

COXHY S1005Y 15-25 

COX hY a7Y 35-100 

COX HY 510 D7Y 10-15 

COX FlY 811 05Y 15-2.5 COX HY S09 05Y 25"35 

COX hY S08 05Y 25.35 

COX H{ 510 05Y 25-:35 

COX KY S11 05Y 35-100 

CDXHY 05Y 10-15 

GiJXHY 15-25 

COX HY SOB D7Y Z5-3G 

COX!-f{ BiD 07Y 2s..35 

COXHY 511 05Y 25--35 CDXHYS1005Y 10-15-cex HY SOB Oly 15·25 

USOFactcreq Credit Spread 

t\iotionai ($ iTl!Tlj 8P Value ($ mrn) 

(32) 000 

{15C) 0.01 

(204) 0.31 (460) 036 

(575) 0.28 

(856) 1,03 

{3,769} 646 

3,744 10.05) 3,051 (DG1) 

2,852 (0.12) 

2,063 (1.25j 

1.452 (019) 

1,360 (038) 

1,015 (0.80) 

875 (0,01) 

663 (0.00) 

655 (0.07) 508 (002) 

405 (0.17) 

3fl5 (039) 

282 (0,06) 285 (0.16) 

250 (0.05) 

232 (0,15) 

225 (0.19) 

y 

BA\iK PROPRfETARY A\iO/OR TRADE lNfOR,\1AT10;; 

CD QUDte 

RiCe Type (LON Close) 

upfronl+300 12.3 

spread 40.5 

11pfrant-P300 21.1 

upfrcni+500 1.3 

spread 182.0 

upfrom+500 63.3 

upflont+5DO 38.6 

price 105.4 

prrcfl 103.0 

105.4 

price 922 DricEl plx.:e 6.5 

;mce 778 

price 102.9 

price 

1039 

price 1073 

11.8 

Price 56.5 

prICe 

;mco 104,1 

price 9 8 

B5A 

21 

DRAFT (5116112

Adj Priced Itldepende''1t Index Spread rvErkrr FV fV ExoeedHig 

(based on !r.de:x) QU.(Jte Change Change ($ rnm) Gap ($ mm) 

42.4 38 0,05 

221 (04) (0.11) 

15 38 1.3e 

192,6 (GA} (0,10 

64.2 (0·'9 (0,37) 

380 3.0 24.32 2232 

105.4 4.1 

1030 11.6 (0 OS) 

105 3 17,3 (2,15) (015) 

91.8 41 (5JJ6) (3.o6) 

111,3 (255) (055) 

7.0 1::tl (5.01) (3.01) 

TeA 23.6 (18.75) (1675) 

102.9 11.6 (0.15) 

100.7 (54,4) 0.03 

1038 A.1 (0.30) 

107.3 23.6 (041) 

12,1 23,6 (4 DB) (2.08) 

58.1 13.1 (509) (309) 

104.5 (1.4) 0:11 

9<5.8 13.1 (2.10) (010) 

'1042 23,6 (125) 

19.4 4,1 (0.52) 

85-4 (14) 0,27 

,IP.Morgan 

OCC-S
DRAFT (511611

Daily price testing (cont'd) - Tranche 

cos: 2012-05-15 

usa Factored Qed:! Spre<)d CO QUote Ad) T,ar,che Priced independent l"oex Spread M2Hl<iT F\I FV Exceed ing 

R-oduct N.:rtionai ($ mm) BPValu8 ($ ITlITl; Ftice Type (LON Close) (based on Ref Index) Quote Ooill1ge Change ($ rnm) Cap (5 mm) 

Other Tranche 

cox iG S07 07Y 07-10 

COX lCDX SiD 05Y 12·15 

COX HY S08 07Y 35·100 

COX 1G 815 J5Y 15-'100 

Ccx. HY $11 oly :}5·100 

cox K'I" soe 07Y 10·15 

CCX HY 811 07Y 

CC>< HY $07 OT{ 15-25 

COX HY $07 07Y 35-100 

COX IG S07 07Y 15-30 

COX lG S07 aT( 30-1 GO 

cox. 1G S08 aT'{ 

cox iG S08 07Y 07·10 cox iG 508 07'( 10·15 cox IG S05 CTY 30-100 ccx IG s10 05'-( 03--07 COX k3 S10 D5Y 

110 

10'9 

100 

00 

47 

CCXiiY S11 07Y 15-25 (30) CQX KY Sog OSY (71) 

COX Hi SOB 05Y 35"100 (94) 

COX)G S15 05Y 00-03 (1fl:i) 

cox iG S08 OTY 15-30 (375) cox HY S08 05Y 10-15 (812) 

CCXHY S0905Y 15-25 (1.055) 

CCX Hi SOB 05Y 15·25 (1,41J) 

lTRAXX M"i S15 07Y 22_100 2,555 J:RAXX MN S15 05Y 2,491 

i'AAXX M!>,J S15 03Y 22-WJ 383 

ITRrI)<)( liN 806 10Y 03-06 

!TRAXX MN S06 1 OY 26 

USE ONLY 

BANK PROPRIETARY AND/OR TRADE INFORMATION 

(004) upfm'lt+500 (47) 

(003) pr:ce 103.8 

(001) 1088 

{O,Ol; upftnn;+25 02 

(0,02) e (0,04) price 33.3 

(0.00) pncf,l 6.3 

(O.O<) 83A 

(0.00) price 106.4 

ODO upfront+l00 (1.5) 

(O.GO} upfront+l00 (lA) 

000 upftont+SOO 59 

0,00 upfrort+5\.lQ (5.8) 

(0.00) upfror.t-t1CO (0.9) 

(0.00) upfrort-t100 (1,G) 

C.OO upfront+500 (2.6) 

(0.00) upfror,\+500 

0.02 PriCe 51.0 

0:]7 pnce 315 0.00 price 100.7 

0.69 Upfro;-;\+7.{) 36,1 

am (2.21 

0,24- I-HIG8 97.5 

0.33 99.6 

001 100.6 

(0.82) spr€'ad 59,5 

(OA7) spread 

(0 spread 

(024) upfron\+500 40,1 (0.11) upfront-t3ClQ 25.3 

22 

(52) 19,3 

1032 17.3 (0.53) 

7 (',4) 001 

0,2 11 (0.02) 

110:1 (0.24) 

3-32 (1.4) 0.06 

141 (OJJ6) 

96,0 2-4,6 (0,17) 

106.6 246 (0.00) 

(',,13) 19.3 0.00 

(14j 3 (0.01) 

125 (28.5) (0.01) 

(3,6) (28.5) (0,06) (0.1) (285) 0.01 

(28.5) 0.01 

(2.5) 32 0.00 (5,0) 3.2 (000) 

51,:,3 0.33 

31,5 11,6 Q]6 

100,7 (54.4) (0.00) 

36,5 U 0.76 

(1.9) (28,5) (0.54) 

91.9 (54.4) (13.23) (11.23) 990 3.85 1.85 

100A (54.4) (O.58) 

54.4 (4.0) 3.31 1.31 

422 (041) 

i2.6 (0,2) 0.00 

3.7 (0,90) 

(0.42) J.P.Morgan 

OCC-S
DRAFT (5116/12

Daily price testing (cont'd) - Tranche 

COO' 2012·05,15 

USDFactored credit Spread C!OQuote Adi Tranche Priced lIldepende'l\ JrldeJ( Spread tvlarkrT FV PV Exceeding 

A"oduc( hlo\iona' [li il'm) BPVa:t;e ($ mn,) Ftice Type ('-ON 0'1 Ref Ir,dex) Quo:e Change ChangE ($ nun) Cay ($ mrn) 

y 

o 

z 

w 

a a 

Other Tranche 

ITRA.XX WN S15 03Y 03-06 

rTRAXX MN S0610Y 09-12 

rTAAXX iYlN 506 10Y 12-22 

lTRAXX 1,,1' .. 506 10Y 22-100 

rTRf\XX i\I1N 507 1DY 06-09 

ITRAM M"l SO? 1 OY 09-12 

r-RAYX MN S071DY 12-22 liAAXX MN 507 10Y 

ITRAXX MN Si5 03Y 00-03 

f:-RAXX MN 506 'lOY 00+03 

rRAYX MN 81507Y 03-06 

ITRAXX: MN S15 05Y 00-03 

!TRAM M'J Si5 on 00-03 

By Family 

CDXlG 

CDXKf 

ITRAXXivlN 

(89) 

(133) 

(249) 

(33'2) 

(377) 

(6,987) 

14.226 

46.513 

BANK PROPRIETAR Y ANDiOR TRADE I'iFORMATIO'i 

(0.02) vpfroni+500 

(000) spread 

(0.J2) spread 

(000) spread 

(O,{)O) upfronl+300 

(0,:)0) spread 

(0,:)0) spread 

000 spread 

0.16 ron!+500 

0.13 upfroh!+500 

CL45 upfront+500 047 

OA5 upfront+500 

5.96 spre<ld 

(338) pnce 

(3,60) spread 

8.5 94 

6365 618.9 37 (01)1) 

292.5 2B4,9 3.7 (0.06) 

62.1 6C,Q 37 (O.J2) 

27.9 29.4 (06) 0.00 

619,0 644.9 (0_6) 0.00 

278.0 294,0 (DB) 0.00 

6,J 66,6 (0,6) (8,00) 

45.8 46,9 (0.2) (0.04) 

746 743 049 

328 34.6 ('1.0) (1.82) 

60_5 61.4 0.9 0.42 

67.B 68.9 (4.0) (1.81) 

ChangJ<! due to the OnTR 5Y Index 

1 117.3 117-4 1.6 

93.1 93 i ,0.2 (::14.53) 

175.1 174.0 4.21 

23 .l.P.Morgan 

oee-s 
DRAFT (5/16/12

Volume and activity update 

ITraxx MN S09 6i5,379 517,04e 13,460 NJA 2,18% Nil, 

CDXIG S18 333,402 N/A 141,.:"62 NtA 42A3% NfA 

iTraxx MN S16 296,060 NJA 4,808 NJA 1.66% N/A 

iTraxx MN S 17 307,024 122,968 N/A 40.05% N/A 

CDXJG 817 4 1,998 96 20 424% 1.00% 

CDXIG 816 179,63$ N/A 563 ;.if A 0.31% NJA CDXIG 815 175.372 8,303 658 NIA 0.38% NlA 

CDXHYSH 72.924 650 2,723 209 3.73% 32.18% 

CDXHY 810 70,470 47.280 603 245 0.85% 0.52% 

iTraxx XO 810 54,062 N/A 309 NIP, 0.48%, NIA iTfaxxXO 817 NiA 32,567 N/A 47,49% N/A 

CDXHY 509 53,980 35413 232 30 0.43% 023% 

iTra)(XFlnSub 817 24,375 N!A 2,767 N7A 11,35% N/A 

Source. 

If\lT E ONLY 24 J.P.Morgan 

DANK PROPRIETARY AND/OR TRADE !:fFORMAT10N OCC·S
2446 

Chief Investment Office 

Presentation to the Directors Risk Policy Committee 

December 2010 

Ina Drew, Chief Investment 

BIL'iK PROPRlETAR Y AND/OR TRADE INFORMATION OCC-SPI-00135422 
2447 

Mandate and Approach 

KEY MANDATE: Optimize and protect the Firm's balance sheet from potential losses, 

and create and preserve economic value over the longer~term. 

Longer·term Investing 

Priv Retirem Special .te ent Investm Equi Plan ents ty 

Overs'ght Investme 

of legacy 

investme defined 

nis and benefit and 

select pension 

new investment 

5 and 

oversight '" investme of401k re\atedto 

n!> unc!ervalu 

ad Of 

underpenormln 

gJPMC 

$4bn $11bn 

loans 

TBD $8bn AUM AUM AUM 

Posltton lnvestm Group 

mrllf'l- ants in m 

off Fjxed formatlo componen 

mode Income, n- size tm 

YTDPE Equities, and mortgage! 

gains & scope high 

Alternati under grade MOQrn credit review 

Projecte Fest d return 

10% 

BANK PROPRIETARY ANDIOR TRADE INFORMATION OCC-SPI-OOI35422 
2448 

Tactical Positioning 

.. cia positions tactically to complement the core investment portfolio, 

III One example is a synthetic (or derivative) credit position established in 2008 to protect 

the Firm from the anticipated impact of a deteriorating credit environment 

.. As credit spreads widened, cia adjusted the position to capture value as credit 

markets stabilized, 

III These positions reached a maximum 95% VaR of approximately $125mm in early 

2009, and have since been de-risked to a current VaR level of approximately $55mm, 

with some further risk reduction anticipated, 

III Tactical credit strategies have contributed approximately $2,8bn in economic value 

from inception, with an average annualized RoE of 100%, 

95% Credit Tranche VaR 

0 0 0 

m ~ ~ 

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IlA:-lK PROPRTETARY AND/OR TRADE INFORMATIO'; OCC-SPI-OOl3l422 
2449 

Earnings 

II CIO's expertise and product suite have been developed and expanded to 

produce absolute returns through all business cycles. 

II Some volatility of earnings should be expected throughout cycles, 

particularly at exirernes. 

l1li Very low expense base of approximately $300mm, coupled with high 

returns, produces overhead ratios that range from 3% - 10%. 

Total Revenues lin millions) 9,312 

10000 

9000 

8000 

7000 

6000 

5000 

4000 

3000 

2000 

1000 

o 

BANK PROPRIETARY ,,,"'1D/OR TRADE INFORMATION OCC·SP]·OOI3S422 
2450 

Regulatory Reform 

III CIO activities are not expected to be significantly impacted by Financial 

Regulatory Reform, although sophisticated approach to structural risk 

management and investment of cash will require careful explanation to 

regulators. 

III CIO does not maintain "trading accounts" as defined by Volcker rule: 

I:! Intent is not to buy and sell to benefit from short-term price 

movements. 

I:! Activities are restricted to transactions that are clearly and 

transparently associated with the Firm's underlying structural risks, 

and all activities are documented as such. 

III Private equity investing will be impacted: 

I:! Existing investments were planned to roll-off prior to effective date of 

the rules in any case. 

I:! New investments in Private Equity will most likely not be permitted in 

CIO. 

I:! Retirement Plan investments in private equity and hedge funds are 

expected to be excluded from restrictions. 

l1li Engaging in preliminary discussions with regulators and Department of the 

Treasury, in coordination with Firm-wide regulatory reform working group. 

BANK PROPRIETARY AND/OR TRADE r"FORMATION OCC-SPI-00135422 
2451 

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The JPM mispricing of COX indices "London Whale" incident provides an 

opportunity to determine if existing public and regulatory reporting identifies 

these anomalies in the marketplace. 

Since this is a look back it is important to note that finding the anomaly is 

much easier when you know what to look for. Transforming data into 

information is key for regulators to anticipate and detect the risks in the 

system. 

Utilizing data from DTCC's Trade Information Warehouse (TIW) to 

reconstruct the time series of publically reported data that identifies the 

anomaly in the reported data. 

• Additionally, through the regulator portal- further transaction and position 

detail regarding the parties trading in the COX and ITRAXX indices are 

made available to the market and prudential regulators 
160,000,000,000 

140,000.000.000 

120,000,000,000 

100,,000,000,000 

} 5- 80.000,0001 000 

" 60,000,000,000 

40,000.000.000 

20,000,000,000 

DTCC Confidential (Yellow) 

CDX.NA.lG Family Untranched 

(Weekly Stock Data) 

#...",...... ..)f(, ..... #""..... <;If .... "'" #:-.-.... c"'-" '1!/'} 'tto.:V' 

...: "'\.'=1 -v"r '\,":1 ",--: .... <tJ .... ...,(;J"<F 

2 

-CDX.NA.tG.a 

-II- COX.NA.1G.9 

- COX.NAJG.10 

-CDX.NA.lG.l1 -COX.NA,IG.12 -COX.NA.tG.13 - CDX.NA,l(i.14 

--CDX.NA.IG.15 

COX,NA.IG.16 

.......-CDX.NA.I(j.17 

- CDX.NA..IG.lS 

PSt-DTCC-01-000
1 

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2'00,000,000,000 

l!fO,OOU,WO,l.JUJ 

100.000,000,(0) 

'X),ooo.ooo,OOO 

.... '0v 

CDX.NA.lG Family Untranched 

(Economic Flow Transaction Data) 

# # # # # § # 

DTCC Confidential (Yellow) 3 

.... b'lritl .. 

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-CO)(.NA.lG.10 -CDX.NA.iG,11 

-COX.NA-IG.12 

-LUX.NA.lu.1J 

-COX.NA.IG.14 

-£;DX..NA.IG.l!l

-;)-- COX.NA.lG.lu 

-6-COX.NAJG.17 

CDX.NA.lC,.18 

-CDX.NAJG.B 

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PS!-DTCC-01-000
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Page 

Introduction to Credit Default Swaps (CDS) 15 

COS Indices - ABX, TABX, COX, and iTraxx 20 
a 

ft;ypleil BIllii'!1lII 811ftt 

0 

ol II! ACDO comparable to a finance company: l: ! Borrows money (liabilities) 

'" z; Acquires an investment portfolio (assets) 

0' Has residual value (equity) J-

<t 

Q III The equity of a CDO (in the form of either preferred 

'" 

shares or unsecured subordinated notes) represents 

0 an ownership stake in the COO and a first-loss 

,... position in Its asset portfolio 

'" w 

a II! The COO's assets are typkally managed by a 

professional asset manager 

III Whether the liabilities can be repaid or not depends 

on the performance of the portfolio and asset 

manager 

II!! Through credit enhancement (In the form of 

structural subordination) and structured cashHows, 

COOs are able to issue tranches of debt that are 

rated higher than the assets in the collateral pool 

• Other liabilities include management fees and other expen

However, additional debt issuances are strictty tlmited. 

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What is a Collateralized Debt Obligation (COO)? (cont'd) 

III A COO is a securitization transaction in which a special purpose vehicle (SPV) .. typically an offshore entity·" 

issues securities to fund its acquisition of a portfolio of financial assets, which is either static or managed 

In a managed COO, a professional asset manager appointed by the CDO selects the initial portfolio and may 

trade in and out of assets during the Ufe of the COO 

In a static COO, no portfolio assets are traded during the COO's life 

III A COO may purchase actual securities or loans (of a variety of asset classes) or it may obtain exposure to cred

by entering into credit default swaps (CDS) that reference those credits 

Cash coo: its portfolio consists primarily of actual securities or loans 

Synthetic COO: its portfolio consists primarily of CDS (a portion of its liabilities may also be CDS) 

Hybrid COO; its portfolio may consist of either cash positions or CDS (a portion of its liabilities may also be 

CDS) 

III COOs may be classified based on the way their structures protect their debt tranches from credit losses: 

J[,Morgan 

Market value CDO: if the "haircut" market value of the COO's assets falls below debt tranche par, its asse

must be sold and its debt paid down until the haircut asset value exceeds debt tranche par; ultimate 

repayment of principal of its debt tranches depends on the COO manager's ability to liquidate assets prior 

their maturity 

Cashflow COO; the COO's subordinated tranches are sized so that after·default cash flows from its assets a

expected to be sufficient to pay principal and interest in respect of its debt tranches, based on assumptionabout default probability, default correlation and severity of toss 

PSI·JPM·30·0
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What is a Collateralized Debt Obligation (COO)? (cont'd) 

III COOs may be further classified based on the motivation for securitization and source of assets: 

.J.P.Morgan 

Balance sheet COO: the COO's sponsor is a holder of securitizable assets (e.g., a commercial bank) that 

desires to sell or transfer the risk of those assets to shrink its balance sheet or reduce required regulatory 

economic capital 

The sponsor may transfer assets to the CDO through cash sales or synthetically through derivatives; 

typically the sponsor transfers the entire portfolio at dosing 

Balance sheet COOs are almost exclusively cashflow structures with static portfolios 

Deal sizes may be as large as $5-10 billion 

Arbitrage COO: the COO's sponsor is an asset manager that wishes to increase its assets under managemen

and receive fee income for managing the COO's portfolio, and the COO's equity tranche investors (which m

include its asset manager) wish to achieve a leveraged return between the after-default yield on its assets 

the financing costs of its debt tranches (the difference between the leveraged return and debt financing c

is the COO's "arbitrage") 

The COO's assets may be synthetic or cash and are purchased in the open market its portfolio may no

fully "ramped up" at closing 

Deal sizes range from $250-500 miUion to greater than 51 billion 

In general synthetic deals tended to be larger due to ease of "ramp up" 

In general COOs backed by higher credit quality assets tended to be larger due to relative ease of debt 

distribution 

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Participants and rotes in Arbitrage COOs 

Man!!!ltl':$ ill 

II The manager is the sponsor of the COO and receives fees for 

its services 

II The manager is responsible for selecting the assets for the 

portfolio, determining prices paid for the assets and 

managing the pool over time through reinvestment, trading 

or hedging 

II Managers can be traditlona! money mangers, hedge funds, 

REITs or struaured finance professionals devoted to COO 

management 

In"StOOl 

II Investors want exposure to the underlying assets on a 

tranched or leveraged basis 

II Investors evaluate the investment guidelines for the COO and 

perform due diligence on the manager's qualifications 

II Typical Investors in COOs range from hedge funds to banks 

and insurance companies 

II Since COO securities are privately offered, there are 

restl1ctions on investors who are eligible: 

.18 Morgan 

In the US: quaUfied purchasers that are either qualified 

institutional buyers or accredited investors 

Outside the US: persons eligible to purchase under local 

law and in transactions pursuant to Reg 5 

II Rating agencies analyze the COO's investment critNia an

liabilities structure to rate the debt issued by the COO 

II Rating agencies establish criteria that sets forth their 

requirements for cfedit quality and structures 

.. Typically a COO will have ratings from two of SEtP, Moody

Fitch for each debt tranche; however, a COO could issue 

unrated tranches or be rated by a single agency only 

II Rating agencies are paid to provide initial ratings and pro

ongoing surveillance as long as the rated debt remains outstanding 

" The COO appoints a trustee to hold it, assets as collatera

the benefit of the holders of its debt 

" Frequently the trustee also provides administrative servic

to the COO Issuer such as accounting and reporting servic

for investors 

II The manager engages a broker-dealer to arrange and 

structure the COO and distribute its securities 

III Oftentimes, to facilitate the man.ger', acquisition of ass

for the COO belofe clOSing, the broker-dealer or one of it

offillates will extend a warehouse facility to accumulate 

assets at the manager's direction. 

PSI-JPM-30-0
2463 

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Cashflow COO Collateral Types 

COO Type 

Clla 

CLO 

ASS 

CRE 

CDOA2 

coo Subtype 

Investment Grade 

High Grade 

Mezzanine 

Securities 

CRE Loan 

ASS 

CLO 

Typical Asset Mix 

Investment grade 

Corporate Bonds 

Corporate loans 

AA/ Aa2 portfolios of ASS 

BBB/Baa2 portfolios of ASS 

Mix of CMOS 

Commercial Loans (both 

whole loans and 

subordinate debt) 

ASS CDOs 

ClO, 

Typical leve

MA 

Equity

AM 

Equity

AM 

0

MA·6

Equity

AM = 

Equity

AM 

Equity = 

AAA·

Equity

AM = 

Note: These descriptions are generalizations. Actual coUateral and leverage ... HI vary from deal to deal depending On a variety of fact

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Synthetic COOs 

.. Synthetic COOs obtain exposure to assets synthetically, by entering into CDS referendng those assets 

II Synthetic COO portfolios may be either static or managed 

III Synthetic COO portfolios tend to be Investment grade (Baal J compared to traditional Cash COO high yield collateral (Ba or single3) 

.. High quality Synthetic COO collateral allows for a very large, unfunded portion 01 Synthetic CDO liabilities (the "Super Senior 

tranche"), which cheapens overall liabilities 

II The Super-Senior tranche's credit quality is assumed to be better than AAA-rated 

CDS Portfolio 

CDS Premium 

Protection 

Payments 

coo 

COS Premium 

.,. 

4_-----

Super-Senior 

Protection 

Payments 

Note CoupDn' (l + bPSJ( 

and PnnClpal .. 1 

• Proceeds 

(S) 

J.f'Morgan PSJ-JPM-30-0
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COOs 

.. Hybrid COOs acquire portfolios that inClude a mixture of cash ioans, securities and CDS referencing spednc credits 

II The mixture of cash and synthet1c assets can vary significantly over time at the manager's discretion 

II A portion of the proceeds from the funded tranches is Invested In cash assets and the remainder is held In reserve (often In the 

form of a GIC or a reserve account) to cover payments that may be required under the CDS 

II The COO receives payments from three sources: 

Return from Its cash assets 

Reserve account investments 

CDS premiums 

CDS Portfolio 

Cash Portfolio 

CDS Premium 

Protection 

Payments. 

Bond Coupons 

(L. bps) 

Proceeds 

1$) 

1> 

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CD02s 

IiIII A CDOz is structurally no different than an ordinary COO 

II Like other arbitrage COOs, CD02 are typically managed by an asset manager that selects the 

assets and manages the risk of the portfolio 

III The principal difference between a COO and a CD02 is simply that CD02 assets primarily are 

other COO securities 

III The rating process, cash flow mechanics and overall structure is similar to other COOs, but th

risks are very different 

Additional structural leverage 

J.P.Morgan 

More sensitive to changes in underlying asset performance 

Increased complexity 

Limited liquidity 

End investor further removed from the originated risk 

PSI-JPM-30-D0
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III Cashflow COO credit risk is determined by three factors: 

Default Probability 

How likely is it that the assets will default over the life of the com 

Default Correlation 

How diverse is the COO portfolio, in terms of (1) industries concentration, (2) geography, (3) severity, (

number of credits, (5) rating of credits and (6) other factors depending on the asset class? 

Default Severity 

How much loss can the various coo tranches withstand? 

III Generally, rating agencies compare losses under various default scenarios to required "break·even tosses" to 

determine COO debt tranche ratings and sizes 

For instance, a 1 Q-yr COO tranche must withstand an expected loss of less than 0,0055% to be rated Aaa by 

Moody's, less than 1,43% to be rated Baa1, and so on down the credit curVe 

The rating agencies use their proprietary models to analyze the assets and generate stressed cashftows 

III Cashflow COOs are subject to periodic compliance tests that measure the deal's ability to pay interest and pri

to CDO debt investors 

III If the COO faits certain tests, the COO's cash flows are redirected to amortize its debt 

Some tests employed by typical Cashflow COOs are: 

Over·Coltateralization (O/C) Tests (ability to pay COO debt tranche principal at maturity) 

Interest Coverage (tiC) Tests (ability to pay COO debt tranche interest each period) 

Caa Concentration Test (restricts the number of Caa-rated assets than can be held without penalty) 

J.P.Morgan PSI-JPM·30·00
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III In cash flow COOs, OIC and lIC Tests are calculated periodically (typically monthly or quarterly) to monitor 

collateral deterioration 

III Below we illustrate the calculation of these ratios 

OICJfllllf 

Asset Par 

COO Tranche Par 

III Asset Par: the par of non-defaulted assets 

III COO Tranche Par: the current par aount of the 

COO tranche + the current par amount of all 

tranches senior to the tranche 

III The OIC test measures the amount of asset par 

"cushion" protecting a tranche 

J.P.Morgan 

For example: 

Total Asset Par ; $500mm 

Class AM Par = $300mm 

Class AA Par = $60mm 

CLass AA OIC = 5001 (300+60) = 139% 

IIcr •• t 

Asset Coupon 

COO Tranche Coupon 

III Asset Coupon: the sum of the interest received 

from the assets 

III COO Tranche Coupon: the required coupon of the 

COO tranche + the required coupon of all tranches 

senior to the tranche 

III The 1/ C test measures the amount of extra 

interest available for a given tranche 

For example: 

Total interest received: $6mm 

Class AM Interest Payable = S2mm 

Class AA Interest Payable" $2mm 

Class AA ole 6/(2+2)" 150% 
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Cashflow COO Payment Waterfalls (cont'd) 

Interest Wateffall 

JP.Morgan 

PmnclRal wateffall 

Payment! due under Interest 

Waterfall down to and including 

Class D Note OC €t Ie Test cure but 

only to the extent (1) case not paid 

in full thereunder and (2) all 

PSI-JPM-30-00
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Agenda 

J.P.Morgan 

Page 

Introduction to Collateralized Debt Obligations: (COOs) 

CDS Indices - AOX, T ABX, CDX, and iTraxx 20 

PSI-JPM-30-00
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fCredit Default Swaps Contingent payments III In exchange for a fee (either an up-front premium, an on-going fee, or a combination) the Protection Seller ag

to make payments to the Protection BUyer upon the occurrence of credit or payment events relating to the reference entity or obligation III Upon a credit event, the Protection Buyer can elect to settle via physical delivery of a deliverable obligation o

cash settlement through an auction process III CDS on CDOs and MBS typically allow for physical delivery of the reference obligation 

III CDS contracts can reference both bonds and loans 

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Credit Default Swaps (Cont.) 

e Protection Buyers 

Hedging credit exposure 

Investors expressing a view on a reference entity's credit prospects 

.. Protection SeHers 

Leveraged investors 

Structured finance vehicles 

III Dealers 

II! 

Intermediate flow between Protection Buyers and Protection Sellers 

Most widely used credit events for CDS trades on investment grade corporates today: 

Bankruptcy 

failure to pay 

Restructuring 

.. In addition, CDS on ABS and COOs typically follow a "pay-as-you-go" convention where payment events other than default trigge

a payment from the Protection Seller to the Protection Buyer 

.. 

" 

Reference Obligation that misses interest payments cause the Protection Seller to reimburse the Protection Buyer the amount 

related to the shortfall 

After a payment event, the CDS contract continues without termination and settlement 

Credit events on CDS of MBS and COOs typicatly Include: 

Bankruptcy Failure to pay principal (typically only on the maturity of the reference obligation) 

Distressed ratings downgrade (ratings faU to a specified level) 

JP.Morgan PSI-JPM-30-00
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The Basic Contract: A Credit Default Swap (Cant.) 

iii If a credit event occurs, the Protection Buyer can elect to settle via physical delivery of a deliverable 

obligation or via cash settlement through an auction process 

III If the Protection Buyer elects to deliver an obligation: 

J.P.Morgan 

The Protection Buyer can choose, within certain limits, what obligation to deliver 

The CDS contract states what kind of obligations (payment, bond, and/or loans) can be included 

The CDS contract also states the characteristics (subordination level, currency, denomination, listed/non

listed, etc.) of the obligation 
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01 

Cash Settlement and the Protocols 

!III Often times, the CDS exposure often greater than aggregate amounts of cash obligations available, making 

physical delivery problematic. For example: 

III 

Collins & Aikman: $500 million of available bonds vs. $1 bHllon in CDS 

Delphi: $2. billion in available bonds vs. $2.5-30 billion in CDS 

To prevent settlement issues, the ISDA Protocol was developed 

ISDA Protocol permits rapid amendment of existing CDS documentation to allow settlement at a single 

Final Price for all adhering parties 

ISDA Protocol ensures that the Final Price is reflective of market value of the defaulted entity's 

obligations, taking into account CDS parties' net physical settlement requirements 

III Allow bonds to be traded to permit "physical settlement" at Final Price 

Bonds can be bought or sold in the auction to allow participants to finish with same bond position they 

would have had under physical settlement 

Ensures resulting position from original settlement mechanism is effectively preserved for those who 

desire it 

III !SDA publishes standard amendment terms 

iii To effect an amendment, two parties simply have to "adhere" to the Protocol by sending their notice to i

prior to the cut-off date. An adhering party automatically amends its ISDA Master (or related documentatio

with any other adhering party 

IP.Morgan PSI.JPM.3D.O
Agenda 

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Page 

Introduction to Collateralized Debt Obligations (CDOs) Introduction to Credit Default Swaps (CDS) 15 

PSI.jpM·30.00
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The CDS Indices - ABX.HE and TABX.HE 

II Both the ABX. HE and TABX. HE are static portfolios of CDS of subprime RBMS that serve as liquid instruments f

trading sub prime credit risk 

III ABX.HE Asset Portfolio Highlights 

Portfolios reference 20 bonds of subprime RMBS 

Assets are homogenous by risk profile (initial ratings) 

Assets are originated in a 6-month time frame 

Asset selection 

Aggregate a list of the largest volume subprime RMBS issuers 

Select two representative transactions from each issuer 

Index participants vote on transactions to be induded in each index 

iii TABX.HE Asset Portfolio Highlights 

Portfolios reference 40 bonds from two ABX.HE indices 

Assets are all subprime RMBS 

Assets are homogenous by risk profile (initial ratings) 

Assets are originated in a one-year time frame 
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RMBS RMBS RMBS 

2 3 

RMBS 

20 

IResldual! .. , /Residuall 

JI'Morgan 

AaX.HE.AAA 

AB)(,HE.AA 

ABX.HE.A 

ABX.HE.BBB 

) 

lVIElX.1ilE . 

TABX.HE.BBB 

Reference Obligations 

ABX.HEBBB ABX.HEBBB 

06·2 Portfolio 07-1 Portfolio 

TABX.HE.B

Tranche

PSI-JPM-30-0
x 

The CDS Indices - CDX, iTraxx, ABX and T ABX 

II( The CDS indices are static portfolios of CDS that serve as liquid instruments for trading credit risk 

CDX indices allow investors to express a view on the market as a whole (avoid idiosyncratic single-nam

Untlke single-name CDS, each index contract is exactly like every other index contract (reference entit

payment dates, fixed coupon) and thus can be easily traded 

Different indices provide exposure to a broad range of industries and credit 

III Markit Group is the dealer appointed administrator and calculation agent for both CDX and iTraxx 

\ III Protection Buyer pays a fixed coupon (the sum of the fixed rates of each of the component CDS contracts) 

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III Protection seller pays upon credit events (just like Single-name CDS) 

III Coupon is sum of fixed rates on each component 

!If Each index reconfigured with new names every 6 months 

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The CDS Indices - CDX 

iii OJ cox North America High Yield Index 

Statk portfolio of 100 equally weighted high yield CDS entities dam idled in North America 

Index constituents are based on votes from eliglble CDS members 

New serie, of OJ CDX HY issues every 6 months (March a September) and the underlying reference entitles are reconstltuted ba

on member votes 

Standard maturities will be 5 and 10 years for the notes and swaps 

.. DJ COX North Amerka Investment Grade Index 

Static portfoUo of 125 equaUy weighted investment grade COS entities domiciled in North America 

Index constituent, are based on votes from eligible CDS members 

New series of DJ CDX IG issue, every 6 months (March ft September) and the underlying reference entitles are reconstItuted ba

member votes 

Standard maturities wilt be 1,2,3,4, 5,7 a 10 years for the notes and 5 and 10 years for the swaps 

III DJ cox Emerging Market Index 

Static portfolio of 14 equally weighted emerging market sovereign issuers 

Index constituents are based on votes from eligible CDS members 

New series of DJ COX EM Issues every 6 months (March Et September) and the underlying reference entities are reconstituted ba

on member votes 

Standard maturities wHl be 5 and 10 years for the notes and swaps 

II OJ COX Emerging Markle! Oiverstfied Index 

Static portfotio of 40 SOVereign; and corporat(" 

New series of OJ CDX EM Is,ues every 6 months (March a September) and the underlying reference entities are reconstituted ba

on member votes 

.l.P.Morgan 

PSI-JPM-30-0
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The CDS Indices - iTraxx 

" iTr.xx Europe (Main Index) 

Static portfoUo of 125 equally weighted CDS on European entities 

Rules based construction based on CDS Volumes by dealer pot< 

New series of iTr.xx Eumpe is issued every 6 months (March Ii September) and the underlying reference entities are reconstitu

Standard maturities wilt be 5 for the notes and 5 and 10 years for the swaps 

II iTraxx Japan 

Static portfolio of 50 equally weighted CDS on Japanese entities 

Rules based construction based on CDS volumes by dealer pol! 

New series of iTraxx Japan is issued every 6 months (March II September) and the underlying reference entities are r€<Constltu

Standard maturities will be 5 for the notes and 5 and 10 year; for the swaps 

II iTraxx Australia 

Static portfolio of 25 equally weighted CDS on Australian entities 

Rules based construction based on CDS volumes by dealer poll 

New series of iTra"" Australia is issued every 6 months (March Il: September) and the underlying reference entities are reconsti

Standard maturities will be 5 (or the nates and 5 and 10 years for the swaps 

II iTra"" Asia ex-Japan 

J.P.Morgan 

Static portfoUo of 30 equally weighted CDS an Asian entitles excluding Japan 

Divided into 3 regional sub·indices: Korea, Greater II Rest of Asia 

Rules based construction based on CDS volumes by dealer poll 

New series of iTraxx Asia ex-Japan is issued every 6 months (March 8: September) and the underlying reference entities are 

reconstituted 

Standard maturities will be 5 for the notes and 5 and 10 years for the swaps 

PSJ-JPM-30-0
2483 

December 7, 2012 

Hon. Carl Levin, Chairman 

Hon. Tom Coburn, Ranking Member 

Permanent Subcommittee on Investigations 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

SR-199 Russell Senate Otlice Building 

Washington, D.C. 2051 ()·6262 

Dear Chairman Levin and Ranking Member Coburn: 

WI LM ERHALE 

Reg;aald J. Browa 

.. 1 i'O? 663 5430 it! 

1" 1 202 66:.! 6363(1) 

reginaldbfovvt'l@w!lmCfl'tale:colTI 

We represent J.P. Morgan Chase & CO. C·J.P. Morgan'') and submit this letter on lP. 

Morgan's behalf in response to the Permanent Subcommil1ee on Investigations' C'PSI") 

subpoena dated August 6, 2012 (the "Subpoena"). 

Please find enclosed an encrypted CD containing a document bearing Bates numbers JPM· 

ClO-PSI0037504. This production is being provided in response to the Subpoena, and a 

Novcmbcr 28,2012 request from PSI Staff for data on the size of the Synthetic Credit Portfolio. 

Today's production includes a spreadsheet reflecting the requested data as of January 3, 2011, 

December 30, 2011, March 30, 2012, and June 29, 2012. Please note that January 3,2011, is 

provided as a proxy for year-end 2010 as thc system this data was generated from only contains 

information from January I, 20 II. 

Further, in response to a November 30,2012 request Irom PSI Stan: based on consultmion 

within J.P. Morgan, we understand that the Global CIO MTM CS I3PV (CSOI) limit was 

$5,000,000 from mid-August 2008 through early-May 20] 2, when it was deactivated becaus.: 

management detemlined the limit was no longer valid in tenos of measuring the risk appropriately. 

We hope this information is helpful to you and the PSI Staft: The password for the 

encrypted CD will be communicated 10 the PSI Staff by a separate communication. 

* * 

\Vilmer Cudt'r Pkkt"rin-g I bJe ;md Don IJ.P, 1875 Penl1syiy,wia :\\'ctlU~ N\V, ~'ashington. DC 20006 

HI?"I;lri) Berhn Boston Brvsse,:; hilnk!..stl lon(lor- los Al"gelt's Nt-~, ),.,)r;' O~jo'a P'rIlo AltC' Waltnam Wash nglOf'\ 

STRICTLY CONFIDENTIAL- NOT FOR CIRCULA TIONISUUCOMMn·I'E~: MEMBERS AND STAFF ONLY 

PSI-JPMC-24-000001 
2484 

Hon. Carl Levin. Chairman 

Hon. Tom Coburn. Ranking /vlcmber 

Dc<.:embcr 7. 2012 

Page] 

We respectfully request that the produced documents be: maintained confidentially under 

Senate Rule XXIX.s and nO! bc released publicly witholll a majority nHe oj" the PSI. We further 

requesttbut the PSI stalT provide the undersigned with notice and an opportunity to be heard inlhe 

evenl the PSI delcfI11incs thaI ii will disclose any inlornmtion ll-tml this production or lener (0 a 

third party. Such trcalmcnt would be consistcnt with the rc,p<:<.:! ror privileged und conliJcmiai 

infornwtion that the Subcommittee has shown in the past. This production is not intcndcJ to wai\'( 

any applicable privilege or protection. If it were I(lt111d th:!t any of the produced documents 

constitutes disclosure of otherwise privileged matters. such disclosure would be inadvertent. 

Please COl1lact me (202-663-6.t30) or Ross Kirschner (202-663-6021) if you have any 

questions. 

Enclosure 

SincerL"ly. 

Reginald 1. Browll 

Ross Kirsdmer 

STRICTU' C:ONFlDEi'>TlAL- NOT roR ClRC:llLATlOi'>ISlmCO~I~l!TTEE ~1F:MBEIlS '\,",0 STAfF ONLY 

PSI-JPMC-24-000002 
2485 

From: 

To: 

Cc: 

Subject: 

Date: 

Hi Mary, 

Scb@m Zachary (HSGAC) 

Robertson Mary CHSGAC) 

Murphy AUlsoQ {HSGACl 

FW: 00 clawbacks 

Wednesday, January 16/ 2013 1:54:06 PM 

Please log this communication from Reg re: JPM. 

Thank you! 

From: Brown, Reginald [mailto:Reginald.Brown@wilmerhale.com) 

Sent: Wednesday, January 16, 2013 1:52 PM 

To: Schram, Zachary (HSGAC) 

Cc: Kirschner, Ross K. 

Subject: RE: CIO clawbacks 

Zack. 

J.P. Morgan has recovered the maximum clawback from 1'v1s. Drew, M[. Macris, Mr. JavierArtajo, Mr. Iksil, and Mr. Grout. This was accomplished through a combination of canceling 

outstanding incentive awards and repayment of awards previously paid. 

Reg 

From: Schram, Zachary (HSGAC) [mailto:Zachary Sch@m@hsgac.senate.gov) 

Sent: Monday, January 14, 2013 10:40 AM 

To: Brown, Reginald 

Subject: CIO clawbacks 

Reg, 

What is the status of the clawbacks for Ms. Drew, Mr. Macris, Mr. Javier-Artajo, Mr. Iksil, and Mr. 

Grout? 

Thanks for your help. 

-ZackPSI-JPMC-33-000001 
2486 

From: Kirschner, Ross K. [mailto:Ross.Kirschner@wilmerhale.com] 

Sent: Sunday, March 03, 2013 9:04 PM 

To: Schram, Zachary (HSGAC) 

Cc: Brown, Reginald 

Subject: RE: Crossing the t's 

Zack. 

Our understanding from the Bank is that the difference between the two CS BPV numbers 

asked about represents a revision posted by the cro middle office to their limit utilizations 

betvveen the time the limits were extracted for the limit breach notification email (the 

contents of the PDF wifh the Bates ending 1832) and when the Division Limits document 

(the Excel spreadsheet with the Bates ending 37536) was extracted from the system. The 

CIO North America desk had originally uploaded a value of -424,000 against that limit and 

then on February 22, they changed it to +424,000. The change was made because they 

initially uploaded CSOI per Credit Spread tightening. but it was retroactively corrected after 

confirmation that it should have been per Credit Spread widening. That flip of $424,000 

accounts for the entire $848,000 difference. 

Thanks, 

Reg and Ross 

From: Schram, Zachary (HSGAC) [mailto'Zachary Schram@hsgac senate gov] 

Sent: Sunday, March 03, 2013 8:38 PM 

To: Kirschner, Ross K. 

Subject: Crossing the t'5 

Ross, 

If you recall, we spotted a discrepancy in the limit utilizations between contemporaneous 

documents, including JPM-CIO-PSI 0001832, and the utilization spreadsheets you later produced. 

You explained the source of the discrepancy, but I would like to have something in writing I can cite 

to. Can you email me the explanation? 

Thanks, 

-ZackPSI·JPMC·37·000001 
2487 

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Large Bank Supervision 

large Bank Supervision is driven by requirement that at any quarte

risk assessments and ratings must be current and accurate (large 

Bank Supervision Handbook) 

.. Understand the company's strategies and business activit

.. Identify the risks and related controls at the bank, for key 

products, and activities/lines of business 

.. Assess levels of inherent risk, quality of risk management

aggregate risk, and the direction of aggregate risk 

*Generate Core Assessment and Quarterly RAS 

PSI-OCC
Examinations/Assessments 

• Mostly Risk-Based, focusing on 

- High risk products! markets, and activities 

- Weak management 

• Some legally required 

- BSA/AML (even if not high risk) 

- Flood 

.. Objectives 

- Validate our understanding of risk management 

- Assess the level and trend of risk 

* We rely on bank MIS (CIO MIS was misleading) 

PSI-OC
Communications 

• Communicate findings; recommendations, and 

professional views to management and the boa

y Annual Report of Examination 

y Supervisory Letters 

yVerbal 

,. Communications range from positive feedback, 

informal discussions, moral suasion, Matters 

Requiring Attention (MRA), and informal and 

formal actions 

PSI-OC
Supervisory Strategy 

.. Each team establishes its own supervisory plan that conside

- aCC/CBS Annual Supervisory Guidance 

- acc Networking Group input 

The Bank's inherent risks and management 

Knowledge of the bank 

to Team leaders and team routinely meet with 

- LOB CEOs and business management 

..,... Risk Management and compliance 

- Audit 

.. Deputy Comptrollers review each strategy, approve final pro

.. Adjustments during year: unplanned events/resource shortf

PSI-OCC-Of
Bank Entities Holding < 

Company 

ChasE' Bank 

J.P, Bank 

& Trust N.A M 

J.P. Morgan Chase 

Bank, N.A 

NV Branthes: of 

JPMCB 

InternatIonal 

£3ranches 

EDGE ChaIn 

Entities 

High level legal Entity Organization 

JP Morgan Chase &. Co. 

\ (Wii1<Il",gfJ<Avn1 ) "--.--/ 

JY. Marean 

1.P. Morgan 

OE',Jrlng Corp 

J.P, Morg

Manag

'J.P. Morgan Asset Management %,'>,,,,,. 

Other Internat

Asset Manage

sudsidiarie

PSI-OCC"06-00
Ban.k 

Non·H<lnk 

Oaf1k and Non-flank 

Func
2494 
2495 

I

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i 

I 
UCC "IS" Inte,na. mea 

Function #FTE< Management Compliance Audit Business 

Co'';--c;:;;;Jit/ CHt 1 2100 748 50 31038 

Consumer CRE oj 331 60 46374 

-

Cred" Cards 5 570 38 24541 Otoer REtail 3 59 87210 

Total Retail 11 1457 331 157 158125 

IBalance Sheet Mgmt. 15 SO 417 

T,ading 4 350 173 3000 

Tota! Capital Mkts. 7 365 0 223 3417 

iops Risk 5 21 74 

IBasel 2 18 Iintern,l Audit 2 I NA 

[Info TechnologY 6 9/4 0 35 26000 

ICompliance NA 11/ 

Genera: (Other 7 700 431 91 56334 

Total 62 5635 1510 747 274914 

PSI-OC
JPMC Examinations 

· acc performs approximately 60 examinations per yea

JPMC 

- Each typically lasts between three and six weeks, but 

sometimes longer 

- Each supervisory team will perform between three and 10 

examinations per year 

- Examination teams are typically between four and six peo

that include relevant experience 

• Resident staff 

• RAO/Economists as appropriate 

• Other agencies depending on circumstances 

- Some examinations scheduled purely for training purpose

- Supervisory Letters are issued at the end of each examina

PSI-OC
Ongoing Supervision 

III Monitor routine flows of board, managemen

risk management, and audit reports 

- Quality of reports is important 

III We look at business performance, risk trends

regulatory policy adherence 

III Communicate supervisory findings and 

expectations 

11\ Follow-up on actions taken to correct 

deficiencies 

PSI-OCC
,_ \\\e l 

",,,,,dee 0\\ fI 

Ytlrf!1a"efl\ .sU

bllo 
Supervisory Letters 

• Supervisory Letters are issued to communicate 

supervisory findings 

- Examinations 

- Ongoing Supervision 

.. oce issues approximately 75 per year at JPMC 

- Audit issues are documented in separate letters 

.. Semi-annual audit letter 

- Quarterly Management Report 

• CEO and Audit Chairman are copied on every 

letter 

PSI-OC
Matters Requiring Attention 

• ace Currently has approximately 120 MRA 

outstanding 

ell We average roughly one MRA per examinati

- Some turnover 

., Some MRA take longer to correct, e.g" 

- Model Validation Process 

- Basel II Implementation 

PSI-OC
Capital Markets Supervision 

.. First Quarter 2012 

Examinations 

• Mode! Validation Group completion (started 4Qll) 

• Commodities examination 

• Firmwide Stress 

• Derivative Operations 

• Credit Portfolio Group 

• Mortgage Capital Markets (started early April) 

Ongoing supervision 

• Business and risk updates 

• Report of Examination 

• Core Risk Assessment 

• Supervisory Strategy 

PSI-OCC
Ongoing Supervision of cia 

• Risk-based focus 

- Investment portfolio 

-- Interest Rate Risk -- MSR 

- Stress test methodology 

PSI-OC
Synthetic Credit Portfolio 

.. Established in 2006/2007 

.. Objective 

• Performance 

• Evolution 

.. Risk Weighted Asset Calculation 

PSI·OCC
2505 
9000 

8000 

7000 

6000 

to Sum of Worst Case Historical Diversified Statistical 

Note: On May 29, the bank disaggregated its High Yield versus Investment Grade risk estimates into Europe 

and US components. This disaggregation eliminated some portfolio effects and caused a higher estimated risk 

for the sum of worst case historical estimates. The April 30, 2012 figure was recalculated and revised upward, 

PSI·OCC
2000 

1800 

1600 __________________________________________ __ 

1400 

12.00 

1000 

800 

600 I \.I 

400 

200 

5c 16-12 -- $34 Billion trade with Blue Mountain 

__ Crecllt Spread Wide,ning __ Maturity Mismatch 

High Yjeld V$. Investment 

Gfad;t 

__ (illiqulditV) 

< S11per S(!(1io( Debt \IS. Equity 

pos.itions 

Estlma.ted TotTI! 95% 

Dive:rsi:fi.e(.l Lass Potential 

Default Risk 

6-7-12 through - 6-12-12 -- $10.6 Billion high yield positions moved to hedge existing risk 

6-18-12- $17 Sillion option exercised by Blue Mountain 

PSI-OCC
2508 

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5/9/2012 5/14/2012 s/2l/2012 5/29/2012 6/4/2012 6/14/20126/26/20126/29/20127/12/20127/19/2012 

PSI-DC
2510 

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With move to IB, a new VaR model has been implemented for risk managemen

purposes. 

Developed in 2Q2012, for ClO's (now IB's) Synthetic Credit Portfolio as an 

improvement to cia Basel 1 VaR model. 

Approved on June 29th 2012 by Model Risk under new procedures; 

implemented July 2nd 2012 

A spread VaR calculator customized to handle index positions wlo 

decomposition 

The identical base correlation VaR calculator used by the IB for tranc

Based on analytics and time-series data from the IB 

Intended to be consistent with Basel 2.5 

Used for risk management and 10Q reporting. 

Limits expected to be changed in line with new VaR numbers 

OCC reviewing Index VaR and its approval 

JPM will seek regulatory approval for use in Basel 1 Reg VaR 

PSI·QCC
2512 

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• e501 Exposure nearly doubled again between March 14 and March 2

and 10% e5W went from positive 62MM to negative 140MM 

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• Significant notionals were put on in mid January and mid February. 

However, directionality, curve steepness, and basis all moved against J

• As presented by Wilmer Hale, large positions after mid-March may hav

been attempts by traders to "defend their positions." 

.. As presented by Wilmer Halej P&L by mid to late March was not reflect

of the real market as traders were not correctly marking their book. Un

procedures at that time, independent price verification did not take pla

until March month-end, leading to significant realized losses at that tim

PSI-OC
2516 

i 

5 

~ ~ 

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• Management reported the findings of its internal investigation to the regulators on 

11 and publically on July 13. 

• Findings were consistent with the preliminary observations; however, the core iss

was that CIO was not subjected to the same level of scrutiny as client facing 

businesses, causing a lack of effective challenge by senior management and the 

board, The task force's principal conclusions: 

• CIO judgment, execution, and escalation in 1Q12 were poor 

• The level of scrutiny did not evolve commensurate with the increasing compl

of CIO activities 

• CIO risk management was ineffective in dealing with the synthetic credit port

• Risk limits for cro were not sufficiently granular 

• Approval and implementation of CIO synthetic credit VaR model were inadeq

• The Board of Directors received the same presentation as investors prior to the ca

PSI·OC
• Coordinating examination work and subsequent requests with FRB and FDIC 

• All exam work is either "joint" or requires sUbstantial coordination with various FRS and 

examiners, 

• Complexity of topic necessitates significant review of documentation and discussions w

management 

• Status of specific examinations: 

OCC Governance and Risk Management review nearing completion, 

OCC work substantially complete for all areas except audit (see below) 

Need to discuss/confirm with results of FRS work 

Currently reviewing corrective action as part of ongoing supervision 

Model Control 

Targeting completion of field work this week; however some meetings need to be schedule and 

information continues to be evaluated, 

Audit coverage and adequacy 

Work underway includes a review of detailed audit coverage, and audits own self assessment 

review of CIO audit work expected to be complete in 10 days 

Completion contingent on status of JPM audit's internal evaluation 

Valuation 

oce work began this week, Requires review of external audit work, 

FRS participation to be determined, 

Expect completion mid August 

PSI·OC
Ongoing supervision 

Evaluate corrective action in process 

CIO Task Force 

Evaluate book remediation 

Three calls / week on legacy book, supported by MIS 

Assessing ongoing impact on overall 

Detailed processes for "legacy" book to be validated/tested in September 20

examination, and "AFS hedge book" in October 2012 examination. 

Evaluate new CIO mission and business processes 

Evaluate specific changes in CIO mission 

Increase focus on new committee process; providing feedback 

Detail processes to be validated/texted in October 2012 examination 

PSt·QC
2520 

~'\ 'v !~e(tiJJ;~ I I 'iii I 

January 11,2013 

CONFIDENTIAL TREATMENT REQUESTED 

VIA EMAIL AND FEDERAL EXPRESS 

Scott N, Waterhouse 

Examiner-in-Charge 

OCC Large Bank Supervision 

1166 Avenue of the Americas, 21 8t floor 

New York, New York 10036 

JPMORG.\N & 

John Hogan 

Executive Vice President 

Chief Risk Officer 

Re: JPM-2012-66 CIO Oversight and Governance Examination 

Dear Mr. Waterhouse: 

Attached please find the responses of JPMorgan Chase Bank, N,A. (the "Finn" or "JPMorgan"') 

to OCC Supervisory Letter IPM-2012-66, Chieflnvestment Office ("CIO") Oversight and 

Governance Examination, dated December 12,2012 (the "Supervisory Letter"). 

The attached responses detail the actions taken by the Firm to date to address the Matters 

Requiring Attention ("MRAs") identified in the Supervisory Letter. The attached also is 

intended to summarize and update you on those actions already described by the Firm in 

responses to previous OCC supervisory letters related to these matters. 

The Finn acknowledges the OCC's criticisms ofelO oversight and governance, as well as the 

ace's broader comments regarding the Firm's governance, risk management and control 

processes. JPMorgan takes oversight and governance matters very seriously, and is committed 

to continually evaluating and strengthening oversight, governance, and risk management and 

other control functions, not just in CIO but throughout the Firnl. 

Consistent with this commitment, lPMorgan has undertaken, and is in the continued process of 

undertaking, comprehensive steps to ensure that there is continuing effective management and 

Board oversight of all aspects of lPMorgan's business and operations, including implementing 

enhancements to risk and other control functions, establishing new control groups, committee 

.':0 

PSI·OCC·22·000001 
2521 

JPMORGA~ & 

structures and finn wi de positions, and improving the process for escalating issues to and 

communicating with senior management and the Board, as well as the acc. 

As detailed in the Firn1's various responses to acc Supervisory Letters over the past several 

months, the Firm has taken a number of actions to address specific weaknesses identified in prior 

OCC examinations regarding model approvals and risk weighted assets, audit coverage, VaR 

model and CIa risk management, and CIO valuation governance. 

Further, as you know, the CIa Task Force is in the process of completing its report (the "Task 

Force Report"), which will provide additional detail regarding some of the matters discussed 

herein. 

We believe that the efforts we have undertaken and, in some instances, are in the process of 

undertaking constitute a comprehensive and detailed response to the Supervisory Letter, and that 

upon full implementation, will fully remediate the issues you have raised. All action plans noted 

in this response letter will be tracked in our intemal processes to ensure completion. 

* * 

This information is being provided pursuant to the investigation and examination authority of the 

OCC, and JPMorgan respectfully requests that the infolmatioll contained in this letter and the 

other documents referenced herein, as well as JPMorgan's responses to all previous OCC 

Supervisory Letters (in the aggregate referred to herein as the "Confidential Materials") be 

afforded confidential treatment under 12 C.F.R. § 19.181, 12 C.F.R. part 4, and the Freedom of 

Information Act (FOrA), 5 U.S.C. § 552. The transmittal oflhis information is not intended to, 

and does not, waive any applicable privilege or other legal basis under which inforination may 

not be subject to production. The Confidential Materials constitute trade secrets or confidential 

commercial information, and therefore such records are subject to the exemption from 

mandatory disclosure under Exemption 4 of the FOrA, 5 U.S.C. § 552(b)(4). In addition, the 

Confidential Materials are investigatory records obtained by the acc in cormection with a 

potential law enforcement proceeding, and therefore such records are subject, at least at present, 

to the exemption from mandatory disclosure under Exemption 7(A) of the FOrA, 5 U.S.C. § 

552(b)(7)(A). See. e.g., NLRB Robbins Tire & Rubber Co., 437 U.S. 214 (1978) (disclosure of 

witness statements prior to a NLRB hearing would interfere with the proceedings under FOIA 

Exception 7(A)).1 Exemption 8 ofthe FOIA, 5 U.S,C. § 552(b)(8), protects from disclosure all 

materials, such as these, that are "contained in or related to an examination, operating, or 

condition report prepared by, on behalf of, or for the use of the acc or any other agency 

responsible for regulating or supervising financial institutions. See, e.g., Gregory v. Federal 

Deposit Insurance Corp., 631 F.2d 896,898 (D.C. CiT. 1980), quoting Consumers Union of 

United States, Inc. v. Heimann, 589 F.2d 531, 533 (D.C. CiT. 1978). 

These Confidential Materials are submitted to the OCC with our request that they be kept in a 

non-public file and that only the staff of the acc will have access to them. Should the acc 

Moreover, as the Confidential Materials pertain to the activities of JPMorgan and not to the activities of 

any federal agency, we believe the documents may be exempt from disclosure pursuant to Exemptions 6 and 7(C) of 

the FOIA, 5 U.S.C. §§ 552(b)(6) and (b)(7)(C), and protections available to JPMorgan under the Privacy Act of 

1974,5 U.S.C. § 552a. Disclosure may also be prohibited under IS U.S.C. § 1905. 

270 Park Avenue, 48th floor, N~w york, New York 10017 

JPMorgan (hase & Co, PSI-OCC-22-DDDD02 
2522 

receive any request for these documents, pursuant to the FOlA or otherwise, JPMorgan requests 

that the undersigned immediately be notified of such request, be furnished a copy of all written 

materials pertaining to such request (including, but not limited to the request and any agency 

determination with respect to such request), and be given an opportunity to object to such 

disclosure. In addition, should the OCC be inclined to grant the request, it is our expectation 

that, pursuant to the procedures required by Exec. Order 12,600, 52 Fed. Reg. 23,781 (1987), and 

12 C.F.R. part 4, we will be given ten business days' advance notice of any such decision to 

enable the Bank to pursue any remedies that may be available to it. In such event, we request 

that you telephone our General Counsel, Stephen Cutler, at 212-270-3220, rather than rely upon 

the United States mail for such notice, If the OCC is not satisfied that these Confidential 

Materials are exempt from disclosure pursuant to the FOIA, we stand ready to supply further 

particulars and request a hearing on the claim of exemption 2 

* * 

We look forward to continuing to provide you with updates on the issues described herein and on 

the CIO matter in general. Please do not hesitate to contact us should you require any further 

information or clarification. 

Mr. John Hogan 

Executive Vice President and Chief Risk Officer 

cc: Jamie Dimon, Labe Jackson, Stephen Cutler, Frank Bisignano, Matthew Zames, Doug 

Braunstein, Marianne Lake, Ashley Bacon, Gregg Gunseiman, C.S. Venkatakrishnan, Martha 

Gallo, Lauren Tyler, Joseph Sabatini, Kamy Kasap, Shannon Warren, Cynthia Armine, Mike 

Kelly (PwC), Dianne Dobbeck (FRB), Om Arya (FDl 

The requests set forth in the preceding paragraphs al50 apply to any memoranda, notes, transcripts or other 

writings that are made by, or at the request of, any employee of the DCC (or any other government agency) and that 

(1) incorporate, include, or relate to Imy oflhe information described above prDvided to the acc (or any other 

government agency); or (2) refer to any conference, meeting, telephone conversation or interview between (a) 

JPMorgan or any of its agents or counsel and (b) employees of the DCC (or any other governmental agency), 

Nev'i York JOO!7 

PSI·OCC-22-000003 
2523 

JPl\10RGAN CHASE&CO. 

Matters Requiring Attention 

Board and senior management supervision reguire.L$!rengthening. 

Redacted bt tile .,,_ ........................ ---.-.•.... ·······1- .. ··· 

Permanent Sltbeommittee on InvestigationS 

Management Response 

The Firm has identified management failures regarding oversight of CIO activities, among them 

the failure to provide sufficient information to the Board of Directors that would have allowed 

the Board to exercise more rigorous oversight over CIO. For example, the risks posed by the 

strategies being pursued in CIO's synthetic credit book were not appropriately elevated or 

brought to the attention of the Directors' Risk Policy Committee ("DRPC") and, therefore, were 

not elevated to the Board. As described in the Firm's responses to earlier supervisory letters, 1 

the Firm's Board and senior management have taken comprehensive steps to ensure that there is 

continuing effective engagement and oversight of all lines of business and other revenue or riskgenerating activities across the Firm. 

Firmwide Risk Self·Assessment 

In May 2012, the Firm, under the guidance of its new Chief Risk Officer CCRO"), mandated a 

self-assessment of the functions and effectiveness of the firmwide risk organization ("FiImwide 

Risk"). This entailed (1) a detailed self·assessment of all risk functions across all lines of 

business ("LOBs") and Corporate Risk functions; (2) the development of action plans to 

remediate issues identified; and (3) remediation of the issues identified. 

At the same time, Firmwide Risk also launched an initiative to ensure that the issues identified 

within CIa did not exist elsewhere across the firm. Each LOB CRO and cross-LOB CRO 

reviewed the issues ·identified within CIO and was required to attest to the completion of any 

-necessary-remedial1lCtions-jdentified-bJthd:;0B--review·mcl-m1lfflv~atiOft·· _ ..... _. 

supporting completion of the remediation. Each LOB CEO also was required to sign off on 

See the Finn's October 5, 2012 response to Supervisory Letter #2012-33 (the "October 5 Letter"); the 

Finn's October 11,2012 response to Supervisory Letter#20J2-40 (the "October II Letter"); the Firm's December 

4,2011 response to Supervisory Letter #1012-52 (the "December 4 Letter"); the Firm's December 13,2012 

response to Supervisory Letter #1012-53 (the "December 13 Letter"); and the Firm's January 4,2013 response to 

Supervisory Letter #20 12-59 (the "January 4 Letter"). Each letter is attached and incorporated by reference herein. 

1 270 Park AVe'nue, 48th floor, N€W York, New York 10017 

JPMorgan C1"2se & (0. PSI·OCC-22-000004 
2524 

JP .\N & 

completion of the action plan, along with the LOB's Risk Committee and the Firm's CRO and 

Deputy CRO. The main areas of focus for this review included: Model Governance & 

Implementation, Market Risk & Governance, and Risk Independence. In Model Governance & 

Implementation, the Firm focused on conducting an evaluation of male rial drivers of the Firm's 

VaR and broadening the model approval process to encompass implementation and ongoing 

monitoring. Within the category of Market Risk & Governance, the Firm focused on: (1) the 

appropriateness of the limit structure relative to risks undertaken; (2) the appropriateness of the 

risks undertaken; (3) policy, response and escalation process concerning limit breaches; and (4) 

consideration within LOB Risk Committees ofliquidity and concentration in positioning. 

Within the category of Risk Independence, the Firm reviewed its firmwide, as well as LOBspecific, risk committee structure and governance, and re-emphasized the CIO CRO's reporting 

line to the Finn CRO. 

The Fin11 has now undertaken, or is in the process of undertaking, substantial remedial measures 

to address the concerns arising from this self-assessment.2 As described in more detail below, 

this includes: (1) reforming the Firm's Model Risk Policy, which governs model development, 

review, approval and monitoring; (2) reconstituting the risk management function within CIO, 

including overhauling the CIO Risk Committee; (3) reviewing and, where appropriate, revising 

market risk limits across all LOBs; (4) strengthening the Firm's processes across all businesses 

to escalate aged or significant limit excessions; (5) restructuring the Risk Operating Committee 

to increase the focus on identifYing and implementing best practices where appropriate across 

LOBs; and (6) improving the presentation and delivery ofinfonnation to the Firnl's Board 

(specifically, the DRPC)3 

More than 65% of the critical action plans identified have been closed. The goal is to have the 

remaining critical action plans completed by year-end 2013. The Firm's progress is actively 

tracked and reported monthly to the CRO and Deputy CRO, as well as to the OCC staff during 

standing meetings. 

Revising the Firm's Model Risk Policy 

The Firm has substantially revised its Model Risk Policy, which governs model 

development, review, approval and monitoring. The objective of the changes is primarily 

to improve the Firm's governance of models. Among other things, the changes claJ.ify 

the responsibility of the Model Risk and Development ("MRaD") group to periodically 

consider the soundness of the operational environment and effectiveness of the Fin11's 

models, and to highlight any noted shortcomings to the LOB for remediation, as 

discussed in additional detail below. Additionally, beginning in 20]3, compliance with 

Firm standards will have to be attested to by the LOB, and will be evaluated in the 

normal course of internal audits. The Firm will also emphasize model implementation 

testing, as well as ongoing performance monitoring and assessment. MRaD, which is 

now required to sign off on closure of all model-related Action Plan items, has recejved 

enhanced staffing and established a Model Governance function. The primary role of this 

See the OClober 5 Letter, which outlines the Finn's targets for completing its action plans. 

See also the December 4 Letter, which describes changes to the Finn's Risk function. 

2 270 Park Avenue, 48th floor, New York. New York ]0017 

JPMorgan Chase & Co. PSI-OCC-22-000005 
2525 

team is to oversee the implementation, use and performance of models, which includes 

interacting with model users and closing Action Plans, as appropriate. 

Risk lyfanagement Function 

The Firm has substantially reconstituted the risk management function within CIO, The 

Firm has overhauled and expanded the coverage of the CIO Risk Committee, now the 

CIO, Treasury and Corporate Risk Committee ("CTC Risk Committee"). This 

Committee, which meets weekly, now includes representatives from CIO, Treasury and 

Corporate, including the Firn1's CRO, Deputy CRO and CFO, as well as other key senior 

management from within and outside of CIO, in order to ensure greater consistency 

across the Firn1's various LOBs. 

The Firm also has appointed a new CRO for CIO, Treasury and Corporate who, as 

discussed below, has hired a significant number of additional risk management personnel, 

including senior-level officers, to extend the capacity of that risk function. 

Market Risk Limits 

The Firm has reviewed and, where appropriate, revised market risk limits across all of its 

LOBs and introduced additional granular and portfolio-level limits. As part of its 

ongoing risk management governance, the Firm continues to conduct periodic reviews of 

existing limit structures. Additional information regarding revisions to CIO-specific 

limits is provided below. 

Strengthening Processes fo Address Limit Excessions 

The Firm has strengthened its processes for dealing with limit excessions across all 

businesses. Aged or significant excessions must be escalated promptly to senior 

management and to risk committees. All valid or "under investigation" limit excess ions, 

whether at the LOB or firmwide level, that are in excess for three business days or longer 

or are over limit by 30% are escalated to the LOB CEO, CRO, and Market Risk Head, as 

well as to the Firm's CEO, CRO, co-COO, Deputy CRO/Head of Finnwide Market Risk 

and the Firrnwide Risk Committee. 

For CIO, the CTC Risk Committee receives a weekly report of all limits that are in 

excess of 80% utilization, Any vaJid excession requires that the business promptly take 

steps to reduce exposure to within limit, unless a one-off approval for a limited period of 

time is granted by the persons responsible for setting the limit. Changes to limits are 

discussed and approved by the CTC Risk Committee. 

3 270 Park Avrnue. ,8th floOl'. No" Ycr~, !<lew York 10017 

JPMorgal1 Chase &: Co. PSI-OCC-22-000006 
2526 

J 

Restructured Risk Operating Committee 

The Firm has reviewed its Risk Operating Committee structure and governance and 

restructured this committee to increase the focus on identifying and implementing best 

practices where appropriate across LOBs. As discussed in greater detail below, the 

Firm's risk governance structure was enhanced to include the creation of a Finnwide 

Risk Committee and a Risk Governance Committee. 

Information Provided to the DRPC 

The Firm has put in place a two-fold process to ensure continued adequate transparency 

and appropriate escalation to firmwide senior management and the Board, directly or 

through its committees. This includes: (1) a framework that details a schedule of items 

to be discussed with the DRPC at specified frequencies; and (2) a reiteration to each 

LOB/Corporate4 CRO to raise issues of concern where they would benefit from the 

DRPC's input and perspective. 

At each regularly-scheduled meeting, the Firm and LOB CROs discuss with the DRPC 

any concerns that could reasonably be expected to be material to the Firm or to an LOB, 

and actions that have been planned or taken to address those concerns. All LOB CROs, 

as well as the Head of Country Risk, now attend every DRPC meeting (regardless of 

whether they are scheduled to make a formal presentation) and are asked to highlight 

matters of particular importance. If significant risk management issues develop between 

meetings of the DRPC that the CRO believes could have a material adverse impact on the 

Firm, the CRO will promptly report such issues to the Chairman of the DRPC. 

Additionally, significant enhancements have been made to risk reports presented to the 

DRPC. The CRO submits a report to the DRPC and to the Audit Committee concerning 

the Firm's risk management control environment, as well as any material issues regarding 

risk management raised by internal audit reports rated less than satisfactory, or by 

regulatory reports identifying MRAs. The DRPC also receives various other reports, 

including reports regarding the Firm's credit risk profile, concentrations, limit excessions, 

credit and valuation reserves, and finnwide VaR and stress limits, Finally, the reporting 

for Corporate Risk is now consistent with that of the LOBs in fornlat and content, and the 

Corporate CRO presents as part of the standing agenda at each DRPC. 

Oversight and Control Grol,lJJ. 

As detailed in the Firm's October 5 Letter, the Firm has also taken an important step with the 

establishment of the Oversight and Control Group. The Oversight and Control Group, led by its 

Co-Chief Control Officers, is responsible for solidifying an effective control framework and 

looking within and across the LOBs to identify and remediate control issues with a sense of 

urgency regardless of the source. Oversight and Control will work closely with all control 

disciplines partnering with the Firm's Compliance, Risk, Audit and other functions. 

"Corporate" refers to the CIO, Treasury and Corporate businesses collectively, 

4 270 Park Avenue, 48th floor, New York, Np.wYork 10017 

J PMorgan Chase & Co, PSI-OCC-22·000007 
2527 

IVIORG'\N CHASE & 

Weaknesses Identified in Prior OCC Supervisory Letters 

With respect to the observations noted regarding weaknesses identified in prior OCC 

examinations, specifically, weaknesses regarding model approvals and risk weighted assets 

("RW A"), audit coverage, VaR model and CIO risk management, and CIO valuation 

governance, the Finn has taken substantial action, as indicated in the Finn's responses to earlier 

Supervisory Letters5 and as described herein. An overview of some of the key actions is as 

follows: 

Model Approvals and Risk Weighted Assets, VaR Model Risk Management 

As described in the Firm's October 5 Letter, given the evolving regulatory landscape and 

the importance of maintaining the Firm's strong capital position, the Finn established the 

Regulatory Capital Management Office. This group reports to the CFO and works closely 

with the Finnwide Oversight and Control Group (described above), with responsibility 

for: centralizing end-to-end RWA management, calculation, validation and reporting; 

regulatory capital policy interpretation and implementation; corporate capital planning 

and analysis; corporate capital stress testing; and, independent review of regulatory 

capital. 

In addition, the Finn will deliver to the OCC by March 31, 2013, for supervisory review, 

a proposal detailing a significantly restructured and enhanced governance and operational 

process to: (1) identify VaR and other specific risk models requiring regulatory approval; 

(2) file requests for such approvals in a timely fashion; (3) track the status of approvals; 

and (4) escalate any issues within the Finn and to relevant regulatory agencies as 

appropriate. The Regulatory Capital Management Office will be responsible for this 

process. 

As discussed in the December 13 Letter, the Finn has been taking significant steps to 

enhance its MRaD organization and applicable policies. The Finnwide Model Risk policy 

was updated and published on September 28,2012. Notable changes to the policy and 

notable additional actions include: 

Clarification ofthe roles and responsibilities of all groups involved in the model 

review process. 

Expansion of the scope ofthe role of the Model Risk Officer ("MRO"), which has 

been converted to a full-time position. MROs have since been identified and are 

functioning in their new capacity. 

Introduction of the role of Model Manager. Model Managers support the MROs by 

perfonning a number of clearly-identified activities and working with model 

developers, model users, and risk and valuation professionals to enhance the overall 

model control environment. As of December 12,2012, a total of 45 MROs and 

For additional detail, see the January 4, December 13, December 4, October 11 and October 5 Letters. 

5 270 rcr k '1veIlU€-\ 48th flDor, New York, Nrw York 10017 

JPMorgan Chase &: Co. PSI·OCC-22·000008 
2528 

,i P1rl0RGAN CHASE & CO. 

Model Managers were named to positions in MRaD. The Finn is in the process of 

increasing the team staffing, with a target of 5 8 professionals. 

Expansion of the scope ofMRaD to include additional oversight of model 

implementation and ongoing perfonnance assessment. 

Requirements related to Tier 3 models6 changed from requiring testing to be 

perfom1ed only by the model developers or users to also requiring review by MRaD 

to ensure that the model is functioning as designed. 

Introduction of additional model govemance forums in November 2012, including: 

o The Pipeline Forum, which meets weekly, prioritizes and tracks the execution of 

model reviews and the opening and closing of related action plans for each 

business. 

o The Supervisory Forum, which enables model management-related issues to be 

escalated in order to obtain infonned outside guidance, as well as improved 

oversight ofMRaD activities. This includes members ofMRaD's senior 

management and several Managing Directors from relevant areas outside of 

MRaD. 

• Documentation and independent review of all VaR methodologies, and creation ofa 

centralized, dedicated VaR Methodology and Development team. Professionals for 

this team will be recruited from within and outside the Finn through the first half of 

2013. 

The Finn has also conducted a spot review of significant drivers ofVaR throughout 

the Finn, including in CIO, to ensure accuracy of the Finn's lO-Q VaK In CIO, that 

spot review involved confinning that all of the positions comprising the CIO 10-Q 

VaR were being captured accurately, and included a comprehensive one-day check to 

ensure accurate data feeds into the CIO VaR model; a horizontal review to identify 

data quality issues among key data streams and a comparison with third-party data 

sources, where possible; a comparison of calculators identified in approved model 

reviews with those actually employed; a review of the process used to identifY and 

separate 10-Q VaR vectors; and, resolution of then-outstauding model issues 

identified as "high" importauce. 

• The Finn has endeavored to increase communication ofVaR model changes to its 

regulators, including the OCe. 

----------

The Finn assigns models to one ofthree categories depending on the risk the model presents to the Finn. 

Model category is detennined through a subjective process, based on (J) model complexity, (2) economic 

consequences of the business activity for which the model is applied, and (3) the extent to which model outputs 

influence the Firm's financial statements, regulatory reporting or business decision processes. Tier 1 models are determined to have the most risk; tier 3 models are detemlined to have the least risk. 

6 270 Park Avenue, 48th floor, New York, New York lOOn 

.IPMorgan Chase & Ca, PSI-OCC-22-DDOOO9 
2529 

Audit Coverage 

As described in the Firm's October II Letter, the Fiml has taken steps to enhance the 

Firmwide Internal Audit function and expects to complete the remaining work by 

September 2013. Among other things, these steps include: 

• Enhancement of the audit quality assurance program to include an assessment of 

overall audit coverage. The program will facilitate an end-to-end approach that 

encompasses all activities of an audit team (e.g., audit plan structure and 

administration, audit coverage, risk assessment, audit results, management reporting 

and continuous auditing). In addition, the enhanced quality assurance program will 

enable a more thorough evaluation of confOlmance to audit policies, such as those 

pertaining to audit workpaper documentation. 

.. Implementation of a formal Subject Matter Expert program to enable more 

comprehensive and consistent audit coverage of certain topics. Responsibilities will 

include, but are not limited to: (1) building and maintaining expertise in applicable 

subject areas, including ongoing training and understanding of industry practices; (2) 

developing standard audit programs; (3) promoting consistent audit coverage across 

businesses; (4) participating in applicable audits to provide insight on risks and scope 

of testing; (5) sharing emerging trends and issues across audit teams to effect changes 

to pImmed coverage; and (6) detennining staff training strategies. 

• Quality assurance reviews of continuous auditing activities across all audit teams will 

be conduded. The results of these quality assurance reviews will be a critical input to 

the management oversight responsibilities of the Audit Management Teanl. 

• Regarding CIO activities, by January 31,20]3, the audit plan structure will be 

reevaluated and revised as appropriate. CIO risk assessments will be completed at a 

more granular level and audit coverage will be commensurate with the associated 

levels of risk. 

.. Intemal Audit is enhancing its audit capabilities with respect to Risk in particular. 

This includes formally designating subject matter experts who participate in 

applicable audits to provide insight on risks and scope of testing. Additionally, 

Internal Audit is formally represented on the CTC Risk and CIO Business Control 

Committees. The Chief Auditor has attended and will continue to attend the CTC 

Risk Committee meetings, while the Senior Audit Manager in charge ofCIO audit 

coverage is the Internal Audit representative at the CIO Business Control Committee 

meetings. 

Enhancements to CIO Valuation, Reporting and Other Processes 

As described in the Firm's January 4 Letter and below, the Firm has taken significant 

steps to enhance the fhmwide and CIO valuation process. Among other things, there is 

increased management oversight and governance with respect to the CIO valuation 

process, with direct engagement and oversight by the CIO CFO and Controller. 

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Additionally, a new CIO Valuation Control Policy was issued in July 2012, which clearly 

outlines the responsibilities for VCO and details the valuation control process, including 

pricing sources, thresholds, fair value adjustments, and escalation and reporting 

requirements. 

CIO has also enhanced its key business processes and reporting. For example; 

• The daily Global Risk and Senior Management Reports provide management 'Hiih 

detailed P&L and a consolidated and transparent view of all CIO risk positions; 

.... -distriblitionlliCl udes-llie FfimWideCFO;TRO;Ueputy CKoanCl co-COO In- adowonto senior managers Within CIO. 

• A more granular and comprehensive limit structure, consisting ofVaR, Stress, NonStatistical Single Name Position Risk, Asset Class Concentration and Country Limits, 

has been implemented. 

2. 

Since May 2012, the CTC Risk Committee has implemented more than 200 new or 

restructured risk limits covering a broad set of risk parameters, including geographic 

and concentration risks. Vlhile CIO has effectively closed out all its positions in the 

Synthetic Credit Portfolio, prior to closing out those positions, a number of new, 

granular limits were applied to that portfolio beginning jn May 2012. 

Senior management is informed of CIO's fisk profile and any changes through 

monthly discussions at the erc Risk Committee. 

Redacted by ~e 

Permanent Subcommittee on investigations 

Management Response 

The Finn remains committed to ensuring that risk management and control staffs have the 

knowledge, skills, resources and support to challenge front office strategies, activit.ies and 

positions. The Firm bas taken various steps, including the following, to ensure that risk 

management and control staffs have the necessary tools and independence to do so. 

Firmwide Risk Management and Control Staffs 

As discussed below, a Firmwide Risk Committee has been created. This Risk Committee 

includes key senior management oftlcials, including the Firm's CRO, Deputy CRO and CFO. 

With the establishment of this Committee, the Firm has ensured greater consistency across its 

.variotls-L.G-Bs-aad.pr~~aIH~.pojnt.fN.r-isWGpjGS<md.~theris=,.. . .~~ ... ~~ ... ~.~ ..... 

The Finn has also instituted a Firmwide Valuation Control Group ("VCG") and a Finnwide 

Valuation Governance Forum ("VOF"). The FirmWide VCG integrates all valuation control 

teams in ihe Firm under the same organizational structure, alloWing further dialogue on best 

practices and consistency. The VOF oversees the management of risks arising from valuation 

activities conducted across the Firm. The Firmwide VOF is chaired by the Firmwide Head of 

8 270 park Avenue, 48th floor, New York. New York 10017 

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J PMORGAN C1IASE & CO. 

VCG, and its membership includes the Corporate Controller, the Deputy CRO, the LOB CROs 

and Controllers of the Corporate and Investment Bank, Mortgage Bank and CIO, the CFOs of 

the Corporate and Investment Bank, CIO and Asset Management, and the head ofMRaD. The 

Firm\\ide VGF meets mice per quarter to review issues and matters relating to valuation, the 

VCG function and related issues, and to address issues elevated to it by the LOB VGFs. 

CIO Risk Management and Control Staffs 

The Firm has established consolidated management oversight across CIO, Treasury and other 

Corporate activities. Specifically, the management of these business activities has been brought 

together under the new Co-Chief Operating Officer of the Firm. Moreover, as detailed above, in 

order to address the findings of the firmwide self-assessment, the Firm has also overhauled the 

CTC Risk Committee to further improve linkages between Corporate activities and to ensure 

greater consistency across the Firm's LOBs. 

New CIO Leadership Team 

Immediately following the May 2012 annonncement oflosses in CIO, a new CIO 

management team was put in place. This includes a new ChiefInvestrnent Officer, who 

serves as the CEO of CIO. A number of other experienced, tested professionals, are 

applying their knowledge of best practices to their new roles in CIO. These professionals 

have been appointed to key positions, including CFO of CIO; Chief Risk Officer for 

CTC; ChiefInvestment Officer for EMEA; cro Global Controller; General Counsel for 

CIO and for Markets in the Corporate and Investment Bank; and the Chief Auditor and a 

Senior Audit Manager. With these new appointments, the Finn has reconfigured the 

entire team with strong and knowledgeable individuals who have brought more rigor to 

the management of CIO, At the same time, this new team has established stronger 

linkages within cro by introducing formal lines of commnnication across the various 

regions. The CTC CRO reports directly to the CRO of the Firm and is the co-chair, along 

with the Co-Chief Operating Officer of the Finn, of the CTC Risk Committee. 

Increased Resources in Key CIO Support Functions 

As noted above, the Finn has increased resources in key SUpp01t functions. Since May 

2012, the CTC Risk function has hired 22 new professionals and continues to seek to 

recruit an additional 14 professionals. These hires have added expertise in emerging 

markets, securitized products, eredit (single name), municipal bonds, and interest rates 

and currency trading to the Market Risk Coverage teams. Many of these hires were from 

internal Risk Management functions (Market Risk, Credit Risk, CPG and Principal Risk), 

thereby bringing to CTC Risk best practices from other areas of the Firm. The CTC 

function has also created new, specialized functions, including a Treasury Risk and Other 

Corporate Risk coverage team, a Global Business Management function and a Credit 

Risk Management function. 

As noted above, the CIO Finance function WaS reorganized with a newJy appointed 

Global CFO and Global Controller. It also increased key resources by hiring experienced 

finance personnel from within and outside of the Firm. Additions have included a new 

9 270 Park Avenue, 48th ROOf, New York, New York 10017 

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JPMORG AN CHASE & CO. 

Head of CIO VCG, a Global Control Officer, a Senior Controller in North America CIO 

and a new CFO for EMEA CIO. 

Risk Management Training 

CTC Risk has a strong focus on training, and recent initiatives for CTC Risk personnel 

have included training regarding Reputation Risk, Credit Risk Management and Limits 

Monitoring and Country Risk. There are also product-specific teach-ins conducted by 

seasoned Risk professionals and portfolio managers, and a weekly Global CTC Risk 

Team Meeting enables personnel across CTC Risk to communicate effectivelyaero's5 

regions and products. In addition, as appropriate, portfolio reviews, ftlDctional 

overviews, methodology updates and policy changes that are presented at the CTC Risk 

Committee meetings are shared with the CTC Risk team, 

3. , Redacted by the 

Permanent Subcommittee on Investigations 

Management Response 

As discussed in detail in the Finn's October 5 Letter, and noted above, the Finnwide Oversight 

and Control Group is tasked, among other things, with ensuring that MRAs are fully and 

effectively remediated in a timely manner. The Chief Control Officers meet on a bi-weekly basis 

with OCC, Fed and FDIC examiners to discuss the status of responses to Supervisory Letters, 

MRAs and other open issues or questions. 

The Group's two components, the Central Control Team and Line of BusinesslFunctional 

Control Officers, each playa role in ensuring that MRAs are addressed, The Central Control 

Team is responsible for diagnosing MRAs for trends and patterns, This includes identifYing the 

number, status and root causes ofMRAs identified by the OCC. LOB Control Officers, senior 

officers with the stature and seniority within the Finn to provide credibility to the remediation 

process, are responsible for managing the Firm's response to MRAs by confinning current status 

and action plans, verifying detailed execution plans, prioritizing the list of open issues, verifying 

that all matters that have been completed, reviewing all high severity items (e.g., MRAs, audit 

action items) on an ongoing basis, ensuring that appropriate resources are devoted to resolving 

the matters, and reconciling the inventory of matters with the Finn's regulators. Additionally, 

the Finn also is leveraging the "Keys" process for MRAs that is already in place in the Mortgage 

business, so that a fonnal review process is conducted to confinn that MRAs have been closed 

appropriately7 

Significant progress has been made since the Finn initiated this effort. The Finn has developed a 

control framework, detailed roles and responsibilities, appointed senior Control Officers with 

Uiverseexperiem:e'lll::r05S'ti3BS;iimctiolls and I egicrrrs;alJd comple ted ll: -globa:l:-baseline'for-' 

regulatory issues and recommendations. Control Officers have begun implementing the 

The "Keys" process is a process by which regulatory MRAs are reviewed and addressed. RepresentBtives 

lTom Audit, Operational Controls, Technology, Legal, Risk, Finance and Compliance participate in the process, as 

appropriate. 

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JPMORGAN CHASE & CO. 

framework, and have reviewed regulatory issues for themes and patterns. The Finn is continuing 

its work to operationalize the control framework by: (1) developing a robust process to review 

issues, engage senior management early, address root causes, and apply resolutions from one 

area of the Firm to all other relevant areas; and (2) establishing a platform to maintain relevant 

data. Centl-alizing 1:..'<is function will create consistency in the MR,", review process, and provide 

the Firm an opportunity to consider whether similar issues exist across functions. 

FYrm-wide Governance Processes require strengthening. 

Redacted by t~ 

Permanent Subcommittee on Investigations 

Management Response 

To ensure that risk management and other control functions have sufficient resources and 

support, the Firm has been working to enhance the Firm's governance framework, both firmwide 

and specific to cro. 

Firm Risk Governance 

The Firm has reviewed and substantially enhanced its risk structure and governance through, 

among other things, the establishment of new and more robust committee structures. Those 

committees include: 

Risk Governance Committee. 111is committee meets monthly and focuses on risk 

governance and other policy matters, risk analytics, model governance, Basel/regulatory 

issues, risk appetite, and updates to firmwide risk programs in the areas of compliance, 

liquidity and operational risks. The Fiml's CRO, CFO, Controller, LOB CROs, CRO, 

and personnel from Legal, Compliance, Audit, and Regulatory Policy participate in these 

meetings. 

Firmwide Risk Committee. This committee focuses on business activity, including by 

conducting periodic reviews offirmwide risk appetite and certain aggregate risk 

·---~meIlStIres~i!s-an-esealation1'Oi~~he-L~­

and for certain limit breaches pursuant to the limits policy, and considering relevant 

business activity issues escalated to it by LOB CROs and CEOs. It meetq monthly and 

participants include the Firm's CEO, eRO, Deputy CRO, LOB CEOs, CIO, General 

Counsel, Chief Auditor, Compliance Head, Regulatory Policy Head, Consumer Risk 

CRG, Wholesale Credit Risk eRO, MRaD Reputation Risk Officer, Country Risk Head, 

Corporate Risk CFO and Chief Administrative Officer, and LOB risk officers. 

11 270 Park Avenue, 48th floor. New York, New York 10017 

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& 

Risk Management Business Control Committee. This committee meets quarterly and 

focuses on the control environment within the Risk organization, including outstanding 

action plans, audit status, operation risk statistics (such as losses, risk indicators, etc.), 

compliance with critical control programs, and risk technology. Participants in these 

meetings include the CRO, Deputy CRO, LOB CROs, Risk CFO and Risk Chief 

Administrative Officer, Operational Risk Head, and personnel from MRaD, Audit and 

Compliance. 

Risk Operating Committee. This committee focuses on risk management, including 

setting risk management priorities and escalation of risk and other issues brought to its 

attention. Participants include the CRO, LOB CROs, as well as the Risk Human 

Resources and Risk Chief Technology Officers. 

The Firm also created new senior firmwide risk positions: 

Deputy CROlHead of Firmwide Market Risk, who is responsible for the review and 

assessment of firmwide market risk. This includes managing the Firm's risk appetite and 

risk limits, risk mitigation strategies, working with the CRO to lead and develop the 

Finn's risk organization, and directing the Firm's market risk coverage resources. 

Wholesale Chief Credit Officer ("WCCO"), who reports to the CRO and is responsible 

for credit risk across all wholesale businesses. In this capacity, the WCCO will: chair a 

Wholesale Credit Risk forum to ensure better communication between each business and 

across all risk functions; work with LOB CROs to identify and effectively manage key 

credit risks and concentrations across the wholesale businesses; and, partner with the 

LOB CROs to engage in initiatives across wholesale lines of business, including defining 

credit risk appetite and setting appropriate limits, supporting key growth initiatives while 

maintaining strong credit risk management controls, coordinating regulatory responses, 

building a credit risk stress framework, and enhancing credit risk reporting and credit risk 

systems. 

Cross-LOB Risk Officers, who are responsible for identifying and implementing best 

practices, which promotes consistency of enterprise risk management processes and 

practices. The Cross-LOB Risk Officers review specific risk types across the Firm, 

including cOlUltry risk, risk policy, model risk and development, market risk, reputation 

risk, consumer credit risk and wholesale credit risk. 

CIO-specific Governance 

As detailed above, the CTC Risk Committee has been significantly enhanced by the inclusion of 

senior management from within and outside of CIO, including members from Treasury and 

Corporate. Additional new and more robust committee structures have also been instituted 

within CIO, including weekly CIO Investment Committee meetings, and monthly Business 

Control Committee meetings. 

The Finn has also hired experienced professionals for CIO yeO, including a new head of 

Corporate YCO as well as three new regional CIO YCO heads, including for EMEA VCO. The 

Finn also established a Corporate VOF under the umbrella of the Firmwide VOF. The CIO VGF 

12 270 P~rl< AVenue, 48th floor, New York, New York 10017 

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JPMORGAN CHASE & CO. 

is responsible for understanding and managing the risks arising from valuation activities within 

CIO and for escalating key issues to the Firmwide VGF; the VGF meets monthly. 

Furthermore, Corporate Business Reviews, which include CIO, are to be conducted with 

increasing frequency and with the same rigor as similar reviews for the Firm's client:facing 

LOBs. 

Structural Risk Management Practices Need Strengthening. 

I Redacted by the 

Permanent Subcommittee on Investigations 

Management Response 

CIO makes investments to offset interest rate and foreign exchange risks that are allocated to 

CIO from the LOBs. As discussed above, these investments are subject to applicable risk and 

portfolio metrics, as well as duration/curve profile, portfolio allocation guidelines and correlation 

analyses and sensitivities. CIO is also in the process of creating sector benchmarks that will be 

used to evaluate product level performance. 

As also discussed above, CIO no longer engages in the type of trading that generated the losses 

in the Synthetic Credit Portfolio and has refocused on its core mandate of traditional Asset and 

Liability Management CALM")_ The majority of CIO 's Synthetic Credit Portfolio wa<; 

transferred from CIO to the Corporate and Investment Bank and the Firm effectively exited (he 

remainder of the portfolio positions that remained in CIO in the third quarter of2012. Any 

future credit hedge positions will be transparent, within applicable risk limits and closely linked 

to a partic.ular risk or set of risks that they are designed to offset. 

CIO's hedging activities are governed by the Firm's cm Investment Policy. Consistent with the 

Firm's CIO Investment Policy, CIO uses its Strategic Asset Allocation ("SAN') portfolio, which 

is managed under an ALM framework, to offset the Firm's interest rate and foreign exchange 

risks. In executing its role, CIO operates within a risk framework that is consistent with 

ftrmwide risk management policies and reflects the ALM and portfolio management aspects of 

its activities. For example, investment decisions will consider the Liquidity Asset Buffer (LAB) 

-amlnorr=!::;t\B-eligible-assets-aHucationsas the-f'irnradheres--W-l:iqtriclifyretjt!irements-Hru!er---

Basel III. 

The CIO's MTM portfolio supplements its SlI.A portfolio and is connected to the ALM mandate 

of the group. MTM investments are made prior to making a strategic allocation of a particular 

product type in order to assess certain characteristics of the investment, such as liquidity. These 

investments are smaller in size, short-ternl and governed by tight risk limits, and the strategies 

13 170 park Avenue, 48th floor, New York, New York 10017 

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JPMORGAN CHASE & CO. 

are reviewed periodically in accordance with the Firmwide Market Risk Limits policy. 

Discussions with Risk and senior portfolio management personnel take place as part of an 

ongoing process to review strategies with risk measures and P&L. 

TIle CIO Investment Committee, which meets weekly, is chaired by the ChiefInvestment Officer 

and meetings are attended by representatives of CIO Risk, Finance, Legal and Compliance, as 

well Corporate Treasury, Technology and Operations. The Investment Committee sets broad 

portfolio allocation targets that vary depending on the then-current economic and market 

environment. Allocations are executed by portfolio managers who operate within the parameters 

approved by the Investment Committee. The investment process takes into account safety and 

soundness, balance sheet efficiency and risk mitigation, all of which are central to CIO's 

objectives for overall portfolio management process. Investment decisions are made based on a 

risk/reward framework that considers the relevant interest rate, credit, currency and other market 

risk factors as part of the investment process. Key attention in CIO is paid to the credit quality of 

potential investments and the ongoing credit monitoring of securities held. This encompasses 

fundamental credit analysis/due diligence, which is carried out by a global team of credit 

analysts prior to purchase and on an ongoing basis. 

As discussed above, both the SAA and MTM portfolios are governed by a combination of 

aggregate stress loss and VaR limits as appropriate. Additionally, asset class market exposure 

limits exist to manage concentrations of positions relative to market size and liquidity. The 

MTM portfolio is governed by a number of non-statistical MTM limits, in addition to VaR and 

Stress limits. Additionally, the portfolios are subject to the firmwide risk limits structures 

covered under the firmwide Market Risk, SingJe Name Position Risk, Country Risk and 

Counterparty Risk policies. Any changes to limits are reviewed and approved by the CTC Risk 

Committee. Limits are periodically reviewed and sized appropriately given new investment 

strategies and the size of the portfolio. 

Outside of CIO, the Firm has the ability to engage in macro hedges within the Corporate and 

Investment Bank, though it has not done so in more than a year. Any macro hedging, as well as 

normal-course hedging by any trading desk, would be treated like any other trading position in 

the Corporate and Investment Bank, and would be subject to the same risk framework and 

controls. 

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Communication with ace examiners needs strengthening. 

Management Response 

1 Redacted by tbe I i PermanpntSubeommittee on Investigations l 

The new eIO leadership team, as well as senior Firm management, recognizes the importance of 

an open and transparent culture, including in its communications with the Firm's regulators, The 

Finn has been working to improve CIO's culture and communications - both internally and with 

regulators - to ensure full and timely escalation of and visibility into CIO's activities as well as 

those of the LOBs, This culture of openness has been and continues to be reinforced at all levels 

of management 

The Firm understands and fully appreciates its obligation to keep the acc fully informed of 

significant information and apologizes for any gaps in its communications with the OCC. On or 

about April 26, 2012, the Firm sent a team of senior personnel to London to, among other things, 

perform a thorough position-by-position review of the Synthetic Credit Portfolio, Though we 

did not know the nature and extent of the issues in CIa at that time, in hindsight, we wish we had 

advised the acc of this effort and had not awaited further clarity before providing information 

to the acc. While the Firm did provide P&L data to the acc, we recognize that it would have 

been better to highlight potential issues and provide information on a real-time basis, Any 

incompleteness in the Firm's communications was unintentional. 

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From: Lee, Kevin [mailto:Kevin.Lee@occ.treas.gov] 

Sent: Tuesday, January 29,2013 1:17 PM 

To: Murphy, Allison (HSGAC); Moore, Carrie 

Cc: Lee, Kevin 

Subject: RE: question 

Hi Allison. 

According to the examiners, all banks are required to have a process of independent price testing. 

It is called different things at different banks or investment companies, but it is a basic internal 

control process. 

Hope this is helpful. 

Thanks, 

Kevin 

From: Murphy, Allison (HSGAC) [mailto:Allison Murphy@hsgac.senate.gov] 

Sent: Tuesday, January 29, 2013 9:42 AM 

To: Moore, Carrie; Lee, Kevin 

Subject: question 

Hi Carrie and Kevin, 

I had a quick question for one of the folks on your team. My sense is that Mike Kirk might be best 

situated to tell us an answer, or perhaps Fred Crumlish. We have talked to a number of folks about 

the Valuation Control Group process at CIO and we generally understand how that worked at 

lPMC. Can OCC tell us if valuation control groups are required at banks that deal in derivatives? 

Feel free to shoot an email back or cali, whatever is easier. 

Thanks. 

Allison 

Allison Murphy 

Counsel 

U.S. Senate Permanent Subcommittee on Investigations 

199 Russell Senate Office Building 

PSI-OCC-23-000001 
2539 

TRANSCRIPT OF AUDIO RECORDING OF JPMORGAN CHASE EARNINGS CALL 

WITH MEDIA ON APRIL 13,2012 

PREPARED BY THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

Date: 

Parties: 

Identifier: 

Moderator: 

Mr. Evangelisti: 

Mr. Braunstein: 

April 13, 2012 (Conference Call) 

Joe Evangelisti (JPMC); Douglas Braunstein (JPMC); Jamie Dimon 

(JPMC); Dawn Kopecki (Bloomberg); Tom Braithwaite (Financial 

Times); [reporter not specified] (Palmalo Mortgage News); Matthias 

Ricker (Wall Street Journal); Margaret Pepper [no aftlliation provided] 

https://dl.dropbox.com/u/35243775IJPM413.wma 

Welcome, and thank you all for standing by. I would like to remind the 

participants that they will be in a listen-only mode for today's conference 

call. I'll be turning the conference call over now to your speaker for today, 

Mr. Doug Braunstein. Sir, you may begin. 

Hey, everybody, it's actually Joe Evangelisti, so welcome to our first 

quarter earnings call. I've got Doug Braunstein, our CFO on the line, and 

we also have Jamie Dimon, our CEO on the line. Doug is going to start 

with some comments, and then we would be happy to answer any 

questions you have. Doug. 

Hey, so good morning, everyone, let me just give you a couple minute 

overview on the quarter. I'm sure as you now have seen, $5.4 billion in net 

income. We reported a $1.31 a share. That's on $27.4 billion in revenues. 

Revenues are up 6% year-on-year; they are up 24% quarter-on-quarter; 

and we reported a return on tangible common equity of 16% this quarter. 

And if! step back, and just characterize the periormance of the businesses. 

solid pcrfonnance across most of our businesses. We had real strength in 

the investment bank this quarter, and improvement, significant 

improvement, in mortgage banking, particularly year-over-year. There 

were really four themes in the qumter. 

The first is, we continue to see underlying growth in a number of our key 

business metrics, so wholesale loans are up 23% year-on-year, small 

business loans are up 35% year-on-year, credit card sales growth 12% up 

year-on-year, mortgage applications up 33% year-on-year, deposit growth 

in our branches up 8% year-on-year. And I think that growth reflects both 

underlying fundmncntals as well as share gains in a variety of our 

businesses. 

1 
2540 

Mr. Evangelisti: 

The second theme as you look through the numbers is, credit continues to 

improve. On the consumer side in both mortgage and credit card 

improvements in delinquencies. Delinquencies, net charge-oils, were 

down; in credit cards 36% year-an-year, in mortgages 25% year-an-year. 

And then in wholesale. very stable and strong credit results. 

The third thing I think you see through the numbers is, we have had very 

positive markets in the first qUaI1er, and that's improved a number of our 

results quarter-an-quarter and set some records for us as well. So in the 

investment bank you saw very strong flows in our underlying customer 

businesses in both fixed income and equity markets. If you take out some 

of the eilects of DBA, the sales numbers for year-an-year comparisons 

were effectively flat with a very strong quarter in 20 II. You saw records 

set in assets under supervision and assets under management in Asset 

Management. You saw a record set, $17.9 trillion of assets under custody 

in TSS. We set a record for assets under management in our Chase Wealth 

Management business, almost $150 billion there. So strong marketsre lated performance. 

And then the last big theme I talk about is capital generation in the quarter. 

We reported a 10.4% Basel I tier I common ratio, an 8.4% pro-fonna 

Basel m. That's up 50 basis points. We added $6 billion to capital this 

quarter. And as you know, we also announced and raised the dividend this 

quarter and began a stock repurchase program under a new $15 billion 

authorization. 

And my last comment before I open for questions is, as we do every 

quarter, we have a number of significant items that we highlight at the 

very front of the press release. We'll highlight at the very front of our 

earnings deck, clear and transparent. There were four of them this quarter. 

We had reserve releases; we took litigation reserves; we had a one-time 

gain from the WaMu settlement; and we had DBA this quarter that was a 

negative. [fyou add all of those up, it would be a nine cent reduction in 

our reported earnings of a $1.31. So adding that back would be a reported 

number ora $1.40. With that, maybe I will just stop and open the floor up 

for questions for Jamie and L 

Okay, Kelly, we are ready for questions. 

2 
2541 

Moderator: 

Ms. Kopecki: 

Mr. Dimon: 

Ms. Kopecki: 

Mr. Braunstein: 

Thank you and at this time if you do have questions or comments, that is 

* I on your touch-tone phone. Please make sure you are recoding your first 

and last name. Again that is * I, it will be just one moment please. 

Our first question comes from Dawn Kopecki, your line is open. 

Hi Jamie, this is Dawn at Bloomberg. We have a story today about how 

you have transformed your CIO office into somewhat of a proprietary 

trading operation. I'm wondering how you think about that; is that 

something that you would agree with. The Volcker Rule hasn't gone into 

effect yet. And also can you talk a little bit about those trades, and whether 

the regulators are looking at any of those. 

Doug is going to give you a big picture, and if that doesn't answer all your 

questions, we will come back to it, okay? 

Okay. 

Da'WTI, Dawn just step back. The company generates liabilities in the form 

of deposits and generates assets in the form of loans. And those, we have 

more liabilities, we have a billion, a trillion-one in liabilities vs. $700 

billion worth of loans. And we take that difference and we invest it in 

order to manage that structural interest-rate risk between liabilities and 

loans, and that number, that difference has grown over time. And we 

invest that $360 billion today in a variety of very high-grade securities: 

mortgage-backed securities, government securities, high-ends of the credit 

spectrum. And that generates earnings for us and it also balances our 

interest-rate risk. In addition CIO balances our FX risk, our basis risk and 

a number of other risks. As part of that, they hedge against downside risk, 

because that's the nature of protecting that balance sheet. And as part of 

that, we have had for many years a structural credit book that hedges 

against stress loss, meaning downturns in the credit market. These 

positions that you all have been writing about are just simply part oftha! 

structural credit book, which by the way, we have been reducing over 

time. And we are very comfortable with the positions that we have. And I 

would step back and say, all those activities I just described arc very longterm in nature, because that's the nature of the asset and liability mix for 

us. And they are consistent with both I think the spirit and the written rules 

ofVolcker as we read them today. 
2542 

Ms. Kopecki: 

Mr. Braunstein: 

Ms. Kopecki: 

Mr. Dimon: 

Mr. Braunstein: 

Ms. Kopecki: 

Mr. Braunstein: 

Ms. Kopecki: 

Mr. Dimon: 

Dawn Kopecki: 

Mr. Dimon: 

Ms. Kopecki: 

Mr. Dimon: 

Ms. Kopecki: 

Mr. Dimon: 

Ms. Kopccki: 

Now it's not all used for hedging though, con'ect? You had said that you 

had some excess capital that you use to just invest, some of which goes to 

hedging and some of which doesn't, correct? 

So it's the very nature, Dawn, it's the very nature of that structural 

mismatch. We, of course, invest. We have a big investment portfolio; it 

has to generate net interest income in order to cover those liabilities and 

make us balanced from an interest rate standpoint. And of course, when 

we put a dollar to work, we want to do so prudently and invest it in safe, 

smart and good returning assets. And that's, that's the job of CIO. 

Okay, and as part of that, you have a large book of European mortgage 

debt. Somewhere around $70 billion. Is that in your CIO office as well? 

Yes. 

Yes. 

Okay. Okay, thank you. 

We are a global firm. 

Oh, okay andDoug should mention, we should mention that we do this around the 

world, because we create deposits around the world. And we are very 

conservative, and the portfolio does change over time as we change our 

views about various things. And that's what we are supposed to do. 

But what does the European mortgage debt hedge? What is that hedging? 

We have deposits overseasOkay. 

And we make investments around the world in various products, 

mortgages, credit as Doug said. 

Okay. 

It's a big fixed income portfolio. Every bank, every bank has one, relative 

to the size of the bank. 

And are4 
2543 

Mr. Evangelisti: 

Ms. Kopeeki: 

Mr. Dimon: 

Mr. Evangelisti: 

Ms. Kopeeki: 

Mr. Evangelisti: 

Moderator: 

Mr. Braithwaite: 

Mr. Dimon: 

Mr. Braunstein: 

Mr. Braithwaite: 

Dawn, we have to give somebody else a tum, and you can corne back, all 

right? 

Well, just can they follow up with regulators, if regulators are looking at 

this? Last one. 

We are not going to talk about conversations with regulators, but they see 

everything and anything we do whenever they want. 

We are fully transparent with them. 

Okay, thank you. 

Thank you, Dawn. 

Thank you. Our next question comes from Torn. Sir, your line is open. 

Hi, it's Torn Braithwaite. I wondered if could you talk a little bit about the 

mOltgage business which seems to have benefited from HARP and the 

general refi[nance 1 climate. On the other hand, you have got another 

chunky litigation expense. I was just wondering, on the one hand, how far 

are we through the legacy issues and, on the other, what are you seeing 

today in the current trends? 

Let me just mention the revenue side, then Doug is going to talk about the 

litigation real quick. So on the revenue side, it is true, volumes were good 

but not great, but spreads were higher. So that, the results were better than 

they would normally be by several hundred million dollars, because of 

that. I, we don't expect that to continue forever. That moves around based 

upon Hows, and volume and competition and some of that carne out of 

HARP. 

So let me talk about the litigation for a moment, whieh is: We added $2.5 

billion to litigation primarily, predominantly related to the mortgagebacked issue. And I think if you just step back at this point, from a current 

standpoint we think we are both conservatively as well as 

comprehensively reserved for this issue. Absent material changes which 

could certainly change our views, you know we think it's unlikely for us 

to add significantly to these reserves. But, you know, reserves can go up, 

they can do down based on those circumstances, but we feel where we are 

today, we feel very conservatively as well as comprehensively reserved. 

You said the mortgage-backed issue, you mean the mortgage label? 

5 
2544 

Mr. Dimon: 

Mr. Braithwaite: 

Mr. Braunstein: 

Mr. Dimon: 

Mr. Braithwaite: 

Mr. Dimon: 

Mr. Evangclisti: 

Mr. Dimon: 

Mr. Braithwaite: 

Moderator: 

Pamalo: 

Mr. Dimon: 

Palmalo: 

Private label. 

Private labeL 

Yes. 

Private label rcps. warranties and litigation. 

Got it, great. Can I just ask one more? Is this the cciling for buybacks 

where the stock is right now? You have got this big program you can use, 

but is sort of$45 where you, where you won't go? 

So here's what it is. We havc a $15 billion approval fTom the regulators. 

Obviously we would--I would have preferred to buy back stock around 

tangible book value, but we didn't get that chance. We will, regardless of 

price, buy the $3 billion we approximately issue every year. We just think 

that's a good discipline. 

We issue that for employee compensation. 

Yeah, it usually vests over time, but I think it's good discipline that if you 

issue stock, you should buy it back so you keep it kind of balanced. And 

we will decide over time when and how we want to buy back the stock. 

We have organic grO\\lh. We've got investment opportunities. We 

obviously have to raise capital standards lor Basel III. So we get to decide. 

We will buy less as the stock goes up. We will buy more as the stock goes 

down. We are not going to be completely transparent for obvious reasons, 

but it does not mean that over 45 we may not buy more. That decision we 

make every single day, based upon our view ofthe other opportunities. 

Thanks a lot. 

Thank you. OUf next question comes trom Pal malo. Your line is open. 

Hey, Palmalo Mortgage News. Jus! if you can give us an outlook on your 

plans to sell mortgage servicing rights. You have been selectively selling 

some MSRs here and there. Are you going to continue to be a net seller of 

MSRs, and can you give us an outlook on that? 

I wouldn't count on that. That depends on the market for MSRs, and why 

we might want to do it. We haven't sold a lot either. 

So you can give us no outlook on what you are going to do? It depends on 

the market? 

6 
2545 

Mr. Dimon: 

Palmalo: 

Mr. Dimon: 

Palmalo: 

Mr. Evangelisti: 

Moderator: 

Mr. Rieker: 

Mr. Dimon: 

Mr. Rieker: 

Mr. Braunstein: 

Mr. Rieker: 

Mr. Braunstein: 

I just said I wouldn't expect it, but we might. It depends you know on 

what people say and what the prices are, etc. 

Can you tell us about your continuing problems with buybacks with 

Fannie Mac and Freddie Mac? How's that looking? 

You know, that's getting better over time if you look at other things. And 

hopefully it will run down over time. We have said that we expected it to 

run about $300 million plus a quarter and eventually it will start going 

down. The big problems in the past have already been-are running 

through the pipeline here. 

Okay, thanks. 

Thank you. 

Thank you. Our next question comes from Matthias Rieker. Your line is 

open. 

Good morning. Can you talk a little bit about provisioning in the quarter? I 

assume the fact that the provision is up in some areas is a reflection of the 

strong loan growth you are seeing. Could you talk a little about that and 

the allowance, whether it might go up or down in the coming quarters or 

whether you have found a comparable level here? 

We took down reserves in mortgage and card, but though we are still very 

conservatively reserved. We took them down, because we have to. That's 

the accounting rules. I think the other businesses, wholesale credit in 

general, is just excellent. I mean, charge-offs are extremely low in 

investment banking, in commercial banking. So there it was just kind of 

business as usual as we had [toJ add things, as things go bad, as we have 

charge-offs, reserves get adjusted. We don't expect material reserves 

takedown in the future. At one point we are going to have to take down 

mortgage reserves, as charges come down. 

But the provision went up from quarter over quarter in commercial 

banking and in cars and auto, no? 

A lot of that isjust simply loan growth. 

Yeah. 

Simply pluses and minuses in the system. 

7 
2546 

Mr. Dimon: 

Mr. Rieker: 

Mr. Dimon: 

Mr. Braunstein: 

Mr. Dimon: 

Mr. Braunstein: 

Mr. Rieker: 

Mr. Dimon: 

It's almost name by name. You know someone gets downgraded, we add 

to the reserves; someone gets upgraded, we take a little reserves do\\-n. 

Charge-oiIs are very low, and we're just-this is steady state. Think of it 

as kind of steady state. You are always going to have in and outs, ups and 

downs. There's nothing underlying it that is material. Recoveries, you 

have a whole bunch of things afIecting that. 

And could you just work us through what you saw in loan demand, 

particularly from the consumer set? Auto continues to be strong. Talk a 

little bit about what your plans are in student lending, cars; what you see 

in demand. 

So cars, both spend is way up. I think we are gaining share. And the actual 

loan balance is acting like we would expect with some seasonality like we 

expect. Auto demand is strong, mostly because car sales are doing very 

well. Doug mentioned the importance. Middle market is up like 18%. And 

small business is up 35%. 

And middle market, not only is it up the 18-19% that Jamie talked about, it 

is actually a record level for us for middle market loans. We are feeling 

demand. 

It's eight straight quarters. 

We are feeling demand. Some of that, again, is going to be market share 

growth, but some of that is real underlying fundamental demand. 

What is your feel about the economy at this point? 

You know, no one knows the future. But, in short, businesses are in very 

good shape. They are earning money; t11ey are very well capitalized; they 

have a lot of cash. We think housing is getting very close to the bottom, 

and most of the -- I \\-Tote a page or two in my chairnlan's letter about all 

the positives signs about housing. And the consumer is actually, if you 

look at debt service ratios, back to where it was 20 years ago. Because the 

consumer has both paid off debt, and there has been over a trillion dollars 

in \\-Tite-offs. So consumer debt is down something like 15 or 20%, 

effectively. Some of that is not in ilie national accounts yet, but we know 

it's there. Like debt is not being paid right now, and then you have had 

what 4 million jobs in the last 24 months. I know ilie recent data; I 

wouldn't overact to monthly data ifI were you. It looks, it looks okay. We 

8 
2547 

Mr. Evangelisti: 

Moderator: 

Ms. Pepper: 

Mr. Braunstein: 

Ms. Pepper: 

Mr. Dimon: 

Mr. Braunstein: 

Mr. Dimon: 

Ms. Pepper: 

all wish we were a little bit stronger. and maybe we have a self, a 

strengthening recovery or not, we don't know yet. 

Great. Thanks. 

Thank you. Our next question comes from Margaret Pepper; your line is 

open. 

Hi, couple of questions. One is that, although you're talking about loan 

growth in various categories, if you look at the overall loan portfolio, it 

seems to be dO\vn just slightly, or if you want, flat. And the other thing is 

(hat NPLs seem (0 have picked up slightly. Can you explain what's going 

on there? 

Yeah, so Margaret, on loan growth, the wholesale loan grovvth is up yearon-year, up quarter-on-quarter. What you are seeing in total is -- you knovv 

we have been running off this large mortgage, heritage mortgage portfolio 

fi'om WaMu, and that's the difference. And we have been very transparent 

about that's going to run oif. It ran off$25 billion in the last year. So 

that's the loan story. On NPLs, year-over-year, NPLs went from $13.5 

billion down to $10.5 billion this quarter. So it is on a very positive trend, 

and we'd expect it to continue if the economy maintains its trajectory. 

But versus the last quarter, they are up slightly, right? 

(directed at Mr. Braunstein) Yeah, yeah, you can mention that. Go ahead. 

Yeah, so part of that is, there was some industry-wide regulatory-led 

reclassification of some home equity loans. And so we added $1.6 billion 

to our number in the first quarter. We didn't restate all the historical. That 

$1.6 billion was fully reserved for, and 80% of it, 90% of it, is actually 

paying CUITently. 

The impOltant thing is that, because we have been very transparent about 

this, these arc second mortgages that arc paying behind delinquent firsts. I 

think we have mentioned way, a year ago, that we are reserving those, 

because we know they are going to go bad. This just simply puts them 

[inJto the nonperforming category, before they're nonperforming. That's 

all it does. 

Okay, and just one more last question, if I may. The $2.5 billion that you 

added to litigation reserves, does that have anything to do with the Wells 

notice that you got this quarter? 

9 
2548 

Æ 

Mr. Evangelisti: 

Ms. Pepper: 

Mr. Braunstein: 

Mr. Dimon: 

Ms. Pepper: 

Mr. Evangelisti: 

Moderator: 

No. 

Is that reserved for? 

You know. we, we, as I said, we are taking a very comprehensive look. 

We take all of this, all of the pending suits, the prospector suits and as 

long as it is probable and estimable, we are putting it into reserves. And 

this addition this quarter is really a very comprehensive view ofthat. All 

the factors, and I'll just remind you those factors can change over time, 

and that will reflect itselfin the reserving action. 

A lot of these things are duplicative. I mean we already got the lawsuit, 

and then we got the Wells notice; it's just, it's the same thing. 

Okay, thank you, thank you. 

Thanks, Margaret. 

At this time I am showing no further questions. 

### 

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