JPMorgan Chase was pressed by U.S. regulators to strengthen investor disclosures on proprietary trading almost a year before a wrong-way bet on credit derivatives cost the bank at least $6.2bn.
Bloomberg reports that the Securities and Exchange Commission asked Chief Financial Officer Douglas Braunstein to provide information about the bank’s so-called principal transactions revenue and proprietary trading, according to letters between the agency and the company from June 15th of last year through February 17th that were made public Tuesday.
'It is not clear how much of this revenue was generated from your proprietary-trading business, hedge-fund activity and private-equity funds that would be affected by the Volcker rule', Suzanne Hayes, assistant director of corporation finance at the SEC, wrote in the initial letter. JPMorgan disclosed in a previous filing that it liquidated proprietary holdings within the equities unit and 'it is not clear if this was the extent of your proprietary-trading business', she wrote.
The letters preceded JPMorgan’s assertion in May that a portfolio of credit derivatives, which bet against the creditworthiness of U.S. companies such as Wal-Mart Stores Inc. (WMT), was a hedge against a weakening economy rather than a proprietary bet. The position was amassed by trader Bruno Iksil, who came to be known as the London Whale because his wager was big enough to move the market.
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