NEW YORK (TheStreet) -- The Commodity Futures Trading Commission on Wednesday entered into a $100 million settlement agreement with JPMorgan Chase (JPM) related to the bank's "London Whale" trading debacle.
The regulator charged the bank with violation of a new Dodd-Frank prohibition against "manipulative conduct."
"..[B]y selling a staggering volume of these swaps in a concentrated period, the Bank, acting through its traders, recklessly disregarded the fundamental precept on which market participants rely, that prices are established based on legitimate forces of supply and demand," the CFTC said in its order.
As part of the settlement, JPMorgan admitted to reckless behavior on the part of its traders, the CFTC said.However, it did not go so far as to admit that it broke the law. According to a JPMorgan spokesperson Joseph Evangelisti, the bank admitted to "certain facts set out in the order." However, the bank "neither admitted nor denied the CFTC's legal conclusion that there was a violation." The violation charged in the CFTC's Order concerns the bank's trading of one particular credit default index -- IG9 10Y. As the end of February 2012, the bank's London traders had a net short position in the index of $65 billion. "On February 29, just ahead of the month-end testing of their marks, the traders believed the portfolio's situation was grave," the order said."That day, desperate to avoid further losses, the traders developed a resolve, as they put it, to 'defend the position.' Recognizing that the sheer size of their position in IG9 10Y had the potential to affect or influence the market, the traders recklessly sold massive amounts of protection on the IG9 10Y. They were short protection and they sold more protection. "Specifically, with the portfolio standing to benefit as the IG9 10Y market price dropped, on February 29 the CIO sold on net more than $7 billion of IG9 10Y, a staggering volume -- far and away the largest amount the CIO ever traded in one day -- $4.6 billion of which was sold during a three-hour period as the day drew to a close," the order said.
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