FT Alphaville " Approaching the beach [updated] CNBC is reporting on Wednesday that JPMorgan has sold a substantial amount of its loss-making synthetic credit portfolio: JPMorgan Chase has sold off 65 percent to 70 percent of its losing "London Whale" position, which led to a multibillion-dollar trading loss for the bank, CNBC reported on Wednesday. In the past month, the bank [JPM 36.07 0.69 (+1.95%) ] said its chief investment office has sold the majority of its long holding in the CDX IG-9 10-year index. To which we raise an eyebrow and say, "really?" On Tuesday, FT Alphaville ranted about discussed how it baffles us that the regulators didn't spot the Whale's positions earlier. We presented this graph using DTCC data, to give a sense of just how much the risk taking activity in the Markit CDX.NA.IG.9 index grew since the beginning of the year. This is the one credit index that we know for certain that JPMorgan is in, i.e. even the regulator is on record about it. The last data point in the above was for $138bn of net notional. The next data point, released late Tuesday, is $136bn and that's the total outstanding on the untranched index as of June 15th. That's not a lot of movement at all. But then we looked at the MarkitSERV activity data to check if something has been going on more recently, i.e. this week. This dataset is daily to DTCC's weekly, and is activity (new and terminated trades on a given day) rather than total outstanding positions (whenever traded). That Tuesday spike of $31bn is pretty incredible, isn't it? Like - biggest amount of trading on a day since MarkitSERV started measuring the data. Also, if someone had sold a lot of protection in the first few months of 2012, and exited recently (likely by just taking the other side of the trade and buying), that would have crystalised a fair amount of loss. Interesting. This is definitely a milestone in the saga then. Still, to our minds, it's not over. We'll have to wait and see what the weekly DTCC data has next week, as it will more definitively show what really happened this week. Of particular interest will be what happened in tranche positions. The index activity above does not add up to a $2bn loss. Even if all that $31bn was JPMorgan and they'd entered the entire trade around 105bps and left at 158bps, that puts the loss around $700-800m. And that's us assuming all the activity is theirs and they they entered at the worst possible point all at once. Or, maybe the rest of the week will bring more activity spikes in the index alone? In any case, we're still missing more than a billion of losses... Update 17:15 UK time - Chart attack!! Let's look at the above activity chart again, but now with the skew. As a reminder, the skew is the difference between the theoretical value of the index based on its underlying constituents and the actual spread at which the index trades. The skew shouldn't become big or stay big for long periods. It should be arbitraged away, provided there's enough liquidity in the index and underlying single-name CDS to do so. So, here's the skew: An easier way to see what's going on is to take that skew (theoretical - actual spread) and divide it by the actual spread, to scale it. In the middle of May, the skew the came in considerably. It would seem that equilibrium was restored to the Markit CDX.NA.IG.9. The other thing that's being mentioned, and quite rightly, is that Wednesday happens to be an "IMM date." Options on CDS expire, as do some CDS contracts themselves. Hence it's completely normal to have a spike in activity. It's the magnitude of the above that leads us to believe that something big did indeed happen on Tuesday. Not 65-70 per cent of the Whale's position worth of "big," but at least the first convincing (public) sign we've seen that the positions are being managed down. Related links: JPMorgan Has Sold Off Majority of Losing Position - CNBC "Just The Facts" On The JPM "Whale" Unwind Rumor - ZeroHedge This entry was posted by Lisa Pollack on Wednesday, June 20th, 2012 at 16:07 and is filed under Capital markets. Tagged with Chief investment office, credit derivatives, jpmorgan.