Senate committee hearing on JPM loss — possible industry implications on derivatives infrastructure

The Senate Sub-committee hearing on the “London Whale” credit derivatives trading loss at JP Morgan’s CIO office makes, in some segments, for riveting Q&A. The Senate sub-committee report (as well as JPM’s own internal report) also makes for very compelling reading.

Both reports, and the sub-committee hearing, highlight some very specific control and reporting issues that are not unique to JPM. The hearing also was (somewhat) critical of the Office of the Comptroller of the Currency’s (OCC) oversight. It would seem more likely than less that regulatory oversight of these issues will see increased focus and scrutiny across the industry.

Below, we list nine (9) possible implications. Using our schematic of key post-DFA process and data flows within OTC derivatives infrastructure, we also highlight the functional areas we believe may see such increased regulatory oversight scrutiny as a consequence.

Dealer firms will be well served to consider conducting current state analyses and efficacy reviews of the systems and processes in place in these areas; with a view to developing updated policies and remediation plans (as needed). If they are not already doing so, that is.

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