JPMorgan Just Cornered The Commodity Derivative Market, And This Time There Is Proof
For years there had been speculation, gossip and scuttle-butt that JPM had cornered a US commodity market. Now, finally, we have documented proof.
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Traditionally, we demeanour during a OCC’s Quarterly Bank Report on derivatives activities to see that was a largest bank in a US in terms of sum notional derivative holdings. The reason being that like on visit occasions in a past, we find some stunning results, such as many recently in Jan when we wrote that, for a initial time, Citigroup had eclipsed JPM as a largest US bank in sum derivatives, with usually over $70 trillion compared to long-lived megabank JPM’s $65.3 trillion as of a third entertain of 2014, explaining also since Citigroup had drafted a Swaps pull out denunciation in a Omnibus Bill.
And while this time there was small sparkling to news during a sum turn (JPM overtook Citi in Q4 usually for Citi to once again turn a world’s largest bank in sum derivatives with $56.6 trillion compared to $56.2 trillion for JPM and $52 trillion for Goldman as Bloomberg reported earlier), and in fact sum notional derivatives tumbled from $220.4 trillion in Q4 to $203.1 trillion in Q1 a lowest turn given 2008…
… an positively intolerable blockbuster emerges when looking during a underlying member data.
Presenting Exhibit 12: Notional Amounts of Commodity Contracts by Maturity: even a CFTC regulator would be means to mark a outlier charted below.
What a draft above shows is that after vacillating around a low to midst $200 billion operation for a past 5 years, in Q1 a volume of Commodities with a majority of underneath 1 year exploded to a record $3.9 trillion!
Sadly, a OCC provides no tangible reason for since there was such an epic swell in commodity derivatives within a US banking complement in a initial quarter, so we motionless to explore.
What we found is what those who have for years indicted JPM of cornering a commodity markets, have known: since it is nothing other than JPMorgan’s Commodity derivative book essentially in a 1 majority bucket, that exploded from usually $131 billion to a gargantuan and never before seen $3.8 trillion!
In fact as a draft next shows, while historically JPM has accounted for usually over 50% of sum commodity land among all US blurb banks, in a Q1 this series soared to a stratospheric 96% that by anybody’s standards is a really construction of cornering a market!
We don’t know what stirred JPM’s commodity derivative book to soar to such a never before seen amount, though a series many positively looks aberrant on both an comprehensive and a relations basis, generally deliberation that no other banks increased their sold derivative book with a same vigor.
So what is going on here?
We motionless to puncture down some some-more when we encountered something even some-more perplexing. Because since in prior quarterly updates, a OCC pennyless out a FX and Gold categories as apart derivative equipment as seen in this many new draft from a Q4 update…
… in Q1, once again utterly inexplicably, a OCC motionless to pile these dual products together, so creation any convincing regard about a sum notional superb of usually bullion derivatives, impossible! But wait, we suspicion that according to former Chairman Bernanke, bullion anything though currency: is a OCC unexpected conflicting with that assessment?
Furthermore, while in all prior iterations of a OCC’s Table 9, bullion derivative notionals by majority were categorically damaged out as can be seen in this Q4, 2014 list below:
Starting in Q1, 2015 a “gold” territory in Table 9 no longer exists (although we can see that while JPM cornered “commodities”, it was Citi that had a sum derivative notional of “precious metals” bear a large jump, also for reasons unknown).
One would roughly consider a OCC is stealing something as a direct of US blurb banks. So while we no longer know what usually sum bullion derivatives superb is, for some unexplained, reason, we do know that a sum sum of FX and gold usually strike an all time high.
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And while a OCC did all it could to facade a “gold” line object by lumping it with FX, it still kept “Precious Metals” as is, nonetheless we assume that this too will be lumped with FX and bullion shortly.
It is this draft that shows something is truly peculiar when it comes to a US blurb bank industry’s activity in a precious metals space.
So in summary, this is what we do know:
- in Q1, JPM cornered a commodity derivative market, with a sum derivative bearing of usually over of $4 trillion, an boost ot 1,691% from usually $226 billion in one quarter!
What we don’t know is:
- why did a OCC confirm to effectively discharge a bullion derivative relapse by lumping it with FX,
- why there was a 237% boost in a sum volume of changed metals (which embody gold) contracts in a quarter, from $22.4 billion to $75.6 billion
We have sent an email requesting most indispensable construction from a Office of a Currency Comptroller, nonetheless we are not holding the breath.
Source: OCC’s Quarterly Report on Bank Trading and Derivatives Activities First Quarter 2015