1. JP only ‘insisted it was hedging’ with regard to its CIO division. Not its ‘derivatives portfolio’. These aren’t the same thing, and the graph you actually have is the latter not the former.

2. I don’t ‘assume’ that market making (or i would rather say, ‘non-CIO activities’) is what dominates that figure, I’m just saying it’s possible, and indeed we have no reason to believe otherwise.

I notice that (at least if I understand the figure correctly) the ‘derivatives portfolio’ was ramped *way down* in size/risk/basis starting in around 2009. Does that jibe with what is known/understood about their CIO trading? Because if not, why would you look at this figure and think it reflects the fingerprints of their CIO to any material degree at all?

I’m all for looking at and using all available data. I understand available data is limited. I also understand that my Volcker position is not orthodox and to someone who does favor the rule, ‘was CIO primarily hedging?’ is an interesting question. I think my main point was, ‘does their derivatives portfolio hedge the rest of the bank?’ is just not the same question. There is no earthly reason why it should or would, Volcker or no Volcker. ‘Derivatives vs non derivatives’ is not a good proxy for CIO vs rest-of-bank.

Best

1. OK, if you reject the Volcker Rule, then you may not be interested. But, for those of us dealing with the Volcker Rule, the questions matter. Indeed, JP Morgan has insisted it was hedging and would be in compliance with the Rule. It has not defended its actions by dismissing the wisdom of the Rule as you have. My post is only pushing on their defense.

2. The aggregation to the entire derivatives portfolio is an artifact of the available public data. You are certainly right that the publicly reported financials are not very valuable for an in depth analysis the different lines of business at the big banks. That’s another issue entirely. But I wouldn’t be so nihilistic as to not even look at the numbers for the aggregated portfolio.

3. You conjecture that the exposure on the derivatives portfolio may be an feature of the market making line of business. That’s correct, it may be. At least in principle, as a logical possibility, if not an empirical likelihood. Have you actually taken a look at the figure? It’s telling you something about the dynamics of the exposure. Do those dynamics look like what comes from a market making business? Maybe. But I’ve never seen a model of a market making business that generates that exposure. Have you? Instead of debating abstract logical possibilities, we need to try to understand these lines of business and their drivers. I’m open to this pattern reflecting market making. But then we will have learned something about market making. But I’m not open to just assuming that it does without taking the numbers seriously and considering the implications and whether they make sense with the other aspects of the business that we know about. That’s too lazy.