JPMorgan's Iksil is distorting credit indexes: Traders

Trader is based in London

April 6 (Bloomberg) -- A JPMorgan Chase & Co. trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the multi-trillion-dollar market, according to traders outside the firm.

The trader is London-based Bruno Iksil, according to five counterparts at hedge funds and rival banks who requested anonymity because they’re not authorized to discuss the transactions. He specializes in credit-derivative indexes, an off-exchange market that during the past decade has overtaken corporate bonds to become the biggest forum for investors betting on the likelihood of company defaults.

Investors complain that Iksil’s trades may be distorting prices, affecting bondholders who use the instruments to hedge hundreds of billions of dollars of fixed-income holdings. Analysts and economists also use the indexes to help gauge interest rates that companies must pay for new credit.

Though Iksil reveals little to other traders about his own positions, they say they’ve taken the opposite side of transactions and that his orders are the biggest they’ve encountered. Two hedge-fund traders said they have seen unusually large price swings when they were told by dealers that Iksil was in the market.

Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Iksil’s specific transactions. Iksil didn’t respond to phone messages and e-mails seeking comment.

Speculation Intensifying

Speculation about his positions intensified yesterday after the newest and most-active index of investment-grade credit, the Markit CDX North America Investment Grade Index of credit- default swaps Series 18 climbed 4.4 basis points to a mid-price of 97 basis points at 5:13 p.m. in New York, the biggest increase in almost four months, according to Markit Group Ltd.

The credit indexes are linked to the default risk on a basket of 100 or more companies.

In some cases, Iksil is believed to have “broken” the index -- Wall Street lingo for the market dysfunction that occurs when a price gap opens up between the index and its underlying constituents, the people said. The persistence of price dislocations has frustrated some hedge funds that were betting on the gap to close over time, the people said.

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