The huge trading losses by JP Morgan Chase rattled the financial markets late last week.
Stuart Turnbull is a professor of finance at the University of Houston’s Bauer College of Business. He says the trades were likely sanctioned by several layers of management.
“I as a trader could not take a position that large on my own. My risk manager on the desk would immediately find out and take appropriate action for me to cancel the trade. So this clearly is a trade that was sanctioned by senior management.”
Turnbull says many high risk trades similar to those executed by JP Morgan Chase make hundreds of millions of dollars for banks and that this one went the other way. He says a $2 billion loss won’t have much of an effect on that bank.
“It gets people’s attention. It’s not a game-stopper for JP Morgan at all. But it’s, yes, obviously you don’t want that kind of loss occurring on one trade.”
Regulators are tracking the trades that led to the huge loss and are considering whether new controls need to be put in place to prevent similar losses in the future.