Regulators Expand Investigations into JP Morgan’s Derivatives Trading


The Commodities Futures Trading Commission (CFTC) is expanding its investigation into whether J.P. Morgan traders, who made the derivatives trades that resulted in losses of $3 billion and counting, engaged in fraud, among other things. The investigation is proceeding under new authority gained in the Dodd-Frank financial reform act. “U.S. Probe of J.P. Morgan Widens,” Wall Street Journal. The Securities and Exchange Commission and the Department of Justice, which handles criminal prosecutions, are also investigating, as are regulators in the United Kingdom where the trades were made.

The CFTC is the U.S. agency responsible for regulating derivatives trading. Derivatives are synthetic financial instruments, the performance of which is linked to another asset, such as stocks, bonds and commodities.

Credit-default swaps are a type of derivative that played a significant role in the credit crisis and financial meltdown of 2008 and 2009. Dodd-Frank, which was enacted to prevent another similar occurrence, gave the CFTC expanded powers to regulate such instruments, including new powers to combat fraud and market manipulation and investigate deceptive conduct in connection with swap instruments.

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