JP Morgan's CDX IG Series 9

According to Dealbook JP Morgan sold synthetic credit coverage on "an index of big American corporations like General Mills, Alcoa and McDonald’s — known as CDX IG Series 9. If the companies in the index went bankrupt, JPMorgan would have to pay out, but if the companies continued to do well JPMorgan could rake in the fees from financial firms that bought the insurance."

Of the 125 companies in CDX IG Series 9, four already had their credit event:

CIT Group
Federal Home Loan Mortgage Corporation
Federal National Mortgage Corporation
Washington Mutual

That leaves 121 companies to effectively insure.  The big money is owed when a credit event or bankruptcy occurs, but positions are written up or down based on the value of the underlying instrument.  Capital exchanges can occur between the parties based on the underlying value. 

Markit shows a number of recent credit events, American Airlines (AMR), Dynergy, PMI Group and Eastman Kodak.  None of these companies are in CDX IG Series 9.

FTAlphaville identified companies in the synthetic portfolio with deteriorating credit:

There are four credits in the Markit CDX.NA.IG.9 that are especially wide: Radian, MBIA, Sprint Nextel, and R.R. Donnelley & Sons. If one is outright long or short, the idiosyncratic risk around these names would have to be actively (expensively) managed.

FT Alphaville's piece shows how JP Morgan sought to be the financial Goliath in the CDX IG Series 9 trade.  It took miffed hedge fund traders and journalists to fell JP Morgan.  Because of their actions, JP Morgan created a non-market for a financial product.  Who is watching, how long will it last and will it spread?