The Commodity Futures Trading Commission has settled charges against J.P. Morgan Securities LLC, a registered futures commission merchant and swap dealer, with a $200 million civil monetary penalty.
The penalty will be offset by a total of $100 million of any payment made pursuant to the resolution with JPMorgan Chase Bank.
J.P. Morgan admitted to having failed diligently to supervise its business, resulting in failing to capture billions of orders in its surveillance systems.
CFTC Director of Enforcement Ian McGinley said: “Today’s resolution includes a significant penalty, certain factual admissions, and the appointment of a consultant to ensure remediation. We hope it sends a clear message that CFTC registrants must take appropriate steps to ensure, through testing and other means, that complete trade and order data direct from exchanges are being ingested into trade surveillance systems and that orders are being surveilled.”
Surveillance failures during onboarding of a new trading exchange
In 2021, in the course of onboarding a new trading exchange, J.P. Morgan discovered its surveillance of trading on multiple venues and trading systems was not operating correctly, resulting in gaps in J.P. Morgan’s trade surveillance on these venues.
The surveillance gaps resulted from J.P. Morgan’s failure to configure certain data feeds to ensure complete trade and order data were being ingested by J.P. Morgan’s surveillance tools.
On a specific U.S. designated contract market, J.P. Morgan failed to ingest into its surveillance systems—and thus failed to surveil—billions of order messages from 2014 through 2021, which, according to J.P. Morgan, largely consisted of sponsored access trading activity for three significant algorithmic trading firms. J.P. Morgan has represented the surveillance gaps were fully remediated by 2023.
Additionally, while J.P. Morgan had in place a quarterly reconciliation process designed to ensure the completeness of some order and trade data ingested into certain surveillance systems, J.P. Morgan did not subject direct-from-exchange data feeds to that reconciliation process, based on an erroneous assumption that data directly from an exchange was from a “golden source” and thus did not need to be tested.
