JPMorgan Penalized Again for Surveillance Failure: $200 Million This Time

The US Commodity Futures Trading Commission (CFTC) has fined one JPMorgan unit $200 million for failing to capture billions of orders in its surveillance systems between 2014 and 2021. However, the company only has to pay $100 million, as the rest will be offset with a previous penalty.

The civil monetary penalty against J.P. Morgan Securities came with a cease and desist order for further violations of the CFTC’s supervision requirements.

Hefty Fine for JPMorgan

The regulatory agency's announcement yesterday (Thursday) detailed that JPMorgan admitted the fact that the order included the scope and causes of surveillance data gaps, but it did not admit or deny the findings of the fact. The company has already settled the charges with the regulator, paying a heavy penalty.

“Today’s resolution includes a significant penalty, certain factual admissions, and the appointment of a consultant to ensure remediation,” said Ian McGinley, Director of Enforcement at CFTC.

“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.”

Severe Gaps in the System

JPMorgan identified the lapses in its trading surveillance mechanism on multiple venues in 2021. It also found that the trading systems were not operating correctly, resulting in gaps in trade surveillance. Between 2014 and 2021, the company failed to ingest billions of order messages into its surveillance system, which largely consisted of “sponsored access trading activity for three significant algorithmic trading firms.”

“We self-identified the issue, significant remedial actions have been taken, and others are underway; and we have not found any employee misconduct or harm to clients or the market in our review of the previously uncaptured data,” the bank’s noted in a statement. “We do not expect any disruption of service to clients as a result of these resolutions.”

The bank also indicated that the surveillance gaps were resolved in 2023.

The CFTC's hefty fine came only a couple of months after the Wall Street giant agreed to pay $348 million to the Federal Reserve and the Office of the Comptroller of the Currency for gaps in its trade surveillance program, which resulted in failure to monitor the conduct of its employees and clients. The latest CFTC’s order will offset the $100 million fine from that previous penalty.