The Commodity Futures Trading Commission issued an order simultaneously filing and settling charges against J.P. Morgan Securities LLC, a registered futures commission merchant and swap dealer, for failing diligently to supervise its business as a CFTC registrant, resulting in J.P. Morgan failing to capture billions of orders in its surveillance systems.

J.P. Morgan admits the facts in the order in Sections II.C.2 (Scope of Surveillance Data Gaps) and 3 (Causes of Surveillance Data Gaps); acknowledges that its conduct in those sections violated the CFTC regulations; and otherwise neither admits nor denies the findings of fact.

The order requires J.P Morgan to pay a $200 million civil monetary penalty (CMP), cease and desist from further violations of the CFTC’s supervision requirements, and comply with conditions and undertakings specified in the order. The order provides the CMP obligation will be offset by a total of $100 million of any payment made pursuant to the resolution with JPMorgan Chase Bank, N.A. concerning surveillance gaps by the Office of the Comptroller of the Currency dated March 14, 2024, and the resolution with JPMorgan Chase & Co. concerning surveillance gaps by the Board of Governors of the Federal Reserve System dated March 8, 2024.

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

Case Background

According to the order, 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.

According to the order, 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.

The CFTC acknowledges and appreciates the assistance of the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System in this matter.

The Division of Enforcement staff responsible for this matter are Meredith Borner, R. Stephen Painter, Jr., Lenel Hickson, Jr., and Manal M. Sultan, and former staff member Steven Ringer.

Source: CFTC