Washington D.C. – J.P. Morgan Securities LLC has been slapped with a $200 million penalty by the Commodity Futures Trading Commission (CFTC) for failing to adequately supervise its trading operations, leading to significant gaps in its surveillance systems. The CFTC announced the settlement on Thursday, alleging the firm neglected to capture billions of order messages from trading venues between 2014 and 2021.
According to the CFTC order, the issues stemmed from a failure to properly configure data feeds during the onboarding of a new trading exchange in 2021. This resulted in incomplete data being ingested into J.P. Morgan’s surveillance tools, effectively blinding the firm to a substantial volume of trading activity. The missing data primarily consisted of sponsored access trading conducted by three major algorithmic trading firms.
J.P. Morgan admits to the facts outlined in the order regarding the scope and causes of the surveillance data gaps and acknowledges that its conduct violated CFTC regulations. However, the firm neither admits nor denies the CFTC’s overall findings.
The $200 million civil monetary penalty will be partially offset by $100 million in payments already made to the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System related to similar surveillance deficiencies. J.P. Morgan has stated the surveillance gaps were fully addressed by 2023.
CFTC Enforcement Director Ian McGinley stated the resolution, including the penalty and the appointment of a consultant for remediation, “sends a clear message that CFTC registrants must take appropriate steps to ensure…complete trade and order data…are being ingested into trade surveillance systems.”
The CFTC found J.P. Morgan operated under the erroneous assumption that data directly sourced from exchanges was inherently accurate and did not require verification. The firm’s quarterly reconciliation process, designed to check data completeness, was not applied to these direct-from-exchange data feeds. The agency emphasized the importance of rigorous testing and oversight of all data sources.
The CFTC acknowledged the cooperation of the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System in the investigation. Meredith Borner, R. Stephen Painter, Jr., Lenel Hickson, Jr., Manal M. Sultan, and former staff member Steven Ringer of the CFTC’s Division of Enforcement led the case.
Source: CFTC.gov
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