January 11, 2017
CFTC Orders J.P. Morgan Securities LLC to Pay $900,000 for Supervision Failures
Firm’s Supervisory Failures over Exchange and Clearing Fee Processing Led to Customer Overcharges at Times
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against J.P. Morgan Securities LLC (JPMS), a Delaware corporation headquartered in New York City, for failing to diligently supervise its officers’, employees’, and agents’ processing of exchange and clearing fees it charged customers for trading and clearing Chicago Mercantile Exchange, Inc. (CME) products and products from certain other exchanges during 2010 to 2014. JPMS is registered with the CFTC as a Futures Commission Merchant and a swap dealer.
The CFTC Order requires JPMS to pay a $900,000 civil monetary penalty and cease and desist from violating the CFTC regulation governing diligent supervision.
The CFTC Order explains that customer transactions executed on exchanges are subject to payment of exchange and clearing fees that are applied to each transaction in the normal course of business. Clearing firms such as JPMS receive invoices for these fees from the exchange clearinghouses, which the firms pass on to their customers, the CFTC Order states.
Here, the CFTC Order finds that JPMS failed to implement and maintain adequate systems for reconciling invoices from exchange clearinghouses with the amounts of fees actually charged to its customers. JPMS’ fee reconciliation process was largely manual and carried out by only one employee at the end of the month using three different JPMS systems. In addition to insufficient staff to complete the fee reconciliation process accurately, JPMS did not have adequate written policies and procedures in place regarding its clearing and exchange fee reconciliations. According to the CFTC Order, this led to instances in which JPMS overcharged some customers in an aggregate amount of approximately $7.8 million. The CFTC Order finds that JPMS discovered the problem in 2014, self-reported it to the CFTC, and thereafter took remedial steps, including refunding adversely affected customers.
The Order recognizes JPMS’ significant cooperation with the CFTC’s Division of Enforcement during the investigation of this matter.
Third Such Action Brought by the CFTC
This is the third action that the CFTC has brought over a clearing firm’s supervisory failures over fee processing:
• In August 2016, the CFTC ordered Barclays Capital, Inc. to pay an $800,000 penalty relating to its processing of futures exchange and clearing fees charged to customers (see CFTC Order and Press Release 7419-16, August 4, 2016); and,
• In August 2014, the CFTC ordered Merrill Lynch, Pierce, Fenner & Smith Incorporated to pay a $1.2 million penalty relating to is processing of futures exchange and clearing fees charged to customers (see CFTC Order and Press Release 6984-14, August 26, 2014).
The CFTC Division of Enforcement staff members responsible for this case are Susan Gradman, Joseph Patrick, Elizabeth Pendleton, Brigitte Weyls, Scott Williamson, and Rosemary Hollinger.
Last Updated: January 11, 2017