J.P. Morgan Securities LLC fined $750,000 by the SEC for failing to implement reasonable controls and supervisory procedures.
The firm’s supervisory procedures did not address handling, documenting, and reviewing soft block overrides, resulting in the entry of certain erroneous orders. By January 2021, the firm implemented changes to its supervisory requirements relating to soft blocks, including tracking and reviews of soft block overrides and adding compliance trainings and updates to its written supervisory procedures..
In November 2021, the firm consented without admitting or denying the findings to a fine of $120,000 imposed by Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe EDGA Exchange, Inc. for violations of Exchange Act Rule 15c3-5. These exchanges found that the firm failed to prevent the entry of erroneous orders between August 7, 2018, and December 19, 2019, because, in part, the firm’s thresholds for size and price controls were too high to be effective, and its supervisory system for review of soft blocks was not reasonably designed.
The firm’s financial risk management controls and supervisory procedures were not reasonably designed to prevent certain erroneous orders that exceeded appropriate price or size parameters, on an order-by-order basis or over a short period of time, or that indicated duplicative orders. Accordingly, the firm violated Exchange Act § 15(c)(3) and Rule 15c3-5(b) and (c)(1)(ii), and FINRA Rule 2010.
The firm’s market access controls failed to prevent five erroneous orders routed to the market between January 2019 and April 2021. The firm’s erroneous order and duplicative order controls were not reasonably designed. The firm’s trading desks applied fixed single order quantity limits ranging from 100,000 to 9,999,999 shares depending on the specific desk, trader, and/or client involved in each order. The firm also applied average daily volume limits ranging from 25 to 50 percent based on the specific desk, trader, and/or client.
The firm’s trading desks applied single order limit price controls based on fixed percentages away from the National Best Bid and Offer, ranging from three to 15 percent depending on the desk, trader, and/or client involved. However, certain limit price thresholds were set too high to be effective, and the firm failed to provide a documented rationale for setting these thresholds. Additionally, the firm did not have a reasonable duplicative order control.
As of July 2022, the firm had implemented additional controls to prevent the entry of orders that could potentially lead to unintended market impact. As a result, the firm violated Exchange Act § 15(c)(3), Rule 15c3-5(b) and (c(1)(ii), and FINRA Rule 2010.
JP Morgan have consented to the imposition of sanctions, including a censure and a total fine of $750,000 to be paid jointly to Nasdaq and FINRA, with $187,500 allocated to FINRA. The sanctions will be effective on a date set by FINRA.