JPMorgan expects to pay $350m penalty over trade reporting gaps

The bank said in a filing on Friday that it expects to pay civil penalties to regulators for reporting incomplete trading data to surveillance platforms.

JPMorgan Chase & Co (JPM), the largest US bank, will pay more than $350m to settle regulatory claims that it failed to feed information on trades into market surveillance systems. In an annual filing on Friday, the bank said it was subject to such penalties to two US watchdogs and is in “advanced negotiations” with a third regulator which may not result in a resolution.

“The firm self-identified that certain trading and order data through the CIB was not feeding into its trade-surveillance platforms,” JPM said, referring to its commercial and investment bank. “The firm does not expect any disruption of service to clients as a result of these resolutions.” JPM also said it has already completed enhancements to the CIB’s inventory and data completeness controls, “and other remediation is underway”.

“While the identified gaps represent a fraction of the overall activity across the CIB, the data gap on one venue, which largely consisted of sponsored client access activity, was significant. The firm is dedicated to maintaining rigorous controls and continuously enhancing the reliability of its trade infrastructure”, the bank said in the filing.

In a quarterly filing in November 2023 the bank said that it was cooperating with investigations into whether the firm had provided complete trading and order data as required and that some authorities had proposed penalties.

Along with the fine and continued remediation, the bank said it expected the regulators to require the engagement of an independent consultant.

Trade surveillance

Trade surveillance is the process of monitoring and analyzing trade activities, including orders, executions, and other trade-related data. The goal is to identify any potential violations of internal policies or regulatory requirements relating to trading activities, such as potential market abuses, insider trading, or other forms of trading misconduct.

The challenges associated with surveilling this data include the vast data volumes involved, having disconnected (or siloed) surveillance systems within a large enterprise that do not effectively communicate with each other, and the “timely” factor – identifying suspicious trading patterns promptly to prevent market abuse via real-time analytical capabilities.

To reduce compliance risk, businesses typically use technology and highly trained professionals to detect manipulative practices and unusual trading patterns – knowing that the regulators overseeing them are doing the same thing to uncover this kind of activity. Having supervisory oversight of all trading activity depends on functional internal controls, which will alert the business when data gaps arise, or other aberrations.

JPM’s disclosure is just that, as no regulatory action has been announced … but it’s a good reminder to test trading activity controls on a regular basis.