The Securities and Futures Commission (SFC) has issued a formal reprimand against several of JP Morgan’s subsidiaries, including JP Morgan Broking (Hong Kong), JP Morgan Securities (Asia Pacific), and JP Morgan Securities (Far East), as well as a total of $30 million in fines for regulatory breaches, according to an SFC statement.
The SFC is a watchdog organization that helps inform investors, bringing to light a plethora of illicit operations and unregulated entities that market participants should abstain from doing business with.
JP Morgan Broking, and JP Morgan’s APAC and Far East subsidiaries were fined a collective $30 million today- $15 million, $12 million, and $3 million respectively- following an SFC investigation.
The investigation found that JP Morgan had not properly implemented the appropriate systems and controls for its institutional equities business in Hong Kong as outlined by SFC’s requisite compliance. This included, among others, a failure to ensure proper short selling activities, client facilitation, and operation of dark liquidity pool trading services.
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More specifically, between 2010 and 2013, JP Morgan’s Hong Kong and APAC subsidiaries had wrongly aggregated their inventory positions controlled by a principal trading desk across multiple offshore affiliates. Subsequently, the two firms wrongly conducted an excess of 41,000 uncovered short sale trades as long sale trades.
In addition, the SFC investigation found that between 2011 and 2012, JP Morgan’s Far East and APAC subsidiaries did not have in place adequate systems and controls to prevent a client facilitation trade being executed without the client’s consent.
During the process, JP Morgan’s Hong Kong subsidiary had represented to the SFC that its client-facing crossing engine, JPMX, was a pure agency-to-agency matching platform. However, the SFC also uncovered multiple principal orders of JP Morgan that had been incorrectly routed into an agency pool of JPMX for matching in mid-2012 due to human and systems errors – none of these orders were crossed in JPMX.
As a result of the investigation and the SFC’s findings, the regulator levied the aggregate fine in light of JP Morgan’s cooperation with the SFC, its recent steps taken to allay concerns unearthed by the SGC, and the deployment of an independent reviewer to conduct an internal controls and systems check of JP Morgan.
The SFC recently made headlines after it issued a warning on IQSFX for suspicious activity. IQSFX had been added to the SFC’s alert list for suspicion of being unlicensed or unregistered in Hong Kong.