JPMorgan Securities agreed to pay $750,000 to settle allegations levied by the Financial Industry Regulatory Authority (FINRA) that its inadequate financial risk management controls and supervisory procedures allowed five erroneous orders to be placed with exchanges or alternative trading systems.
From January 2019 to July 2022, the broker-dealer’s financial risk management controls 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,” FINRA stated in its order issued Monday.
The $750,000 fine will be paid jointly to Nasdaq and FINRA, of which $187,500 is allocated to FINRA, the order said.
The details: In two instances, traders placed orders for equity securities with an incorrect price. In three other cases, clients submitted orders that exceeded the daily sales limit order or that were clearly erroneous, but those orders were executed by traders.
FINRA said JPMorgan’s average daily sales quantity limits, in some cases, “were too large to be effective, and the firm failed to provide any documented rationale for why it set them at such levels.” In addition, the firm’s supervisory policies for handling a soft block on such sales, which places a pause on the sale until it can be reviewed, “did not address how to handle, document, and review soft block overrides.”
The firm adequately lacked controls to enforce limit price thresholds or prevent duplicative orders, FINRA added.
Compliance considerations: In July 2022, the firm “implemented additional controls to prevent the entry of orders that—based on price and/or size of the order relative to the market—could potentially lead to unintended market impact,” the order said.
The case marks the third time since 2017 that JPMorgan has been fined by FINRA or exchanges for similar infractions, according to the order.
JPMorgan Securities did not respond to a request for comment. The firm neither admitted nor denied FINRA’s findings.