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JP Morgan fined US$920 million for spoofing

Chris Hamblin, Editor, London, 8 October 2020

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The US Commodities and Futures Trading Commission has fined JP Morgan for allegedly engaging in an eight-year-long manipulative and deceptive scheme by 'spoofing' - bidding or offering with the intent to cancel the bid or offer before execution - while placing orders for futures contracts. Exchange-facing private banks and HNWs may have been among its victims.

During the relevant period, according to the CFTC, traders on the bank’s precious metals desk and treasuries desk - often acting on behalf of private clients' brokerage accounts -  manipulated the price of precious metals and US Treasury futures contracts and, between August 2011 and 2016, employed a manipulative and deceptive scheme in which they entered spoof orders and layered spoof orders with the intention of sending market participants a false signal of greater buying or selling interest, thereby creating the false impression that market prices were going to rise or decline and thereby, in many instances, deceiving those market participants into transacting against their genuine orders at artificial prices that had nothing to do with the legitimate forces of supply and demand.

Other alleged skulduggery took place between 2008 (at the latest) and 2016. The bank has submitted an offer of settlement which the regulator is accepting.

The CFTC says that the bank, which does not confirm or deny the accusations, broke s9(a)(2) Commodity Exchange Act, 7 USC § 13(a)(2) (2018); engaged in spoofing in violation of s4c(a)(5)(C), 7 USC § 6c(a)(5)(C) (2018); and for conduct occurring on or after August 15, 2011, engaged in manipulation and attempted manipulation in violation of s6(c)(1) and 6(c)(3), 7 USC § 9(1), (3) (2018) and Regulations 180.1(a)(1) and (3) and 180.2, 17 CFR §§ 180.1(a)(1), (3), 180.2 (2019). It also allegedly failed to supervise things diligently in violation of Commission Regulation 166.3, 17 CFR § 166.3 (2019).

The order in which the CFTC makes its findings and imposes remedial sanctions quotes from several US federal cases. One said that spoofing constituted an attempt to manipulate prices in contravention of sections 6(c)(3) and 9(a)(2) and Regulation 180.2)); one found that “injecting false information into the marketplace that ‘portrayed a false appearance of wide investor interest’” was a manipulative or deceptive device under section 6(c)(1) and Regulation 180.1; one noted that “trading engineered to stimulate demand” may inject false pricing signals into the market and thus constitute manipulation under the securities laws.

Dan Berkowitz, the commissioner, described the penalty as "the largest monetary settlement in this agency’s history."

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