dan.barnes, 29 September 2020
US market regulators the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have fined JP Morgan over US$920 million in penalties and disgorgements for manipulative trading, or spoofing, in the US Treasuries, US Treasuries futures, and commodity markets, between 2009 and 2016. The CFTC noted that the bank also did not respond to warnings from the regulators or the CME and at points misled the investigation.
The bank’s behaviour during this period raises questions that neither the bank nor the regulators are prepared to answer, regarding its effect on market stability.
During the period in question, on 15 October 2014, the US Treasury market experienced a ‘flash crash’, which saw the 10-year treasury rate fall 34 basis points over a 10-minute period from 2.2% to 1.86%, a 52-week low, before rebounding for the end of day. Treasury futures volume reached nearly 1.6 million trades, an all-time record, having only broken the 800,000 trades a day barrier three times before.
A similar flash crash in the US equities markets in 2010 was attributed by the CFTC to manipulative trading by a lone trader on the CME via its E-mini S&P 500 futures.
When asked whether JP Morgan’s activity had been reviewed as a potential trigger of the 2014 flash crash, both the SEC and CFTC declined to comment. JP Morgan also declined to comment.
The press office of the CME, which is also the market for US Treasury futures, declined to comment on how JP Morgan had spoofed on its markets for eight years without being stopped.
The CFTC found that from at least 2008 through 2016, JP Morgan, “through numerous traders on its precious metals and Treasuries trading desks, including the heads of both desks, placed hundreds of thousands of orders to buy or sell certain gold, silver, platinum, palladium, Treasury note, and Treasury bond futures contracts with the intent to cancel those orders prior to execution.”