Hong Kong’s Securities and Futures Commission (SFC) has reprimanded and fined three JP Morgan entities a sum of $30m for various regulatory breaches and/or internal control failings.
The regulator fined JP Morgan Broking (Hong Kong) (JPMBHK), JP Morgan Securities (Asia Pacific) (JPMSAP) and JP Morgan Securities (Far East) (JPMSFE) $15m, $12m and $3m respectively.
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SFC in its probe found that JP Morgan had failed to implement adequate systems and controls in its institutional equities business in Hong Kong.
The company failed to ensure compliance with the rules and regulations applicable to short selling activities; client facilitation and principal trading business; and operation of dark liquidity pool trading services, the regulator said in a statement.
According to the regulator, between May 2010 and February 2013 JPMBHK and JPMSAP incorrectly aggregated the inventory positions controlled by a principal trading desk across two offshore affiliates in determining whether their position in a security is net long or net short.
As a consequence, the two firms wrongly conducted over 41,000 uncovered short sale trades as long sale trades.
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By GlobalDataAlso, nearly one-third of the short selling orders placed by JPMBHK and/or JPMSAP for their principal trading in May 2012 did not have the appropriate documentary assurance in place to confirm that the sales were covered when the short sell orders were placed.
Furthermore, between January 2011 and December 2012, JPMSFE and JPMSAP did not have adequate systems and controls in place to prevent a client facilitation trade being executed without the client’s consent, the regulator found in its investigation.
The SFC also found that JP Morgan granted seven facilitation traders and 14 principal traders incorrect access rights under its network shared drives and/or order management systems between January and December 2012. As a result, the facilitation and principal traders were able to view client order flow information beyond their defined access rights.
