Fines and settlements are appearing on epidemic proportions in financial services today. Multiple notable cases are reflecting a troubling trend, of firms violating limits put in place to limit risk in the financial system in off the radar financial market places. Earlier this week, news broke that the Goldman Sachs Group Inc. (NYSE: GS) would pay a $12 million settlement for a ‘pay to play’ scheme carried out over a number of years. The Merrill Lynch division of Bank of America (NYSE: BAC) was also recently fined by FINRA for failures to complete required regulatory paperwork and disclosures on time. Now, attention is turning to JPMorgan Chase (NYSE: JPM) as the firm has agreed to pay $600,000 to settle charges it violated cotton futures position limits, the U.S. Commodity Futures Trading Commission.
According to the CFTC, the bank’s positions in cotton futures traded on the IntercontinentalExchange U.S. exceeded limits on several days between September 16 and October 5, 2010. JPMorgan’s positions were held as a result of an “inadvertent deficiency” in the bank’s automated position limit monitoring system, which tracks current positions relative to the applicable position limits, the CFTC said. However, after learning of the deficiency, JPMorgan put in place a manual position limit monitoring process that failed to keep the bank from further violations, the CFTC said.
The order is the latest in a flurry of position limit settlements announced by the CFTC in the lead-up to new caps on the number of contracts that traders can hold in certain markets. The CFTC fine is yet another in a chain of systemic events. Just last week, the agency ordered Citigroup Inc (NYSE: C) and a subsidiary to pay $525,000 for violating limits in the wheat market.
This market has historically been regarded by many as the wild west, and unmonitored bastion of trading that revealed little information and contained enormous risk. That is all changing now, with the financial regulatory reform that is set to take place soon. The new set of trading curbs kicks in October 12. The rules, which aim to rein in speculation and limit price spikes, were included in the 2010 Dodd-Frank financial reform law and finalized by the agency last October. Additional caps are expected to take effect next year. Financial industry groups have sued to stop the new position-limit rules, saying they would irreparably harm the marketplace and that the CFTC failed to sufficiently weigh the economic consequences of the rule, as is required by law.
