The world’s biggest bond dealers, including JPMorgan Chase & Co. and Morgan Stanley, failed to properly report trades to the industry’s price-tracking system more than 11,000 times. JPMorgan’s penalty: About three minutes of its annual profit.
Fines levied in settlements disclosed last month by the Financial Industry Regulatory Authority amounted to a fraction of what the two New York-based firms generated from trading debt during the two-year reviews. JPMorgan’s $95,000 penalty was the biggest imposed by Finra as it cited at least three other dealers in the past five months for similar types of violations.
Regulators are seeking to uphold the integrity of the bond- price reporting system known as Trace, the biggest window into a market that’s grown about 78 percent since 2008 as investors poured money into debt securities. Holding back information on trades can give Wall Street dealers an advantage over customers seeking a fair price, undermining Finra’s stated goal of equal access for all participants to real-time data.
“If non-reporting is systemic, then that’s concerning because the broader market looks to this data as the golden source,” said Kevin McPartland, head of market-structure research at consulting firm Greenwich Associates. “It’s the best we’ve got when people try to understand who is doing what in the bond market.”
JPMorgan racked up the most Trace-related violations disclosed this year, the result of five separate reviews, according to a settlement released in April. The bank, which ranks as the biggest bond trader and top underwriter of corporate debt, neglected to post trades or missed deadlines in at least 6,300 instances from March 2010 through May 2012, at times omitting a quarter of required reporting, Finra said.
In one review, Finra found the violations accounted for almost 20 percent of the firm’s trades of new corporate bonds with other dealers that the bank was required to report over three months in 2011. In another, JPMorgan didn’t report 24 percent of new-issue offerings over five months, the regulator said.
Sometimes the bank didn’t report the correct volume, time or date of transactions, and the firm inadequately supervised compliance, according to the documents.
JPMorgan, whose companywide profit last year totaled almost $18 billion, accepted Finra’s $95,000 fine, the findings and a censure without admitting or denying the facts, according to the settlement. Finra is the industry’s self-regulatory body and is funded through members’ fees and fines.