J.P. Morgan fined $2.8 million for clearing errors

Finra says Bear Stearns' flawed system led to securities segregation issues

Dec 27, 2017 @ 12:58 pm

By InvestmentNews

The Financial Industry Regulatory Authority has censured J.P. Morgan Securities and fined it $2.8 million over errors in its clearing operation, stemming from systems inherited from Bear Stearns.

Finra said that from March 2008, when J.P. Morgan acquired the crisis-imperiled Bear Stearns, through June 2016, the bank carried and cleared securities for domestic and international retail and institutional customers using legacy Bear Stearns electronic systems that had never been materially changed.

(More: J.P. Morgan Securities fined $1.25 million by Finra)

In its letter of acceptance, waiver and consent, Finra said the systems had design flaws and coding and data errors that led J.P. Morgan to improperly segregate customers' foreign and domestic securities. As a result, the firm failed to promptly obtain and thereafter maintain physical possession or control of its customers' fully-paid and excess margin securities, creating deficits in securities valued at hundreds of millions of dollars, violating rules of Finra and the Securities and Exchange Commission.

In resolving this matter, Finra said it has recognized J.P. Morgan's "extraordinary cooperation" and that the firm promptly took action and remedial steps to correct the problems. These included engaging an independent consultant, undertaking a comprehensive possession or control review and disclosing to Finra newly identified possession or control issues, creating a new experienced team responsible for the possession or control process and designing and implementing new monitoring tools and systems.

(More: Broker says she was fired for raising red flag about a wealthy client)

Starting in January 2012, J.P. Morgan also began to over-reserve hundreds of millions of dollars weekly in cash deposits in an effort to protect customers from loss due to the unaccomplished segregation of international securities.

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