With a $140,000 penalty, the CFTC settled charges against futures commission merchant J.P. Morgan for executing a fictitious sale. According to the order, the financial giant confirmed the execution of a prearranged trade of ten year U.S. Treasure Note Futures spreads, with the same customer on both sides of the false transaction.
In 2010, a J.P. Morgan employee communicated with a customer prior to executing a trade. Upon the customer’s directions, the employee sold a number of ten year Treasury spreads. The customer also directed the employee to “look for any all or none,” bids as the customer wanted to buy these spreads. All or none bids must be bought in their entirety. Upon identifying the bids, the employee sold the bid to the customer for the same amount as the Treasury spreads, the order says, making the sale noncompetitive, prearranged, and fictitious.
As the J.P. Morgan employee acted within the scope of his employment, the Commission found J.P. Morgan liable for the employee’s violations of Commodity Exchange Act (CEA) and CFTC regulations against fictitious sales. In addition to the monetary penalty, the CFTC ordered J.P. Morgan to “cease and desist” from violating the CEA and CFTC regulations, and comply with the laws.