The U.S. Commodity Futures Trading Commission (CFTC) has announced that JP Morgan Chase Bank, N.A. (JPMCB) agreed to pay a $600,000 civil monetary penalty to settle CFTC charges that it exceeded speculative position limits in Cotton No. 2 futures contracts trading on the IntercontinentalExchange U.S. (ICE).
According to the CFTC order, JPMCB held net short futures equivalent positions in Cotton No. 2 futures contracts in excess of CFTC speculative position limits on several days between September 16, 2010 and October 5, 2010 (the relevant period). The CFTC’s speculative position limits for Cotton No. 2 futures are 3,500 contracts in a single month and 5,000 contracts in all months combined. According to the order, during the relevant period JPMCB had a long-side hedge exemption in Cotton No. 2 futures, but its short-side positions remained subject to the 3,500 and 5,000 contract limits. The order finds that JPMCB held short positions in excess of both the single-month and all-months speculative position limits during the relevant period.
The order further finds that JPMCB held those positions as a result of an inadvertent deficiency in its automated position limit monitoring system, which generates a report used by commodity traders to track their current positions relative to the applicable speculative position limits. However, as originally configured, the automated monitoring system did not differentiate between the different long- and short-side position limits applicable to JPMCB’s trading in Cotton No. 2 futures, the order finds. After learning of this deficiency, JPMCB utilized a manual position limit monitoring procedure pending correction of the automated monitoring system, according to the order. Despite adoption of this manual position limit monitoring procedure, JPMCB violated its short-side speculative position limit on several occasions during the relevant period, the order finds.
In addition to imposing the $600,000 civil monetary penalty, the CFTC order requires JPMCB to cease and desist from further violations of Section 4a(b)(2) of the Commodity Exchange Act and CFTC regulation 150.2, as charged.