(June 7 – 12:00 ET) – NASD Regulation Inc. has censured and fined J. P. Morgan Securities Inc. US$200,000 for improperly handling limit orders and then failing to fix the problems once they were discovered.

J. P. Morgan neither admitted nor denied NASDR’s findings in settling the case.

NASDR says that J.P. Morgan went 21 months without correcting problems with its display of customer limit orders, despite being told of the problems by NASDR and providing assurance that it would fix the problems. The firm even upgraded its systems so it could comply with the rules, but the NASDR says the head trader of the over-the-counter trading desk had the systems disabled because of problems with them. NASDR calls J. P. Morgan’s supervision of limit order display “an institutional failure”.

Regulators in the U.S., particularly at the behest of the SEC have become obsessed with ensuring that customer orders are displayed and filled fairly. Coincident with the J.P. Morgan case, NASDR says it has just launched a new surveillance tool that will enable it to more effectively detect violations of the display rule.

“Investors need to be confident that, when they place a limit order, firms have the systems and supervisory procedures in place to see that the orders are properly handled and executed. Enhancements to our surveillance systems, like the one announced today, enable NASD Market Regulation to protect investors by closely monitoring trading to ensure that firms comply with the SEC’s Limit Order Display Rule and the NASD Limit Order Protection Rule,” said Mary Schapiro, president NASDR.

“Compliance with the Limit Order Display Rule is critically important for investors and for true price discovery. The NASDR is implementing an important new tool that will greatly enhance surveillance through the automated detection of violations” said Lori Richards, director of the SEC’s Office of Compliance Inspections and Examinations.
-IE Staff