J.P. Morgan Securities to Pay $3 Million for Short Interest Reporting Violations
The Financial Industry Regulatory Authority announced that it has censured and fined broker-dealer J.P. Morgan Securities, or JPMS, $3 million for inaccurately reporting short interest positions for more than 16 years.
According to FINRA, from June 2008 to August 2024, JPMS inaccurately reported approximately 820,000 short interest positions involving around 77 billion shares. FINRA said that the inaccurate reporting resulted from multiple causes that each impacted the firm’s short interest reporting at different intervals during the relevant period. In certain instances, the firm overreported its short interest positions, and, in others, the firm underreported. FINRA also found that JPMS failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with its short interest reporting obligations.
Short interest is the number of shares that have been sold short but have not yet been covered. This information is important for investors because it can be an indicator of market sentiment. FINRA rules require member firms to report their short interest positions twice a month.
As a result of these oversights, JPMS violated FINRA Rule 4560 and its predecessor, NASD Rule 3360, both of which require member firms to maintain a record of total short positions in equity securities in all customer and proprietary accounts and to report such information to FINRA. A violation of these rules is also a violation of FINRA Rule 2010 or its predecessor, NASD Rule 2110. Both rules require member firms to observe high standards of commercial honor and equitable practices.
FINRA did state that JPMS has remediated the issues and taken steps to improve its short interest reporting, including: the implementation of a quarterly review process; taking steps to confirm that its prime brokerage clients provide the firm with trade files that accurately reflect short positions; and confirming that existing customer accounts are properly coded and classified.
Without admitting or denying the findings, JPMS agreed to the censure and the $3 million fine.
As with most large financial organizations, this is not the first time JPMS has been sanctioned by FINRA. Last year, the agency fined JPMS $750,000 for failing to supervise five incorrect orders, and in 2021, the firm was ordered to pay $200 million by the SEC for widespread recordkeeping failures.
JPMS is headquartered in New York City and provides investment banking, asset management, brokerage, securities trading, advisory, and other financial services. It has over 34,000 registered representatives across more than 5,600 branch offices.
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