J.P. Morgan Securities LLC has agreed to pay a fine of $150,384 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between April 2020 and January 2022, the firm submitted 64 untimely restricted period notifications, which were between one and seven days late. The firm also submitted 75 inaccurate restricted period notifications during that time.
For the inaccurate notifications, the firm did not identify all the distribution participants in the distributions, did not properly identify distribution participants as FINRA members, or did not include the correct CRD number for member firms.
Specifically, during the firm’s transition to a new proprietary deal management system, the firm did not ensure that the CRD numbers for certain distribution participants were included and correct in the new system. The firm otherwise did not review the notifications to determine whether distribution participants were FINRA members or confirm that the CRD numbers were correct.
Additionally, the firm submitted restricted period notifications without verifying that the list of final
distribution participants was correct, and did not file amended notifications when distribution participants joined after an initial restricted period notification was filed.
Therefore, J.P. Morgan violated FINRA Rules 5190(c)(1)(A) and 2010.
Between May 2020 and March 2022, the firm submitted 13 untimely trading notifications, which were between one and 116 days late, and did not file a trading notification in one instance. The firm also submitted 97 inaccurate trading notifications during this time.
The inaccurate notifications did not identify all the distribution participants in the distributions, did not identify distribution participants as FINRA members, or included an incorrect CRD number for member firms.
Therefore, J.P. Morgan violated FINRA Rules 5190(c)(1)(B), 5190(d), and 2010.
Between August 2020 and January 2024, the firm’s supervisory systems and procedures, including written supervisory procedures (WSPs), were not reasonably designed to achieve compliance with FINRA Rule 5190 notification requirements with respect to the timeliness and accuracy of those notifications.
With respect to restricted period notifications, the firm lacked a reasonable supervisory system to ensure that the notifications were timely filed for certain distributions with marketing periods shorter than the length of the applicable restricted periods.
Pursuant to FINRA Rule 5190(c)(1)(A), restricted period notifications must be filed “no later than the business day prior to the first complete trading session of the applicable restricted period,” which is six days before pricing for securities that are subject to a five-day restricted period, including IPOs.
Although the firm was aware it was a distribution participant prior to the date it became lead manager, it did not file the restricted period notification until the date that it was designated as lead manager and the marketing of the distribution began. This resulted in untimely filings when the marketing period was shorter than the length of the applicable restricted period.
In addition, the firm lacked a reasonable supervisory system and procedures to verify the accuracy of the required notifications. The firm’s WSPs referenced that the Regulation M-related notifications needed to be “complete [and] accurate.” However, the WSPs did not provide guidance on how the notifications should be reviewed to ensure that they were complete and accurate.
The firm did not conduct reasonable reviews of the notifications to determine whether the information in the notifications was accurate, instead relying solely on automated features of the firm’s deal management system to help prevent inaccuracies from being input into the firm’s system. Subsequently, many filings contained inaccurate CRD numbers and excluded distribution participants.
The firm also lacked reasonable systems and procedures, including WSPs, to verify that it filed amended restricted period notifications reflecting the addition of distribution participants after the initial restricted period notifications were filed.
Subsequently, certain of the firm’s restricted period notifications did not accurately reflect all distribution participants.
Accordingly, J.P. Morgan violated FINRA Rules 3110(a) and (b) and 2010.
The firm took several steps to address the above-mentioned issues. Between March 2022 and January 2024, the firm corrected the CRD inaccuracies in its deal management system, updated its WSPs to require the filing of amended notifications when distribution participants joined after the filing of the initial restricted period notification, and revised its procedures to confirm that notifications were reviewed for both timeliness and accuracy.
On top of the $150,384 fine, the firm has agreed to a censure.
