## Facts

- The matter was an administrative enforcement proceeding by the U.S. Commodity Futures Trading Commission (CFTC) against JPMorgan Chase Bank, N.A. (JPMorgan).
- JPMorgan submitted an offer of settlement that the CFTC accepted; JPMorgan admitted certain factual findings and consented to sanctions without a contested evidentiary hearing.
- The relevant instrument was the CDX.NA.IG.9 10-year credit default swap (CDS) index (IG9 10Y), a broad-based CDS index within CFTC jurisdiction.
- JPMorgan held a large synthetic credit derivatives portfolio whose daily mark-to-market valuations determined reported profits and losses.
- By February 2012, the portfolio experienced substantial daily losses, and an internal month-end valuation would be widely disseminated within the firm.
- Over the last three trading days of February 2012, JPMorgan traders sold more than $10 billion notional of IG9 10Y—over one-third of total monthly market volume.
- The concentrated month-end selling contributed to a significant decline in the IG9 10Y price; given JPMorgan’s portfolio structure, the price decline improved JPMorgan’s marks and reduced apparent losses.
- The CFTC found JPMorgan lacked internal controls sufficient to prevent the accumulation of large CDS positions and to prevent trading intended to conceal losses or distort valuations.

## Issues

1. Whether JPMorgan, through its traders’ concentrated month-end trading, employed or attempted to employ a manipulative or deceptive device in connection with swaps, violating CEA § 6(c)(1) and CFTC Regulation 180.1.
2. Whether JPMorgan’s internal control failures warranted remedial sanctions and compliance undertakings.

## Decision

- The CFTC instituted proceedings and entered a settled order making findings and imposing remedial sanctions.
- The CFTC found that JPMorgan attempted to manipulate the IG9 10Y price through extraordinary, concentrated selling intended to benefit JPMorgan’s mark-to-market valuations and reduce reported losses.
- The CFTC found JPMorgan failed to maintain adequate internal controls relating to CDS position accumulation, monitoring, and loss-concealment risks.
- The CFTC imposed a civil monetary penalty (reported publicly as $100 million), ordered JPMorgan to cease and desist from further violations of CEA § 6(c)(1) and Regulation 180.1, and required undertakings to strengthen supervision, systems, and controls over CDS trading and valuation.

## Legal Principles

- CEA § 6(c)(1) and CFTC Regulation 180.1 prohibit employing, or attempting to employ, manipulative or deceptive devices in connection with swaps, including schemes executed through trading conduct rather than misstatements.
- Attempted manipulation is actionable; liability does not require proof that the actor fully achieved the intended market result.
- Extraordinary, concentrated trading designed to move a market price to improve the trader’s own mark-to-market valuations can constitute a manipulative device when tied to intent and market impact.
- Deficient internal controls that allow outsized derivatives positions and fail to detect or prevent valuation-distorting trading support enforcement sanctions and forward-looking compliance undertakings.
- In settled administrative actions, the agency may impose monetary penalties, cease-and-desist relief, and compliance obligations based on findings accepted through settlement.

## Conclusion

The CFTC concluded that JPMorgan’s concentrated month-end CDS index selling was an attempted price manipulation designed to improve internal marks, violating CEA § 6(c)(1) and Regulation 180.1, and imposed a monetary penalty, cease-and-desist relief, and extensive controls-related undertakings.


In re JPMorgan Chase Bank, N.A., CFTC Docket No. 14-01 (Oct. 16, 2013)