JP Morgan fined for not reporting half of FX swap trades

US bank incorrectly believed one-day swaps did not have to be reported

Photo: Håkan Dahlström

JP Morgan has been fined by the US Commodity Futures and Trading Commission for failing to report more than two million short-dated foreign exchange swap trades over a five-year period.

According to a CFTC order released yesterday (July 6), these short-dated FX swaps – often referred to as “tomorrow-next swaps”, in which two currencies are exchanged the day after execution and then reversed at a predetermined rate on the following business day – represented roughly 51% of all the FX swap trades conducted by the US bank between September 2015 and February 2020.

The order notes that the bank “erroneously believed that short-dated FX swap transactions did not meet the definition of a ‘foreign exchange swap’ under the [Commodity Exchange] Act”.

In the US, FX swaps and forwards are exempt from the trade execution, mandatory clearing and margin requirements under Dodd-Frank but are still subject to the requirement to report to a swap data repository (SDR).

The order states that JP Morgan had interpreted 2012 guidance from the CFTC to mean that short-dated swaps did not need to be reported to an SDR, but the regulator found that this reading was incorrect. As a result, JP Morgan was fined $850,000.

“This case should serve as a message to all swap dealers that the CFTC will bring justice for failures in swap data reporting. It has been more than 10 years since the Dodd-Frank Act swap data reporting rules have been in place. It is far past time for swap dealers to come into compliance with the law,” stated CFTC commissioner Christy Goldsmith Romero.

However, the size of the fine is dwarfed by other derivatives reporting penalties, such as Bank of America Merrill Lynch’s £34.5 million ($41 million) fine in 2017.

The CFTC order also stated that JP Morgan has now reported all the previously unreported FX swap transactions it was obligated to do.

It is not the first reporting-related fine this year. In March, the CFTC imposed a $3.25 million fine on EDF Man Capital Markets for failing to report hundreds of thousands of metals and FX swap trades to an SDR between February 2014 and July 2021.

In its order, the CFTC also stated that EDF Man Capital Markets did not disclose mid-market marks on these trades to some of its counterparties between February 2014 and April 2021.

JP Morgan did not respond to a request for comment in time for publication.