JP Morgan is set to pay $1 Billion in settlement to resolve the ongoing allegations of market manipulation by the bank and its subsidiaries. As reported by Bloomberg, the allegations leveled against the US banking giant include manipulating the futures of precious metals and Treasury Securities by using the illegal market activity known as 'spoofing'.
The practice of spoofing has always been considered disreputable, but only a few thought it as dangerous as it is now. In the era of online trading where computer algorithms decide the market trends by relying on the data provided by real-time market forces, spoofing has become a greater threat to financial stability and market legitimacy.
Spoofers place the buy or sell orders of a commodity, asset, or financial instrument like futures without any intentions of fulfilling those orders, just to create a false sense of high demand for that particular asset or instrument in the market when there isn’t actually any. This has long been considered a common trading practice by traders, and it has become a much bigger problem for authorities to tackle. The penalty of $1 Billion will far exceed the amount paid by any party in a similar settlement with US authorities.
This settlement is unique in many ways. Firstly, the amount is the biggest, which makes it unique outright, but there are many other things to consider if we have to examine the uniqueness of this settlement. One interesting or rather disturbing fact is that JP Morgan will plead guilty when they sign the deal.
Settlements of this sort don’t normally include a guilty or not guilty decision, and the accused pay the fine or settlement to close the investigations mostly by giving the benefit of the doubt and considering wrongdoings as negligence on the part of the accused. By pleading guilty, JP Morgan is agreeing to the accusations of spoofing and wrongly manipulating the market factors to earn the illegal returns earned from investments made by their victims.
The investigations led by the Department of Justice, Commodity Futures Trading Commission and Securities and Exchange Commission will be closed when the settlement is signed. Critics and experts are calling this settlement a way of bribing the authorities by JP Morgan. Experts also fear that the money made by spoofing the metals futures could be much bigger than the settlement amount and $1 Billion, even though the biggest amount till now, would be paid from the profit made by spoofing.