Markets
BK

After SEC, CFTC to Probe JPMorgan for 'Product Steering'

The Commodity Futures Trading Commission ("CFTC") is the latest regulator to start investigation on JPMorgan Chase & Co.JPM over the sale and use of proprietary products for its private-banking clients. The news was first reported by the Wall Street Journal.

The CFTC is probing whether JPMorgan made proper disclosures to its private banking clients at the time of steering them toward in-house investment products. The regulator is also probing Highbridge Capital Management LLC, an investment firm owned by JPMorgan.

Specifically, the CFTC is checking why a large proportion of Highbridge's assets came from JPMorgan's private-bank assets. As of Dec 31, 2012, private-bank client assets had jumped to 71% of Highbridge's flagship fund from mere 26% in 2007.

Though it is not wrong to steer private-banking clients toward in-house investment products, investment advisors are required to recommend only those financial products that best serve clients' interests. Additionally, advisors must clearly disclose the fees associated with such products.

Notably, the CFTC investigation does not necessarily mean that JPMorgan will be penalized. In its latest quarterly filing, JPMorgan had stated that the regulators are focusing on its U.S. private bank's "disclosures concerning the use of hedge funds that pay placement agent fees to J.P. Morgan Chase broker-dealer affiliates."

Apart from the CFTC, the U.S Securities and Exchange Commission ("SEC") had initiated a similar probe earlier, which JPMorgan is likely to settle for $150 million in the coming months (read more: JPMorgan to Settle Product Manipulation Probe for $150M? ).

Though nothing concrete can be inferred about the outcome of the CFTC probe, we believe that a stricter regulatory stance has led to more transparency in the disclosure standards at JPMorgan and several other banks. This will help private-banking clients to make more informed investment decisions.

Currently, JPMorgan carries a Zacks Rank #3 (Hold). Some better-ranked major regional banks are The Bank of New York Mellon Corporation BK , Bank of America Corporation BAC and Citigroup Inc. C . All these stocks hold a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

BANK OF NY MELL (BK): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BK BAC JPM C

Other Topics

Stocks

Latest Markets Videos