U.S. regulators imposed more than $2 million in fines this week involving excessive speculation in the cotton market during 2010 and 2011, when prices more than tripled on their way to a record high before plunging.
JPMorgan Chase Bank, a unit of JPMorgan Chase & Co., agreed to pay a penalty of $600,000 and Australia & New Zealand Banking Group Ltd. was also ordered to pay $350,000, the U.S. Commodity Futures Trading Commission said yesterday in separate statements. On Sept. 25, the agency said Sheenson Investments Ltd. and its founder Ge Weidong, based in Shanghai, China, agreed to pay $1.5 million.
Cotton surged to an all-time high of $2.197 a pound on ICE Futures U.S. in New York on March 7, 2011, from 66.55 cents on Feb. 5, 2010, amid rising demand from China. The commodity then plunged to less than $1 by July 2011, and closed yesterday at 71.53 cents. Volatility led to a tripling of disputes over supply contracts in the first quarter of 2012 from a year earlier, the International Cotton Association estimates.
“The penalties are long overdue,” Jordan Lea, the chairman of Eastern Trading Co., a cotton exporter in Greenville, South Carolina, said in an e-mail. “They may actually give market participants a bit of confidence as we all knew there were untoward things going on. We just did not know who or whom to hold accountable.”
In 2010, New York-based JPMorgan exceeded held net-short position in New York cotton futures in excess of CFTC speculative position limits on several days between Sept. 16 and Oct. 5, the CFTC said in a statement. The limit is 3,500 contracts in a single month and 5,000 contracts in all months combined. The bank declined to comment through Jennifer Zuccarelli, a spokeswoman in New York.
ANZ, based in Melbourne, exceeded the cotton limit on one day in February 2011 and those for wheat on the Chicago Board of Trade in August 2010, the CFTC said.
“These breaches of CFTC regulations were inadvertent, technical in nature and confined to a small number of transactions,” ANZ Chief Risk Officer Nigel Williams said in an e-mailed statement. “Ensuring we are compliant with regulations is a key priority in every part of ANZ.”
Sheenson Investments agreed to pay a “disgorgement” fine of $1 million for ill-gotten gains and a $500,000 civil penalty to settle the charges that they exceeded speculative position limits in soybean-oil and cotton futures, the CFTC said in a Sept. 25 statement. Seven calls to Sheenson from Bloomberg in Shanghai were not answered.