JPM 'Benched' from Trading in the Energy Markets for Six Months

The US Federal Regulatory Commission (FERC) has suspended JP Morgan's electrical trading privileges for six months in response to JPM's continued provision of false and misleading information.

In the story from Bloomberg:

The action, part of a more aggressive effort by the commission to monitor U.S. power markets, prohibits J.P. Morgan Ventures Energy Corp. from selling electricity at market-based rates for six months starting April 1, 2013.

In its order released late yesterday, FERC said the JPMorgan unit will essentially be allowed to participate as a bystander in wholesale power markets, granting it the ability to offer electricity into the market without a price attached. This will ensure that utilities have the ability to obtain enough power to serve the demand from customers. JPMorgan would still be able to trade derivatives under the order...

"The provision of false, misleading, or inaccurate information undermines the integrity of the FERC decision-making process, the smooth operation of markets, and FERC's ability to ensure just and reasonable rates for customers," FERC said in an e-mailed statement. "The commission continuously has warned market participants of the consequences associated with failing to abide by FERC rules and regulations."

A spokeswoman for the bank said it is reviewing the decision and its next steps. "This is a novel use of FERC's authority over market-based rates and is unsupported by FERC's own regulations," Jennifer Zuccarelli said in an e-mail.

The commission is also investigating alleged manipulation by traders for Deutsche Bank AG and Barclays Plc. Since January 2011 the agency has announced 11 market-manipulation probes, and in March it reached a $245 million settlement with Constellation Energy Group Inc. over one of those cases.

This is also a nice illustration of the moral hazards of weakly regulating the markets. It was not all that long ago that Enron roiled the California economy by manipulating the prices of electricity. It is nice to see that someone is doing something, even if it involves no criminal indictments.

If the CFTC is unable to act in the commodity markets, someone has to do something to maintain orderly pricing and clearing markets for the use of the real economy.

And one might ask, why is a bank that is backstopped by the Federal Reserve and government guarantees on deposits gambling in the energy markets to this extent? Would that function not best be served by a purely private company, rather than a de facto Government Sponsored Enterprise (GSE)?