J.P. Morgan Securities LLC (JPMS) has agreed to pay a fine of $150,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From January 2018 until December 2021, JPMS’s supervisory system and written supervisory procedures (WSPs) were not reasonably designed to achieve compliance with its preliminary IPO prospectus delivery obligations under Rule 15c2-8(b) of the Exchange Act.

While the firm’s WSPs required the firm to deliver a copy of a preliminary IPO prospectus to a customer expected to receive an allocation, the supervisory system and WSPs governing the process were not reasonably designed to verify that such delivery had taken place.

During the relevant period, the firm’s supervisory system and WSPs concerning preliminary IPO prospectuses required supervisors to ascertain whether customers had provided JPMS with consent permitting electronic delivery of the required preliminary prospectuses and whether JPMS had customer email addresses on file to which preliminary prospectuses could be sent.

The supervisory system did not provide for a review or process to determine whether preliminary IPO prospectuses had been delivered successfully to the firm’s institutional customers. As a result, available information showing that prospectuses had not been delivered was not reviewed by the firm.

Additionally, from March 2019 until December 2021, the firm reviewed whether the institutional customer had provided electronic consent and had an email address on file for a sample of three IPOs per quarter.

Therefore, for most of the approximately 400 IPOs distributed by the firm during the period, no supervisory review concerning preliminary IPO prospectus delivery occurred.

The firm also failed to add customers who declined to provide electronic consent to a list of customers who would be provided hard copies of preliminary IPO prospectuses by mail as required by the firm’s WSPs.

As a result, the firm’s supervisory system did not timely identify whether the firm had provided preliminary prospectuses to customers of the firm’s IPOs at least 48 hours before sending confirmations of sale to the institutional customers and the firm did not detect instances where the firm did not timely deliver preliminary IPO prospectuses to institutional customers.

The firm self-identified certain of these preliminary IPO prospectus delivery deficiencies in October 2021 and took remedial actions to correct the deficiencies and revised its WSPs on December 30, 2021, and again on January 10, 2024.

By failing to implement a supervisory system reasonably designed to achieve compliance with its preliminary IPO prospectus delivery obligations, JPMS violated FINRA Rules 3110(a), 3110(b), and 2010.

On top of the $150,000 fine, JPMS has agreed to a censure.