I have perfectly understood the question and I repeat that you can create a slave site in the parent directory.
This is not the origin of your JFTP error or whatever else.
To demonstrate that you can do it, I have created a special video that show that you have NO error during the creation of the slave site.
tutorial.jms2win.info/joomla/multisite-1...ve-parent-directory/
The only thing that you will have as result is the conversion of the master subdirectory into the "parent" slave site as you have defined this domain as being a slave site.
This is totally normal and is not the reason of the errors you have when you create the slave site.
If you want that we assist you in this special setup and try identifying the reason of your error, I repeat that we can do that with billable support.
With the video we have just demonstrated that there is no error and that you can do that event if the result is perhaps not the one that you might expect