Broker-dealer TD Securities (USA) LLC, has been sanctioned by multiple U.S. government entities for manipulating the U.S. Treasury cash securities market through an illicit trading strategy known as spoofing.
The Financial Industry Regulatory Authority fined TD Securities $6 million, and the U.S. Securities and Exchange Commission fined the firm $6.5 million. TD Securities was also ordered to pay $400,000 in disgorgement and $135,700 in prejudgment interest to the SEC. In a related matter, the firm has entered into a deferred prosecution agreement with the U.S. Department of Justice and has agreed to pay a total monetary sanction of more than $15 million, of which $400,000 will be credited by disgorgement to the SEC.
Spoofing is a type of fraudulent trading activity that involves placing orders to buy or sell securities with no intention of executing them. These orders create a false impression of market demand, which can induce other traders to buy or sell securities at prices they would not otherwise have.
According to the SEC, from April 2018 to May 2019, a trader then employed by TD Securities spoofed the U.S. Treasury cash securities market by entering orders on one side of the market that he had no intention of executing (non-bona fide orders), so he could obtain more favorable execution prices on bona fide orders he was entering simultaneously on the other side of the market. After the bona fide orders were filled, resulting in profits to TD Securities, the trader allegedly then canceled the non-bona fide orders. The SEC’s order also said that TD Securities lacked adequate controls and that it failed to take reasonable steps to scrutinize the trader after receiving warnings of his potentially irregular trading activity. The commission stated that TD Securities earned profits of at least $400,000 during the relevant period.
Similarly, FINRA also found that TD Securities failed to establish and maintain a supervisory system that was reasonably designed to detect and prevent spoofing. The firm did not have any written supervisory procedures regarding spoofing, and it did not have any surveillance in place to detect spoofing activity. FINRA also agreed that TD Securities failed to reasonably investigate the trader’s activity after receiving an internal surveillance alert and an inquiry from an external electronic trading platform regarding the trader’s potential spoofing.
“Manipulative and deceptive trading undermines the integrity of our markets,” said Mark Cave, associate director in the SEC’s enforcement division. “Broker-dealers and other firms cannot ignore their employees’ manipulative conduct and must take meaningful steps to detect and prevent it. Today’s action results from our continuing commitment to combating illicit trading.”
In addition to the fines, TD Securities was further ordered to cease and desist from future violations of the relevant antifraud provision and was censured by both FINRA and the SEC. The firm has also agreed to implement a number of remedial measures, including the development of a new spoofing surveillance system and the enhancement of its training programs.
TD Securities (USA) is a multiservice broker-dealer that provides, among other things, corporate and investment banking, global market sales and trading, and research services. The firm is headquartered in New York City, maintains 10 branches and employs more than 1,400 registered representatives.
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