← Broker database 2024-09-30
FINRA Fines TD Securities $6,000,000 for Spoofing in U.S. Treasury Securities
According to FINRA, TD Securities (USA) LLC (CRD #18476), based in New York, New York, was censured and fined $6,000,000 for spoofing in U.S. Treasury securities. The firm consented to these sanctions without admitting or denying the findings. FINRA found that the firm engaged in spoofing through a former trader who worked on, and later became head of, its U.S. Treasury trading desk. Spoofing is a manipulative trading practice where a trader places orders they intend to cancel before execution in order to create a false impression of supply or demand and induce other market participants to trade at artificial prices. The trader placed non-bona fide orders in U.S. Treasury securities to induce executions in the same benchmark, other benchmarks, and U.S. Treasury futures contracts. This activity occurred on the secondary market where institutional and other participants trade through electronic platforms. The trader used the firm's trading systems and traded for the benefit of the firm's proprietary and customer accounts. FINRA also found that the firm failed to establish and maintain a supervisory system reasonably designed to detect and prevent spoofing. Although the firm prohibited spoofing, it had no written supervisory procedures addressing the practice and no surveillance systems to detect whether its traders were engaging in spoofing in U.S. Treasury securities. The firm was aware that it was not capturing order data for U.S. Treasury securities, which would be needed to effectively supervise trading activity. Business line supervisors were not required to review for spoofing, and neither the firm nor the trader's supervisor could access or review orders that the trader entered and canceled before execution. The firm also failed to investigate potential spoofing after the trader triggered an internal surveillance alert and after an external trading platform inquired about the trader's activity. Only after multiple inquiries from trading platforms did the firm suspend, investigate, and ultimately terminate the trader. For investors, spoofing is a serious form of market manipulation that undermines the integrity of the U.S. Treasury market, which is the largest and most liquid government securities market in the world. Artificial prices caused by spoofing can harm investors and institutions that rely on Treasury securities for safe investment and hedging purposes.