TD Securities faces $15M in fines for spoofing and failure to supervise its U.S. Treasuries trading desk, underscoring the need for robust compliance measures.
Washington D.C., September 30, 2024 – The Securities and Exchange Commission (SEC) has charged TD Securities (USA) LLC for engaging in a manipulative trading strategy known as "spoofing" in the U.S. Treasury cash securities market. Additionally, the firm faced charges for failing to adequately supervise the head of its U.S. Treasuries trading desk, who conducted hundreds of illegal trades over a 13-month period.
Manipulative Trading and Lack of Oversight
According to the SEC’s findings, between April 2018 and May 2019, a senior trader at TD Securities employed the illicit tactic of spoofing, whereby he placed non-bona fide orders on one side of the U.S. Treasury cash securities market with no intention of executing them. These false orders were designed to create the illusion of market movement, allowing the trader to obtain more favorable execution prices on legitimate orders placed on the other side of the market. Once the legitimate orders were filled, yielding profits for TD Securities, the trader would cancel the fake orders.
The SEC also found that TD Securities had inadequate controls in place and failed to act on warnings about the trader’s suspicious activities. Despite red flags, the firm did not sufficiently scrutinize his trading behavior, allowing the misconduct to continue unchecked.
“Manipulative and deceptive trading undermines the integrity of our markets,” said Mark Cave, Associate Director in the SEC’s Division of Enforcement. “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 ongoing efforts to combat illicit trading.”
SEC Sanctions and Other Penalties
TD Securities consented to the SEC’s findings without admitting or denying the allegations. The firm was found to have violated antifraud provisions of federal securities laws and failed in its duty to supervise the offending trader. In response, the SEC ordered TD Securities to:
Cease and desist from further violations.
Pay disgorgement of $400,000, along with prejudgment interest.
Pay a civil penalty of $6.5 million.
Receive censure for its supervisory failures.
In a related case, TD Securities also entered into a deferred prosecution agreement with the U.S. Department of Justice (DOJ), agreeing to pay over $15 million in penalties. Additionally, the firm has settled with the Financial Industry Regulatory Authority (FINRA), paying a $6 million fine to resolve similar charges.
The SEC’s investigation was led by its Division of Enforcement with cooperation from the DOJ’s Fraud Section and FINRA.
How TD Securities' Case Relates to Belite Capital's Mission
At Belite Capital, this case underscores the importance of stringent compliance and regulatory oversight within the financial services industry. As a minority-owned financial regulatory and compliance consulting firm, we specialize in providing guidance to investment professionals to help them navigate complex regulations and avoid situations like the one involving TD Securities.
The charges brought against TD Securities highlight several key areas where firms often fall short:
Supervision and Oversight: In this case, TD Securities failed to detect and act on clear warning signs of manipulative trading. Belite Capital assists clients in designing and implementing robust supervisory frameworks that ensure real-time detection of unusual trading activities, reducing the risk of regulatory violations.
Preventing Fraud: Spoofing and other manipulative practices not only damage market integrity but also expose firms to significant legal and financial penalties. Belite Capital helps firms maintain compliance with antifraud provisions by setting up early-warning systems, ensuring firms can spot and address potential fraud before it escalates.
Regulatory Alignment: In today’s evolving regulatory environment, staying compliant with agencies such as the SEC, DOJ, and FINRA is essential. Belite Capital provides tailored regulatory solutions to help firms manage risk, stay compliant, and avoid hefty fines.
By drawing attention to this high-profile case, we reinforce our commitment to helping clients manage their compliance responsibilities with diligence and care. Belite Capital is proud to redefine success by combining diversity, innovation, and a steadfast dedication to our clients’ financial security. We ensure that firms not only meet regulatory requirements but also build stronger, more resilient compliance systems that safeguard their long-term success.
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