The US financial regulator targeted TD Securities in a crackdown on alleged market manipulation. The Securities and Exchange Commission (SEC) charged the firm with manipulating the US Treasury market using a practice known as spoofing.
Besides this, the regulator charged TD Securities for failing to supervise its head trader, who allegedly executed hundreds of illegal trades over a 13-month span, leading to substantial fines and penalties.
SEC Charges Against TD Securities
The SEC announced charges against TD Securities (USA) LLC, accusing the firm of manipulating the US Treasury cash securities market through spoofing. Spoofing involves placing false buy or sell orders with no intention of executing them to manipulate market prices for financial gain.
The regulator mentioned in its notice that between April 2018 and May 2019, a TD Securities trader entered non-bona fide orders to influence prices and obtain better execution for genuine orders.
“Manipulative and deceptive trading undermines the integrity of our markets,” Mark Cave, Associate Director in the SEC’s Division of Enforcement, said. “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.”
The trader's actions allegedly led to profits for TD Securities, a practice the regulator mentioned continued across hundreds of trades during a 13-month period. Once the trader achieved the desired price, the non-bona fide orders were promptly canceled, leaving the market unaware of the true intention behind the orders.
Supervision Failures
The SEC's investigation also highlighted TD Securities' shortcomings in overseeing its traders. The firm reportedly failed to scrutinize the Head of its US Treasuries trading desk despite warnings about potentially irregular trading activities. The failure to adequately supervise the trader and implement appropriate trading controls compounded the severity of the violations, according to the SEC.
TD Securities consented to the SEC's findings without admitting or denying the allegations. The firm agreed to several penalties, including paying a total civil penalty of $6.5 million, a disgorgement of $400,000, and a prejudgment interest.
The SEC's investigation involved a collaborative effort with multiple entities, including the DOJ's Criminal Division and FINRA. Members of the SEC's Division of Enforcement, along with specialists from the Division of Economic and Risk Analysis, conducted the detailed probe.
