TD Securities (USA) LLC

TD Securities (USA) LLC was fined $6,000,000 for findings that it engaged in instances of spoofing in U.S. Treasury securities through a former trader who worked on, and later became the head of, its U.S. Treasury trading desk. The findings stated that this trading activity occurred on the secondary market, where institutional and other market participants trade U.S. Treasury securities and U.S. Treasury futures through electronic trading platforms.

The trader placed orders using the firm’s trading systems under the firm’s account and traded for the benefit of the firm’s proprietary and customer accounts. The trader placed non-bona fide orders in the U.S. Treasury securities market to induce executions in the same U.S. Treasury security benchmark, other U.S. Treasury security benchmarks, and/or U.S. Treasury futures contracts.

 The findings also stated that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with securities laws and regulations and FINRA rules prohibiting spoofing. Although the firm prohibited spoofing, it had no WSPs addressing, and no systems or surveillance in place to detect, whether its traders were engaged in spoofing in U.S. Treasury securities.

The firm was aware that it was not capturing any order data for U.S. Treasury securities, and that it needed order data to effectively supervise the firm’s U.S. Treasury securities activity.

In addition, the firm did not require business line supervisors, like the trader’s direct supervisor, to review for spoofing. In fact, neither the firm nor the trader’s supervisor could access or review orders that the trader entered and canceled before execution-an indicator of potential spoofing.

The firm also did not conduct any surveillance or supervisory reviews for potential cross-product spoofing in the U.S. Treasury markets. The firm did not take reasonable steps to investigate whether the trader may have been engaging in potential spoofing after the trader’s conduct triggered an internal surveillance alert and after an external electronic trading platform made an inquiry about the trader’s activity.

Following multiple inquiries from electronic trading platforms about potential spoofing by the trader, the firm suspended the trader, conducted an internal investigation, and subsequently terminated the trader.