TD Securities Fined Over $27 Million in Multi-Agency Action for Spoofing U.S. Treasury Markets

TD Securities has been sanctioned with more than $27 million in fines and penalties following coordinated enforcement actions by the U.S. Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA). These actions stem from TD Securities’ involvement in a spoofing scheme that manipulated U.S. Treasury securities markets.

FINRA Imposes $6 Million Fine for Supervisory Failures

According to FINRA, a trader at TD Securities engaged in 813 instances of spoofing between July 2017 and May 2019. Spoofing, a form of market manipulation, involves placing orders with no intention of executing them to create misleading market activity. FINRA’s investigation concluded that TD Securities failed to implement adequate supervisory systems to detect and prevent this activity, in violation of FINRA Rules 3110 and 2010.

As a result, FINRA imposed a $6 million fine to resolve charges related to the firm’s spoofing activities and supervisory deficiencies.

SEC Orders Cease-and-Desist, $6.5 Million Civil Penalty

The SEC’s investigation found that TD Securities violated Section 17(a)(3) of the Securities Exchange Act of 1934 by engaging in over 70 instances of spoofing in the U.S. Treasury market. The firm was ordered to cease and desist from future violations, was censured, and was required to pay disgorgement of $400,000, prejudgment interest, and a civil penalty of $6.5 million.

The SEC’s order further outlined the impact of TD Securities’ actions, which artificially influenced the U.S. Treasury cash markets and futures contracts.

DOJ Reaches Deferred Prosecution Agreement, $15.5 Million in Fines

In a parallel criminal investigation, the DOJ charged TD Securities with one count of wire fraud related to its spoofing activities. The firm entered into a deferred prosecution agreement with the DOJ and agreed to pay more than $15.5 million in monetary sanctions. Of this total, $400,000 will be credited towards the SEC’s disgorgement.

The DOJ’s investigation emphasized the criminal nature of the spoofing activity, which undermined the integrity of the U.S. Treasury markets.

Financial Breakdown:

• FINRA: $6 million fine for supervisory lapses
• SEC: $6.9 million in total ($6.5 million civil penalty, $400,000 disgorgement, plus prejudgment interest)
• DOJ: $15.5 million in total monetary sanctions (with $400,000 credited to SEC disgorgement)

Total: Over $27 million in combined penalties and sanctions

Spoofing Scheme and Market Impact

Spoofing, the practice at the heart of the enforcement actions, is a fraudulent tactic where traders place large orders with no intention of fulfilling them to create false signals of market demand. These fictitious orders deceive other market participants, causing them to make trading decisions based on inaccurate information. The deceptive orders are subsequently canceled once the market has been influenced, allowing the trader to profit from the resulting price movements.

TD Securities' actions disrupted the U.S. Treasury market’s balance, affecting both cash markets and futures contracts. The coordinated enforcement action underscores the significance of protecting the integrity of markets and ensuring that firms maintain rigorous compliance and supervisory protocols.

The multi-agency actions against TD Securities send a strong message that market manipulation, particularly in key markets like U.S. Treasury securities, will face serious repercussions. With over $27 million in penalties and sanctions, the firm’s failure to detect and prevent spoofing activities highlights the importance of robust internal controls and compliance programs in maintaining market integrity.

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