QUICK FACTS
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TD Securities Fine Amount: $22.3 million total ($6.9M SEC, $9.4M DOJ, $6M FINRA)
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Date: January 2024
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Violation Period: April 2018 - May 2019
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Market: U.S. Treasuries
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Primary Violation: Spoofing and Supervision Failures
TD Securities Fine Overview
The Securities and Exchange Commission (SEC) charged TD Securities (USA) LLC with manipulating the U.S. Treasury cash securities market via a spoofing scheme. The firm was also charged for failing to supervise the head of its U.S. Treasuries trading desk, who allegedly executed hundreds of illegal trades over a 13-month period (between April 2018 and May 2019). TD Securities agreed to pay $22.3 million in combined fines from the SEC, DOJ, and FINRA to settle the charges.
Details of the TD Securities Fine
The SEC order revealed that a former TD Securities trader engaged in a spoofing scheme within the U.S. Treasury cash securities market.
CONTEXT
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The trader became head of TD Securities’ U.S. Treasury trading desk in November 2017.
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The highlighted trading activity occurred from April 2018 to May 2019.
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The trader was terminated on June 4, 2019, following the discovery of these violations.
Technique
The TD Securities trader employed a spoofing technique involving “iceberg” orders to manipulate the market while masking true trading intentions.
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The trader would place a bona fide iceberg buy order for U.S. Treasury securities.
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Simultaneously, the trader would place larger, fully displayed sell orders in the same security.
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Once a portion of the iceberg buy order was executed, the TD Securities trader would cancel both the buy and sell orders.
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This sequence typically occurred in less than one minute and would be repeated.
Impact of the TD Securities Spoofing Scheme
The large sell orders artificially created downward pressure on prices, allowing TD Securities to execute its bona fide buy orders at artificially lower prices. This resulted in approximately $400,000 in illicit profits for the firm.
Example
Trades in 10-year Treasury notes identified by a trading platform showed:
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At 8:43:21 AM: Placed an iceberg buy order for $400 million
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At 8:43:23 AM: Placed a fully displayed sell order for $800 million
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Over the next 13 seconds: $176 million of the buy order was filled in three parts
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During this time: Two more sell orders were placed, totaling $2.2 billion in spoof orders
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At 8:43:31 AM: All three sell orders (Spoofs) were canceled
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At 8:43:34 AM: The remaining buy order was canceled
Detection
TD Securities received multiple warnings about the trader's suspicious activity:
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In August 2018, an in-house TD Securities surveillance system in another market generated a "Stage 2" alert for potential spoofing.
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In October 2018, a third-party trading platform identified a pattern of potential spoofing in the U.S. Treasury cash market.
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On May 14, 2019, another trading platform reported rapid order placements and cancellations.
Company Response
TD suspended the trader on May 15, 2019, and terminated him on June 4, 2019, for violating the firm’s Compliance Manual. TD Securities reported the termination to FINRA on June 28, 2019.
Post-Incident Actions
Following the incident, TD Securities implemented:
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A new in-house spoofing surveillance model.
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A third-party surveillance system.
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Enhanced training across trading desks.
TD Securities Fines and Penalties
The combined penalties from the SEC, DOJ, and FINRA amount to approximately $22.3 million.
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SEC Fine against TD Securities:
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DOJ Fine against TD Securities: $9,414,664
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FINRA Fine against TD Securities: $6,000,000
Sources:
