TD Securities (USA) has agreed to pay more than $28m in penalties to settle charges related to illicit trading practices and supervisory failures in the US Treasury cash securities market.
The US Securities and Exchange Commission (SEC) alleged that the subsidiary of Toronto-Dominion Bank (TD Bank Group) manipulated the US Treasury cash securities market between April 2018 and May 2019 through an unlawful trading strategy known as spoofing.
The then-head of TD Securities’ US Treasuries trading desk has been accused of executing hundreds of illegal trades over this 13-month period.
According to the SEC, the former head spoofed the market to secure more favourable execution prices on bona fide orders on the opposite side of the market. After fulfilling bona fide orders, the illicit orders were subsequently cancelled, resulting in profits for the bank.
The SEC also found that TD Securities failed to supervise the trader adequately despite warnings of potential irregularities in his trading activities. This highlighted deficiencies in the firm’s controls.
As part of the settlement, TD Securities agreed to an SEC order finding that it had violated an antifraud provision of federal securities law and failed to supervise the trader reasonably.
The firm has been ordered to cease and desist from future violations. It was also censured and asked to pay a disgorgement of $400,000, prejudgment interest, and a civil penalty of $6.5m.
In a related agreement with the US Department of Justice (DOJ), TD Securities signed a deferred prosecution agreement, agreeing to pay more than $15m in total monetary sanctions. Of that amount, $400,000 will be credited towards the SEC’s disgorgement order.
Additionally, the firm will pay a $6m fine to the Financial Industry Regulatory Authority (FINRA) to settle related charges.
SEC Division of Enforcement Associate Director Mark Cave said: “Manipulative and deceptive trading undermines the integrity of our markets.
“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.”
Last month, the Consumer Financial Protection Bureau (CFPB) ordered TD Bank to pay $28m in penalties for sharing inaccurate and negative consumer reports.
