A US subsidiary of a major Canadian bank has been charged by the Securities and Exchange Commission with using an alleged illicit trading strategy in the US Treasury cash securities market.
The agency says that between April 2018 and May 2019 the former head of TD Securities (US) LLC’s US Treasuries trading desk entered orders on one side of the market that he had no intention of executing, in order to gain better executive prices on genuine orders he was entering on the other side of the market.
The practice is known as spoofing and includes the cancelation of the non-bona-fide orders after the bona fide ones were filed.
The SEC Order finds that the trader should have been better supervised and further charged TD Securities US with failing to take action to scrutinize him even after warnings of his irregular activity were made known.
“Manipulative and deceptive trading undermines the integrity of our markets,” said Mark Cave, Associate Director in the SEC’s Division of Enforcement. “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.”
TD Securities US agreed that it had violated anti-fraud provisions of the federal securities laws and that it had failed in its supervision of the trader.
The SEC ordered the firm to cease and desist in its violation of the rules, to pay a $400,000 disgorgement, and a $6.5 million civil penalty. This follows the agreed settlement between the firm and Finra to pay $6 million to resolve related charges.
TD Securities US also entered into an agreement this week with the Justice Department to resolve related criminal charges concerning a scheme to defraud that involved hundreds of episodes of unlawful trading in the secondary (cash) market for US Treasuries.
The former head of the TD Securities desk that was responsible for trading US Treasuries, Jeyakumar Nadarajah, was indicted on Nov. 7, 2023, in the District of New Jersey connection with this scheme and is awaiting trial. The charges have not been proven in court.
“TD Securities placed hundreds of orders to buy and sell US Treasuries that it never intended to execute, in order to deceive market participants and manipulate prices by creating the false appearance of supply and demand,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “Such efforts to profit through unlawful trading undermine public confidence in US Treasuries markets and defraud other market participants. The Criminal Division is committed to ensuring the integrity of our financial markets and holding accountable those who engage in deceptive trading practices.”
TD Securities received credit for its cooperation with the department’s investigation and for remedial measures taken, including terminating Nadarajah, and reviewing and continuing to enhance the compliance function.
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