BofA Securities has been fined $24 million by Finra for engaging in more than 700 instances of spoofing, or fraudulent trading, in Treasury securities and related supervisory failures spanning more than six years.
The company was fined and censured as part of an agreement in which it neither admitted to nor denied the charges.
From October 2014 through February 2021, BofA Securities, through a former supervisor and a former junior trader, engaged in 717 instances of spoofing in U.S. Treasury securities to induce opposite-side executions in the same Treasury or a correlated Treasury futures contract, Finra said.
Spoofing, a fraud that uses fake orders to induce orders on the opposite side of the market, “may deceive other market participants into trading at a time, price or quantity they otherwise would not have, Finra said.
“Spoofing undermines the transparency and integrity of the markets by distorting the true nature of supply and demand. Spoofing is especially detrimental in the U.S. Treasury securities market, given its status as a benchmark for countless financial instruments and transactions,” Bill St. Louis, Finra executive vice president and head of enforcement, said in a prepared statement.
St. Louis said he believed the fine sent the clear message that “FINRA will aggressively pursue firms that engage in spoofing, including cross-product spoofing.”
BofA Securities “worked cooperatively with Finra to resolve this matter,” BofA spokesperson Naomi Patton said.
“This matter stems from the actions of two former employees. Over the past several years, we have made significant investments to enhance our controls, including improved surveillance, increased staff, additional training, and updated policies,” Patton added.
Finra said, “BofA Securities did not have a supervisory system to detect spoofing in Treasuries until November 2015; until mid-2019, that system was deficient in that it was designed to detect spoofing by trading algorithms, not manual spoofing by its traders, like the 717 instances addressed in the settlement.”
In addition, until at least December 2020, BofA Securities’ surveillance did not capture orders its traders entered into certain systems provided by external venues and did not supervise for potential cross-product spoofing in Treasurys through September 2022, Finra said.