FINRA announced today that it has fined BofA Securities, Inc. $24 million. for involvement in more than 700 cases of rigging through two former traders in US Treasury secondary markets and related supervisory failures spanning more than six years.
Spoofing is a type of fraudulent trading that involves the use of non-bona fide orders (orders that the trader does not intend to execute) to create a false appearance of market activity on one side of the market to induce other market participants to execute against bona fide orders. of credit entered on the opposite side of the market. Spoofing can mislead other market participants into trading at a time, price, or quantity that they otherwise would not have.
From October 2014 to February 2021, BofA Securities, through a former supervisor and a former junior trader, engaged in 717 cases of forgery of a US Treasury security to cause reverse executions on the same or a related Treasury security Treasury futures contract.
From at least October 2014 through September 2022, BofA Securities failed to establish and maintain an oversight system reasonably designed to detect fraud in the US Treasury markets.
BofA Securities did not have an oversight system to detect tampering in the bonds until November 2015. As of mid-2019, that system was inadequate in that it was designed to detect tampering by trading algorithms, not manual tampering by traders of, like the 717 cases mentioned in the settlement. Additionally, as of at least December 2020, BofA Securities’ surveillance did not capture orders that its traders entered into some externally provided systems.
Finally, BofA Securities did not monitor for potential cross-product counterfeiting in the bonds until September 2022.
In settlement of this matter, BofA Securities consented to the entry of FINRA’s findings, without admitting or denying charges.