A broker-dealer affiliate of Bank of America agreed to pay $24 million in settling with the Financial Industry Regulatory Authority (FINRA) for allegedly failing to supervise the “spoofing” activities of two former traders in U.S. Treasury markets.
Bank of America Securities allowed 717 instances of spoofing by a former supervisor and former junior trader over a period of 6 1/2 years, said FINRA in a press release Thursday. The self-regulatory organization disciplined the firm for allegedly not having in place a proper supervisory system to detect the misconduct.
The details: Spoofing is the act of using false trades without the intent of execution to manipulate the market. From October 2014 through February 2021, two former Bank of America Securities employees engaged in this activity while evading detection by the firm, according to FINRA.
During the period, Bank of America Securities had policies and procedures in place that prohibited spoofing, but its surveillance system was deficient for several reasons, per FINRA’s disciplinary action:
- Prior to November 2015, the firm did not conduct surveillance or supervisory reviews for spoofing in U.S. Treasury markets;
- Until mid-2019, the firm surveilled only spoofing by trading algorithms, not manual spoofing by traders, in U.S. Treasury securities;
- Through at least December 2020, the firm’s surveillance was limited to potential spoofing orders entered into its proprietary order routing system and did not cover eight other external systems its traders could use; and
- Prior to October 2022, the firm did not conduct surveillance or supervisory reviews for potential cross-product spoofing, which comprised 192 of the alleged 717 instances by the employees.
FINRA said it also identified nearly 280 additional instances of trading activity that indicated potential spoofing by Bank of America Securities traders during the relevant period.
Compliance considerations: Bank of America Securities remediated its alleged deficiencies from mid-2019 through October 2022, according to FINRA.
The firm expanded its surveillance efforts; increased surveillance staffing; and enhanced its anti-manipulation policies, procedures, and training, the self-regulatory organization said.
Bank response: “Over the past several years, we have made significant investments to enhance our controls, including improved surveillance, increased staff, additional training, and updated policies,” said Bank of America in an emailed statement. “We worked cooperatively with FINRA to resolve this matter.”
The firm neither admitted nor denied FINRA’s findings.