Among recent enforcement actions, the Securities and Exchange Commission levied its first high-frequency trading manipulation charge, and the Financial Industry Regulatory Authority slapped TD Ameritrade with a $75,000 fine for recordkeeping failures.
In addition, the SEC charged a former financial analyst with insider trading and the New Jersey Bureau of Securities assessed a $1.1 million penalty against a company and its president and CEO for the fraudulent sale of unregistered securities.
SEC Charges High-Frequency Trading Firm With Manipulating Closing Prices
Athena Capital Research was charged by the SEC with placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of NASDAQ-listed stocks. The agency said that this is the first high-frequency trading manipulation case.
Athena was acutely aware of the price impact of its algorithmic trading, calling it “owning the game” in internal emails, the SEC said.
According to the SEC, Athena used an algorithm that was code-named Gravy to engage in a practice known as “marking the close,” in which stocks are bought or sold near the close of trading to affect the closing price.
Although Athena was a relatively small firm, it dominated the market in the last few seconds of a trading day for stocks that it otherwise traded only slightly. In addition, the firm used additional algorithms it called “collars” to be sure that its orders were given priority when trading imbalances at the close of the trading day.
The manipulations occurred from June to December 2009, and made up more than 70% of the total NASDAQ trading volume of the affected stocks in the seconds before the market close.
The huge volumes of these last-second trades allowed Athena to overwhelm the market’s available liquidity and artificially push the market price, and therefore the closing price, in the firm’s favor.
The firm neither admitted nor denied the charges, but agreed to pay a $1 million penalty.
FINRA Fines, Censures TD Ameritrade on Recordkeeping Failures
TD Ameritrade was censured by FINRA and fined $75,000 after it failed to create and maintain a record that it had sent account records containing customer investment objective changes in a timely manner.
According to the agency, a data center conversion negatively affected the software and related automated process for notifying customers of investment-objective changes, which ceased to function properly. As a result, data files containing new or updated customer suitability information failed to route to the firm’s printing vendor. That meant that customer investment objective changes were not sent to approximately 300,000 customers.
The problem was discovered by a technology associate while performing unrelated functions. The data was found residing in an “archive file” located somewhere in the firm’s routing hub system.
FINRA also foumd that although the firm had written supervisory procedures in place, they were not adequate to monitor for and detect problems with the transmission of updated account information to customers.
The firm neither admitted nor denied the findings.
FINRA Censures, Fines Firm; Suspends Supervisor
FINRA censured Source Capital Group Inc. and fined the firm $100,000, and also suspended Russell William Newton and fined him $10,000. The actions were taken over disclosure failures in the case of the firm and supervisory failures in Newton’s case.
According to the agency, the firm, through its branch office manager, sold or caused the sale of investments managed by an entity without adequately disclosing material information to investors.