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Bank of America Securities

Regulation and Compliance > Federal Regulation

BofA Securities Hit With $24M FINRA Fine for Spoofing

By Dinah Wisenberg Brin

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What You Need to Know

  • Regulators identified 717 instances of spoofing through two former traders in U.S. Treasury secondary markets.
  • Bank of America settled without admitting or denying the allegations.
  • The banking giant says it has made significant investments to enhance its controls.

The Financial Industry Regulatory Authority has fined BofA Securities $24 million for Treasurys spoofing, a fraudulent trading practice, and for related supervisory failures that the agency said occurred over six years.

BofA Securities settled the matter, consenting to the entry of FINRA’s findings without admitting or denying the charges, the agency said Thursday.

Spoofing involves using “non–bona fide orders” — orders the trader doesn’t intend to have executed — to create a false appearance of market activity to induce other market participants to execute against real orders on the other side of the trade, FINRA explained.

FINRA alleges that BofA Securities engaged in 717 instances of spoofing through two former traders in U.S. Treasury secondary markets.

Spoofing may deceive market participants into trading at a time, price or quantity they otherwise would not have, according to the regulator.

“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,” said Bill St. Louis, FINRA executive vice president and head of enforcement.

“This action sends a strong message that FINRA will aggressively pursue firms that engage in spoofing, including cross-product spoofing,” St. Louis said.

From October 2014 through February 2021, BofA Securities, through a former supervisor and a former junior trader, engaged in 717 instances of spoofing in a U.S. Treasury security to induce opposite-side executions in the same security or a correlated futures contract, according to FINRA.

In addition, from at least October 2014 through September 2022, BofA Securities failed to establish and maintain a supervisory system reasonably designed to detect spoofing in U.S. Treasury markets, FINRA said.

BofA Securities lacked a supervisory system to detect spoofing in Treasurys until November 2015, FINRA said. That system was deficient until mid-2019, as it was designed to detect spoofing by trading algorithms, not manual spoofing by its traders, like the 717 instances addressed in the settlement.

Also, until at least December 2020, BofA Securities’ surveillance did not capture orders that its traders entered into certain systems provided by external venues. And the firm didn’t supervise for potential cross-product spoofing in Treasuries through September 2022, FINRA added.

Bank of America provided the following comment to ThinkAdvisor:

“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. We worked cooperatively with FINRA to resolve this matter.”

Photo: AP

Dinah Wisenberg Brin

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