Oh my!!! It's another day and another press release from FINRA announcing one of the largest fines in the history of mankind and how yet another in a long line of messages has been sent to the industry about how the self-regulatory-organization will not tolerate this latest infraction. For your consideration today is this press release, which I reprint in all its glory:
FINRA Fines BofA Securities $24 Million for Treasuries Spoofing and Related Supervisory Failures / Firm Engaged in 717 Instances of Spoofing Activity (FINRA Release / November 30, 2023)
WASHINGTON—FINRA announced today that it has fined BofA Securities, Inc. $24 million for engaging in more than 700 instances of spoofing through two former traders in U.S. Treasury secondary markets and related supervisory failures spanning more than six years.
“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, Executive Vice President and Head of Enforcement at FINRA. “This action sends a strong message that FINRA will aggressively pursue firms that engage in spoofing, including cross-product spoofing.”
Spoofing is a type of fraudulent trading that involves the use of non–bona fide orders (orders that the trader does not intend to have executed) 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 entered on the opposite side of the market. Spoofing may deceive other market participants into trading at a time, price or quantity that they otherwise would not have.
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 Treasury security or a correlated Treasury futures contract.
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. 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. Lastly, BofA Securities did not supervise for potential cross-product spoofing in Treasuries through September 2022.
FINRA has discussed spoofing and related regulatory obligations in its Annual Risk Monitoring and Examination Priorities letters and its Examination and Risk Monitoring Program Reports, including its most recent 2023 Exam Report.
In settling this matter, BofA Securities consented to the entry of FINRA’s findings, without admitting or denying the charges.
Bill Singer's Comment
Okay, so, sure, FINRA, go ahead and impose a $24 million fine on BOA, which will likely get paid out of the pockets of the company's public shareholders.
And, yeah, while you're at it, issue your press release touting the size of the fine and how it sends yet another message to the industry. You're pretty good at marketing the appearance of regulation -- it's the actual job of regulation that you're not so good at discharging.
Perhaps nothing is more illustrative of the failure of the FINRA form of self-regulation than this statement in the AWC at Page 2 https://www.finra.org/sites/default/files/2023-11/BofA-AWC-2019063152203-113023.pdf:
From at least October 2014 through September 2022, BofAS failed to establish and maintain a supervisory system reasonably designed to detect spoofing. BofAS did not have a supervisory system to detect spoofing in the U.S. Treasury markets until November 2015. Thereafter, until mid-2019, BofAS’s surveillance was designed to detect spoofing by trading algorithms, not manual spoofing by its traders. In addition, until at least December 2020, BofAS’s surveillance did not capture orders its traders entered into up to eight trading systems provided by external venues. BofAS also did not supervise for potential cross-product spoofing in the U.S. Treasury markets throughout the relevant period. Therefore, BofAS violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
It sure as hell looks a lot worse when you set out each year that BOA was spoofing and failing to supervise its misconduct -- which is why I posted it in that fashion.
And during each and every one of those enumerated years, FINRA was supposedly regulating its member firm, but the regulator itself was apparently clueless of both the spoofing and the unreasonable supervision.
I accept that BOA engaged in misconduct and I have no sympathy whatsoever for the firm. On the other hand, either FINRA failed to timely oversee its member firm's protracted and serious misconduct; or, in the alternative, FINRA lacked (and still lacks) the competency to timely ferret out such attacks on the market's credibility.
What we see here in this AWC is a failure of in-house compliance coupled with a failure of industry self-regulation. It's long past due for this failed experiment in FINRA self-regulation to be shut down and replaced.
Former Principals Of Private “Pre-IPO” Funds Charged In Connection With $386 Million Fraud Scheme / Michael Castillero, Francine Lanaia, and Brian Martinsen Are Alleged to Have Defrauded Investors in Straightpath Funds by Selling Shares in Non-Public Companies at Arbitrarily Inflated Prices and Pocketing Hidden Markups (DOJ Release)
Vancouver Man to Plead Guilty to Securities Fraud Conspiracy / Defendant allegedly conspired to facilitate pump-and-dumps of microcap securities using nominee entities under his control (SEC Release)
Former Insider At Major Financial Services Organization Admits Involvement In Multimillion-Dollar Insider Trading Ring (SEC Release)
FINRA Arbitration Panel Grants Motion for Stipulated Award
In the Matter of the Arbitration Between NYLife Securities LLC and
New York Life Insurance Company, Claimants, v. James Myers, Respondent (FINRA Arbitration Award)