FINRA today announced it has censured and fined New York-based Trillium Brokerage Services LLC $1 million for using “an illicit high frequency trading strategy and related supervisory failures.”
According to the Washington regulator, Trillium entered numerous layered, non-bona fide market moving orders to generate selling or buying interest in specific stocks through nine proprietary traders. “By entering the non-bona fide orders, often in substantial size relative to a stock’s overall legitimate pending order volume, Trillium traders created a false appearance of buy- or sell-side pressure,” FINRA said.
This trading strategy induced others to enter orders to execute against limit orders previously entered by Trillium’s traders. Once the orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity.
According to FINRA, as a result of this improper high frequency trading strategy, Trillium’s traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.
In addition to the nine traders, FINRA also took action against Trillium’s director of trading and its chief compliance officer. The 11 individuals were suspended from the securities industry for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totaling about $292,000.
“Trillium’s trading conduct was designed to improperly bait unsuspecting market participants into executing trades at illegitimately high or low prices for the advantage of Trillium’s traders,” said Thomas R. Gira, the executive vice president of FINRA market regulation. “FINRA will continue to aggressively pursue disciplinary action for illegal conduct, including abusive momentum ignition strategies and high frequency trading activity that inappropriately undermines legitimate trading activity, in addition to related supervisory failures.”
FINRA’s investigation found that nine Trillium proprietary traders intentionally created the appearance of substantial selling or buying interest in the NASDAQ Stock Market and NYSE Arca exchange.