FINRA fined BofA Securities $24 Million for Spoofing and Supervisory Failures

Story Highlights

• BofA Securities was fined $24 million for spoofing, a deceptive trading tactic that harms market fairness.
• The scheme went undetected for over six years due to BofA’s weak supervisory systems.
• This hefty fine sends a strong message to the industry: prioritize robust oversight and ethical practices.

The backbone of a healthy financial market relies on trust and transparency. But that trust was eroded by the recent actions of Bank of America Securities (BofA Securities). FINRA, the financial industry’s watchdog, levied a hefty $24 million fine against BofA Securities for engaging in a deceptive trading practice called spoofing.

Spoofing: A Web of Deception Unraveled

Spoofing is a manipulative tactic where traders place fake orders with no intention of executing them. The goal is to create a false impression of high demand or abundant supply, ultimately tricking others into buying or selling at skewed prices. This undermines the entire market ecosystem, especially for the U.S. Treasury market, a crucial benchmark for countless financial instruments.

We have fined BofA Securities $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.

Learn more: https://t.co/OnS05htzZV pic.twitter.com/dZGIJjXcHw

— FINRA (@FINRA) November 30, 2023

Six Years of Blind Spots: BofA’s Supervisory Lapses

Even more concerning is the lack of oversight that allowed this activity to fester. FINRA’s investigation revealed a troubling six-year period (October 2014 – February 2021) where two former BofA Securities traders engaged in spoofing a U.S. Treasury security over 700 times. This blatant disregard for ethical trading practices raises serious questions about BofA’s supervisory systems.

A System with Critical Gaps

A closer look reveals several critical shortcomings in BofA’s supervisory structure. Until November 2015, they had no system to detect spoofing activity. Even after implementing one, it was designed solely to catch spoofing by trading algorithms, leaving manual manipulation unchecked- the method used in the 717 identified instances.

BofA’s surveillance system also had significant gaps. Until late 2020, it missed orders its traders entered on external platforms. Additionally, they lacked supervision for “cross-product spoofing” – a specific type – until September 2022, leaving a critical vulnerability in their system.

BofA Securities settled the case with FINRA by accepting the findings without admitting or denying the charges. This expedites resolution but doesn’t erase the severity of the situation. FINRA continues its efforts to combat spoofing through communication and education. However, the hefty fine is a stark reminder to the entire financial industry. Robust supervisory systems and ethical trading practices are not just good practices; they are essential to maintain market integrity and rebuild trust shaken by such deceptive schemes.