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Finra hands out $2.3m fine as HFT crackdown begins

13 September 2010  |  11462 views  |  0 cash

A small US high frequency trading firm and several of its employees have been fined a total of $2.26 million for manipulating stock prices through a technique called "layering".

Trillium Brokerage Services has been hit with a $1 million fine for using the illicit high frequency trading strategy and related supervisory failures by the Financial Industry Regulatory Authority (Finra).

The firm, through nine proprietary traders, entered layered "non-bona fide" market moving orders in specific stocks on the Nasdaq exchange, creating a false appearance of buy or sell pressure.

These orders were then immediately cancelled, leaving the firm to benefit from "advantageous prices that otherwise would not have been available to them on 46,000 occasions".

Finra fined the nine traders, Trillium's director of trading and its chief compliance officer a total of $802,500. All 11 were also suspended from the securities industry for between six months and two years. In addition the traders have been ordered to pay out disgorgements totalling about $292,000.

Thomas Gira, EVP, market regulation, Finra, says: "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. 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."

Neither the firm nor the 11 employees admitted or denied the charges but consented to Finra's findings.

High-frequency trading strategies have come under increasing scrutiny in recent months after being heavily implicated in the 6 May flash crash that saw a dizzying plunge in the Dow Jones Industrial Average and regulators are currently considering various curbs.

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