TD Bank Now Gets Caught With Illegal Market Manipulation

TD Bank now gets caught with illegal market manipulation and has agreed to pay over $20 million under a deal with the SEC.

Investors are calling it ‘pay to play’.

The U.S. broker-dealer unit of Toronto Dominion Bank (TD Securities USA) has agreed to pay more than $20 million to resolve allegations of manipulating the U.S. Treasuries market.

This settlement comes as part of an agreement with U.S. authorities, concluding a lengthy investigation, per Reuters.

In a court filing on Monday, TD Securities admitted to engaging in spoofing practices within the U.S. Treasuries market as part of a deal with the U.S. Justice Department.

The firm also settled related civil charges with the Securities and Exchange Commission (SEC).

Additionally, the bank faced charges for not properly supervising its former head of the U.S. Treasuries trading desk.

From April 2018 to May 2019, a former employee manipulated the U.S. Treasury cash securities market by placing orders he had no intention of executing, a tactic known as “spoofing.”

This practice aims to create a misleading impression of market demand.

U.S. regulators have taken a strong stance against spoofing, which is designed to distort market activity.

However, the criminal bank has now been let go off what investors deem as ‘easily’.

Under the terms of TD’s agreement, the Justice Department will refrain from prosecuting the firm as long as it adheres to the three-year agreement and implements significant compliance improvements.

The DOJ decided not to appoint a third-party monitor for compliance, based on the company’s efforts to address the issues.

As part of the settlement, TD Securities will pay a $12.5 million criminal penalty related to civil investigations by the SEC and the Financial Industry Regulatory Authority (FINRA).

This amount is in addition to an approximately $9.5 million criminal penalty outlined in the agreement.

The bank will also compensate victims with $4.7 million and forfeit $1.4 million.

This settlement comes at a time when the Canadian bank is reportedly on the verge of pleading guilty to separate charges concerning its U.S. retail bank’s alleged failure to prevent money laundering linked to Chinese crime groups and illegal fentanyl sales, as reported by the Wall Street Journal last week.

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Also Read: TD Bank Customers Now Say They Cannot Access Their Money

Other Regulation News Today

Illegal short sellers will now face life sentence in prison after the National Assembly approved the amendment.

The National Assembly has approved an amendment to the Capital Markets Act aimed at enhancing penalties for illegal short selling, per Business Korea.

Under this new law, individuals who profit illegally from short selling exceeding 5 billion won (around $3.79 million) could face severe penalties, including prison sentences of up to life imprisonment.

On September 27, financial authorities confirmed that the amendment, designed to overhaul the short selling system, passed the National Assembly on September 26.

The legislation mandates that institutional investors must establish an electronic short selling system, and both institutional and corporate investors are now required to implement internal control standards.

Approximately 101 companies, representing 92% of domestic short selling transactions, must adopt these electronic systems.

These firms will also be obligated to report stock balances and over-the-counter (OTC) transactions to the exchange, increasing their compliance responsibilities under the newly instituted central monitoring system.

Securities firms will need to annually verify the internal controls and electronic systems of institutional and corporate investors, following a checklist, and report the findings to the Financial Supervisory Service (FSS).

Non-compliance could result in fines of up to 100 million won.

To standardize short selling conditions for individual and institutional investors, the repayment period for loan transactions related to short selling will also be constrained.

Violations of this rule will incur fines of up to 100 million won, with loan terms extendable in 90-day increments for a maximum of 12 months.

Additionally, the amendment seeks to deter repeated illegal short selling by increasing administrative penalties.

Fines for unfair trading and illegal short selling will rise from three to five times the illicit profit to four to six times.

Offenders earning over 5 billion won from illegal short selling may now face the same enhanced prison terms as those engaging in unfair trading.

Administrative sanctions will be broadened, allowing regulators to restrict trading of financial investment products for up to five years and limit the appointment or reappointment of executives at listed companies.

This aims to tackle the high recidivism rate among financial criminals by effectively barring them from the market for a specified duration.

To combat the concealment of illegal profits, accounts suspected of being involved in unfair trading or illegal short selling can be frozen for up to six months, with a possible extension of an additional six months.

The amended law will take effect on March 31 of next year, providing time for the implementation of the electronic short selling system, which is expected to be operational by then.

However, restrictions on trading financial products and executive appointments will begin six months after the law is enacted, following public consultations.

Upcoming revisions to the enforcement decree will lower the short selling disclosure threshold from 0.5% to 0.01% of outstanding shares and reduce the collateral ratio for individual short sellers to match that of institutional investors, with completion expected by next month.

A representative from the Financial Services Commission (FSC) noted that limiting the loan repayment period for short selling transactions to 12 months, along with finalizing amendments to the Financial Investment Business Regulations, will lower the collateral ratio for individual short sellers from 120% to 105%, leveling the playing field.

The FSC official added, “With the electronic short selling system set to launch in March, the improvements to the short selling framework will be fully realized.

Our goal is to restore investor confidence and enhance the competitiveness of the South Korean stock market.”

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Also Read: Glitch Now Traps Hedge Funds In A Massive Short Squeeze

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