The U.S. Financial Industry Regulatory Authority announced that it has censured and fined a New York-based brokerage firm and its traders for carrying out an “illicit” high frequency trading strategy.

FINRA said Monday it has censured and fined Trillium Brokerage Services, LLC, US$1 million for using the illicit strategy and related supervisory failures. It says that Trillium, through nine proprietary traders, entered numerous non-bona fide orders to generate selling or buying interest in specific stocks. “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,” the regulator explains.

“This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity,” it says. “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, or as principals, for periods ranging from six months to two years. FINRA levied a total of US$802,500 in fines against the individuals, ranging from US$12,500 to US$220,000, and required the traders to pay out disgorgements totaling about US$292,000.

In concluding the settlement, Trillium, and the individual respondents, neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

“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 Gira, executive vice president, 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.”

IE