Friday, September 17, 2010

FINRA Press Release: Illicit Equities Trading Strategy

FINRA Sanctions Trillium Brokerage Services, LLC, Director of Trading, Chief Compliance Officer, and Nine Traders $2.26 Million for Illicit Equities Trading Strategy

The Financial Industry Regulatory Authority (FINRA) issued a press release this week announcing that 
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. Trillium, through nine proprietary traders, entered numerous layered, non-bona fide market moving 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 settlement is detailed in the FINRA AWC No. 20070076782-01.

A bid or ask order given by a trader with the intention to trade is a bona fide order. FINRA alleges that Trillium put in non-bona fide orders to induce unknowing market participants to trade against Trillium’s limit orders (limit orders are a trader’s highest bids and lowest offers). This is especially effective in securities that trade in low volumes, as non-bona fide orders can give the appearance of liquidity and order depth. FINRA found that Trillium completed 46,000 trades on non-bona fide orders and has brought disciplinary action against the company’s employees.

Hedge funds and brokerage firms possess technology and operations that obviously give them an upper hand in trading over retail investors or traders. We ask retail investors or traders to be aware of such illicit trading activity and market manipulation for thinly-traded stocks, such as microcap stocks.

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