(Updates with comment from interview)
By Herbert Lash
NEW YORK, Sept 13 (Reuters) - A small New York brokerage and 11 of its employees agreed to a $2.26 million settlement for inducing unsuspecting counter-parties to enter stock trades at illegitimate prices, U.S. regulators said on Monday.
Traders at Trillium Brokerage Services repeatedly entered numerous non-bona fide “layered” orders to create the appearance of substantial pending buying or selling interest, said the Financial Industry Regulatory Authority, or Finra.
The case, which came to light after a complaint to Nasdaq, is the first involving “layering” in the United States that Finra is aware of, said Thomas R. Gira, executive vice president of market regulation at the industry regulator.
”“We do have other active cases. This is not an isolated case,” Gira said, who added that Finra created a surveillance program to monitor all markets for the activity.
Traders at the firm formerly known as Trillium Trading were fined and suspended from the industry for six months to two years for taking advantage of algorithmic trading programs at other firms during the three months that ended Jan. 31, 2007.
“Trillium’s trading conduct was designed to improperly bait unsuspecting market participants into executing trades at illegitimately high or low prices,” Gira said earlier in a statement.
The Trillium traders placed and then canceled multiple orders within seconds before a real order was entered to profit from artificially inflated or deflated stock prices on at least 46,152 occasions, Finra said.
Trillium and the 11 respondents in the case neither admitted nor denied the charges.
Regulators are looking for possible fraud related to the large number of rapid-fire stock orders that are placed and canceled almost immediately, Securities and Exchange Commission Chairman Mary Schapiro said last week. (Editing by Leslie Adler)