The Securities and Exchange Commision charged New York-based broker Hold Brothers On-Line Investment Services with “allowing traders outside the U.S. to access the markets and manipulate trading through accounts the firm controlled.” Two foreign companies, Trade Alpha Ltd. and Demonstrate LLC, were charged along with three Hold Brothers executities in the scheme.
Specifically, the SEC charged the brokerage with allowing traders to “layer.” Layering or spoofing occurs when trades – made either to push up or push down a security’s price — are placed and then cancelled. The goal of layering is to secure a better price by temporarily manipulating a security’s order book and price with fake trades.
All those charged agreed to pay $4 million to settle the SEC charges. Hold Brothers’ share is roughly $2.5 million. The brokerage has also been fined $3.4 million by FINRA and various exchanges.
Hold Brothers’ trademarked motto is “Success is How Fast You Get There.” Maybe they should have paid more attention to what they did once they got there. Hold Brothers is no longer accepting new clients. Go figure.
How Layering Costs Retail Investors: Retail investors can end up buying a securitiy at an artificially high price or selling a security at an artificially low price. To see an example of how layering specifically impacted prices in the case against Hold Brothers, see the Nanex coverage below.
Sources and coverage:
The SEC order
The SEC press release
FINRA Proceeding
Bloomberg, by Whitney Kisling, “SEC Says New York FIrm Allowed High-Speed Stock Manipulation”
Nanex, 25-Sep-2012 Whac-A-Mole is Manipulation