The securities arm of the Toronto-Dominion Bank has "regrettably" identified a huge problem from "incorrectly priced financial instruments" in its London office.

TD Securities said Friday that the problem will cost it about $96 million pre-tax.

"This situation is associated with the activities of an individual who is no longer with the company," it said in a release. Spokeswoman Simone Philogène said the senior trader left the bank on June 23.

In the course of checking his work, the bank realized that some credit derivatives, called credit index swaps, were incorrectly priced.

The bank is working with British and Canadian regulators, the Financial Services Authority (FSA) in London and the Office of the Superintendent of Financial Institutions in Ottawa, Philogène said.

Second problem in London office

The bank got in trouble with FSA last fall and was fined pound490,000 (nearly $1 million) for "systems and controls failings," the authority said. The bank would have been fined more but got a 30 per cent discount for settling with the FSA as quickly as possible.

A senior bond trader, Simon Richard Brignall, quit in March 2007 and revealed to the bank that he had mispriced trading positions "to hide significant losses," the FSA said in November.

He had also entered fictitious trades on the books just before he resigned.

Brignall's trades cost the bank $8.8 million, and the FSA barred him from the business.

"Mr. Brignall was able to hide these losses because he was responsible for valuing his own positions," the FSA said.

The FSA noted that the bank didn't find the problem; Brignall admitted it. It also said the supervision of traders was inadequate.

In regard to the loss disclosed Friday, "we are very disappointed that this has occurred," said Ed Clark, president and CEO. "We deeply regret this incident."

TD stock closed down 25 cents at $63.09 in TSX trading.

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