Tower Research Hit with Record $67 Million Spoofing Fine

Tower Research Capital LLC, New York-based financial services firm, paid $67.4 million in penalties to US regulators to settle charges of fraud in the commodities markets as authorities continue to crack down on errant trading practices.

The CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term action centered on spoofing activity carried out by three former traders at Tower’s commodities trading business in a scheme that ran from March 2012 through December 2013 and involved dozens of fraudulent orders that were canceled before Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term.

In a parallel statement, the SEC said Tower’s traders falsely represented they had made bids, and while non-existent trades had taken place to create an illusion to encourage other investors to trade against their genuine orders and move the market for their own benefit.

“Generally, after receiving a full or partial fill on the genuine orders, the traders then cancelled the spoof orders. In placing the spoof orders, the traders often used an order splitter to enter several smaller, randomly-sized orders in an attempt to obscure their scheme from other market participants,” the regulator further explains.

The charges against the registered dealer were part of a broad US crackdown on spoofing, a tactic in which traders place orders without intending to execute them to try to move prices in their favor.

A yearlong plot to rip off metals traders

Earlier last year, Deutsche Bank, HSBC, and UBS were hit by penalties, the largest of which was a $30 million fine for Germany’s biggest bank. The Swiss bank UBS has also found itself facing similar accusations after some of its spot traders used phony trade orders to manipulate precious metals futures traded on the COMEX. The bank agreed to pay a penalty of $15 million to settle the ‘spoofing’ charges brought by the CFTC.

HSBC Securities, the bank’s US brokerage arm, was fined around $1.6 million on related charges, a relatively small penalty compared to other sanctions doled out in other banks’ rigging cases.

Regulators and exchanges have stepped up their policing of spoofing in recent years. However, the people and firms that they previously focused on were rather small-time.

James McDonald, CFTC’s director of enforcement, commented: “Today’s enforcement action shows that the Commission continues to aggressively pursue those who manipulate and spoof in our markets. If left unchecked, this sort of misconduct can undermine the integrity of the price discovery process, harm law-abiding market participants, and diminish confidence in our markets more generally. That’s why we will continue to keep our markets free from spoofing and manipulation.”