Washington, D.C. – Tower Research Capital LLC has been slapped with a record $67.4 million penalty by the U.S. Commodity Futures Trading Commission (CFTC) for a nearly two-year spoofing scheme impacting equity index futures traded on the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT). The CFTC alleges that between March 2012 and December 2013, the firm, through the actions of three former traders, engaged in manipulative trading practices that resulted in $32,593,849 in losses for other market participants.
The order detailed a scheme where Tower traders placed orders they intended to cancel *before* execution – known as “spoof orders” – alongside legitimate orders. This was done to create a false impression of market demand or supply, tricking other traders into executing trades that benefitted Tower. The traders used an “order splitter” to disguise their activity, entering multiple small, randomly sized spoof orders to avoid detection.
The $67.4 million settlement includes $32,593,849 in restitution to those harmed by the spoofing, $10.5 million in disgorgement (repayment of ill-gotten gains), and a $24.4 million civil monetary penalty – the largest ever ordered in a spoofing case, according to the CFTC. The firm is also required to cease and desist from further violations of the Commodity Exchange Act regarding spoofing and manipulative practices.
“This case reflects that commitment [to enforcing rules] as well as the continued importance the agency is placing on parallel efforts with our law enforcement partners,” stated CFTC Chairman Heath P. Tarbert. The case was investigated by the CFTC’s Spoofing Task Force, and highlights the agency’s collaboration with the Department of Justice.
CFTC Director of Enforcement James McDonald emphasized that the agency will “continue to aggressively pursue those who engage in manipulative and deceptive conduct in our markets.” He added that such misconduct “undermines the integrity of the price discovery process” and harms legitimate traders.
Source: CFTC.gov
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