Tower Research: The Relay Team’s Orders Were Built to Disappear

The Tower Research CFTC spoofing settlement required approximately $67.4 million in civil payments over allegations that its traders used orders intended for cancellation to help their real trades fill. The Commodity Futures Trading Commission described a team that showed the market little of what it wanted to trade and plenty of what it wanted everyone else to believe. For someone who knows the desk’s order handling, the connection between the displayed orders and the trades they helped fill is the story.

Tower Research Capital LLC is a New York proprietary trading firm. The Commission’s November 6, 2019 settlement order covered thousands of alleged spoofing episodes from at least March 2012 through December 2013, involving three traders on its Relay Team using Tower-owned accounts. The team traded E-mini S&P 500 and E-mini NASDAQ 100 futures on the Chicago Mercantile Exchange and E-mini Dow futures on the Chicago Board of Trade.

The Relay Team’s Order-Book Sequence

The Relay Team’s alleged strategy paired small visible genuine orders with much larger visible orders on the opposite side. The Commission described the genuine orders as typically iceberg orders, which showed only a small part of the quantity the traders wanted filled. The opposite-side orders were typically fully visible, with a larger total quantity, and the traders allegedly intended to cancel them before execution.

That difference in visibility did the work. According to the order, the team used the larger orders to create or deepen an imbalance in the order book, making supply or demand appear stronger than it was. Other participants would see the apparent interest and trade against the genuine orders, helping those orders fill sooner, at better prices or in larger quantities.

The order also describes a deliberate effort to make the larger orders harder to recognize as one scheme. Its account gives an order-handling programmer something concrete to recognize:

The apparent variety was part of the alleged disguise. A collection of differently sized orders could still serve the same trading decision, with the larger total quantity supplying the false signal. The order says the traders generally canceled those orders after the genuine order received a full or partial fill.

The orders with the most visible weight were allegedly the ones the desk wanted to disappear, while the quieter order was the one it wanted everyone else to help execute. We see a market being fed the loudest signal by the orders least meant to trade.

What the CFTC Alleged Against Tower

The Commission’s settlement addressed both spoofing and a manipulative or deceptive scheme. The spoofing allegation concerned the traders’ intent to cancel when they placed the orders. The broader allegation concerned the false picture of supply and demand those orders created and the genuine trades that picture helped obtain.

The Commission brought the action against Tower for its employees’ trading. The Commission tied Tower’s responsibility to traders acting within the scope of their work for the firm, using its accounts and trading for its benefit. That makes the account ownership and the team’s place inside the business part of the case, alongside the messages sent to the exchange.

The order described financial benefit to Tower and harm to other participants. For a trader on the other side, the supposed buying or selling interest was information used to decide when, how much and at what price to trade. The allegation was that Tower’s team deliberately made that information false.

What Evidence Is Required to Prove Fraud?

For a spoofing pattern like Tower’s, the evidence connects the orders intended to trade, the opposite-side orders intended to disappear, and the instructions behind both. Time-stamped order messages, fills, algorithm instructions and communications can explain the purpose of the sequence. A programmer may understand the cancellation trigger, while a trader may understand why the genuine order was waiting on the other side.

The iceberg feature makes the full order history particularly useful. In the Commission’s account, the market saw only a small visible quantity of the genuine order, while the opposite-side orders displayed their full size. We look at what was displayed, what was available to trade, and what happened when the genuine order began filling, because each reveals a different part of the same decision.

The order splitter adds another connection. The Commission alleged that it broke the larger quantity into smaller, randomly sized orders to hide the scheme. Someone who knows how those orders were generated can explain why apparently separate messages belonged together. That is where knowledge of the code can give the trading data its meaning.

The value of trading records and communications reaches beyond completed trades. They can connect the instruction to place an order with the later fill or cancellation. For an operations or surveillance employee, that connection may be visible across records produced by different parts of the business.

Can the Commodity Market Be Manipulated?

The Tower allegations show how a commodity market can be manipulated through the supply and demand displayed in its order book. A 2024 working paper for a World Federation of Exchanges research project, An Analysis of Market Manipulation Definitions Around the World reviews Canadian equity-market evidence that spoofing increases volatility and reduces price efficiency.

The paper also describes analysts investigating patterns flagged by surveillance systems and the limits of systems built around patterns already known. Its discussion helps explain the value of someone who understands a strategy’s design. In a market manipulation case, the insider can connect the behavior on the screen to the decision that produced it.

Can CFTC Prosecute Criminal Violations?

The CFTC brings civil and administrative enforcement actions, while the Justice Department prosecutes criminal charges. The Justice Department announced Tower’s deferred prosecution agreement after charging the company with commodities fraud. The FBI’s Chicago Field Office investigated the criminal case, with a referral and assistance from the Commission’s Division of Enforcement.

According to the criminal court documents filed with that agreement, the traders’ false orders at times induced other participants to trade at quantities, prices and times they otherwise likely would not have chosen. That account supplies the connection between the false display and the resulting trading.

What Is the Penalty for Market Manipulation?

Tower’s civil penalty was $24,400,000. The Commission’s order also required $32,593,849 in civil restitution and $10,500,000 in disgorgement, the return of gains from the conduct. The compensation obligation was larger than the civil penalty.

Each category carried a credit for corresponding payments under the parallel Justice Department agreement. The same dollar did not have to be paid twice.

The Commission appointed the National Futures Association to receive restitution payments and handle distributions to designated recipients. The order named the account the Tower Victim Compensation Settlement Fund. That gives the victim-compensation part of the civil resolution a specific destination, distinct from the penalty and the obligation to surrender gains.

What Changed Inside the Firm

Tower described its surveillance investments as changes made after learning of the trading. It told the Commission it had strengthened supervision and policies against spoofing and invested in trade-surveillance tools supported by dedicated compliance staff and in-house developers. For someone who builds or uses those tools, the question is what they detect and how the firm responds.

The Commission credited Tower for factual presentations and for collecting, analyzing and organizing extensive evidence. It said that cooperation reduced the civil penalty.

The comparison with JPMorgan shows why the people responding to surveillance matter. In its September 2020 spoofing action, the Commission alleged supervision failures despite alerts, inquiries and internal allegations about precious-metals and Treasury-futures trading. Tower’s order describes investments in tools and people. The JPMorgan allegations show why the response to what a system flags belongs in the trading story too.

For someone in surveillance, the alert and the decision about it are connected evidence. The World Federation of Exchanges working paper describes the human investigation that follows a suspicious pattern. We help you show what the system flagged, what the desk said it meant, and what happened next.

What a Spoofing Whistleblower Can Bring

A trader, programmer or surveillance employee may hold the explanation that connects an order pattern to its purpose. In Tower’s case, the iceberg orders, order splitter and cancellations after fills give that inquiry a concrete shape. We work with the person who knows the trading to connect that knowledge to the records.

The CFTC Whistleblower Program provides for awards totaling 10% to 30% of qualifying monetary sanctions collected for eligible whistleblowers in an action. Our whistleblower experts assess the evidence and the award opportunity with you, with the trading you understand at the center of the discussion.

You Can Explain the Orders

If you know why a desk’s visible orders disappeared when its real trades filled, speak to one of our Whistleblower Experts about the strategy you saw. We build the case with you and bring in commodities fraud whistleblower lawyers who can connect trading systems, order histories and the decisions inside the firm. We stay with you from the first call to building your strongest CFTC whistleblower case.