The UK’s Financial Conduct Authority has given a final notice of a £27,766,200 financial penalty to Citigroup Global Markets due to breaches of the regulator’s ‘Principles for Businesses’, specifically “skill, care and diligence” and “management and control”.
In addition, Citigroup breached rule 7A.3.2 of the market conduct segment of the watchdog’s handbook, which requires a firm to have in place “effective systems and controls, suitable to the business it operates, to ensure that its trading systems prevent the sending of erroneous orders, or the systems otherwise function in a way that may create or contribute to a disorderly market”.
Explaining the details, the FCA asserted that the imposed penalty is a result of an inputting error made by a trader on the firm’s Delta 1 desk back in May 2022. Specifically, the trader made the error whilst loading a basket of equities into PTE, the Order Management System (OMS) used by the desk.
In addition, the Prudential Regulation Authority (PRA) fined Citigroup Global Markets Limited (CGML) £33,880,000 for failings in its trading systems and controls between 1 April 2018 and 31 May 2022.
Sam Woods, deputy governor for prudential regulation and chief executive officer of the PRA, said: “Firms involved in trading must have effective controls in place in order to manage the risks involved. CGML failed to meet the standards we expect in this area, resulting in today’s fine.”
Instead of selling a basket of $58 million, the individual “erroneously loaded a basket with a notional size of $444 billion, comprising 349 stocks, across multiple European markets,” confirmed the FCA. The trader entered the value in question into the unit quantity field rather than the notional value field.
Despite Citigroup’s trading control framework operating as expected, the watchdog has concluded that some primary controls were either absent or deficient.
Delving into specifics, the FCA highlighted that at 08:56 the morning of the 22 May, a ‘Trade Limit Warning’ pop-up alert appeared within PTE, presenting 711 warning messages to the trader in question.
The regulator explained: “[These] consisted of hard block and soft block messages, listed in a single alert where only the first 18 lines of alerts were immediately visible unless the person who received the alert scrolled down.
“The trader did not appreciate their inputting error and overrode all of the soft warnings in the pop-up. Two hard blocks generated by the PTE system, which could not be overridden, collectively stopped US$248bn of the basket of equities progressing for execution.”
According to the watchdog, the trader was then presented with a “final trade confirmation” pop-up alert which contained a wave notional value of all the individual equities in the basket as a total of approximately $196 billion. As the trader clicked the “OK” option, the remaining basket of equities was routed into CitiSmart for execution using a VWAP trading algorithm.
The erroneous orders executed across exchanges in: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.
Read more: Citi makes a number of cuts to its cash equity trading team in London
Despite controls within the firm blocking seven orders in the basket, the remaining $189 billion of the orders in the basket were sent to be executed using a VWAP algorithm for trading over the rest of the day.
During the period orders were executing, four separate controls operated as designed and led to the suspension of 242 individual orders with a total value of $163 billion. In the end, a total of $1.4 billion sell orders were executed across European exchanges before the remaining orders were cancelled by the trader in full at 09:10.
A spokesperson for Citi told The TRADE: “We are pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes. We immediately took steps to strengthen our systems and controls, and remain committed to ensuring full regulatory compliance.”
As Citigroup Global Markets agreed to resolve this matter it qualified for a 30% discount under the Authority’s executive settlement procedures, reducing the imposed financial penalty from £39,666,000.
The firm also agreed to resolve the matter with the PRA and qualified for a 30% reduction in the financial penalty – originally the fine was £48,400,000.