The UK’s Financial Conduct Authority (FCA) has fined Citigroup Global Markets (Citi) £27,766,200 over failures in the firm’s systems and controls which led to US$1.4 billion worth of equities mistakenly sold across European exchanges.
On 2 May 2022, a Citi trader had intended to sell a basket of equities worth US$58 million but made an inputting error while entering the basket in an order management system (OMS). This resulted in a basket to the value of US$444 billion being created.
While the firm’s controls blocked US$255 billion of the basket progressing, the remaining US$189 billion was sent to a trading algorithm. The algorithm selected was designed to place portions of this total order to be sold in the market over the rest of the day.
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In total US$1.4 billion of equities were sold across European exchanges, before the trader cancelled the order. This coincided with a material short-term drop in some European indices which lasted a few minutes.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring.
“These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets.”
While parts of Citi’s trading control framework operated as expected, some primary controls were absent or deficient, the FCA found. In particular, there was no hard block that would have rejected this large erroneous basket of equities in its entirety and prevented any of it reaching the market.
Due to poor design, the trader was also able to manually override a pop-up alert, without being required to scroll down and read all the alerts within it. The firm’s real-time monitoring was ineffective, which meant that it was too slow to escalate internal alerts about the erroneous trades.
SteelEye CEO Matt Smith said: “Citi’s hefty fine today underscores UK regulators’ tightening grip on financial institutions. While SteelEye’s Annual Fine Tracker saw the FCA issue fewer fines last year, its recent proposal to name and shame firms under investigation for wrongdoing alongside this multi-million-pound joint action with the PRA signals a new era of enforcement.
“Despite this new era, regulators remain open to collaboration, consistently demonstrating a willingness to lessen penalties for cooperative firms. This approach is exemplified by the 30% reduction in Citi’s original fine, a result of their agreement to resolve the matter.”
Citi did not dispute the FCA’s findings and agreed to settle, allowing it to qualify for a 30% discount. Without this discount, the amount of financial penalty imposed by the FCA would have been £39,666,000.
On 22 May 2024, the Prudential Regulation Authority (PRA) also imposed a financial penalty of £33,880,000 on Citi following its own investigation into related matters.
©Markets Media Europe 2024
