The regulator noted that some primary controls at Citi were absent or deficient. 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.
The Financial Conduct Authority has fined Citigroup £27,766,200 for failures in the firm’s systems and controls which led to US$1.4 billion of equities being sold in European markets when they should not have been.
Citi did not dispute the FCA’s findings and agreed to settle, which means it has qualified for a 30% discount. Without this discount, the amount of financial penalty imposed by the FCA would have been £39,666,000.
The Prudential Regulation Authority (PRA) also imposed a financial penalty of £33,880,000 on Citi following its own investigation.
Algo traded over £1.4 billion before being canceled
The issue took place on 2 May 2022 when a Citi trader intended to sell a basket of equities to the value of US$58 million. The trader, however, made an inputting error while entering the basket in an order management system, resulting in a basket to the value of US$444 billion being created.
Citi controls blocked US$255 billion of the basket progressing, but not the remaining US$189 billion which was sent to a trading algorithm, according to the UK regulator. The algorithm selected was designed to place portions of this total order to be sold in the market over the rest of the day.
The FCA found that, in total, US$1.4bn of equities were sold across European exchanges before the trader canceled the order. This coincided with a material short-term drop in some European indices which lasted a few minutes.
Citi had no hard block to reject large erroneous order
The regulator noted that some primary controls at Citi were absent or deficient. 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.
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.”
