"These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market."
- Steve Smart, joint executive director of enforcement and market oversight at the FCA
The FCA and PRA have fined Citigroup Global Markets (CGML) a total of £61,600,000 for failures in the firm’s systems and controls which led to US$1.4bn of equities being sold in European markets when they should not have been.
The PRA fined Citigroup £33,880,000 and the FCA imposed a financial penalty of £27,766,200.
The parallel investigations found that on 2nd May 2022, a CGML trader had intended to sell a basket of equities to the value of US$58m. The trader made an inputting error while entering the basket in an order management system, which resulted in a basket to the value of US$444bn being created.
CGML controls blocked US$255bn of the basket progressing, but not the remaining US$189bn which 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.
In total US$1.4bn 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.
While parts of CGML’s trading control framework operated as expected, the investigations found that some primary controls 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.
CGML agreed to settle the matter and therefore qualified for a 30% discount on both fines. Without the reduction the total fine would have been £88,066,000.
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."
Sam Woods, deputy governor for prudential regulation and CEO 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.”
