Citigroup Fined $1.85 Million by Finra for Trading LapsesElizabeth Dexheimer and Dakin Campbell
Citigroup Inc. will pay a $1.85 million fine and return more than $638,000 to customers after its securities unit failed to get the best prices for clients in about 22,000 trades over more than three years, the Financial Industry Regulatory Authority said today.
A Citigroup trading desk used manual pricing for non-convertible preferred securities that led the bank to provide customers with prices that were inferior to the national best bid and offer in 14,800 instances, according to Finra’s statement. Citigroup’s order execution system, BondsDirect, also failed to locate the best prices in more than 7,200 cases because it only checked the securities’ primary listing exchange, according to Finra.
“Citigroup lacked the necessary systems and supervision to ensure that it provided customers with the executions they deserved and, as a result, customers were receiving inferior prices for more than three years,” Thomas Gira, executive vice president for market regulation, said in the statement.
The New York-based bank neither admitted nor denied the allegations, according to the statement. “We are pleased to have the matter resolved,” Scott Helfman, a spokesman for the bank, said in an e-mail.
Citigroup’s systems and procedures were deficient and the bank failed to perform an adequate review of the transactions, according to Finra’s statement.
“The findings are disturbing,” said Mark Williams, a former Federal Reserve bank examiner who now teaches risk management at Boston University. “You would expect a sophisticated shop like Citi to get the pricing correct. It means there continues to be a weak control environment at Citi, which is concerning.”
Regulators are investigating accusations of misdeeds at alternative U.S. stock trading platforms, which have won market share from exchanges such as the New York Stock Exchange. In July, Citigroup agreed to pay $5 million to settle claims that it failed to protect customers’ confidential trading data, the Securities and Exchange Commission said.
Citigroup also agreed to pay $1.1 million in March to settle Finra claims that the bank improperly bought shares of companies after having bet against the same stock days earlier.
“It’s clear that there is a renewed effort from the SEC and Finra to look into best execution,” said Christopher Nagy, founder and chief executive officer at KOR Group LLC, a research, lobbying and consulting firm focused on market structure. Failing to get best execution pricing is “actually fairly common,” he said.
Citigroup rose 1.2 percent to $52.25 at 11:54 a.m. in New York. The stock is little changed so far this year.
Finra is the industry’s self-regulatory body and is funded through members’ fees and fines.