Citigroup Global Markets Limited (CGML) has been fined a combined £61.6 million by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The hefty fine follows a trading system failure that led to the firm inadvertently selling $1.4 billion worth of shares on European exchanges.

Citigroup fined £61.6m for algorithmic trading failures

The incident, which occurred on May 2, 2022, was triggered by a trader's input error when creating a basket of currency stocks in the order management system. The expected value of the basket was only $58 million, but the error resulted in the creation of a basket worth $444 billion.

While CGML's controls successfully blocked $255 billion of the erroneous basket, the remaining $189 billion slipped through and was sent to the trading algorithm. The algorithm, which was designed to sell some of the orders throughout the day, continued to execute $1.4 billion worth of trades before traders realized the error and cancelled the orders.

The massive sell-off coincided with sharp short-term declines in a number of European indices, resulting in market disruption that lasted for several minutes.

Steve Smart, Co-Executive Director of Enforcement and Market Oversight at the FCA, commented, “These failures resulted in more than £1 billion of erroneous orders being executed and had the potential to cause market disruption.” “We expect firms to look at their controls and ensure they are appropriate given the speed and complexity of financial markets.”

This is not the first time Citigroup's brokerage subsidiary has received penalties from the U.K. regulator. About two years ago, the FCA fined the agency £12.6 million for failing to detect market abuse. Last year, the SEC also penalized the firm for record-keeping failures.

Control weaknesses

The FCA's investigation revealed a number of flaws in CGML's trading control framework. The lack of hard measures to reject entire wrong baskets and prevent them from entering the market was a major oversight.

In addition, the ability for traders to manually override pop-up alerts without having to read all of them highlighted the poor design of the firm's risk management system.

Smart added: “The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to prevent such errors from occurring.”

CGML's cooperative sinking agreement with the FCA investigation resulted in a 30% reduction in fines. Without this discount, the FCA would have imposed a fine of £39.7 million. The PRA also conducted its own investigation into related matters and imposed an additional fine of £33.9 million on CGML.

A year ago, the Hong Kong Securities and Futures Commission (SFC) imposed an intermediary penalty on Citi Global Markets Asia. The SFC barred Philip John Shaw, who was a responsible officer, board member and head of pan-Asian execution services at the firm.Shaw is barred from re-entering the financial industry for the next ten years until March 3, 2033, according to a statement from the regulator.