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Citi fined $78M by British regulators for high-frequency trading, risk control rule breaches

London's Canary Wharf from where Citi operates its European investment banking business from offices in its building in Canada Square. File photo by Hugo Philpott/UPI
London's Canary Wharf from where Citi operates its European investment banking business from offices in its building in Canada Square. File photo by Hugo Philpott/UPI | License Photo

May 22 (UPI) -- U.S. investment bank Citi was hit with $78.4 million in fines by British regulators Wednesday for failings in its trading systems and controls including a notorious "fat-finger" blunder in which a trader accidentally executed a $1.4 billion short that momentarily sent European stock markets into free-fall.

The Prudential Regulation Authority fined Citigroup Global Markets $43.1 million for weaknesses in its trading systems and controls between April 2018 and May 2022 which it failed to adequately remedy despite repeated nudges from the regulator, the Bank of England said in a news release.

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The investment banking and trading division of the firm received a 30% discount from what would have been a $61.6 million fine for cooperating and agreeing to resolve the matter.

However, Citi received a further $35.3 million fine from the Financial Conduct Authority following a parallel investigation into "related matters."

"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," said PRA deputy governor and CEO Sam Woods.

The PRA said it expected firms to fix issues flagged up to them promptly and completely and Citi's failure to do so meant "certain of the issues crystallized into trading incidents."

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The most significant, the PRA said, was the so-called fat-fingered error on May 2, 2022, when an inexperienced trader incorrectly input what was supposed to be a routine multi-million dollar sell order.

CGML's internal circuit breakers blocked more than half of the $444 billion order the trader was attempting to place and the trader managed to cancel most of the rest "resulting in $1.4 billion inadvertently being executed on European exchanges."

"Deficiencies in CGML's trading controls contributed to this incident, in particular the absence of certain preventative hard blocks and the inappropriate calibration of other controls," the PRA said.

A Citi spokesman said that the bank was happy to conclude an old matter which it said was due to "an individual error that was identified and corrected within minutes."

"We immediately took steps to strengthen our systems and controls, and remain committed to ensuring full regulatory compliance." the spokesperson told CNBC.

The PRA had charged that algorithmic trading at the firm was implemented improperly, finding CGML had breached rules requiring it to ensure that appropriate thresholds and limits were applied to automated systems that buy and sell using pre-set parameters.

It also broke regulations requiring algorithmic trading systems be fully tested and monitored to ensure they comply with PRA rules.

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CGML was additionally found to have breached rules requiring firms to conduct business with "due skill, care and diligence," have effective risk strategies and risk management systems and organize and control its affairs "responsibly and effectively."

The PRA stressed that following the May 2022 trading incident, CGML has undertaken remediation work and taken steps to improve and strengthen its trading controls.

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