Release Date:17th May 2024

To access the original FCA document, click here.

Summary

Citigroup Global Markets Limited (CGML) has been fined £27,766,200 by the Financial Conduct Authority (FCA) for breaches of Principles 2 (skill, care, and diligence) and 3 (management and control) of the Authority’s Principles for Businesses, as well as Rule 7A.3.2 of the Market Conduct part of the FCA’s handbook (MAR). This fine was reduced from £39,666,000 due to CGML’s early resolution of the matter.

Reasons for the FCA Fine:

• Trading Incident on 2 May 2022: A trader at CGML’s Delta 1 Desk made an inputting error, intending to sell a basket of equities worth US$58 million but mistakenly inputting a basket worth US$444 billion. This error led to erroneous sell orders worth US$1.4 billion being executed across European exchanges, causing a significant short-term drop in several European indices and a loss of US$48 million for CGML.
• Control Failures: The incident highlighted several deficiencies in CGML’s trading control framework, including inadequate pre-trade controls, ineffective hard blocks, and poorly designed alert systems. The firm also failed in real-time monitoring of internal executions and the escalation of alerts generated by erroneous trades.
• Breach of Regulatory Obligations: CGML did not conduct its business with due skill, care, and diligence (Principle 2), nor did it organise and control its affairs responsibly and effectively with adequate risk management systems (Principle 3). Additionally, CGML failed to have effective systems and controls to prevent the sending of erroneous orders as required by MAR 7A.3.2.

Key Takeaways for Other Firms:

• Robust Pre-Trade Controls: Implement and regularly review pre-trade controls to prevent erroneous orders from being created and executed.
• Effective Alert Systems: Ensure that alert systems are well-designed, and that traders are unable to override multiple alerts without proper checks.
• Real-Time Monitoring: Maintain effective real-time monitoring and ensure timely escalation of any issues identified.
• Regular Review of Controls: Continually review and adjust trading controls, especially during periods of increased market volatility.
• Comprehensive Risk Management: Develop and implement robust risk management systems to handle automated trading activities and mitigate potential risks.

Conclusion

The FCA’s fine against CGML underscores the importance of maintaining robust trading controls and effective risk management systems. Financial institutions must ensure that their systems and controls are adequately designed and implemented to prevent significant errors and maintain market integrity, thereby avoiding substantial penalties and operational losses.