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The Financial Conduct Authority (FCA) has levied a fine of £27,766,200 on Citigroup Global Markets Limited (CGML) for serious deficiencies in its trading systems and controls, which led to the erroneous sale of US$1.4 billion worth of equities across European markets.
Incident Details
The incident occurred on May 2, 2022, when a CGML trader intended to sell a basket of equities valued at US$58 million. Due to an input error in the order management system, a basket valued at US$444 billion was mistakenly created. While CGML's controls blocked US$255 billion of the erroneous basket, the remaining US$189 billion was sent to a trading algorithm. This algorithm was programmed to sell portions of the total order throughout the day.
Before the error was identified and the order cancelled, US$1.4 billion in equities were sold on European exchanges, causing a significant, albeit brief, drop in some European indices.
Control Failures
The FCA's investigation revealed that while some elements of CGML's trading control framework worked as intended, key primary controls were either missing or inadequate. Notably, there was no mechanism in place to completely block the large erroneous basket from reaching the market. Additionally, the system allowed the trader to manually override a pop-up alert without needing to read all the alerts it contained. The firm's real-time monitoring system also failed to quickly escalate internal alerts about the erroneous trades.
FCA Statement
Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, commented, "The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to prevent errors like this. These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to review their controls to ensure they are adequate given the speed and complexity of financial markets."
Settlement and Additional Penalties
CGML did not dispute the FCA’s findings and agreed to settle, qualifying for a 30% discount on the fine. Without this discount, the financial penalty would have been £39,666,000. Additionally, on May 22, 2024, the Prudential Regulation Authority (PRA) imposed a separate financial penalty of £33,880,000 on CGML following its investigation into related issues.
