Citigroup Pays $12M SEC Fine For Dark Pool Misrepresentations

by Ike Obudulu Posted on September 14th, 2018

Washington D.C., USA : The Securities and Exchange Commission (SEC) today entered an order finding that Citigroup Global Markets Inc. misled users of a dark pool operated by one of its affiliates. Dark pools allow institutional investors to anonymously trade large blocks of shares without the market moving against them.

The bank will pay a penalty of $6.5 million and disgorgement and prejudgment interest totaling $5.4 million, while its affiliate, Citi Order Routing and Execution (CORE), will pay a penalty of $1 million, the U.S. Securities and Exchange Commission (SEC) said.

The SEC’s order found that Citigroup misled users with assurances that high-frequency traders were not allowed to trade in Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), when two of Citi Match’s most active users reasonably qualified as high-frequency traders and executed more than $9 billion of orders through the pool.

The SEC order also found that Citigroup failed to disclose that over a period of more than two years, close to half of Citi Match orders were routed to and executed in other trading venues, including other dark pools and exchanges, that did not offer the same premium features as Citi Match. Citigroup also sent trade confirmation messages to certain users that indicated their orders had been executed on Citi Match when in fact those orders had been executed on an outside venue.

The SEC also found that CORE failed to register as a national securities exchange in connection with its operation of Citi Match.

“Market participants deserve to make informed decisions about where they execute their orders,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “All trading venues, regardless of their trade volume, must ensure that their users have accurate information, particularly about key issues like order routing.”

The SEC’s order found that Citigroup violated an antifraud provision of the federal securities laws and that CORE violated a registration provision. Without admitting or denying the findings in the SEC’s order, Citigroup and CORE have agreed to be censured. Citigroup will pay disgorgement and prejudgment interest totaling $5,437,475 and a penalty of $6.5 million. CORE will pay a penalty of $1 million.

A Citigroup spokesman said the matter has been resolved.

Dark pools are an ominous-sounding term for private exchanges or forums for trading securities; unlike stock exchanges, dark pools are not accessible by the investing public. Also known as “dark pools of liquidity,” they are so named for their complete lack of transparency.

Dark pools came about primarily to facilitate block trading by institutional investors, who did not wish to impact the markets with their large orders and consequently obtain adverse prices for their trades.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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