Citigroup Global Markets Pays $175,000 Fine to Settle Violations with FINRA

​The Financial Industry Regulatory Authority (FINRA) has announced that it has reached a settlement with Banking and financial services provider Citigroup Global Markets Inc, fining the firm $175,000 for violating the Regulation National Market System (NMS), NASD rule and FINRA rules.

According to FINRA, Rule 611 of Regulation NMS protects intermarket price by restricting "trade-throughs". Trade-throughs are defined in Rule 600(b)(81) as the trading of NMS stock during the regular trading hours, either as principal or agent, at a price lower than a protected bid or higher than a protected offer. Trade-through protection avoid unfairness to investors and promotes best execution of customer orders.

Rule 611 also requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent trade-throughs as well as to carry out regular surveillance to identify the effectiveness of its Rule 611 compliance program and to take actions immediately to rectify any deficiencies.

However, between January 2013 and March 2020, Citigroup Global Markets failed to establish, maintain, and enforce written policies and procedures to prevent trade-throughs arising from outdated quotation data. Further, the firm's written supervisory procedures (WSPs) failed to offer periodic reviews that may have detected the data problems, even though Citigroup Global Markets identified the need to avoid using outdated quotation data.

Citigroup Global Markets' WSPs also did not include any process for retaining Firm-Specific Quotation Data sufficient to prove that its Rule 611 compliance program is reasonable. These supervisory deficiencies caused the firm's failure to detect repeated instances where the firm depended upon outdated quotation data that was unable to reflect subsequent price changes. As a consequence, the firm failed to identify and remedy timely approximately 155,000 potential trade-throughs in the period.

Additionally, between March 2013 and November 2015, Citigroup Global Markets failed to detect the improper configuration of a third-party market data feed by one of its trading desks, resulting in the desk relying upon an inaccurate NBBO when trading certain securities. In order to configure the feed properly, the trading desk was forced to manually enter codes for each security it traded. Because of the incorrect codes the desk entered for 50 securities, its NBBO calculation for those securities failed to capture all protected quotations, causing thousands of potential trade-throughs.

Finally, between July 2014 and December 2015, Citigroup Global Markets did not have any process implemented to reasonably document the estimated conversion fee contained in the ADR equivalent price. The firm failed to establish, maintain, and enforce policies and procedures to assure compliance with the Benchmark Exception for ADRs.

Through these conducts, Citigroup Global Markets violated Rules 611(a) and (c) of Regulation NMS, NASD Rule 3010, and FINRA Rules 3110 and 2010.

In addition to the fine, Citigroup Global Markets has agreed to a censure and an undertaking to submit a certification demonstrating that the firm's processes, controls, policies, systems, and procedures are reasonably designed to ensure compliance with Rule 611.