Mea Culpa

Citi Admits “Unacceptable and Wrong” Practices in Spot FX Market

"Conduct of certain Individuals has fallen short of expectations," the bank says and deems the conduct underlying the criminal antitrust

Finance Magnates has revealed that global financial giant Citi has issued a disclose notice about past practices that shows misdeeds in the market. The group sent the notice to clients in May as an attachment to a file explaining the Spot FX Terms of Dealing, in order to clarify the nature of the trading relationship between the clients and Citi.  The move was likely demanded by regulators but the firm only says it wants to ensure that there are no ambiguities or misunderstandings regarding those practices.

To begin, Citi says conduct by certain individuals has fallen short of the firm’s expectations. The conduct underlying the criminal antitrust charge by the Department of Justice is unacceptable. Moreover, as described in the November 2014 settlement with the U.K. Financial Conduct Authority relating to the spot FX business, in certain instances during the period 2008 to 2013, certain Citi employees intentionally disclosed information relating to the identity of clients or the nature of clients’ activities to third parties in order to generate revenue for the firm.

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We have, without informing clients, worked limit orders at levels (i.e., prices) better than the limit order price

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Citi says this was also contrary to the firm’s policies, unacceptable, and wrong. Citi further claims it does not tolerate such conduct and already has committed significant resources in strengthening its controls surrounding its FX business. No explanation was offered if this cleanup is related or not to the sale of CitiFX Pro’s client book to FXCM and Saxo Bank.

The Firm also admits it has engaged in other practices, including:

We added markup to price quotes using hand signals and/or other internal arrangements or communications. Specifically, when obtaining price quotes for bids or offers from the Firm, certain clients requested to be placed on open telephone lines, meaning the client could hear pricing not only from a salesperson, but also from the trader who would be executing the client’s order. In certain instances, certain of our salespeople used hand signals to indicate to the trader to add markup to the price being quoted to the client on the open telephone line, so as to avoid informing the client listening on the phone of the markup and/or the amount of the markup. For example, prior to agreement between the client and the Firm to transact for the purchase of €100, a salesperson would, in certain instances, indicate with hand signals that the trader should add two pips of markup in providing a specific price to the client (e.g., a EURUSD rate of 1.1202, rather than 1.1200) in order to earn the Firm markup in connection with the prospective transaction.

We have, without informing clients, worked limit orders at levels (i.e., prices) better than the limit order price so that we would earn a spread or markup in connection with our execution of such orders. This practice could have impacted clients in the following ways: (1) clients’ limit orders would be filled at a time later than when the Firm could have obtained currency in the market at the limit orders’ prices, and (2) clients’ limit orders would not be filled at all, even though the Firm had or could have obtained currency in the market at the limit orders’ prices. For example, if we accepted an order to purchase €100 at a limit of 1.1200 EURUSD, we might choose to try to purchase the currency at a EURUSD rate of 1.1199 or better so that, when we sought in turn to fill the client’s order at the order price (i.e., 1.1200), we would make a spread or markup of 1 pip or better on the transaction. If the Firm were unable to obtain the currency at the 1.1199 price, the clients’ order may not be filled as a result of our choice to make this spread or markup.

We made decisions not to fill clients’ limit orders at all, or to fill them only in part, in order to profit from a spread or markup in connection with our execution of such orders. For example, if we accepted a limit order to purchase €100 at a EURUSD rate of 1.1200, we would in certain instances only partially fill the order (e.g., €70) even when we had obtained (or might have been able to obtain) the full €100 at a EURUSD rate of 1.1200 or better in the marketplace. We did so because of other anticipated client demand, liquidity, a decision by the Firm to keep inventory at a more advantageous price to the Firm, or for other reasons. In doing so, we did not inform our clients as to our reasons for not filling the entirety of their orders.

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