Citadel Securities Fined $700K for Alleged Breach of FINRA Rules

FINRA accused the company of trading ahead of certain inactive OTC customer orders.

The Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Citadel Securities $700,000 for allegedly breaching FINRA Rule 5320 (Prohibition Against Trading Ahead of Customer Orders) and FINRA Rule 6460 (Display of Customer Limit Orders).

According to a document seen by Finance Magnates, the regulator has accused Citadel Securities of trading ahead of certain inactive over the counter (OTC) customer orders and failing to consistently apply its written methodology to certain OTC customer orders.

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FINRA: transgressions occurred from 2012-2014

In particular, FINRA claims that following the establishment of its OTC equity trading desk, the firm sought to program the desk’s trading systems to comply with the Trading Ahead and Limit Order Display Rules by providing customer orders automated order protection, quote display, and execution.

“The OTC Desk, however, implemented controls, settings and processes that removed hundreds of thousands of mostly larger customer orders from those logics. While those controls, settings and processes had multiple purposes, they shared a principal purpose of directing OTC customer orders for manual review and/or handling. Impacted orders were rendered inactive until the completion of a manual trader review,” FINRA said in the document earlier this month.

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According to the regulator, from at least September 2012 to the middle of September of 2014, the OTC desk traded ahead of those inactive OTC customer orders, in in violation of FINRA Rule 5320 and failed to display them as required by FINRA Rule 6460.

“In addition, from at least October 2012 to September 2018, the OTC Desk failed to display certain customer limit orders as required by FINRA Rule 6460 because of other systems and programming logic,” FINRA said.

Citadel Securities settles charges without admitting fault

Following on from this, Citadel Securities has agreed to pay the fine and provide the restitution as outlined by the regulator, without admitting or denying the findings.

As part of the restitution mandated by FINRA, Citadel Securities will provide restitution to each corresponding firm client for the customer orders that it executed at prices worse than it traded for its own account.

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