Citadel Securities Pays $97m to Settle with China Regulators

Citadel Securities, one of the largest market makers in US stocks and options, has agreed to pay 670 million yuan ($97 million) to resolve a probe by China’s regulator into alleged trading rules violations. The Chinese securities regulator launched the five-year investigation in 2015 following a stock plunge that erased nearly $3.9 billion in the mainland metal market.

The move comes after the China Securities Regulatory Commission pledged to strictly punish local institutional investors, who were charged with short selling, rumor-mongering, and foreign meddling for fueling the stock slide. Each respective fine was “based on differing circumstances, such as the amount of money made through the suspected illegal acts,” said the regulator.

In 2015, Citadel Securities saw one of its accounts, managed by a Shanghai-based futures trading firm, barred from trading shares by securities regulators. Citadel Securities was the first foreign broker to be caught up in Beijing's crackdown that barred 24 other accounts from the mainland's two major stock exchanges.

China moves to open up the financial sector

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Chinese regulator, however, didn’t ban the practice entirely, but after the scrutiny, investors can’t sell and then buy shares back the same day. Instead, they must now wait after completion of a short sale transaction until at least the next day to repurchase.

The attack against the so-called “malicious” short-selling was part of a wider crackdown on automated trading of stocks and futures, which was blamed for alleged trading irregularities during the 2015 rout.

Zia Ahmed, a spokesperson for Citadel Securities, said: “Citadel Securities has worked closely with the CSRC through the reconciliation process to reach this agreement. Constructive resolution of this matter was important to Citadel Securities as China continues to expand opportunities for foreign participation in its financial markets.”

The settlement comes as new Chinese regulations that lift investment caps and allow foreign banks’ majority control of their mainland business have come to effect on January 1, 2020.

China has pledged to open its $40 trillion financial markets, including allowing foreign firms to own as much as 51 percent of their securities ventures, up from the current 49 percent ceiling.