Germany’s financial supervisory authority, BaFin, said on Thursday it had fined a Citi subsidiary about 13 million euros ($13.9 million) for failing to control its algorithmic trading operations.
These failures If a flash crash occurs in European stock markets in 2022,he The Federal Financial Supervisory Authority revealed this.
The German Securities Exchange Commission (BaFin) said Citigroup Global Markets Europe did not have adequate systems and risk control measures to ensure that its trading systems complied with appropriate trading standards and limits, and alleged that Citi had violated German securities trading law.
“The investment firm also failed to prevent the transmission of erroneous orders that could cause or contribute to market confusion,” BaFin said in a statement.
The German regulator imposed the fine on May 24, two days after two British regulators fined the bank 61.6 million pounds ($78.4 million) over the same matter.
“We are pleased to have resolved this issue, which occurred more than two years ago. The issue arose from an isolated error and was identified and fixed within minutes,” Citi said in an emailed statement to Banking Dive on Friday. “We immediately took steps to strengthen our systems and controls and remain committed to ensuring full regulatory compliance.”
Citigroup Global Markets Europe outsourced its algorithmic trading monitoring and control system to a London-based division of the bank, but the company was still responsible for properly designing its trading systems to detect manual errors. But BaFin said the system failed to detect a mistake made by one of the bank’s traders that caused market turmoil.
Britain’s Financial Conduct Authority said last month that a Citi trader mistakenly manually created a $444 billion basket of shares in May 2022 when he intended to sell it for $58 million.Citi’s controls blocked $255 billion of the trade, but the remaining $189 billion worth of shares were fed into trading algorithms that were divided up to be sold throughout the day.About $1.4 billion worth of shares had been sold across European exchanges before the traders canceled the orders.
The so-called “fat finger error” is not the first error caused by City’s manual output system.
In August 2020, a Citi employee intended to transfer about $7.8 million in interest on a loan to cosmetics company Revlon. But he accidentally transferred the entire amount, including interest, to Revlon’s creditors — about $900 million in total — years ahead of schedule, using Citi’s funds instead of Revlon’s.
The mistake led to a lengthy legal battle, with the Federal Reserve and the Office of the Comptroller of the Currency issuing consent orders requiring the bank to improve its risk management, data, and internal controls. The bank also received a $400 million fine, likely due in part to Revlon’s gaffe.
