Thursday, November 13, 2008
FINRA announced today that it has fined Citigroup Global Markets, Inc. of New York $300,000 for failing to reasonably supervise the commissions its brokers charged on stock and option trades. Although not part of the formal sanctions, the firm has offered to reimburse affected customers. FINRA found that between 2002 and 2007, Citigroup utilized a "Commission Calculator" that computed commission charges on stock and options trades, taking into account certain factors such as the price of the security and the number of shares or options in the transaction. But FINRA found that prior to October 2007, Citigroup did not formally communicate the existence of its calculated commission rates to its brokers, nor did it ever communicate that the firm generally did not permit brokers to charge commissions that exceeded the rates the firm determined to be reasonable. In addition, there was effectively no firm-imposed limitation on the commissions a registered representative could charge for options trades. A sample of trading, including options trades, revealed commissions in excess of 20 percent for a small number of option trades.
In the case of those commissions which exceeded the firm's calculated rates, Citigroup had no policies or procedures to identify and determine the appropriateness of the commissions pursuant to FINRA rules regarding the factors to consider in determining the fairness of commissions. Those factors include the price of the security and the amount of money involved in the transaction.
Citigroup also had no related supervisory procedures for its branch or regional supervisory employees. Branch management at the three branches investigated by FINRA Enforcement did not supervise for excessive commissions on individual trades on a regular basis.
As a consequence of the firm's inadequate supervision, during the period from April 2002 to January 2006, one registered representative charged approximately 27 customers commissions that were substantially in excess of the firm's calculated rate for appropriate charges. He overcharged one customer approximately $1.2 million. Two other registered representatives in different branch offices also overcharged commissions on a repeated basis, but on a smaller scale.
In concluding this settlement, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings.