Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, March 17, 2009

Citigroup Settles FINRA Charges of Publishing Non-Bona Fide Quotations

FINRA  announced today that it has imposed a $2 million fine against Citigroup Global Markets for the erroneous publication of non-bona fide quotations and transactions at and around the NASDAQ market opening on a Quadruple Witch Expiration Friday; systemic Order Audit Trail System (OATS) reporting violations; fixed income transaction reporting violations; limit order display violations; and, related supervisory failures. These violations occurred in 2006 and prior years.  FINRA found, as a result of a referral from the NASDAQ's MarketWatch Department, that Citigroup failed to properly monitor certain of its trading systems at the opening on June 17, 2005, a Quadruple Witch Expiration Friday. Quadruple Witch Expiration Fridays occur once each quarter, when stock index futures, index options, stock options, and options on stock index futures simultaneously expire.

 These system failures resulted in the erroneous publication of approximately 6,800 non-bona fide transactions in more than 170 securities that the firm ultimately cancelled via Clearly Erroneous Petitions. The systems failures also resulted in the publication of thousands of non-bona fide quotations, which triggered executions by other firms at prices unrelated to the market value of the securities, requiring those firms to petition to cancel over 1,400 trades.  FINRA further found that Citigroup did not report approximately 6 million orders to OATS between Aug. 1, 1999 and July 10, 2006. From July 2002 through September 2006, Citigroup inaccurately reported or failed to report over 300,000 transactions to FINRA's Trade Reporting and Compliance Engine (TRACE) and inaccurately reported or failed to report more than 480,000 transactions to the Municipal Securities Rulemaking Board.

 In concluding this settlement, Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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