The Financial Industry Regulatory Authority (FINRA) has levied a $1.85 million fine against Citigroup Global Markets Inc., which is now also responsible for paying $638,000 in restitution, plus interest, to select clients, according to a FINRA statement.
US-based FINRA is the largest nationwide independent regulator and deals with a variety of asset classes, focusing on investor protection, fraud and complementary compliance services in the securities business.
The regulator’s most notable edicts were public warnings against the riskiness of Bitcoin and cyber security vulnerabilities, earlier this year.
22,000 Clients Affected
Its newest action pits Citigroup Global Markets against its clientele, in which determined Citigroup Global Markets failed to provide its optimal Execution services to nearly 22,000 customer transactions, entailing non-convertible preferred securities.
Furthermore, Citigroup Global Markets was also found to have been suffering from a variety of supervisory shortcomings for a period of at least three years, which helped contribute to this inefficiency. Consequently, Citigroup Global Markets has been slapped with a $1.85 million fine, though FINRA has also ordered more than $638,000 in restitution, coupled with interest.
"FINRA will continue to pursue firms that neglect their duty of best execution. Citigroup lacked the necessary systems and supervision to ensure that it provided customers with the executions they deserved and, as a result, customers were receiving inferior prices for more than three years,” noted Thomas Gira, Executive Vice President and Head of Market Regulation at FINRA, in a recent statement on the fine.
According to the FINRA statement, “In any customer transaction, a firm or its registered persons must use reasonable diligence to ensure that the purchase or sale price to the customer is as favorable as possible under current market conditions.”
NBBO-Induced Violations
Indeed, Citigroup Global Markets has instead opted to employ a manual pricing methodology with its trading desks, failing to properly institute the National Best Bid and Offer (NBBO) for its non-convertible securities.
This in turn led to the incorrect pricing of nearly 15,000 Citigroup customer transactions, relative to the NBBO. Moreover, Citigroup’s BondDirect system did not utilize proper pricing logic, which led to inferior pricing for over 7,000 customers.
Finally, FINRA also unearthed evidence that Citigroup’s supervisory system is outdated and deficient, citing an absence of reviews in customer transactions across non-convertible preferred securities, despite FINRA inquiry letters.
Citigroup’s official stance was neither admittance nor denial, the group has rather abided by the charges levied by FINRA and is expected to consent in due course.
