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City regulators fine Citigroup £61.7m for trading breaches

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have fined Citigroup £33.9m and £27.8m respectively for breaches in trading controls which resulted in US$1.4bn being executed erroneously on European market exchanges.

On the morning of 2 May 2022, a Citigroup trader on the ‘Delta 1’ desk made an inputting error, (often known as a fat finger errors), while loading a basket of equities into the order management system.

The trader had intended to sell a basket of equities to the value of $58m but due to keying error, loaded a basket with a notional size of $444bn, compromising of 349 stocks across numerous European capital markets.

The bank’s system controls failed to detect the inputting error and $1.4bn of sell orders were executed.

Upon investigation, the bank discovered the trader had incorrectly entered the value of the basket of equities in the ‘unit quantity’ field rather than the ‘notional value’ field.

Although a trade limit warning was generated by the dealing system to notify the trader of the discrepancy, the trader did not realise only the first 18 lines from 711 warning messages were displayed and the need to scroll through the remaining messages.

While the dealing system automatically stopped equity trades with a value of $248bn from being processed, despite a further computerised warning alerting the trader to errors, this was ignored and equity deals with a value of $196bn were released.

The bank’s systems managed to suspend individual orders with a total value of $163bn from being completed but some $1.4bn sell orders were executed and lead to a short term drop in several European indices.

The MSCI Europe Index fell over 4% compared to its previous close and within five minutes when the erroneous basket starting was executed.

As the incident occurred on a bank holiday Monday, staff on the Algorithmic Service Desk (ASD) who were responsible for real time monitoring of internal trade executions who were absent, had passed its responsibilities to the Electronic Execution (EE) team.

The FCA criticised the EE desk for failing to escalate “either the 284 information alerts generated from the erroneous basket trade, or the suspension alerts”.

The FCA was also critical of the lack of adequate post trade monitoring as the E-Trading Risk and Controls Team as their monitoring systems filtered out all but eight of the information alerts relating to the erroneous basket trade.

Lewis Gurry, from C&G Regulatory Solutions said: “The real-time monitoring arrangements failed to escalate critical alerts in a timely manner, allowing erroneous trades to execute and have a significant influence on European indices.”

Gurry called for other city banks to be proactive: “This incident is a wake-up call for firms to reassess the adequacy of their pre-trade controls and real-time monitoring arrangements.”

Citigroup were contacted for comment but so far have not responded.

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