CGML hit with fine over $444bn trading error

Judge's hammer on pile of cash.
Editorial credit:

The Financial Conduct Authority (FCA) has fined Citigroup Global Markets Limited (CGML) £27.7m for failures in its trading systems and controls.

The UK Financial Regulatory body has unveiled that these failures in trading systems and controls led to the unintended sale of equities worth $1.4bn in European markets.

On 2 May 2022, a CGML trader intended to sell a basket of equities worth $58m. However, due to an input error in the order management system, a basket valued at $444bn was created instead.

CGML’s controls prevented $255bn of the incorrect order from advancing, but $189bn was still sent to a trading algorithm. This algorithm started selling portions of the order throughout the day. 

In total, $1.4bn worth of equities were sold across European exchanges before the trader cancelled the order, leading to a brief, but significant drop in some European indices that lasted a few minutes.

Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, said: ‘The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring.”

Although some aspects of CGML’s trading control framework worked as intended, there were significant gaps. Crucially, the system lacked a comprehensive block to entirely reject the large, incorrect basket of equities, allowing parts of it to reach the market.

Additionally, due to poor design, the trader could bypass a pop-up alert without reviewing all the warnings. Ineffective real-time monitoring further worsened the issue, resulting in delayed escalation of internal alerts about the incorrect trades.

CGML did not challenge the findings of the FCA and opted to settle, entitling it to a 30% discount. Without this discount, the FCA’s imposed penalty would have totaled £39.6m.

Additionally, on 22 May, the Prudential Regulation Authority (PRA) levied a financial penalty of £33.8m on CGML after conducting its own investigation into related issues.

Smart concluded: ‘These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets.’