Citigroup fined for best execution failures
27 August 2014 Washington DC
Image: Shutterstock
Citigroup Global has been fined $1.85 million by the Financial Industry Regulatory Authority (FINRA) for failing to provide best execution in approximately 22,000 customer transactions involving non-convertible preferred securities, and for related supervisory deficiencies for more than three years.
FINRA found that one of Citigroup’s trading desks employed a manual pricing methodology for non-convertible preferred securities that did not incorporate the National Best Bid and Offer (NBBO) for those securities.
In using the manual process, Citigroup priced more than 14,800 customer transactions inferior to the NBBO and a further 7,200 customer transactions were inferior because the firm’s BondsDirect order execution system used a faulty pricing logic, which only incorporated the primary listing exchange’s quotation for each non-convertible preferred security.
FINRA also discovered that Citigroup’s supervisory system and written supervisory procedures for best execution in non-convertible preferred securities were deficient.
Citigroup also failed to perform any review of customer transactions in non-preferred securities executed on BondsDirect, or manually on the trading desk, to ensure compliance with the firm’s best execution obligations.
Thomas Gira, FINRA executive vice president and head of market regulation, said: “FINRA will continue to pursue firms that neglected 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.”
In compensation, FINRA has ordered Citigroup to pay more than $638,000, plus interest, to affected customers.
FINRA found that one of Citigroup’s trading desks employed a manual pricing methodology for non-convertible preferred securities that did not incorporate the National Best Bid and Offer (NBBO) for those securities.
In using the manual process, Citigroup priced more than 14,800 customer transactions inferior to the NBBO and a further 7,200 customer transactions were inferior because the firm’s BondsDirect order execution system used a faulty pricing logic, which only incorporated the primary listing exchange’s quotation for each non-convertible preferred security.
FINRA also discovered that Citigroup’s supervisory system and written supervisory procedures for best execution in non-convertible preferred securities were deficient.
Citigroup also failed to perform any review of customer transactions in non-preferred securities executed on BondsDirect, or manually on the trading desk, to ensure compliance with the firm’s best execution obligations.
Thomas Gira, FINRA executive vice president and head of market regulation, said: “FINRA will continue to pursue firms that neglected 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.”
In compensation, FINRA has ordered Citigroup to pay more than $638,000, plus interest, to affected customers.
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