Cit­i­group to pay $17m to set­tle SEC claims

The Straits Times - - EDUCATION -

Cit­i­group agreed to pay more than US$12 mil­lion ($16.5 mil­lion) to set­tle a reg­u­la­tor’s claims that it misled in­vestors who thought they were pay­ing a pre­mium to keep their trad­ing ac­tiv­ity shielded from in­ter­fer­ence by high-fre­quency traders, the Se­cu­ri­ties and Ex­change Com­mis­sion (SEC) has an­nounced.

In a civil ac­tion filed last Fri­day, the SEC said Cit­i­group had let two high-fre­quency trad­ing en­ti­ties have ac­cess to a trad­ing venue called Citi Match, which it had billed as a safe space free of rapid-fire, com­puter-driven traders. The agency said the pres­ence of the high-fre­quency traders might have trans­lated into higher prices paid by its other cus­tomers.

The SEC said Cit­i­group had failed to tell its cus­tomers about the high-fre­quency traders and, for more than two years, had some­times routed their trades to venues other than Citi Match with­out no­ti­fy­ing them.

Cit­i­group did not ad­mit or deny wrong­do­ing as part of the set­tle­ment. “We are pleased to have the mat­ter re­solved,” said spokesman Danielle Romero-Ap­si­los.

The SEC’s ac­tion is the lat­est in an ef­fort over sev­eral years to force banks to be more straight­for­ward about what hap­pens in­side the opaque trad­ing venues they op­er­ate, known as dark pools. Citi Match is one such dark pool, de­signed to in­su­late big in­vest­ment man­agers such as pen­sion funds from ac­tiv­ity that erodes their prof­its.

When th­ese in­vestors need to buy or sell large quan­ti­ties of a stock, they of­ten seek to hide their in­ten­tions from oth­ers in the mar­ket who could try to drive the price up or down ahead of their trades. In a dark pool, only the buyer and the seller see in­for­ma­tion about a par­tic­u­lar trade. Cit­i­group ad­ver­tised Citi Match as a venue of­fer­ing in­vestors pro­tec­tion and pri­vacy.

“They’re ba­si­cally say­ing, ‘There’s no preda­tory traders in our pool,’” said Mr Den­nis Dick, a trader at Bright Trad­ing, a small firm in Las Ve­gas. Mr Dick and traders like him have for years called on the SEC to im­pose stricter reg­u­la­tions on high-fre­quency traders.

In 2016, the SEC fined Bar­clays and Credit Suisse for sim­i­larly mis­lead­ing their cus­tomers about dark pools. “We need more dis­clo­sures on what’s hap­pen­ing in dark pools, be­cause this just keeps hap­pen­ing again and again,” Mr Dick said.

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