BaFin Penalizes Citigroup $13.8 Mln for Algorithmic Trading Flaws

BaFin imposed a €12.975 million fine on Citigroup's German entity over breaches related to algorithmic trading

Key Insights

  • Germany’s BaFin fined Citigroup Global Markets Europe AG €12.975 million ($13.82 million) for algorithmic trading violations.
  • Citigroup failed to have proper risk controls, trading limits, and systems to prevent erroneous orders that disrupted markets.
  • The fine follows a higher Β£61.6 million penalty by UK’s FCA last month over a $1.4 billion unintended stock trade incident.

FRANKFURT (MarketsXplora) – Germany’s financial watchdog BaFin has imposed a 12.975 million euro ($13.82 million) fine on Citigroup Global Markets Europe AG for violating rules related to algorithmic trading under the country’s securities laws.

BaFin said in a statement on Thursday that the U.S. banking giant failed to have adequate risk controls in place for its algorithmic trading systems in May 2022.

Citigroup did not prevent the transmission of erroneous orders that could disrupt markets, and its systems lacked proper trading thresholds and limits, the regulator said.

While Citigroup had outsourced algorithmic trading monitoring and administration to its London unit, the German entity remained responsible for ensuring its trading systems’ proper design, BaFin added.

An input error by a London trader went undetected, resulting in incorrect orders being sent that caused a “market disruption.”

“Investment firms engaged in algorithmic trading must have certain risk control systems. In algorithmic trading, computer algorithms set individual order parameters automatically,” BaFin explained. “This mitigates risks overloaded systems pose to capital markets.”

The regulator can levy fines up to 5 million euros or 10% of a firm’s total revenues for such violations. Citigroup’s 12.975 million euro penalty is legally binding.

The fine marks another algorithmic trading-related sanction for Citigroup in Europe after Britain’s FCA imposed a much higher Β£61.6 million ($78.2 million) penalty in May over a system error that caused $1.4 billion in unintended equity trades.

BaFin has been active in policing market conduct, recently fining neobank N26 over deficiencies in reporting suspicious activities.

A Citigroup spokesperson declined to comment on the German fine.

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