The Securities and Exchange Commission has imposed a US$7 million penalty on Citadel Securities LLC for violating Reg SHO.
The US securities market regulator has ruled that, over a five-year window, Citadel Securities incorrectly labelled millions of trade orders, indicating inaccurately that certain trades were long when they were actually short sales and vice versa.
The SEC found that this error derived from a coding error in Citadel Securities’ automated trading system (ATS), resulting in the firm reporting erroneous data to financial regulators.
Mark Cave, associate director of the SEC’s Division of Enforcement, says: “Compliance with the order marking requirements of Reg SHO is a key component of regulatory efforts to curtail abusive market practices, including ‘naked’ short selling.
“This action against Citadel Securities demonstrates that a broker-dealer’s failure to comply with the requirements of Reg SHO can have negative downstream consequences on the accuracy of the firm’s electronic records, including its electronic blue sheet reporting, depriving the Commission of important information about the markets it regulates.”
Citadel Securities signed a cease-and-desist order in response to the SEC charge of violating Rule 200(g) of Reg SHO, through which it will pay a US$7 million penalty and provide written commitments that the coding error has been repaired and that it has conducted a review of its programming and coding logic involved in processing associated transactions.
It did so without admitting or denying the SEC’s conclusions.
