Citadel founder and CEO Kenneth Griffin.
Andrew Harrer | Bloomberg | Getty Images
WASHINGTON — The Securities and Exchange Commission has issued a $7 million fine against Citadel Securities LLC following a settlement where the big broker-dealer firm was found to have mismarked sales orders over a period of five years, according to the agency’s announcement on Friday.
From September 2015 to September 2020, Citadel Securities, based in Miami, incorrectly marked millions of certain short sale orders as long sales and vice versa, as estimated by the SEC.
The SEC attributed the inaccuracies to a coding error in Citadel’s automated trading system.
According to the SEC, Citadel Securities was in violation of a provision in Regulation SHO, which is a regulatory framework that tackles abusive short selling practices. The provision requires broker-dealers to identify sale orders as long, short, or short exempt.
Responding to the matter, a spokesperson from Citadel stated that it “had no impact on the quality of our client execution.” The spokesperson added, “While updating our systems to accommodate certain client requests, we made a coding change that inadvertently affected a de minimis percentage of our order markings. We detected the issue and promptly fixed it more than three years ago.”
The SEC noted in its administrative order that “Citadel Securities is one of the largest broker-dealers in the U.S. equities markets.” As of May 2023, Citadel Securities accounted for approximately 35% of all U.S.-listed retail volume and 22% of U.S. equities volume, across more than 11,000 U.S.-listed securities.
In a short sale, an investor borrows stock shares and sells them, with the hope of buying the same amount of shares back at a lower price and returning them to the lender, pocketing the price difference as profit.
Mark Cave, associate director of the SEC’s Division of Enforcement, emphasized that compliance with marking requirements for sales orders is crucial in curtailing abusive market practices, including “naked” short selling.
Cave stated that failure to comply with these requirements can negatively impact the accuracy of a firm’s electronic records, including its electronic blue sheet reporting, thereby depriving the Commission of important market information that it regulates.
On the same day, the SEC also fined Goldman Sachs $6 million for inaccurate “blue sheet” submissions containing identifying securities trading information.
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