Citigroup Global Markets Inc. has been fined and ordered to pay restitution for failing to provide clients with best execution in certain securities.
The U.S. Financial Industry Regulatory Authority (FINRA) said Tuesday it has fined Citigroup US$1.85 million for failing to provide best execution in approximately 22,000 transactions involving non-convertible preferred securities, and for related supervisory deficiencies. FINRA also ordered Citigroup to pay about US$638,000 in restitution, plus interest, to affected customers. The firm settled the case, neither admitting nor denying the charges, but consenting to FINRA’s findings.
The regulator found that one of Citigroup’s trading desks employed a manual pricing methodology for non-convertible preferred securities that “did not appropriately incorporate the National Best Bid and Offer (NBBO) for those securities”. And, it says that the firm’s proprietary order execution system used a faulty pricing logic that only incorporated the primary listing exchange’s quotation for each non-convertible preferred security. “As securities trade on multiple exchanges, Citigroup missed the prospect of a better price for that security on an exchange other than its primary listing exchange,” it says.
As a result of these failings, FINRA says that Citigroup priced thousands of transactions inferior to the NBBO. FINRA also found that the firm’s supervisory systems and written supervisory procedures for best execution in non-convertible preferred securities were deficient.
“FINRA will continue to pursue firms that neglect 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,” said Thomas Gira, executive vice president and head of market regulation at FINRA.