In May 2024, the FCA imposed a £27.7 million fine on Citigroup Global Markets Limited (CGML) for failures related to a significant trading incident on May 2, 2022. A trader at CGML erroneously entered a basket of equities worth $444 billion instead of $58 million, leading to widespread market disruptions across Europe. Despite internal warnings, insufficient pre-trade controls and ineffective real-time monitoring allowed $1.4 billion in orders to be executed, causing a temporary drop in European indices.
The FCA found CGML in breach of several regulatory requirements, particularly failing to implement adequate risk management systems. While some of CGML’s controls worked as intended, others were poorly designed or set at inappropriate thresholds. The firm failed to prevent erroneous orders, which contributed to market disorder, highlighting gaps in oversight and control over their trading algorithms.
Key Failures
- Inadequate Pre-Trade Controls: CGML lacked a hard block on basket-level trades, which would have canceled the erroneous orders before execution.
- Failure to Escalate Alerts: Multiple alerts related to the erroneous trades were ignored, preventing early corrective action.
- Ineffective Monitoring: CGML’s real-time monitoring systems were insufficient, with critical alerts being missed due to inadequate staffing and poor filtering processes.
FCA Penalty Breakdown
CGML received a 30% reduction in fines for cooperation, with the total penalty amounting to £27.7 million instead of the original £39.7 million. The incident resulted in a direct financial loss of $48 million for CGML.
This case underscores the importance of robust pre-trade and real-time monitoring controls, especially for firms engaged in high-volume algorithmic trading. It also serves as a reminder for firms to continuously review and adapt their risk management systems to prevent market disruptions.
For more details, you can view the FCA’s final notice.
About Michael Rasmussen
Michael Rasmussen is the founder of United Atlantic Legal Services. He is a licensed attorney in Florida and registered solicitor in the United Kingdom. Michael has acted as General Counsel and Chief Compliance Officer to several investment advisers, including private fund managers, responsible for the management of billions of dollars in client assets.
Michael is also the founder of FinProLaw, an online learning platform where Michael has created courses designed for investment adviser compliance professionals. These courses include:
- Investment Adviser Compliance Essential for Chief Compliance Officers
- Foundations of Investment Adviser Compliance
- What is a “Security”?
- Investment Adviser Marketing Rule
- Regulation A – Exemption from Registration
- Regulation Crowdfunding – Exemption from Registration
- Regulation D – Exemption from Registration
Michael can also be found on LinkedIn.
Investment adviser firms who are also clients of United Atlantic Legal Services can receive many of these courses at a significantly reduced fee or, in some cases, at no expense. Contact us today or visit the FinProLaw to learn more.