Germany's BaFin fined a Citi subsidiary nearly €13 million ($13.9 million) over control failures in its algorithmic trading operations, the financial watchdog said Thursday.
Those failures led to a flash crash in European stock markets in 2022, the Federal Financial Supervisory Authority said.
Citigroup Global Markets Europe did not have proper systems and risk control measures to ensure that its trading systems were subject to appropriate trading thresholds and limits, said BaFin, which asserted that Citi violated the German Securities Trading Act.
“The investment firm also failed to prevent the sending of erroneous orders, which may create or contribute to a disorderly market,” BaFin said in a statement.
The German regulator imposed the fine May 24, two days after two British regulators fined the bank £61.6 million ($78.4 million) for the same instance.
“We are pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes,” Citi said Friday in an emailed statement to Banking Dive. “We immediately took steps to strengthen our systems and controls, and remain committed to ensuring full regulatory compliance.”
Though Citigroup Global Markets Europe outsourced its monitoring and management system for algorithmic trading to a London-based unit of the bank, it was still responsible for appropriately designing its trading system to detect manual errors. However, according to BaFin, the system failed to detect a mistake made by one of its company’s traders, which caused market disruption.
In May 2022, a Citi trader who meant to sell a basket of equities at $58 million mistakenly created a $444 billion basket manually, the U.K.’s Financial Conduct Authority said last month. Though Citi’s controls blocked $255 billion of the trade, the remaining $189 billion in shares were sent to a trading algorithm, dividing them into portions to be sold throughout the day. Before the trader canceled the order, roughly $1.4 billion in equities was sold across the European exchanges.
The so-called “fat-finger error” is not the first of its kind to be attributed to Citi’s manual output system.
In August 2020, a Citi employee intended to transfer interest payments of roughly $7.8 million on a loan owed by cosmetics company Revlon. However, he mistakenly transferred the full payoff amount, including interest, which totaled roughly $900 million, to Revlon's creditors years ahead of schedule using Citi's funds, not Revlon's.
The error led to a lengthy court battle and prompted the Federal Reserve and the Office of the Comptroller of the Currency to issue consent orders requiring the bank to improve risk management, data, and internal controls. The bank also received a $400 million fine, likely in part due to the Revlon blunder.
