One might ask, how many times does Citadel Securities need to be fined before further action is taken? The answer? The limit does not exist.
Public records show Citadel Securities have been fined at least 58 times from 2006-2021, but at this point it seems this may as well be considered the cost of doing business. Here we will highlight a few of the most recent breaches made by Citadel Securities and the penalties that the SEC and FINRA have imposed.
CITADEL SECURITIES FINES 2017 – MISLEADING CLIENTS
One of the largest financial hits that Citadel Securities took was in 2017, when the brokerage agreed to pay $22.6 million in settlement charges for misleading clients about the way it priced trades. According to a 2017 press release from the SEC, Citadel used two different algorithms that failed to internalize retail orders at the best price observed in the market. The two strategies were known as “Fastfill” and “SmartProvide”, which have since been discontinued.
At the time Stephanie Avakian, Acting Director of the SEC Enforcement Division said, “Citadel Securities made misleading statements suggesting that it would provide or try to get the best prices it saw for retail orders routed by other broker-dealers. Internalizers can’t suggest they are doing one thing yet do another when it comes to pricing trades.”
CITADEL SECURITIES FINES 2018 – FAILURE TO SUBMIT CORRECT DATA
December of 2018 Citadel Securities was among one of three broker-dealers that agreed to collectively pay a penalty settlement of over $6 million dollars for providing the SEC with incomplete and inaccurate securities trading information. According to the SEC, Citadel Securities LLC, Natixis Securities Americas LLC and MUFG Securities Americas Inc, provided incomplete and inaccurate “blue sheet data” to the SEC. The “blue sheet data” is used by the SEC so that they can enforce and carry out regulatory obligations such as investigating fraudulent activity and insider trading.
These three broker-dealers repeatedly submitted blue sheets with missing data and information — which naturally interferes with the SEC’s ability to properly regulate. Citadel Securities submitted inaccurate data for nearly 80 million trades. Ultimately Citadel agreed to be censured and paid $3.5 million in penalties.
FINRA FINES CITADEL SECURITIES IN 2020 & 2021
FINRA (Financial Industry Regulatory Authority) is an independent company that works under the SEC to regulate brokerages. In July of 2020, FINRA announced that it had fined Citadel Securities $700,000 for yet again, breaching rules and regulations. Citadel Securities breached FINRA rule 5320 and FINRA rule 6460, which is “Prohibition Against Trading Ahead of Customer Orders” and “Display of Customer Order Limits”. Without contest, Citadel Securities took the hit with the fine and agreed to pay.
Following the $700,000 fine in 2020, FINRA again fined Citadel, this time $275,000 for additional violations of reporting requirements in 2021.
IS THE SEC REALLY DOING THEIR JOB?
The sole purpose of the SEC (Securities and Exchange commission) is to protect investors. The SEC is a U.S government agency that is responsible for maintaining a fair, honest, and trustworthy market. As investors we put our trust into them when it comes to making sure they enforce the law against market manipulation. While it’s great to see fines imposed, it seems clear that these fines mean little to no thing to firms like Citadel, as they have no fear in continuing breach rules and regulations. How many times will firms be able to break the law and disobey set rules before they start facing fines that actually create financial hardship for them or banned completely?