Billionaire owned trading firm cheats clients over six year period and is fined peanuts. FT reported:
The US financial industry regulator has fined Citadel Securities $700,000 for trading ahead of customer orders, dealing a blow to the market-making firm that has benefited from a big rise in retail trading this year.Claims? The regulator found direct evidence of frontrunning with Citadel required to make injured traders whole. As expected news of the settlement did not make Citadel's website. I took the liberty of adding it.
Chicago-based Citadel Securities delayed certain equity orders from clients to buy or sell shares while continuing to trade the same stocks in its own account, as part of its market-making activities, Finra said. The claims relate to “over the counter” equity trades, which are carried out away from public stock exchanges and then reported to regulators.
Over a two-year period until September 2014, the market-maker removed hundreds of thousands of large OTC orders from its automated trading processes, according to Finra. That rendered the orders “inactive” and so they had to be handled manually by human traders. Citadel Securities then “traded for its own account on the same side of the market at prices that would have satisfied the orders,” without immediately filling the inactive orders at the same or better prices as required by Finra rules, the regulator said.
Nearly half of the 467 limit orders reviewed by the regulator in the six years until September 2018 were found to violate Finra’s requirements to display orders. The bulk of the violations were for failing to execute trades against existing quotations in a timely manner, Finra said.
The regulator also highlighted the ability for traders on Citadel Securities’ OTC desk to “disable” the system component that automatically sent certain messages to trade OTC stocks.
Citadel Securities is majority-owned by Ken Griffin, the billionaire investor, and is the sister firm to Citadel, the hedge fund he runs. The company is the biggest US retail market-maker with a 40 per cent share and has emerged as one of the big winners from the boom in retail investing through the pandemic.
Citadel Securities will pay a fine of $700,000 under the terms of a settlement with the regulator without admitting or denying the claims.
Some FINRA folks may be in good graces with Citadel as a result of this toothless settlement. Where does that leave the small investor? I'd like to be more than a prop in Citadel's proprietary trading book.
Update 10-3-21: Citadel and Robinhood engaged in extremely shady behavior around meme stock trading. Federal Reserve regional bank chiefs did likewise.
