Miami-based broker-dealer Citadel Securities was fined $7 million as part of a settlement with the Securities and Exchange Commission (SEC) addressing mismarked short and long sales caused by a coding error in the firm’s automated trading system.
Citadel violated Regulation SHO by providing inaccurate data to regulators, including the SEC, over a five-year period, the agency said in a press release Friday. The settlement requires Citadel to provide written certification regarding remediation of the coding error and a review of the firm’s computer programming and coding logic.
The details: From September 2015 through September 2020, Citadel inadvertently marked certain short sale orders as long sales and vice versa while handling orders on behalf of its broker-dealer clients, resulting in an estimated millions of sell orders being mismarked, the SEC alleged in its order.
“The mismarking violations occurred as a result of a coding error in the logic used to compute Citadel Securities’ position calculated for Regulation SHO purposes when handling certain schedule-based not-held client orders filled on a riskless principal basis,” the agency said. The error resulted in Citadel delaying updating its position in certain orders, which “created temporary inaccuracies in the firm’s calculation of its net position in affected securities for purposes of order marking,” per the order.
The alleged delays lasted minutes, though some extended for several hours.
Compliance considerations: “Citadel Securities’ application of policies and procedures did not detect either the coding error or the firm’s mismarking of orders as a result of the coding error,” the SEC said. The firm’s two automated surveillance tools also failed to pick up on the issue, despite daily checks.
The coding error went unrecognized by Citadel until it discovered the issue in September 2020 during an internal regulatory compliance review, according to the SEC. The firm corrected the relevant coding logic within three business days.
The SEC noted Citadel’s cooperation in reaching settlement.
Citadel did not respond to a request for comment. The firm neither admitted nor denied the SEC’s findings.