Mon, Dec 11, 2023

The official Financial Regulation Journal of SAIFM

Broker-Dealer and Affiliate Agree to Pay More Than US $12 Million to Resolve SEC Charges for Allegedly Misleading Dark Pool Practices


Gary DeWaal

Citigroup Global Markets, Inc. and Citi Order Routing and Execution, LLC agreed to disgorge profits and pay interest of US $5.437 million and pay a penalty of US $6.5 million to resolve charges in connection with their operation of a dark pool called “Citi Match.” Among other things, the SEC claimed that CGMI purportedly misled investors when it marketed Citi Match as a venue that did not allow access by high-frequency traders when, in fact, two trading firms accounting for more than 17 percent of all executions by dollar volume likely qualified as HFTs. The SEC also said that CGMI did not adequately disclose to all users that orders sent to Citi Match could be routed to and executed in various external venues that did not offer the same promoted advantages as Citi Match. Additionally, the SEC asserted that, because buy and sell orders could rest in Citi Match and automatically execute pursuant to preprogrammed priority rules and procedures, CORE met the definition of an exchange and should have been registered as a national securities exchange. Both CMGI and CORE were solely registered as broker-dealers with the SEC during the relevant time. In January 2016, two other broker-dealers paid aggregate sanctions of US $156 million to the SEC and the New York Attorney General to resolve charges that they too purportedly misrepresented how they shielded their dark pools’ participants from HFTs. (Click herefor background in the article, Two Broker-Dealers to Pay US $154 Million to the State of NY and the SEC to Resolve Allegations of Wrongdoing by Their Dark Pools” in the February 7, 2016 edition of Bridging the Week.)

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