Trading control failures that allowed a “fat finger” order to go through is costing Citigroup Global Markets Ltd. a £61.6 million penalty from the U.K.’s Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The regulators sanctioned the firm for failures in its trading systems and controls when, in May 2022, a trader accidentally entered an order to sell a basket of equities valued at US$444 billion when it should have been valued at US$58 million.
A fat finger error is a data-entry mistake caused by pressing the wrong key on a computer.
According to the FCA, while the firm’s controls blocked part of the erroneous order, US$189 billion was sent to a trading algorithm, and US$1.4 billion of that order was executed before the error was discovered and the trader cancelled the order.
The FCA found that certain trading controls were lacking at the firm.
“In particular, there was no hard block that would have rejected this large erroneous basket of equities in its entirety and prevented any of it reaching the market,” it said.
“Due to poor design, the trader was also able to manually override a pop-up alert, without being required to scroll down and read all the alerts within it. The firm’s real-time monitoring was ineffective, which meant that it was too slow to escalate internal alerts about the erroneous trades,” it said.
The firm did not dispute the FCA’s findings and agreed to settle, which qualified it for a 30% discount on the penalty, which otherwise would have been £39.7 million, the FCA said.
At the same time, the PRA also fined the firm £33.9 million following its own investigation into the incident. The firm also qualified for a 30% reduction on its penalty from the PRA, which would otherwise have been £48.4 million.
“The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring,” said Steve Smart, joint executive director of enforcement and market oversight at the FCA, in a release.
“These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets,” he added.
The PRA noted that the firm “has undertaken remediation work, taking steps to improve and strengthen its trading controls” since the incident.