Citadel Securities pays $1 million fine for alleged violations of FINRA rules

Citadel Securities LLC has agreed to pay a $1 million fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From the inception of its Consolidated Audit Trail (CAT) reporting requirement on June 22, 2020 through August 28, 2024, Citadel Securities failed to timely and/or accurately report data for tens of billions of dollars in stock and options order events to the CAT Central Repository in violation violates FINRA Rules 6830, 6893 and 2010.

As a large industry member, Citadel Securities was required to begin reporting its order event data to the CAT Central Repository on June 22, 2020. To prepare for reporting to CAT, Citadel Securities developed a proprietary order and trade reporting system, testing process, and related regulatory procedures to comply with the Company’s CAT reporting requirements.

From the beginning of its CAT reporting requirement on June 22, 2020 through July 31, 2022, Citadel Securities incorrectly reported certain data fields to CAT for approximately 42.2 billion stock and options order events, comprising 33 unique CAT reporting error types.

Three types of errors were responsible for 41.8 billion misreported events. Regarding these issues, the company has:

• Certain fully canceled orders did not report “0” in the Number of Sheets field, impacting 31.2 billion canceled orders between June 22, 2020 and December 31, 2020.
• The representative indicator4 was applied instead of the representative indicator to 6.3 billion new order events between June 22, 2020 and April 9, 2021.
• For 4.3 billion IOC order events between June 22, 2020 and February 16, 2022, the IOC (Immediate or Cancel) time code was not populated.

Due to the remaining 30 reporting error types, Citadel Securities reported over 400 million inaccurate order events to CAT between June 22, 2020 and January 22, 2022.

In addition, Citadel Securities failed to timely report approximately 580 million stock and options order events to CAT from June 22, 2020 to July 31, 2022.

As of September 22, 2022, Citadel Securities had resolved the 33 types of failures that the company had experienced as of July 31, 2022, some of which lasted from a few weeks to nearly two years. Citadel Securities reported the 580 million stock and options order events and submitted corrections for the 42.2 billion inaccurate order events between one and 17 months after correcting each reporting issue.

After resolving the 33 types of errors, Citadel Securities identified four additional issues that resulted in the Company failing to timely and/or accurately report certain data fields to CAT for approximately 3.2 billion stock order events from December 13, 2021 through June 30, 2024. The company fixed these issues by June 30, 2024 and submitted fixes for the approximately 3.2 billion events by August 28, 2024.

Citadel Securities’ reporting violations were caused by various coding and system issues, issues with data obtained from third parties, and the company’s interpretation of certain reporting scenarios. Citadel Securities identified many of the reporting errors through its regulatory reviews.

By failing to timely and/or accurately report order event data to the CAT Central Repository, Citadel Securities violated FINRA Rules 6830, 6893 and 2010.

In addition to the $1,000,000 penalty, the Company has agreed to a reprimand.