British financial regulators have fined Citigroup £61.7 million due to a substantial error involving a $444 billion trade that triggered a $1.4 billion sell-off of equities in European markets.
The error occurred when a Citi trader intended to sell a basket of equities valued at $58 million but mistakenly entered $444 billion—an amount comparable to the GDP of Denmark. While Citi’s trading system effectively blocked $225 billion of the order, it failed to prevent the remaining $189 billion from being sent to a trading algorithm. This algorithm was programmed to execute parts of the total order throughout the day.
Ultimately, $1.4 billion in equities were sold across European exchanges before the trader was able to cancel the order, resulting in a brief yet significant drop in some European indices.
The Financial Conduct Authority (FCA) investigated the incident and found that although some aspects of Citi’s trading control framework functioned correctly, key controls were either missing or deficient. Specifically, there was no mechanism to entirely reject the erroneous trade, allowing it to enter the market.
The FCA also noted that the trader could bypass a pop-up alert due to poor design, without having to read all the necessary information. Additionally, the firm’s real-time monitoring system was slow to escalate internal alerts regarding the erroneous trades.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, stated: “The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to prevent errors like this from occurring. These failings led to over a billion pounds of erroneous orders being executed and threatened to disrupt the market. We require firms to evaluate their own controls to ensure they are suitable for the fast-paced and complex nature of financial markets.”
As a result of the findings, the FCA’s £27.8 million penalty included a 30% discount for Citi’s lack of dispute. Additionally, the Prudential Regulatory Authority imposed a £33.88 million fine on the bank following its own investigation into the incident.