Citadel Securities

Citadel Securities was fined $180,000 due to a system issue that caused it to report equity sale transactions to the FINRA/NASDAQ Trade Reporting Facility (FNTRF) with an inaccurate short sale indicator.

The findings stated that the firm released a new system designed to implement new order marking and trade reporting methodologies. However, the firm inadvertently omitted one of its execution systems as part of the release and thus reported trades using the historical methodology. This omission caused the firm to report short sale equity transactions to the FNTRF without the short sale indicator.

The findings also stated that the firm failed to have a supervisory system, including WSPs, that was reasonably designed to achieve compliance with FINRA rules requiring the use of short sale indicators. The firm conducted end of day reviews for the accuracy of short sale transaction reporting, but these reviews did not include trades effected through all of its execution systems.

Even if the firm had included all execution systems in its supervisory reviews, it would not have reviewed the misreported transactions for short sale reporting requirements because the supervisory reviews only looked at order activity covered by Regulation SHO.

Unlike FINRA’s trade reporting rules, Regulation SHO did not apply to the misreported transactions because it mandates the marking of sell orders and here the misreported transactions were limited to the execution of incoming orders rather than order entry or routing.