Citadel Securities established an Over-the-Counter equity trading desk in November 2011 to receive orders from the Firm’s clients on behalf of their customers. The firm’s stated objective was to comply with the Trading Ahead and Limit Order Display Rules by providing “automated order protection, quote display, and execution” for the customer orders. The OTC Desk, however, implemented controls, settings and processes that removed hundreds of thousands of larger customer orders. Those protocols sought to direct OTC customer orders for manual handling and review. The orders affected by this became inactive until the completion of a manual trader review.
The FINRA findings stated that:
- The OTC Desk traded ahead of the inactive OTC customer orders and failed to display them from September 2012 to September 2014, violating FINRA Rule 6460 and FINRA Rule 5320
- The OTC Desk through its protocols failed to display certain customer limit orders, violating FINRA Rule 6460
- Citadel Securities failed to establish a supervisory system, including written supervisory procedures (“WSPs”), which failed to comply with the Trading Ahead and Limit Order Display Rules for OTC customer orders.
- Citadel Securities failed to establish WSPs requiring supervisory reviews or reports of OTC customer orders, violating FINRA Rules 5320 and 6460.
Resulting from this misconduct, Citadel Securities was fined $700,000, in restitution, plus interest, to firm clients and required to submit a written certification to FINRA within 120 days that it has: “completed a review of its systems and procedures regarding the display of OTC customer limit orders, and that those protocols are reasonably designed to achieve compliance with FINRA rules and other applicable laws.”