BaFin Fines Citigroup Global Markets Europe AG €12.975 Million for Algorithmic Trading Violations

The Federal Financial Supervisory Authority (BaFin) of Germany has imposed a significant fine on Citigroup Global Markets Europe AG for breaching regulations related to algorithmic trading. On May 24, 2024, BaFin announced an administrative fine of €12,975,000 against the investment firm.

The sanction stems from violations of Section 80(2) sentence 3 no. 1 and no. 2 of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG). BaFin found that Citigroup Global Markets Europe AG failed to maintain effective systems and risk controls for its algorithmic trading operations. Specifically, the company did not ensure that its trading systems were subject to appropriate trading thresholds and limits. Additionally, Citigroup Global Markets Europe AG failed to prevent the sending of erroneous orders that could create or contribute to a disorderly market.

The incident in question occurred in May 2022, when the firm's monitoring and management system for algorithmic trading, outsourced to Citigroup Global Markets Limited in London, failed to detect a manual input error made by one of the company's traders. This error resulted in the transmission of erroneous orders, causing a market disruption.

BaFin emphasized that despite the outsourcing arrangement, Citigroup Global Markets Europe AG remained responsible for appropriately designing its trading system.

The regulatory body noted that investment firms engaged in algorithmic trading are required to have robust systems and risk controls in place to ensure market stability and integrity. These requirements are distinct from those applicable to high-frequency trading, which involves additional regulations.

The fine imposed by BaFin is final and binding. Under the WpHG, the maximum fine for such violations can reach €5 million or up to 10% of a company's total revenue.

This enforcement action further demonstrates the importance of maintaining stringent controls in algorithmic trading systems and highlights the regulatory focus on preventing market disruptions caused by technological failures or human errors in automated trading environments.

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