FINRA Fines Citadel Securities and IMC Financial Markets for CAT Reporting Violations

The Financial Industry Regulatory Authority (FINRA) has taken action against two major market makers, Citadel Securities LLC and IMC Financial Markets, for failing to comply with Consolidated Audit Trail (CAT) reporting requirements. The firms have agreed to pay fines of $1 million and $1.2 million respectively, highlighting FINRA's increased focus on ensuring accurate and timely reporting to the CAT system.

Citadel Securities agreed to pay a $1 million fine for failing to timely and accurately report data for tens of billions of equity and option order events to the CAT Central Repository. The violations occurred from June 22, 2020, through August 28, 2024.

According to the Letter of Acceptance, Waiver, and Consent (AWC), Citadel Securities inaccurately reported data for approximately 42.2 billion equity and option order events between June 22, 2020, and July 31, 2022. These errors spanned 33 unique CAT reporting error types. Additionally, the firm failed to timely report approximately 580 million equity and option order events during the same period.

The firm identified and addressed these issues, but subsequently discovered four additional problems, resulting in reporting failures for approximately 3.2 billion equity order events from December 13, 2021, through June 30, 2024. Citadel Securities completed remediation of these issues by June 30, 2024, and submitted corrections by August 28, 2024.

IMC Financial Markets Settlement

In a separate action, IMC Financial Markets, a Chicago-based proprietary trading firm, agreed to pay a $1.2 million fine for similar CAT reporting violations. IMC's failures occurred from June 22, 2020, through June 30, 2023.

FINRA found that IMC reported approximately 21.8 billion inaccurate equity and options order events to CAT, spanning 35 unique error types. These inaccuracies were caused by software coding and system issues. Some notable errors included:

• Reporting 7.5 billion events with an inaccurate time in force code between June 22, 2020, and April 23, 2021.
• Reporting over 680 million equity order events without the required millisecond between October 22, 2020, and June 13, 2023.
• Reporting 1.9 billion events with linkage errors between July 1, 2022, and August 31, 2022.

Furthermore, IMC failed to timely report 6.9 billion equity and options order events to the CAT Central Repository from June 22, 2020, through January 21, 2023. In addition to the reporting violations, FINRA found that IMC failed to establish and maintain a reasonable supervisory system for CAT reporting compliance. The firm had no supervisory system in place from June 2020 to September 2020 and subsequently implemented a system with an unreasonably narrow scope of review.

The CAT system, implemented following a Securities and Exchange Commission (SEC) mandate, is designed to create a comprehensive audit trail allowing regulators to efficiently track all activity in U.S. markets for national market system (NMS) securities. Large industry members were required to begin reporting to CAT on June 22, 2020.

FINRA emphasized the importance of accurate and timely CAT reporting, noting that it is integral to their automated market surveillance program and their ability to detect manipulative activity and other potential violations of securities laws.

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