Citadel Securities agreed to pay $7 million to settle SEC charges that it violated short-selling rules, the SEC announced in a news release Sept. 22.
According to the SEC, Citadel Securities inaccurately marked millions of orders over a five-year period — from 2015 to 2020 — incorrectly designating short sales as long sales and vice versa. The SEC said this was due to a coding error in the firm's automated trading system, which provided inaccurate data to investors and the SEC during that time.
The SEC said this was a violation of Regulation SHO, "the regulatory framework designed to address abusive short selling practices, which requires broker-dealers to mark sale orders as long, short or short exempt," according to the agency's news release.
"This action against Citadel Securities demonstrates that a broker-dealer's failure to comply with the requirements of Reg SHO can have negative downstream consequences on the accuracy of the firm's electronic records, including its electronic blue sheet reporting, depriving the commission of important information about the markets it regulates," said Mark Cave, associate director of the SEC's Division of Enforcement, in the news release.
Without admitting or denying the findings, Citadel Securities agreed to a cease-and-desist order imposing a $7 million penalty, a censure and "a set of undertakings, including a written certification that the coding error has been remediated and a review of the firm's computer programming and coding logic involved in processing relevant transactions," the SEC news release said.
According to an email from a Citadel Securities spokesperson, the company "detected the issue and promptly fixed it more than three years ago."
"This matter had no impact on the quality of our client execution," the spokesperson said in an emailed statement. "While updating our systems to accommodate certain client requests, we made a coding change that inadvertently affected a de minimis percentage of our order markings."
