Citadel Securities Fined $7 Million for Violating Order Marking Requirements

WASHINGTON — The U.S. Securities and Exchange Commission (SEC) has announced that it has fined Citadel Securities, an investment management firm, $7 million for violating order marking requirements.

According to the SEC, between September 2015 and September 2020, Citadel Securities marked millions of certain short sale orders as long sales, and vice versa. The commission estimates that the source of these inaccuracies was a coding error in Citadel’s automated trading system during that time frame.

Despite the fine, Citadel Securities maintains that the issue had no impact on the quality of its client execution. A spokesperson for the firm told AsumeTech that while updating their systems to accommodate certain client requests, they inadvertently made a coding change that affected only a small percentage of their order markings. They detected and promptly fixed the issue over three years ago.

Understanding Short Sales and Order Marking Requirements

Short sales involve borrowing stock from a broker to sell into the market, then buying it back at a cheaper price and returning the borrowed stock to cash in on the price difference, as explained by Bankrate.

Compliance with order marking requirements is a crucial aspect of regulatory efforts to curb abusive market practices, including “naked” short selling, according to Mark Cave, associate director of the SEC’s Division of Enforcement. Failure to comply with these requirements can have negative downstream consequences on the accuracy of a firm’s electronic records, such as its electronic blue sheet reporting. This deprives the Commission of vital information about the markets it regulates.

In a separate case, the SEC also fined Goldman Sachs for inaccurate “blue sheet” submissions that contained identifying securities trading information.