The U.S. Securities and Exchange Commission (SEC) has announced settled charges against broker-dealer Citadel Securities LLC for non-compliance with Regulation SHO, a framework aimed at curbing abusive short selling practices. The regulation mandates broker-dealers to appropriately mark sale orders as either long, short, or short exempt. Such records play a pivotal role for regulators in monitoring and preventing illicit short selling activities.
Citadel Securities, based in Miami, has consented to pay a penalty of $7 million to settle the SEC’s charges. Citadel Securities LLC is a leading global market maker, specializing in equities, equity options, and interest rate swaps. The firm’s commitment to providing liquidity and transparency to the financial markets has established it as a key player in the industry.
The SEC’s order reveals that over a span of five years, Citadel Securities mislabeled millions of orders. Specifically, certain short sales were inaccurately labeled as long sales and vice versa. This discrepancy was attributed to a coding error within Citadel Securities’ automated trading system. Consequently, the firm relayed this flawed data to regulators, including the SEC, throughout this duration.
Mark Cave, Associate Director of the SEC’s Division of Enforcement, commented on the matter, stating, “Compliance with the order marking requirements of Reg SHO is vital in our regulatory endeavors to clamp down on market malpractices, such as ‘naked’ short selling.” He further emphasized the significance of the action against Citadel Securities, noting that non-adherence to Reg SHO’s stipulations can adversely impact the precision of a firm’s electronic records. This, in turn, can deprive the Commission of crucial market-related data.
The order has charged Citadel Securities for contravening Rule 200(g) of Reg SHO. While the firm has neither admitted nor denied the findings, it has agreed to a cease-and-desist order. This includes a censure, the aforementioned $7 million penalty, and specific undertakings. Among these are a written assurance that the coding error has been rectified and a comprehensive review of the firm’s computer programming and coding logic pertinent to the processing of relevant transactions.
The SEC’s inquiry into the matter was spearheaded by Seth M. Nadler of the SEC’s Home Office, with assistance from various divisions and units within the SEC. The investigation was overseen by Mr. Cave.
Image source: Shutterstock