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Friday 9 June 2017

17-180MR Citigroup Global Markets Australia pays $50,000 in infringement notice penalty

Citigroup Global Markets Australia Pty Ltd ('Citigroup') has paid a penalty of $50,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel ('MDP').

The MDP had reasonable grounds to believe that Citigroup had contravened subsection 798H(1) of the Corporations Act 2001 by failing to comply with Rules 3.1.7(1), 3.1.10, and 3.1.11 of the ASIC Market Integrity Rules (ASX 24 Market) 2010. The Rules respectively impose limitations on the disclosure of client orders, pre-arrangement of trades, and the execution of trades to the exclusion of other market participants in relation to futures contracts.

In July 2015, the Sydney Sales Desk of Citigroup was contacted by the Chicago Sales Desk of a related entity seeking information about the liquidity of NZ 90 day bank bill futures contracts on the ASX 24 Market. During the earlier night session, the Chicago Sales Desk of the related entity had placed a series of 'iceberg' buy orders with no resulting trades.

An iceberg order is generated by an algorithm, which slices the order into smaller orders and only submits one slice to the trading platform at a time. Only the slice is visible to other market participants and not the total size of the order.

A representative of the Sydney Sales Desk had a face-to-face conversation with a Sydney Rates Trader who was employed by a Citibank group entity. Iceberg buy and sell orders for 700 and 500 lots of the futures contracts were respectively entered by the Chicago Sales Desk and the Sydney Rates Trader, resulting in a transaction of 500 lots of those contracts at a certain price. The remaining portion of the iceberg buy order was cancelled, and a new iceberg buy order for 200 lots was entered but at a lower price.

A squawk box conversation resulted in the Sydney Sales Desk disclosing to the Sydney Rates Trader that there were 200 lots remaining . An iceberg sell order for 200 lots at the original higher price was  then entered by the Sydney Rates Trader. Subsequently, the Chicago Sales Desk changed their iceberg buy order for 200 lots to match the price of the sell order, resulting in a further transaction of 200 lots.

Having regard to the timing and sequencing of the orders, conversations and trades, the MDP drew inferences that provided a basis for it having reasonable grounds to believe that Citigroup had contravened the relevant rules.

The MDP noted that this was an isolated incident that did not result in any damage to the market. Furthermore, Citigroup had undertaken additional remedial steps to prevent the recurrence of such conduct.

The compliance with the infringement notice is not an admission of guilt or liability, and Citigroup is not taken to have contravened subsection 798H(1) of the Corporations Act.

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Last updated: 09/06/2017 11:09