Hong Kong’s financial markets regulator has fined a Citigroup unit and warned it will pursue actions against some former staff, after it found some of the US bank’s stock traders misled investors for over a decade.
The city’s Securities and Futures Commission said on Jan. 28 that it had fined Citigroup Global Markets Asia HK$348.25 million, equivalent to approximately $44.7 million, for misconduct. on some of the bank’s equity trading desks between 2008 and 2018.
The regulator’s chief executive, Ashley Alder, said the failures “exposed a culture that encouraged revenue hunting at the expense of basic standards of honesty”.
He added that as the bank tried to increase its market share and grow its business, “deceptive practices were deployed to the detriment of the best interests of customers and to the detriment of market integrity.”
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The punishment is for investors misleading as to whether they were transacting with other major institutions — with Citigroup simply matching buyer and seller — or whether Citigroup was trading from its own account. Market participants generally prefer the first approach, known as agency trading, to facilitating transactions where the bank takes positions using its own capital.
The SFC said the Citigroup unit sent mislabeled “indications of interest” to stimulate business by suggesting it had potential takers for the other side of a trade, but that its facilitation office would often intervene instead. Over five years, he also found numerous instances where the Citigroup team failed to disclose or misrepresent the nature of facilitating trades.
“The SFC considers that such pervasive dishonest behavior would not have continued had it not been for serious shortcomings and deficiencies in its internal controls, compliance function and management oversight,” the regulator said.
He blamed some former top executives at the bank for supervisory lapses and said he would initiate disciplinary proceedings in due course. No one was named by the regulator on January 28. An accompanying report identified a banker, who had been head of the high-touch equity sales trading desk and later head of pan-Asian execution services, as “X”.
This trader used a spreadsheet that created indications of interest based on the most actively traded blue chip stocks from the previous day, the SFC said in its report. The merchant also referred to some of these spreadsheet-generated expressions of interest as “fake flows” or “the fakes.”
Citigroup said on Jan. 28 that the SFC’s action resolved an issue dating back to 2018. “We have cooperated fully with the SFC’s investigation and have implemented significant corrective actions to strengthen our compliance and controls. internal,” he added.
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A spokesperson for the bank said it took strict disciplinary action where necessary. “Since then, Citi has moved beyond legacy issues and implemented a series of culture and ethics initiatives. More broadly, a central aspect of Citi’s transformation program is to improve our risks and controls,” he said.
Citigroup also had more than 400 conversations with investors to rebuild relationships and inform them of its improved controls, the spokesperson added. “Most, if not all of our customers, have resumed their business relationship with Citi,” he said.
The fine is substantial by Hong Kong standards, but is not the harshest penalty imposed by local regulators, which have sometimes extracted larger sums and can also impose limits on banks’ activities.
In 2019, for example, the SFC fined units of UBS Group AG HK$375 million ($48.1 million at current exchange rates) for its role in problematic initial public offerings and temporarily banned the Swiss bank from acting as an IPO sponsor, a leading role. in the listings in Hong Kong. It also penalized three other banks for IPO shortcomings.
Write to Quentin Webb at [email protected]
This article was published by Dow Jones Newswires