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January 31, 2022

Citi fined in Hong Kong for misconduct at equities business

Hong Kong’s securities regulator has reprimanded and fined a Citigroup unit $45m (HK$348.25m) for ‘pervasive dishonest behaviour’ at its Cash Equities business from 2008 to 2018.

The Securities and Futures Commission (SFC) said that Citigroup Global Markets Asia Ltd (CGMAL) made misrepresentations to institutional clients while executing some trades, making mislabelled Indications of Interest (IOIs).

“These mislabelled IOIs, which were generated with reference to certain percentage of the average daily volumes of selected blue-chip stocks in the market, were designed to provoke client enquiries with the purported belief that traders would be able to find natural opposite flows to cross with the client order given the active trading of the stocks and the size of CGMAL’s trading platform,” SFC stated. 

The watchdog also said that senior CGMAL leadership attended a roundtable with the SFC in 2014, where it was told of common deficiencies in client facilitation activities in the market and was issued a circular in 2018 with additional guidance.

However, CGMAL carried out gap analysis both the times but failed to detect the lapses. SFA said.        

The regulator blamed the unit’s poor internal controls and leadership for the failures.

The watchdog has accused certain former senior management members of the misconduct, without disclosing their names.

It is set to start disciplinary proceedings against these individuals in this matter soon.

SFC CEO Ashley Alder said: “The severity of CGMAL’s failures exposed a culture that encouraged chasing revenue at the expense of basic standards of honesty. 

“As a result, in the face of unrelenting commercial pressure to solicit more business and increase CGMAL’s market share, deceptive practices were deployed at the expense of clients’ best interest and to the detriment of market integrity.”

 In 2018, CGMAL was fined in Hong Kong for breaching dark pool regulations.

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