Hong Kong’s market regulator has reprimanded and fined Citigroup Global Markets Asia Limited (CGMAL) for allowing its trading desks to mislabel and misrepresent trades over a 10-year period.
The Securities and Futures Commission (SFC) fined the bank HK$348.25 million ($44.7 million) for disseminating mislabelled indications of interest and making misrepresentations to institutional clients when executing facilitation trades.
The SFC said the Citigroup unit engaged in “pervasive dishonest behaviour” and blamed “serious lapses and deficiencies in its internal controls, compliance function and management oversight”.
Citigroup has taken remediation steps to strengthen its internal controls, including the appointment of an independent reviewer to review and validate its controls framework, the SFC said.
“The severity of CGMAL’s failures exposed a culture that encouraged chasing revenue at the expense of basic standards of honesty,” Ashley Alder, SFC chief executive, said.
“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.”
Mislabelled Indications of Interest
Since at least 2008, CGMAL’s equities sales trading desk had sent indications of interest tagged as “Natural”, “In Touch With” and/or “P:1” to clients when there was no genuine client interest or specific client that CGMAL was in touch with.
These mislabelled indications of interest were designed to provoke client enquiries with the 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 platform.
CGMAL’s mislabelling of indications of interest was not only contrary to the relevant industry guidelines that it claimed to have adopted but inconsistent with the fundamental principles of being honest with clients and treating them fairly, the SFC said.
The agency found that in 127 of 174 trades, CGMAL staff “gave factually incorrect information to the client or took positive steps to conceal the principal nature of the trade; made misleading statements that could be interpreted by the client as indicating that the trade would be executed on an agency basis, or sometimes remained silent notwithstanding some indication of the client’s belief that the trade was an agency trade”.
The SFC said it would begin disciplinary proceedings against executives it considered responsible “in due course”.
- George Russell