Quick Facts
Overview
The Commodity Futures Trading Commission (CFTC) issued an order against Citigroup Global Markets Inc. (Citi), a registered futures commission merchant (FCM) and swap dealer, imposing a $1,500,000 civil monetary penalty for violations of the Commodity Exchange Act and CFTC regulations.
The violations stemmed from inaccurate large trader reports due to system errors, failure to maintain reliable regulatory records, and inadequate supervision, occurring from 2015 through 2023.
Citi self-reported the issues and cooperated, leading to a reduced penalty.
Details of the Case
Citigroup Global Markets Inc., based in New York City, violated Section 4g(a) of the Commodity Exchange Act and Regulation 17.00(a)(1) by submitting inaccurate large trader reports to the CFTC.
These reports, required daily from FCMs, must detail net positions in futures contracts for accounts with reportable positions, including those under common control or ownership. A programming logic error in Citi's system from 2015 to November 2022 caused improper netting, affecting reports on over 1,000 business days.
Separately, on March 13, 2023, a third-party vendor system for recording futures transactions failed due to excessive order volume from one client, corrupting data and leading to unreliable records for about ten weeks, in violation of Regulation 1.31(c), which requires registrants to keep authentic and reliable books and records. This also resulted in inaccurate large trader reports for approximately 50 business days.
Additionally, Citi violated Regulation 166.3 by failing to maintain an adequate supervisory system, including controls to detect the programming error, a data corruption recovery process, and proper oversight of net capital reporting. In November 2022, three former employees concealed a required notification to the CFTC about decreased excess net capital, though Citi remained adequately capitalized. Citi self-reported these issues promptly, provided detailed information to CFTC divisions, and completed significant remediation, such as fixing the logic error, enhancing system monitoring, and upgrading its transaction processor.
WORKED EXAMPLES
Programming Logic Error in Large Trader Reporting:
From 2015 to fall 2022, Citi's system had a logic flaw that improperly netted positions for accounts under common control, leading to inaccurate reports on over 1,000 business days.
- Impact: Citi submitted incorrect data until remediation in November 2022.
- Related penalties: Citi paid $2.6 million combined to CME, ICE Futures US, and ICE Europe.
System Capacity Failure and Data Corruption
On March 13, 2023, Citi's third-party system reached maximum capacity due to one client's excessive orders, failing to auto-expand and corrupting data for ten weeks.
- Impact: Unreliable records for futures transactions; inaccurate large trader reports for 50 business days.
- Related penalty: Citi paid $280,000 to CME.
Concealment of Net Capital Notification
In November 2022, three former employees learned excess net capital dropped to a level requiring CFTC notification but concealed it, preventing timely reporting.
- Impact: No notification despite adequate capitalization; contributed to supervisory violation.
- Remediation: Citi terminated the remaining employee and enhanced controls.
Inaccurate Reports from Data Corruption
Following the March 2023 incident, Citi failed to maintain reliable records under Regulation 1.31(c), affecting transaction files for ten weeks.
- Impact: Inability to rebuild files expediently; manual resolution of position and cash breaks.
Fines and Penalties
The total fine imposed was a $1,500,000 civil monetary penalty, with no breakdown into components such as disgorgement.
Key Quotes
"In accepting Citi’s Offer, the Commission recognizes Citi’s exemplary self-reports and exemplary cooperation. The Commission’s recognition is reflected in a reduced penalty, with Citi receiving the maximum mitigation credit toward the full monetary penalty appropriate for these violations." (From the CFTC order summary.)
"Citi failed to maintain an adequate supervisory system, including by failing to have controls or processes to identify and prevent a programming logic error that led to incorrect large trader reporting." (From the CFTC order facts section.)
"Regulation 166.3 imposes on every Commission registrant an affirmative duty to 'diligently supervise the handling ... of all commodity interest accounts ... and all other activities ... relating to its business as a Commission registrant.'" (From the CFTC order legal discussion.)
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