Citigroup Global Markets Inc., a unit of
) was recently fined by the Financial Industry Regulatory Authority
(FINRA) for failure to give customers the best possible prices and
deficient supervisory procedures. Apart from paying a $1.85 million
fine, Citigroup has to compensate affected investors with an amount
of $638,000, plus interest.
The latest fine pertains to the company's failure in providing the
best possible purchase or sale prices in about 22,000 customer
transactions. As per FINRA, such malfunctioning resulted from
supervisory deficiencies for the period Jan 2008 to May 2011.
FINRA clarified that despite getting repetitive inquiry letters,
Citigroup lacked due diligence in providing best possible prices in
certain customers transactions related to non-convertible preferred
securities. According to FINRA, use of manual pricing for
non-convertible preferred securities by one of Citigroup's trading
desks, provided inferior prices to the national best bid and offer
(NBBO) for around 14,800 transactions.
Further, FINRA notified more than 7,200 customer transactions had
prices inferior to the NBBO due to the faulty pricing logic by
Citigroup's proprietary BondsDirect order execution system.
Therefore, such flawed process included only the primary listing
exchange's quotation for the transactions which led to inferior
Though Citigroup neither accepted nor rejected the charges, it has
agreed to co-operate with the regulatory authority.
In Jun 2012, FINRA penalized Merrill Lynch by $2.8 million for
supervisory negligence which resulted in nearly 95,000 customers
being overcharged with unnecessary fees and failure to provide
certain required trade notices. Other Wall Street biggies penalized
by FINRA for various rule violations include The Goldman Sachs
Group, Inc. (
), Barclays PLC (
), Morgan Stanley and Wells Fargo & Company (
The regulatory scenario following the financial crisis in the U.S
has tightened, with litigation issues heavily weighing against
Citigroup's performance. Nevertheless, the stringent regulations
prioritize investors' security, thereby considerably reducing the
chances of any financial fallout going forward.
Citigroup currently carries a Zacks Rank #3 (Hold).
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