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From Securities Regulation Daily, September 14, 2018

Citigroup settles charges of dark pool misrepresentations

By R. Jason Howard, J.D.

The SEC has issued an order finding that Citigroup Global Markets misled users of Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), a Citigroup affiliate (In the Matter of Citigroup Global Markets, Inc.Release No. 33-10545, September 14, 2018).

Dark pool. The SEC’s order found that from at least December 2011 through June 2014, Citigroup Global was responsible for marketing and sales of Citi Match and CORE. During the relevant period, Citigroup marketed Citi Match to institutional customers, including mutual fund and retirement advisers. Citigroup represented that Citi Match was an "exclusive" and "premium" trading venue, which limited the types of market participants that could enter orders in the dark pool in which high-frequency traders were not allowed. However, contrary to the statements on high-frequency traders not being allowed, two proprietary trading firms considered to be high-frequency trading firms were among Citi Match’s top users for portions of the relevant period and represented a significant portion of Citi Match’s total trading activity.

The order also found that Citigroup Global failed to adequately disclose its use of external routing, which resulted in orders sent to Citi Match that could be routed to and executed in external venues.

According to the order, Citigroup violated an antifraud provision of the federal securities laws. The SEC also found that CORE violated a registration provision. CORE failed to register as a national securities exchange in connection with its operation of Citi Match.

"Market participants deserve to make informed decisions about where they execute their orders," said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. "All trading venues, regardless of their trade volume, must ensure that their users have accurate information, particularly about key issues like order routing."

Penalties. Without admitting or denying the SEC’s findings, Citigroup and CORE agreed to be censured. Citigroup will pay disgorgement and prejudgment interest of over $5.4 million and a penalty of $6.5 million. CORE will pay a penalty of $1 million.

The release is No. 33-10545.

Companies: Citigroup Global Markets, Inc.

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