Citigroup Pays Almost $13 Million to Settle SEC Dark Pool Probe

(Bloomberg) -- Citigroup Inc. has become the latest bank sanctioned in a years-long crackdown on misconduct tied to dark pools, with an affiliate paying almost $13 million to settle a U.S. regulator’s allegations that it misled customers about the presence of high-speed traders on a private trading platform.

The unit gave customers false assurances that high-frequency traders weren’t allowed on the bank’s Citi Match venue, the Securities and Exchange Commission said in a Friday statement. In fact, two of the most-active users were high-speed traders who executed more than $9 billion in orders on the dark pool, the SEC said.

Citigroup also failed to disclose that for more than two years, almost half of Citi Match orders were routed to outside trading platforms, the SEC said. The bank settled the case without admitting or denying the SEC’s claims.

“Market participants deserve to make informed decisions about where they execute their orders,” said Joseph 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.”

The bank is “pleased to have the matter resolved,” spokeswoman Danielle Romero-Apsilos said in an emailed statement.

Dark pools are off-exchange venues that execute about 14 percent of U.S. equity volume, according to Rosenblatt Securities, an institutional brokerage firm specializing in market structure. Mutual funds and other institutional investors often use the platforms to make big trades because the firms can do so without tipping off the rest of the market.

In the past decade, discussion around dark pools evolved from an obscure market-structure issue to become the focus of a highly-charged debate over whether traders armed with computer algorithms were using the private venues to take advantage of other investors. The fight gained traction in 2014 after the release of Michael Lewis’s book "Flash Boys.”

The SEC has fined multiple banks for alleged violations, including UBS Group AG and Credit Suisse Group AG and Barclays Plc. In July, the SEC required that dark pools disclose more data and reveal potential conflicts of interest.

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