News Column

Citigroup Unit Paying $5 Million to Settle SEC Charges

July 25, 2014

Associated Press

Citi building (AP)
Citi building (AP)

WASHINGTON (AP) A market trading unit of Citigroup will pay $5 million to settle federal civil charges that it failed to protect the confidentiality of customer trading data.

The Securities and Exchange Commission announced the settlement with Citigroup's LavaFlow Inc. on Friday. It operates a so-called alternative trading system, which makes stock trades for brokerage firms and other traders. The settlement includes a $2.85 million penalty, the largest the SEC has imposed on an alternative trading system.

The company will also return $1.8 million in profits and $350,000 in interest.

LavaFlow, based in New York, neither admitted nor denied the allegations.

"We are pleased to put this matter behind us," Citigroup Inc. said in a statement.

The SEC said LavaFlow improperly allowed an affiliate to gain access to and use confidential information on customer trading orders from 2008 through 2011. About 400 million shares were traded during that period using the affiliate's technology, according to the SEC.

Alternative trading systems, which compete with public stock exchanges, now account for about 12 percent of U.S. stock market trading. LavaFlow is among the 10 biggest systems, according to industry regulators.

LavaFlow's system is an electronic communications network, which displays some order information such as best bid or offer.

Another type of alternative trading system, known as a "dark pool," doesn't show such information. Last month the SEC reached a $2 million settlement with Liquidnet Inc., which operates a dark pool system, for allegedly using customers' confidential trading data to market its services. Liquidnet also didn't admit or deny wrongdoing.

The SEC has put high-speed electronic trading and alternative trading systems under close scrutiny as they continue to play an increasing role in the market. SEC officials also have said the agency is seriously pursuing violations of market conduct rules.

SEC Chair Mary Jo White recently outlined new proposed rules intended to bolster market stability and fairness for investors. They include a measure to curb aggressive short-term trading tactics when the market is especially volatile.


Original headline: Citigroup unit paying $5M to settle SEC charges

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