SEC fines Citigroup broker-dealer $7 million for trade reporting software fault

Coding error caused CGMI to omit blue sheet reports for trades, and failed to produce data for “many years”, leading to record fine.

The US Securities and Exchange commission (SEC) has fined Citigroup’s broker-dealer subsidiary CGMI a record $7 million dollars for failing to submit accurate data in response to its electronic blue sheet (EBS) requirement.

A software error resulted in Citigroup Global Markets, Inc. (CGMI) failing to submit reports for 26,810 securities trades over a 15 year period to 2014. CGMI’s management failed to report the errors until nine months after the firm discovered them.

Electronic blue sheets are the SEC’s universal reporting format used by financial firms to record trade information such as the time and the type of trade, the number of securities traded and the price of a trade. The SEC regularly requests trading records in this format and financial firms have automated systems in place to create and submit reports in response. An error in the code of Citigroup’s blue sheet reporting system caused it to misidentify and ignore a large number of trades which were then not reported to the SEC.

The software bug dated back to 1998 when CGMI introduced alphanumeric branch codes to accommodate the growing number of its branches across the United States. Trades used for testing the system were assigned branch code digits ranging from “089” to “100”, however the firm’s reporting system was not updated to reflect this change and as a result the system could not distinguish between the codes used for testing and newly-introduced alphanumeric branch codes. Trades that used the mis-identified alphanumeric codes were treated as tests, and were not reported to the SEC.

The SEC report went on to say that: “CGMI failed to discover the coding error because it did not have in place a reasonable process to check the accuracy and completeness of its EBS submissions.”

The coding error was discovered in 2014 when the SEC sent a large request for trade data. The CGMI’s Institutional Client Group Operations team requested help from technical support help to correctly input the trades in the reporting system. They noticed that one of the trades executed was excluded from the reporting system, which then led to the discovery of the bug.

According to the SEC, Citigroup only reported the error in January 2015, nine months after the software bug had been discovered. The SEC concluded in its report on its fine that: “CGMI’s failure to discover the coding error and to produce the missing data for many years potentially impacted numerous Commission investigations.”

While the SEC’s $7 million fine is a record for failure to correctly report blue sheet data, last year Credit Suisse and OZ Management LP were also fined $4.5 million each for similar omissions.

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