Griffin's Citadel Nears Settlement with SEC Regarding Market-Making Allegations

Jan 12 2017 | 11:38pm ET

By Charles Levinson (Reuters) - Citadel LLC has agreed to settle accusations by the U.S. Securities and Exchange Commission that its market-making arm misled customers about the routing of their stock orders, people familiar with the case told Reuters this week.

SEC commissioners were expected to vote to approve the settlement during their Thursday afternoon meeting, said two sources, which were not authorized to speak publicly about the matter.

Terms of the settlement, including the specifics of the SEC's allegations and the amount of any fine, were not immediately known.

SEC spokeswoman Judith Burns declined to comment.

The settlement would cap a years-long probe into whether Citadel misled customers about how it executed stock orders on their behalf, resulting in them not getting the best available price for shares they wanted buy or sell, the sources said.

SEC rules require U.S. brokers to seek the "best execution reasonably available" on stock orders, a standard meant to ensure that all customers get a favorable price and a swift trade.

Citadel, run by Chicago billionaire Ken Griffin, is better known for its hedge fund businesses, which are not related to the SEC's probe. Its expected settlement relates to activities conducted during 2010 and before, the sources said.

Citadel's is the latest in a string of SEC settlements with firms over routing practices.

In December, Deutsche Bank AG agreed to pay the SEC $18.5 million to settle accusations that it misled customers about the routing of their stock orders. In January 2016, Barclays and Credit Suisse Group paid fines of $35 million and $54 million, respectively, to the SEC to settle similar charges.

The SEC turned its attention to order routing at Citadel and other high-speed trading firms after the "flash crash" of 2010, when markets suddenly plunged and quickly rebounded. A study commissioned by U.S. regulators later found that high-speed trading contributed to the crash.

The SEC is stepping up its scrutiny of such firms. Its Office of Compliance Inspections and Examinations is conducting a sweep across numerous firms, inspecting their order routing practices, the sources said.

Citadel's order routing practices are also under investigation by the U.S. Department of Justice, Reuters reported in May.

Amid the government probes, the Chicago-based firm has hired several people linked to regulators' market surveillance efforts.

In June, Citadel hired Glen Nixon, who previously headed a platform called Midas that the SEC purchased to keep tabs on high-frequency traders after the flash crash. The same month, it hired John Malitzis from the Financial Industry Regulatory Authority (FINRA), where he was executive vice president for market regulation.

In September, Citadel hired former SEC Trading and Markets division regulator Gregg Berman, who had been one of the agency's lead investigators into the causes of the flash crash. Citadel also hired another former senior FINRA regulator, Nick Maslavets, who had headed a surveillance unit at that agency.


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