Germany Imposes ₹1,038 Crore Fine On Citigroup For Trading Control Failures

The breaches pertain to incidents in May 2022, where Citigroup Global Markets Europe AG failed to maintain appropriate systems and risk controls for its trading activities. These failures resulted in the firm not meeting required trading thresholds and limits, which are vital to maintaining market order and integrity. Specifically, a manual input error by one of the firm's traders went undetected by the trading system which led to erroneous orders that disrupted the market.

The manual error and subsequent system failure caused a significant market disruption, manifesting as a flash crash that rippled across European stock markets. The disruption highlighted the potential dangers of inadequate trading system controls.

Algorithmic trading involves using computer algorithms to automate trading processes, which can differ significantly from high-frequency trading where transactions occur at extremely high speeds without human intervention.

The order stated:

“Investment firms engaged in algorithmic trading, like Citigroup Global Markets Europe AG, are required to have certain systems and risk controls in place. In algorithmic trading, a computer algorithm automatically sets individual order parameters. Algorithmic trading differs from high-frequency algorithmic trading (i.e. high- frequency trading), in which high-performance computers carry out securities transactions without human intervention.”

What is German Securities Trading Act?

The German Securities Trading Act regulates securities trading to ensure the transparency and integrity of financial markets. The law sets out rules governing financial services firms, including banks, investment firms, and other entities involved in securities trading. The law empowers regulatory authorities, such as the Federal Financial Supervisory Authority (BaFin), to supervise compliance with its provisions. BaFin has the authority to impose sanctions, including fines and other administrative measures, on firms and individuals found in breach of the law.

Is there a similar law in India?

India has a similar law that regulates securities trading and financial markets. The primary legislation governing securities trading in India is the Securities Contracts (Regulation) Act, 1956 (SCRA). The SCRA provides for the regulation of transactions in securities through recognized stock exchanges in India.

The Securities and Exchange Board of India Act, 1992 (SEBI Act) established the Securities and Exchange Board of India (SEBI) as the primary regulatory authority for the securities market in India. SEBI regulates stock exchanges, intermediaries, and other participants in the securities market.

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