Osaka Exchange, Inc. has imposed a hefty fine on Citigroup Global Markets Japan Inc. In addition, it is also requesting that the firm issues a business improvement report. The amount of the fine is JPY 20 million.
The Japan Exchange Regulation (JPX-R) spotted what it deemed as manipulation (or spoofing) of the OSE market, on Citigroup Global Markets’ part after a surveillance process. The alleged suspicious activity was related to the trading of Japanese government bond futures entrusted by Citigroup Global Markets Limited (CGML), which is a firm with headquarters in the UK, to Citigroup Global Markets Japan Inc, an OSE Trading Participant.
A Thorough Investigation
Last November, the exchange regulator offered further details of the issue to Global Markets Japan Inc. After assessing the case in detail, the JPX-R reported the results to the Securities and Exchange Surveillance Commission (SESC).
Using the JPX-R report, the SESC also looked at the case and concluded that the accused company incurred in market manipulation, which is banned by the Financial Instruments and Exchange Act (FIEA).
After a recommendation from the SESC on March 26 to issue a Monetary Penalty Payment Order, the Financial Services Agency, or FSA, decided in June to order Citigroup Global Markets Limited to pay JPY 133.37 million as an administrative monetary penalty.
The SESC concluded, after inspecting CGML with the base date on November 26, 2018, that the company in question committed what it called a legal violation, specifically a lack of trade surveillance with regards to the market transactions of derivatives.
Therefore, the SESC recommended to the FSA the imposition of administrative disciplinary action against the firm, a move that came to fruition in the month of June amid a lot of controversies.
Failure in the Delivery of Transaction Data
There was a failure in the delivery of transaction data conducted through Citigroup Global Markets Japan Inc.’s trading system, one that was jointly developed by the American branch of Citigroup, Inc. and a third-party vendor in the market transactions of derivatives field.
The failures were at the system programming level, which caused that some critical information, such as manually-operated bulk cancel orders and sliced orders of algorithmic trading, wasn’t delivered to the firm’s surveillance system. In other words, those transactions didn’t pass through the company’s trade surveillance.
Authorities have also determined that Citigroup Global Markets Japan Inc. inappropriately reduced the scope of trade surveillance in its trading surveillance system settings. In general, the firm was aware of these proceedings but didn’t do much to prevent them.