Citadel Securities LLC, Settled Charges for Violating Regulation SHO

Abusive Short Selling

The Securities and Exchange Commission (SEC) has announced that Citadel Securities LLC, a broker-dealer based in Miami, has settled charges for violating a provision of Regulation SHO. Regulation SHO is a regulatory framework designed to address abusive short selling practices and requires broker-dealers to accurately mark sale orders as long, short, or short exempt. These marks are crucial for regulators to monitor and prevent prohibited short selling activity.

According to the SEC's order, Citadel Securities incorrectly marked millions of orders over a five-year period, inaccurately designating certain short sales as long sales and vice versa. The inaccuracies were attributed to a coding error in Citadel Securities' automated trading system, and the firm provided this inaccurate data to regulators, including the SEC, during this period.

Mark Cave, Associate Director of the SEC's Division of Enforcement, emphasized the importance of compliance with the order marking requirements of Regulation SHO. He noted that these requirements are critical for regulatory efforts to prevent abusive market practices, including "naked" short selling. The SEC's action against Citadel Securities underscores the potential negative consequences when a broker-dealer fails to comply with Regulation SHO requirements. Such failures can impact the accuracy of the firm's electronic records, including electronic blue sheet reporting, which provides essential information for regulating the markets.

The SEC's order charges Citadel Securities with violating Rule 200(g) of Regulation SHO. Without admitting or denying the findings, Citadel Securities agreed to a settlement, which includes:

1. A cease-and-desist order.

2. A censure.

3. Payment of a $7 million penalty.

4. A series of undertakings, which includes providing a written certification that the coding error has been remediated and conducting a review of the firm's computer programming and coding logic involved in processing relevant transactions.

This settlement serves as a reminder of the SEC's commitment to enforcing regulations that ensure the integrity and transparency of financial markets.

Notes:

SEC Charges Citadel Securities for Violating Order Marking Requirements of Short Sale Regulations