Citadel nears SEC settlement over customer orders -sources

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By Charles Levinson | NEW YORK

NEW YORK 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, who 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 Plc and Credit Suisse Group AG 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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