The Financial Industry Regulatory Authority (FINRA) and BATS Exchange1,
Inc. announced today that they have jointly ordered Citigroup Global
Markets Inc. to pay approximately $1.1 million in connection with short
selling ahead of participating in five public offerings of securities,
in violation of Rule 105 of Regulation M. The payments include the
disgorgement of more than $538,000, plus interest, of profits and
improper financial benefits, and approximately $559,000 in fines.
Citigroup also violated supervisory requirements related to Rule 105;
and as part of the sanction, the firm was ordered to update its written
supervisory procedures for Rule 105 compliance.
Rule 105 of Regulation M under the Securities Exchange Act of 1934
generally prohibits buying securities in secondary offerings when the
purchaser sold short the security that is the subject of the offering
during a specific restricted period - typically five business days -
before the secondary offering is priced.
From May 26, 2009, to September 21, 2010, Citigroup sold securities
short within the five business days leading up to the pricing of five
public offerings in those securities, and then purchased securities in
those offerings. Citigroup purchased a total of more than 1.5 million
shares after having sold short 313,890 shares of the securities within
the five business days leading up to the offerings.
Thomas Gira, FINRA Executive Vice President, Market Regulation, said,
"Rule 05 of Regulation M remains vital to protecting the integrity of
the offering process by prohibiting firms from engaging in certain
prohibited activities before the pricing of secondary offerings. FINRA
will continue to aggressively monitor firms for adherence to Rule 105's
requirements and adequate supervisory systems to ensure such compliance."
In concluding this settlement, Citigroup neither admitted nor denied the
charges, but consented to the entry of FINRA and BATS' findings.
 The settlement with BATS will become
final and conclusive on April 9, 2014, unless called for review pursuant
to BATS Rule 8.10(c).
FINRA, the Financial Industry Regulatory Authority, is the largest
independent regulator for all securities firms doing business in the
United States. FINRA is dedicated to investor protection and market
integrity through effective and efficient regulation and complementary
compliance and technology-based services. FINRA touches virtually every
aspect of the securities business - from registering and educating all
industry participants to examining securities firms, writing rules,
enforcing those rules and the federal securities laws, informing and
educating the investing public, providing trade reporting and other
industry utilities, and administering the largest dispute resolution
forum for investors and firms. For more information, please visit www.finra.org.
About BATS Global Markets, Inc.
BATS Global Markets, Inc. is a leading global operator of securities
markets, committed to Making Markets Better for traders, investors and
issuers. In the U.S., BATS operates four stock exchanges - BZX, BYX,
EDGX and EDGA - and regularly ranks as the top market for ETF and
retail-driven liquidity. The company is an important listing venue for
ETFs and other structured products and also operates BATS Options, a
U.S. equity options market. In Europe, BATS operates the largest
pan-European equities exchange, offering trading and listing services
across 15 major European markets. With its world-class proprietary
technology and relentless customer focus, BATS strives to bring
efficiency, transparency and fairness to market participants. The
company is headquartered in Kansas City with offices in the New York
area and London. Further information on BATS can be found at www.bats.com
and by following us on Twitter @BATSGlobal.
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