SEC charges Citadel $7mn for RegSHO violations

The Securities and Exchange Commission (SEC) announced settled charges against broker-dealer Citadel Securities for violating a provision of Regulation SHO, the regulatory framework designed to address abusive short selling practices, which requires broker-dealers to mark sale orders as long, short, or short exempt.

These records are routinely used by regulators in policing prohibited short selling activity. To settle the SEC’s charges, Miami-based Citadel agreed to pay a $7 million penalty.

According to the SEC’s order, for a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa. The SEC’s order finds that the inaccurate marks resulted from a coding error in Citadel’s automated trading system and that the firm provided the inaccurate data to regulators, including the SEC during this period.

“Compliance with the order marking requirements of Reg SHO is a key component of regulatory efforts to curtail abusive market practices, including ‘naked’ short selling,” said Mark Cave, associate director of the SEC’s Division of Enforcement, in a statement. “This action against Citadel Securities demonstrates that a broker-dealer’s failure to comply with the requirements of Reg SHO can have negative downstream consequences on the accuracy of the firm’s electronic records, including its electronic blue sheet reporting, depriving the Commission of important information about the markets it regulates.”


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