The Federal Financial Supervisory Authority (BaFin) recently fined Citigroup Global Markets Europe AG 12,975,000 euros for violating the German Securities Trading Act. The company failed to have proper systems and risk controls in place to prevent erroneous orders and ensure trading thresholds and limits were appropriate in May 2022.

Citigroup Global Markets Europe AG outsourced its algorithmic trading monitoring and management system to Citigroup Global Markets Limited in London. However, the company is still responsible for designing its trading system effectively. A manual input error by one of the traders led to erroneous orders that disrupted the market.

It is crucial for investment firms engaged in algorithmic trading to have resilient systems, sufficient capacity, and appropriate risk controls. Overloaded trading systems can pose a significant risk to capital markets, and sending erroneous orders can create disorderly markets. Failure to have these systems in place violates the German Securities Trading Act and can result in hefty fines from BaFin.

Algorithmic trading involves using computer algorithms to automatically set order parameters, different from high-frequency trading where computers execute transactions without human intervention. High-frequency trading has additional requirements due to its nature.

Companies engaging in algorithmic trading must prioritize systemic stability and market integrity by implementing robust systems and risk controls. BaFin can impose fines on firms that do not comply with these obligations, with the maximum fine being 5 million euros or up to 10% of total revenue.

It is essential for investment firms to understand and adhere to regulatory requirements to avoid penalties and maintain market integrity. By implementing proper risk controls and monitoring systems, companies can prevent market disruptions and contribute to a stable trading environment.