WASHINGTON - The Financial Industry Regulatory Authority fined Citigroup Global Markets $2 million yesterday for a series of multi-year trade reporting violations that included stocks, corporate debt, and more than 480,000 municipal transactions.
The self-regulator also censured and imposed a $10,000 fine on the Jeffrey Matthews Financial Group LLC in Millburn, N.J., for failing to provide customers with accurate worst yield-to-call information - the lowest current yields taking call dates into account - on their muni bonds.
FINRA announced the fine against Citi, with Tom Gira, the executive vice president of its market regulation department, warning: "Firms must establish and maintain operational controls and supervisory systems reasonably and effectively designed to ensure that their trading systems function correctly."
Although many of Citi's violations were for stocks or corporate debt, FINRA found that from July 1, 2002, through Sept. 30, 2006, the firm failed to report whether it was acting as a principal or an agent in 200,417 reports of municipal trades and did not report at all another 280,332 muni trades. In addition, Citi improperly reported information that it should not have in 1,773 instances. The failures violated the Municipal Securities Rulemaking Board's Rule G-14 on trade reporting, FINRA said.
The self-regulator also found that Citi failed to establish supervisory procedures that were reasonably designed to ensure compliance with Rule G-14, thereby violating the MSRB's Rule G-27 on supervision.
"Citi has taken proactive remedial steps to prevent a recurrence of these systems issues, and we are pleased to have resolved these matters," a spokesman for the firm said.
The sanction against JMFG was announced in FINRA's monthly disciplinary actions released yesterday. FINRA reviewed 146 transactions that the firm reported with a negative yield during the second quarter of 2007, and found that it failed in 15, or 60%, of 25 transactions sampled, to disclose to the customer the correct lowest effected yield-to-call.
During the first quarter of 2008, FINRA reviewed 25 of 141 transactions that JMFG reported with a negative yield and found the firm failed to report the correct lowest yield-to-call for 19, or 76%, of those. These failures violated the MSRB's Rule G-15 on confirmation, clearance, settlement, and other uniform practice requirements with respect to transactions with customers.
In a "statement of corrective action," Janene M. Marasciullo, a partner with Kaufman Dolowich & Voluck LLP, representing the firm, noted that JMFG's prior clearing firm, National Financial Services, had difficulty calculating the worst yield-to-call and displaying that information on customer confirmations.
As a result, the firm asked its brokers to note the worst yield-to-call on their trade tickets before submitting them to the desk so that the desk could verify the information and report it to the MSRB.
But the firm then discovered that there had been a misunderstanding about the need to report this information to institutional customers.
