South Korea has fined Citadel Securities for illegal stock trades made with high frequency algorithms. From a report out last night in Reuters:
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South Korea’s financial regulator has imposed a fine of 11.88 billion won ($9.66 million) on U.S.-based Citadel Securities, saying it disturbed the local stock market with high-frequency algorithm trading.
The Financial Services Commission (FSC) said in a statement released on Thursday the firm had distorted stock prices with artificial factors, such as orders on the condition of “immediate or cancel” and by filling gaps in bid prices.
These illegal trades were no isolated incident. Regulators found improper trades in thousands of stocks over a period of nearly a year:
The firm carried out such trading on an average of 1,422 stocks per day from Oct. 2017 to May 2018, totalling more than 500 billion won worth of trades, according to the statement.
Citadel’s illegal trades stand out as some of the most egregious ever in South Korea:
The Commission said it was the first time it had imposed fines on such high-frequency trading on the South Korean stock market, which has a high proportion of retail investors and little competition among algorithmic traders.
Citadel used strategies such as flash orders to gain an illegal advantage over other traders. This practice involves offering to buy or sell and then retracting the order in a fraction of a second.
Flash orders let you see the prices at which other traders are willing to buy or sell. This gives you an illegal edge over your competition.
In Korea, Citadel used these strategies to take advantage of mom and pop retail traders, which I find particularly heinous.
Citadel’s algos don’t stop in Korea.
The firm was recently fined by the US Financial Industry Regulatory Authority (FINRA) for frontrunning its customers. By placing trades ahead of customers, Citadel made money for its own account.
Breaking the law appears to be quite lucrative for Citadel.
Citadel Securities posted record revenues of $7.5 billion last year. Citadel’s hedge fund made even more, approximately $28 billion.
I think Citadel is using these illegal flash orders all over the world. They may also be using other illicit tactics we don’t know about yet.
After all, if you go to the trouble to create a program that can make you money, why not use it in as many places as possible?
The reality is that these speeding tickets will never stop Citadel. Fines in the millions are a cost of doing business for a multi-billion dollar operation.
Securities regulators worldwide should find out what exactly Citadel is doing in their markets. If they find more wrongdoing, they should simply ban the firm from trading for a period of years.
Nothing but a severe penalty will stop them.
Who says crime doesn’t pay?
What do you think is the future for Citadel? Leave a comment at the bottom and let me know!
More on markets:
Major Hedge Fund Down 54% — Survival in Doubt
Tiger Global Losing $185 Million a Day
As Fed Rates Peak, Are Markets Ready to Take Off?
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