The TRADE 57 | Page 9

UPDATE REGULATION FIXED INCOME Citi fined $12 million for misleading investors about HFTs in its dark pool Good news for vendors as buy-side fixed income desks eye new tech platforms Citigroup has been fined $12 mil- lion after US regulators found it was misleading investors about high-frequency traders (HFTs) operating in its dark pool. The Securities and Exchange Commission (SEC) said in a statement that investors were ‘misled with assurances’ that HFTs were not allowed to trade in Citi Match, Citi’s premi- um-priced dark pool, via Citi Order Routing and Execution (CORE). In fact, the SEC found that two of Citi Match’s most active users qualified as HFTs and executed more than $9 billion of orders in the dark pool. “Market participants deserve to make informed decisions about where they execute their orders,” said Joseph Sansone, chief of the SEC enforcement di- vision’s market abuse unit. “All trading venues, regardless of their trade volume, must ensure that their users have accurate information, particularly about key issues like order routing.” Investors were misled about the HFTs operating in Citi’s dark pool for over two years, with almost half of all Citi Match orders being routed to and then executed in other d ark pools and exchanges, according to the SEC. A lmost two-thirds of European fixed income desks are con- sidering partnerships with at least three new platforms in the coming year, according to new research. The study from WBR found that heads of desks stated the need for new technologies in order “to meet best execution requirements and maintain a competitive edge”. When asked what new number of platforms and alternative technol- ogy solutions they were consider- ing in the next 12 months, almost two-thirds said three or more, with 36% saying they would look at one or two. The results showed that 10% said they would even consider over six new technology solutions. According to WBR, the aim of the research was to show how MiFID II has had an impact on trading practices and the emerging tech- nology requirements of European buy-side desks. “Buy-side desks are having to become more pro-active in their search for technology partners,” said Carl James, global head of fixed income trading, Pictet Asset Management, in the report. “At one level this is about an arms race for liquidity and survival.” When evaluating new platforms, the heads of fixed income surveyed ranked its ability to integrate with a desk’s existing technology as the most important factor, closely followed by the credibility of the provider behind the platform. Post-MiFID II, 30% respond- ed that click-to-trade protocols present the most promising opportunities for the buy-side, as more participants move beyond the established request for quote (RFQ) system. This was closely followed by 27% viewing stream- ing executable prices as the most promising trading protocol. “While most bond trades current- ly occur on RFQ, survey respon- dents expressed a clear preference for trading on firm prices,” said Ian Shea, head of European fixed income trading at Jane Street. “Whether it’s click to trade, streaming executable prices, or order books, two-thirds of all buy-side trader responses indicate a preference for seeing actionable prices before transacting.” Issue 57 // TheTradeNews.com // 9