Citadel Securities has agreed to pay almost $100m to Chinese authorities in a settlement over alleged trading rule violations, ending a probe launched five years ago in the middle of a stock market rout.
The China Securities Regulatory Commission said on Monday it had agreed settlements with four local institutional investors and Citadel Securities, the market maker controlled by US hedge fund billionaire Ken Griffin. The regulator has now lifted a suspension on a Citadel Securities trading account imposed in 2015, according to a person familiar with the details.
The CSRC said the penalties were “based on differing circumstances, such as the amount of money made through the suspected illegal acts”, without providing further details on the alleged violations. Citadel’s Rmb670m ($97m) settlement is more than 40 times the combined Rmb15.2m paid by the four domestic groups.
The regulator said the companies had “taken necessary measures to strengthen internal controls,” and that it had “terminated investigations into the applicants’ relevant behaviour”.
Citadel’s hedge fund and separate market-making business specialise in algorithmic trading, which came under fire from regulators during a stock market rout in China in 2015. The markets regulator suspended a trading account operated in Shanghai by Citadel Securities in August of that year. The regulator then launched an investigation into “malicious short selling” in China’s equity futures market, closing 24 trading accounts that had allegedly “influenced securities prices or investor decisions”.
The regulator at the time expressed concerns over “spoofing”, in which investors place a buy or sell order but withdraw it before the transaction is done in order to manipulate prices. It also criticised algorithmic trading for intensifying market swings during the rout, which eventually sliced off more than Rmb24tn from China’s total market capitalisation. Other analysts said the more likely culprit for the sell-off was an official clampdown on margin lending, where investors borrow money from brokerages to buy stocks.
Citadel Securities said it had “worked closely with the CSRC through the reconciliation process” to reach the agreement. “Constructive resolution of this matter was important to Citadel Securities as China continues to expand opportunities for foreign participation in its financial markets.”
One trader at a Chinese brokerage described the settlement as an olive branch to foreign investors, adding that the markets regulator “needs to get comfortable dealing with very active, large-volume investors” as it opens up its markets further to global asset managers.