Citigroup agreed to pay more than $12 million to settle a regulator’s claims that it misled investors who thought they were paying a premium to keep their trading activity shielded from interference by high-frequency traders, the Securities and Exchange Commission has announced.
In a civil action filed Friday, the S.E.C. said Citigroup had let two high-frequency trading entities have access to a trading venue called Citi Match, which it had billed as a safe space free of rapid-fire, computer-driven traders. The agency said the presence of the high-frequency traders might have translated into higher prices paid by its other customers.
The S.E.C. said Citigroup had failed to tell its customers about the high-frequency traders and, for more than two years, had sometimes routed their trades to venues other than Citi Match without notifying them.
Citigroup didn’t admit or deny wrongdoing as part of the settlement. “We are pleased to have the matter resolved,” a spokeswoman, Danielle Romero-Apsilos, said.
The S.E.C.’s action is the latest in a yearslong effort to force banks to be more straightforward about what happens inside the opaque trading venues they operate, known as dark pools. Citi Match is one such dark pool, designed to insulate big investment managers such as pension funds from activity that erodes their profits.
When these investors need to buy or sell large quantities of a stock, they often seek to hide their intentions from others in the market who could try to drive the price up or down ahead of their trades. In a dark pool, only the buyer and the seller see information about a particular trade. Citigroup advertised Citi Match as a venue offering investors protection and privacy.
“They’re basically saying, ‘There’s no predatory traders in our pool,’” said Dennis Dick, a trader at Bright Trading, a small firm in Las Vegas. Mr. Dick and traders like him have for years called on the S.E.C. to impose stricter regulations on high-frequency traders.
In 2016, the S.E.C. fined Barclays and Credit Suisse for similarly misleading their customers about dark pools.
“We need more disclosures on what’s happening in dark pools, because this just keeps happening again and again,” Mr. Dick said.
