The Financial Industry Regulatory Authority (Finra) Monday fined Citi International Financial Services LLC, a subsidiary of Citigroup Inc., $600,000 for charging customers excessive markups and markdowns on corporate and agency bond transactions, as well as related supervisory violations, officials said.
Finra has also ordered Citi to pay more than $648,000 in restitution and interest to more than 3,600 customers.
In concluding the settlement, Citi International neither admitted nor denied Finra's charges. Finra claims that from July 2007 through September 2010, Citi International charged excessive corporate and agency bond markups and markdowns that ranged from 2.73 percent to over 10 percent. Finra claims that they were excessive given market conditions, the cost of executing the transactions and the value of the services rendered to the customers, among other factors.
In addition, Finra officials say that from April 2009 through June 2009, Citi International failed to use reasonable diligence to buy or sell corporate bonds so that the resulting price to its customers was as favorable as possible under market conditions. During that period, Citi International's supervisory system that it used to oversee its fixed-income transactions contained significant deficiencies in its review of markups and markdowns below 5 percent, and the use of a pricing grid for markups and markdowns that was based on the par value of the bonds, instead of the actual value of the bonds.
Finra has also ordered Citi International to revise its written supervisory procedures regarding supervisory review of markups and markdowns, and best execution in fixed income transactions with its customers.
"Citi International's markups and markdowns were outside of appropriate standards for fair pricing in debt transactions," said Thomas Gira, executive vice president, Finra Market Regulation in a prepared statement.