In re CITADEL SECURITIES

 
 
 
 
 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98482 / September 22, 2023 
   
ADMINISTRATIVE PROCEEDING 
File No.  3-21703 
 
 
 
In the Matter of 
 
CITADEL SECURITIES, 
LLC,  
 
Respondent. 
 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT 
OF 1934, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS AND 
A CEASE-AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”) against Citadel Securities, LLC (“Respondent” or “Citadel Securities”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) that the Commission has determined to accept.  Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings, Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 
 

 
 
 
2 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that  
 
Summary 
 
1. This matter involves violations of the order-marking requirements of Regulation 
SHO by Citadel Securities in connection with its activities as a registered broker-dealer. Regulation 
SHO requires broker-dealers, such as Citadel Securities, to accurately mark all sell orders of equity 
securities as long, short, or short exempt.  Under Regulation SHO, sell orders may only be marked 
as long when the seller has a net long position in the particular security. During a five-year period 
from September 2015 through September 2020 (the “Relevant Period”), Citadel Securities 
inadvertently marked certain short sale orders as long sales, and long sales as short sales, while 
handling orders on behalf of its broker-dealer clients. As a result, an estimated millions of sell 
orders were mismarked.  
 
2.  The mismarking violations occurred as a result of a coding error in the logic used to 
compute Citadel Securities’s position calculated for Regulation SHO purposes when handling 
certain schedule-based not-held client orders filled on a riskless principal basis. To fill client orders 
on a riskless principal basis, Citadel Securities entered into two back-to-back trades—routing a 
principal order to the market (the “Street-Side Leg”) and entering into a contemporaneous offsetting 
trade with the client at the same price and size (the “Client-Side Leg”).  Citadel Securities filled 
certain not-held client orders on a riskless principal basis by placing multiple smaller orders (“child 
orders”).  As each Street-Side Leg of a child order was executed on the market, the firm executed 
with the client a corresponding and offsetting Client-Side Leg.  A limited set of clients requested 
that Citadel Securities defer transmitting execution reports to the client until, for instance, 
completion of the entire order had occurred, rather than report to the client each Client-Side Leg in 
real time.  With respect to this set of orders, Citadel Securities updated its internal position for the 
Street-Side Leg and reported the executions of this Leg to FINRA immediately.  However, as a 
result of a coding error in the system used for order marking, Citadel Securities delayed updating 
its position to account for the offsetting Client-Side Leg executions until the execution report was 
sent to the client.  This delay in updating the firm’s position created temporary inaccuracies in the 
firm’s calculation of its net position in affected securities for purposes of order marking.  This in 
turn resulted in inaccuracy in the marking of certain orders for the sale of securities in the same 
symbol as the affected security that the firm placed in the market during the period before the firm’s 
position was properly updated.  During the Relevant Period, the delay in updating the firm’s 
position in certain symbols lasted for minutes, and in some cases, up to several hours.  
 
3. Although the coding error did not impact Citadel Securities’s handling of client 
orders, it resulted in an intra-day inaccuracy in the firm’s proprietary position in the affected 
symbols that affected the marking of certain orders.  The coding error went undetected by the firm’s 
 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding.  
 

 
 
 
3 
existing order-marking policies and procedures for at least five years, until September 2020, when 
Citadel Securities discovered the error in connection with an internal regulatory compliance review 
and promptly corrected the relevant coding logic.  Because the delay caused by the coding error had 
the ability to affect the marking of orders placed in the impacted symbol during the time windows at 
issue, the coding error resulted in Citadel Securities mismarking numerous orders.  Although 
representing only a small fraction of the principal orders the firm placed in the market prior to 
correction of the coding error, there are estimated to have been millions of erroneously marked 
orders. 
 
4. As a result of this conduct, Citadel Securities violated Rule 200(g) of Regulation 
SHO.  
 
Respondent 
 
5. Citadel Securities LLC (“Citadel Securities”) is a Delaware limited liability 
company headquartered in Miami, Florida.  Citadel Securities has been registered with the 
Commission as a broker-dealer since 2002.  Citadel Securities is one of the largest broker-dealers 
in the U.S. equities markets—as of May 2023, Citadel Securities executed approximately 35% of 
all U.S.-listed retail volume and 22% of U.S. equities volume, across more than 11,000 U.S.-listed 
securities.   
 
 Facts 
 
Background 
 
6. Citadel Securities receives order flow from other broker-dealer clients, who may be 
acting on behalf of underlying institutional and retail customers. Citadel Securities, in turn, 
employs proprietary trading algorithms to determine whether to internalize an order in whole or in 
part (known as a “principal fill”) or whether to seek liquidity to fill the order in the market on a 
riskless principal basis. A riskless principal trade is one where a broker-dealer, after receiving a 
customer order to buy (or sell) a security, buys (or sells) the security at the same price, as principal, 
to satisfy the order. To that end, if Citadel Securities determines to fill an order received from a 
broker-dealer client on a riskless principal basis, it will first route to a market center one or 
multiple orders that collectively represent the terms of the underlying client order (the Street-Side 
Leg), and, upon each execution, will enter into an offsetting trade with its broker-dealer client at 
the same price and size (the Client-Side Leg).  
 
7. Citadel Securities handles a range of broker-dealer order flow, including (as is 
relevant here) not-held orders. Unlike a held order, a not-held order grants discretion to the broker-
dealer as to the time and price of execution.  In handling not-held order flow from its broker-dealer 
clients, Citadel Securities had and did exercise its discretion as to when to fill a particular order, and 
the time to fill a single order could range from minutes to hours over the course of a single trading 
day.  
 

 
 
 
4 
8. In handling larger orders, Citadel Securities typically divided the larger not-held 
“parent order” into smaller “child orders,” and then filled those child orders over the course of the 
trading day. A single parent not-held order handled on a riskless principal basis might take tens or 
even hundreds of individual child fills to fully execute. Because a single not-held order might 
involve the use of multiple child orders and therefore take up to several hours to execute, some of 
Citadel Securities’s broker-dealer clients instructed the firm to provide an execution report only 
when the transaction reached a preselected intra-day time interval or event, such as a single report 
when the entire not-held order had been completely filled. These broker-dealer clients requested 
such deferred reporting primarily to reduce the amount of electronic messaging traffic received from 
Citadel Securities. Citadel Securities referred internally to its not-held order flow where the client 
had requested a deferred execution report, as opposed to fill reports for each child order, as “roll-up” 
transactions.  
 
9. During the Relevant Period, Citadel Securities relied on several components of its 
automated trading systems to ensure that the firm properly marked orders consistent with the 
requirements of Regulation SHO. These various systems worked in tandem with one another to 
execute orders, calculate the firm’s position in each symbol, and mark orders consistent with 
Regulation SHO.  
 
Citadel Securities Erroneously Programmed its Position Calculation Systems Resulting in 
the Mismarking of Orders 
 
10. During the Relevant Period, Citadel Securities’s trading systems contained a coding 
error that resulted in Citadel Securities’s failure to timely calculate its aggregate firm-wide position 
when handling roll-up transactions on a riskless principal basis (the “Roll-up Issue”). The coding 
error specifically arose in the context of the Client-Side Legs of such transactions.  When 
conducting roll-up transactions, the firm’s systems executed both the Street-Side and Client-Side 
Legs of each transaction.  In connection with the Street-Side Leg, the position calculation was 
updated without delay. 
 
11. However, to accommodate client requests for roll-up transactions, Citadel Securities 
programmed its systems to handle the individual child fills from the Client-Side Leg of these 
transactions differently.  Citadel Securities continued to execute and report to FINRA the Client-
Side Legs immediately, but rather than transmit the execution data from each individual child fill 
to the firm’s position calculation system immediately upon its execution, Citadel Securities instead 
programmed its trading system to defer the transmission of the child fills, until the time or event 
interval requested by the client. The purpose behind this programming was to avoid triggering the 
issuance of an execution report to a client prior to the client’s requested time or event interval. 
 
12. Once the client’s requested interval was reached, the trading system was 
programmed to release the child fill executions to the firm’s position calculation system and the 
child fill executions were incorporated into the firm’s position.  The execution data was also 
transmitted to the client.   
 

 
 
 
5 
13. As a result of this coding error, minutes, and in some cases several hours, elapsed 
between the time the Client-Side Leg child fills were executed and the time that the executions 
reached Citadel Securities’s position calculation system.  While this delay did not benefit Citadel 
Securities or its trading strategies, it impacted Citadel Securities’s calculation of its position in its 
system used for purposes of marking orders. 
 
14. In instances where the firm’s inventory in an impacted symbol approached zero, 
Citadel Securities mismarked orders that, if executed, would have caused its position to cross 
zero.  The mismarks were not biased to cause short sales to be mismarked more than long sales 
and thus affected both long and short sale orders.  Although representing only a small fraction of 
the principal orders the firm placed in the market prior to correction of the coding error, there are 
estimated to have been millions of erroneously marked orders across the firm’s trading strategies, 
some of which were executed at market centers. 
 
Citadel Securities Did Not Detect the Coding Error and Resulting Order Mismarking for a 
Period of at Least Five Years 
 
15. During the Relevant Period, Citadel Securities had policies and procedures 
concerning compliance with Regulation SHO, including its order marking requirements. For 
instance, as part of the firm’s written supervisory procedures, Citadel Securities was required to 
conduct an annual review of its order-marking system—including its programming logic and 
implementation—to ensure its overall effectiveness and compliance with Regulation SHO. In 
addition, on a daily basis, Citadel Securities relied on, among other things, two automated 
surveillance tools—an end-of-day order marking report and an intraday order marking monitor. 
Both tools allowed Citadel Securities to identify mismatches between the real time order marks 
against an independently created marking position based on the firm’s official start of day 
position. 
 
16. Nevertheless, Citadel Securities’s application of policies and procedures did not 
detect either the coding error or the firm’s mismarking of orders as a result of the coding error.  
 
Citadel Securities Discovered the Coding Error and Order Mismarking in September 2020 
 
17. During the course of an internal regulatory compliance review, Citadel Securities 
employees discovered the coding error.  Three business days later, Citadel Securities employees 
implemented a fix to the error by reprogramming the firm’s systems to release Client-Side Leg 
child fills to its position calculation system immediately upon execution, while continuing to 
delay the release of execution reports in accordance with client requests.  Citadel Securities 
employees determined that the coding error potentially impacted the accuracy of certain of the 
firm’s order marks. 
 
Impact on Citadel Securities’s Submission of Electronic Bluesheet Data 
 
18. Section 17 of the Exchange Act imposes on broker-dealers recordkeeping and 
reporting requirements that are essential to the Commission’s ability to enforce the federal 

 
 
 
6 
securities laws. Among other things, Rule 17a-25 requires that broker-dealers submit securities 
transaction information electronically upon request by the Commission and other self-regulatory 
organizations (“SROs”), such as FINRA. 
19. During the Relevant Period, Citadel Securities submitted records of EBS Data in 
response to requests from the Commission and SROs.  In submitting data in response to such 
requests, Citadel Securities incorporated trade data that included order markings impacted by the 
above-mentioned conduct. 
Violations 
20. Rule 200(g) of Regulation SHO requires a broker or dealer to differentiate and 
mark orders in all securities “long,” “short,” or “short exempt.”  The broker or dealer may mark 
the sell order “long” only if the seller is deemed to own the security being sold, among other 
requirements.  As a result of the conduct described above, Citadel Securities willfully violated 
Rule 200(g) of Regulation SHO.
2
 
Citadel Securities’s Remedial Efforts and Cooperation 
21. In determining to accept the Offer, the Commission considered the remedial acts 
undertaken by Citadel Securities, which included provision to the Commission, in a manner the 
Staff deemed appropriate under the facts and circumstances of this matter, of order marking data 
previously submitted pursuant to Exchange Act Section 17(a)(1) and Rule 17a-25 thereunder for 
the securities transactions the Staff considers to have been impacted by the Roll-up Issue.  In 
addition, the Staff credited Citadel Securities for its cooperation during the investigation. 
Undertakings 
Respondent Citadel Securities has undertaken to do the following: 
1. Remediation of Citadel Securities’s Misprogramming: No later than the 
date of the filing of the order, Citadel Securities shall certify in writing that it 
has remediated the Roll-Up Issue. 
2. Review of Citadel Securities’s Trading Systems and Supervisory Policies 
and Procedures 
(a) Citadel Securities shall conduct a review of the firm’s order marking as it 
relates to the processing of roll-up orders (“the Review”). Specifically, the 
Review will involve an assessment of the computer programming and coding 
 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act, “‘means no more than 
that the person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) 
(quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement that the actor “also be aware 
that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).   
  

 
 
 
7 
logic involved in the processing of roll-up orders for order-marking purposes, 
including whether they operate as designed, to ensure compliance with Rule 
200(g) of Regulation SHO. Citadel Securities shall complete the Review within 
180 days of the entry of the Order.  
(b) Within 90 days of the completion of the Review, Citadel Securities shall 
submit to the Commission Staff a written report that describes the Review 
and documents how the firm’s order marking policies and procedures with 
respect to the processing of roll-up orders are reasonably designed to 
achieve compliance with Rule 200(g) (the “Roll-Up Report”). The Roll-Up 
Report shall identify changes made in connection with the Review, if any. 
3. Additional Requirements  
(a) When Citadel Securities’s Chief Compliance Officer concludes that, to the 
best of his or her knowledge based on reasonable inquiry, Citadel Securities 
has achieved all of the undertakings set forth in this Order, he or she shall 
certify in writing compliance with the undertakings set forth in Paragraphs 
2(a) and (b) above.  The certification shall identify the undertakings, provide 
written evidence of compliance in the form of a narrative, and be supported by 
exhibits sufficient to demonstrate compliance.  The certification and 
supporting material shall be submitted to D. Mark Cave, Associate Director, 
Division of Enforcement, Securities and Exchange Commission, 100 F Street, 
N.E., Washington, D.C. 20549, with a copy to the Office of Chief Counsel of 
the Enforcement Division, no later than sixty (60) days from the date of the 
completion of the undertakings. 
(b) For good cause shown, the Commission’s Staff may extend any of the 
procedural dates set forth above.  Deadlines for procedural dates shall be 
counted in calendar days, except that if the last day falls on a weekend or 
federal holiday, the next business day shall be considered to be the last day. 
(c) The periodic reviews and reports submitted by Citadel Securities will likely 
include confidential financial, proprietary, competitive business or commercial 
information.  Public disclosure of the reports could discourage cooperation, 
impede pending or potential government investigations or undermine the 
objectives of the reporting requirement.  For these reasons, among others, the 
reports and the contents thereof are intended to remain and shall remain non-
public, except (i) pursuant to court order, (ii) as agreed to by the parties in 
writing, (iii) to the extent that the Commission determines in its sole discretion 
that disclosure would be in furtherance of the Commission’s discharge of its 
duties and responsibilities, or (iv) as otherwise required by law. 
 
 

 
 
 
8 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondent Citadel Securities’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
A. Respondent Citadel Securities cease and desist from committing or causing any 
violations and any future violations of Rule 200(g) of Regulation SHO.   
 
B. Respondent Citadel Securities is censured. 
 
C. Respondent Citadel Securities shall, within 10 days of the entry of this Order, pay a 
civil money penalty in the amount of $7 million to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 
3717.   
 
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center  
Accounts Receivable Branch HQ Bldg., Room 181, AMZ-341  
6500 South MacArthur Boulevard  
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Citadel Securities as a Respondent in these proceedings, and the file number of these proceedings; 
a copy of the cover letter and check or money order must be sent to D. Mark Cave, Associate 
Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
Washington, DC 20549.   
 
D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes.  To preserve 
the deterrent  effect of the civil penalty, Respondent agrees that in any Related  Investor Action, it 

 
 
 
9 
shall  not  argue  that  it  is  entitled  to,  nor  shall  it  benefit  by,  offset  or  reduction  of  any  award  of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in this 
action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty Offset, 
Respondent agrees that it shall, within 30 days after entry of a final order granting the Penalty Offset, 
notify  the  Commission's  counsel  in  this  action  and  pay  the  amount  of  the Penalty  Offset  to  the 
Securities  and  Exchange  Commission.    Such  a  payment  shall  not  be  deemed  an  additional  civil 
penalty and shall not be deemed to change the amount of the civil penalty imposed in this proceeding.  
For purposes of this paragraph, a “Related Investor Action” means a private damages action brought 
against Respondent by or on behalf of one or more investors based on substantially the same facts 
as alleged in the Order instituted by the Commission in this proceeding. 
 
E. Respondent Citadel Securities shall comply with the undertakings enumerated above. 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
        Secretary 
 
 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 98482 / September 22, 2023 

   

ADMINISTRATIVE PROCEEDING 

File No.  3-21703 

 

 

 

In the Matter of 

 

CITADEL SECURITIES, 

LLC,  

 

Respondent. 

 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 15(b) AND 21C 

OF THE SECURITIES EXCHANGE ACT 

OF 1934, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER  

   

 

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”) against Citadel Securities, LLC (“Respondent” or “Citadel Securities”).   

 

II. 

 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) that the Commission has determined to accept.  Solely for the purpose 

of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 

which the Commission is a party, and without admitting or denying the findings herein, except as 

to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 

admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-

Desist Proceedings, Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, 

Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 

set forth below. 

 



 

 

 

2 

III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that  

 

Summary 

 

1. This matter involves violations of the order-marking requirements of Regulation 

SHO by Citadel Securities in connection with its activities as a registered broker-dealer. Regulation 

SHO requires broker-dealers, such as Citadel Securities, to accurately mark all sell orders of equity 

securities as long, short, or short exempt.  Under Regulation SHO, sell orders may only be marked 

as long when the seller has a net long position in the particular security. During a five-year period 

from September 2015 through September 2020 (the “Relevant Period”), Citadel Securities 

inadvertently marked certain short sale orders as long sales, and long sales as short sales, while 

handling orders on behalf of its broker-dealer clients. As a result, an estimated millions of sell 

orders were mismarked.  

 

2.  The mismarking violations occurred as a result of a coding error in the logic used to 

compute Citadel Securities’s position calculated for Regulation SHO purposes when handling 

certain schedule-based not-held client orders filled on a riskless principal basis. To fill client orders 

on a riskless principal basis, Citadel Securities entered into two back-to-back trades—routing a 

principal order to the market (the “Street-Side Leg”) and entering into a contemporaneous offsetting 

trade with the client at the same price and size (the “Client-Side Leg”).  Citadel Securities filled 

certain not-held client orders on a riskless principal basis by placing multiple smaller orders (“child 

orders”).  As each Street-Side Leg of a child order was executed on the market, the firm executed 

with the client a corresponding and offsetting Client-Side Leg.  A limited set of clients requested 

that Citadel Securities defer transmitting execution reports to the client until, for instance, 

completion of the entire order had occurred, rather than report to the client each Client-Side Leg in 

real time.  With respect to this set of orders, Citadel Securities updated its internal position for the 

Street-Side Leg and reported the executions of this Leg to FINRA immediately.  However, as a 

result of a coding error in the system used for order marking, Citadel Securities delayed updating 

its position to account for the offsetting Client-Side Leg executions until the execution report was 

sent to the client.  This delay in updating the firm’s position created temporary inaccuracies in the 

firm’s calculation of its net position in affected securities for purposes of order marking.  This in 

turn resulted in inaccuracy in the marking of certain orders for the sale of securities in the same 

symbol as the affected security that the firm placed in the market during the period before the firm’s 

position was properly updated.  During the Relevant Period, the delay in updating the firm’s 

position in certain symbols lasted for minutes, and in some cases, up to several hours.  

 

3. Although the coding error did not impact Citadel Securities’s handling of client 

orders, it resulted in an intra-day inaccuracy in the firm’s proprietary position in the affected 

symbols that affected the marking of certain orders.  The coding error went undetected by the firm’s 

 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 

other person or entity in this or any other proceeding.  
 



 

 

 

3 

existing order-marking policies and procedures for at least five years, until September 2020, when 

Citadel Securities discovered the error in connection with an internal regulatory compliance review 

and promptly corrected the relevant coding logic.  Because the delay caused by the coding error had 

the ability to affect the marking of orders placed in the impacted symbol during the time windows at 

issue, the coding error resulted in Citadel Securities mismarking numerous orders.  Although 

representing only a small fraction of the principal orders the firm placed in the market prior to 

correction of the coding error, there are estimated to have been millions of erroneously marked 

orders. 

 

4. As a result of this conduct, Citadel Securities violated Rule 200(g) of Regulation 

SHO.  

 

Respondent 

 

5. Citadel Securities LLC (“Citadel Securities”) is a Delaware limited liability 

company headquartered in Miami, Florida.  Citadel Securities has been registered with the 

Commission as a broker-dealer since 2002.  Citadel Securities is one of the largest broker-dealers 

in the U.S. equities markets—as of May 2023, Citadel Securities executed approximately 35% of 

all U.S.-listed retail volume and 22% of U.S. equities volume, across more than 11,000 U.S.-listed 

securities.   

 

 Facts 

 

Background 

 

6. Citadel Securities receives order flow from other broker-dealer clients, who may be 

acting on behalf of underlying institutional and retail customers. Citadel Securities, in turn, 

employs proprietary trading algorithms to determine whether to internalize an order in whole or in 

part (known as a “principal fill”) or whether to seek liquidity to fill the order in the market on a 

riskless principal basis. A riskless principal trade is one where a broker-dealer, after receiving a 

customer order to buy (or sell) a security, buys (or sells) the security at the same price, as principal, 

to satisfy the order. To that end, if Citadel Securities determines to fill an order received from a 

broker-dealer client on a riskless principal basis, it will first route to a market center one or 

multiple orders that collectively represent the terms of the underlying client order (the Street-Side 

Leg), and, upon each execution, will enter into an offsetting trade with its broker-dealer client at 

the same price and size (the Client-Side Leg).  

 

7. Citadel Securities handles a range of broker-dealer order flow, including (as is 

relevant here) not-held orders. Unlike a held order, a not-held order grants discretion to the broker-

dealer as to the time and price of execution.  In handling not-held order flow from its broker-dealer 

clients, Citadel Securities had and did exercise its discretion as to when to fill a particular order, and 

the time to fill a single order could range from minutes to hours over the course of a single trading 

day.  

 



 

 

 

4 

8. In handling larger orders, Citadel Securities typically divided the larger not-held 

“parent order” into smaller “child orders,” and then filled those child orders over the course of the 

trading day. A single parent not-held order handled on a riskless principal basis might take tens or 

even hundreds of individual child fills to fully execute. Because a single not-held order might 

involve the use of multiple child orders and therefore take up to several hours to execute, some of 

Citadel Securities’s broker-dealer clients instructed the firm to provide an execution report only 

when the transaction reached a preselected intra-day time interval or event, such as a single report 

when the entire not-held order had been completely filled. These broker-dealer clients requested 

such deferred reporting primarily to reduce the amount of electronic messaging traffic received from 

Citadel Securities. Citadel Securities referred internally to its not-held order flow where the client 

had requested a deferred execution report, as opposed to fill reports for each child order, as “roll-up” 

transactions.  

 

9. During the Relevant Period, Citadel Securities relied on several components of its 

automated trading systems to ensure that the firm properly marked orders consistent with the 

requirements of Regulation SHO. These various systems worked in tandem with one another to 

execute orders, calculate the firm’s position in each symbol, and mark orders consistent with 

Regulation SHO.  

 

Citadel Securities Erroneously Programmed its Position Calculation Systems Resulting in 

the Mismarking of Orders 

 

10. During the Relevant Period, Citadel Securities’s trading systems contained a coding 

error that resulted in Citadel Securities’s failure to timely calculate its aggregate firm-wide position 

when handling roll-up transactions on a riskless principal basis (the “Roll-up Issue”). The coding 

error specifically arose in the context of the Client-Side Legs of such transactions.  When 

conducting roll-up transactions, the firm’s systems executed both the Street-Side and Client-Side 

Legs of each transaction.  In connection with the Street-Side Leg, the position calculation was 

updated without delay. 

 

11. However, to accommodate client requests for roll-up transactions, Citadel Securities 

programmed its systems to handle the individual child fills from the Client-Side Leg of these 

transactions differently.  Citadel Securities continued to execute and report to FINRA the Client-

Side Legs immediately, but rather than transmit the execution data from each individual child fill 

to the firm’s position calculation system immediately upon its execution, Citadel Securities instead 

programmed its trading system to defer the transmission of the child fills, until the time or event 

interval requested by the client. The purpose behind this programming was to avoid triggering the 

issuance of an execution report to a client prior to the client’s requested time or event interval. 

 

12. Once the client’s requested interval was reached, the trading system was 

programmed to release the child fill executions to the firm’s position calculation system and the 

child fill executions were incorporated into the firm’s position.  The execution data was also 

transmitted to the client.   

 



 

 

 

5 

13. As a result of this coding error, minutes, and in some cases several hours, elapsed 

between the time the Client-Side Leg child fills were executed and the time that the executions 

reached Citadel Securities’s position calculation system.  While this delay did not benefit Citadel 

Securities or its trading strategies, it impacted Citadel Securities’s calculation of its position in its 

system used for purposes of marking orders. 

 

14. In instances where the firm’s inventory in an impacted symbol approached zero, 

Citadel Securities mismarked orders that, if executed, would have caused its position to cross 

zero.  The mismarks were not biased to cause short sales to be mismarked more than long sales 

and thus affected both long and short sale orders.  Although representing only a small fraction of 

the principal orders the firm placed in the market prior to correction of the coding error, there are 

estimated to have been millions of erroneously marked orders across the firm’s trading strategies, 

some of which were executed at market centers. 

 

Citadel Securities Did Not Detect the Coding Error and Resulting Order Mismarking for a 

Period of at Least Five Years 

 

15. During the Relevant Period, Citadel Securities had policies and procedures 

concerning compliance with Regulation SHO, including its order marking requirements. For 

instance, as part of the firm’s written supervisory procedures, Citadel Securities was required to 

conduct an annual review of its order-marking system—including its programming logic and 

implementation—to ensure its overall effectiveness and compliance with Regulation SHO. In 

addition, on a daily basis, Citadel Securities relied on, among other things, two automated 

surveillance tools—an end-of-day order marking report and an intraday order marking monitor. 

Both tools allowed Citadel Securities to identify mismatches between the real time order marks 

against an independently created marking position based on the firm’s official start of day 

position. 

 

16. Nevertheless, Citadel Securities’s application of policies and procedures did not 

detect either the coding error or the firm’s mismarking of orders as a result of the coding error.  

 

Citadel Securities Discovered the Coding Error and Order Mismarking in September 2020 

 

17. During the course of an internal regulatory compliance review, Citadel Securities 

employees discovered the coding error.  Three business days later, Citadel Securities employees 

implemented a fix to the error by reprogramming the firm’s systems to release Client-Side Leg 

child fills to its position calculation system immediately upon execution, while continuing to 

delay the release of execution reports in accordance with client requests.  Citadel Securities 

employees determined that the coding error potentially impacted the accuracy of certain of the 

firm’s order marks. 

 

Impact on Citadel Securities’s Submission of Electronic Bluesheet Data 

 

18. Section 17 of the Exchange Act imposes on broker-dealers recordkeeping and 

reporting requirements that are essential to the Commission’s ability to enforce the federal 



 

 

 

6 

securities laws. Among other things, Rule 17a-25 requires that broker-dealers submit securities 

transaction information electronically upon request by the Commission and other self-regulatory 

organizations (“SROs”), such as FINRA. 

19. During the Relevant Period, Citadel Securities submitted records of EBS Data in 

response to requests from the Commission and SROs.  In submitting data in response to such 

requests, Citadel Securities incorporated trade data that included order markings impacted by the 

above-mentioned conduct. 

Violations 

20. Rule 200(g) of Regulation SHO requires a broker or dealer to differentiate and 

mark orders in all securities “long,” “short,” or “short exempt.”  The broker or dealer may mark 

the sell order “long” only if the seller is deemed to own the security being sold, among other 

requirements.  As a result of the conduct described above, Citadel Securities willfully violated 

Rule 200(g) of Regulation SHO.2 

Citadel Securities’s Remedial Efforts and Cooperation 

21. In determining to accept the Offer, the Commission considered the remedial acts 

undertaken by Citadel Securities, which included provision to the Commission, in a manner the 

Staff deemed appropriate under the facts and circumstances of this matter, of order marking data 

previously submitted pursuant to Exchange Act Section 17(a)(1) and Rule 17a-25 thereunder for 

the securities transactions the Staff considers to have been impacted by the Roll-up Issue.  In 

addition, the Staff credited Citadel Securities for its cooperation during the investigation. 

Undertakings 

Respondent Citadel Securities has undertaken to do the following: 

1. Remediation of Citadel Securities’s Misprogramming: No later than the 

date of the filing of the order, Citadel Securities shall certify in writing that it 

has remediated the Roll-Up Issue. 

2. Review of Citadel Securities’s Trading Systems and Supervisory Policies 

and Procedures 

(a) Citadel Securities shall conduct a review of the firm’s order marking as it 

relates to the processing of roll-up orders (“the Review”). Specifically, the 

Review will involve an assessment of the computer programming and coding 

 
2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act, “‘means no more than 

that the person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) 

(quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement that the actor “also be aware 

that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).   
  



 

 

 

7 

logic involved in the processing of roll-up orders for order-marking purposes, 

including whether they operate as designed, to ensure compliance with Rule 

200(g) of Regulation SHO. Citadel Securities shall complete the Review within 

180 days of the entry of the Order.  

(b) Within 90 days of the completion of the Review, Citadel Securities shall 

submit to the Commission Staff a written report that describes the Review 

and documents how the firm’s order marking policies and procedures with 

respect to the processing of roll-up orders are reasonably designed to 

achieve compliance with Rule 200(g) (the “Roll-Up Report”). The Roll-Up 

Report shall identify changes made in connection with the Review, if any. 

3. Additional Requirements  

(a) When Citadel Securities’s Chief Compliance Officer concludes that, to the 

best of his or her knowledge based on reasonable inquiry, Citadel Securities 

has achieved all of the undertakings set forth in this Order, he or she shall 

certify in writing compliance with the undertakings set forth in Paragraphs 

2(a) and (b) above.  The certification shall identify the undertakings, provide 

written evidence of compliance in the form of a narrative, and be supported by 

exhibits sufficient to demonstrate compliance.  The certification and 

supporting material shall be submitted to D. Mark Cave, Associate Director, 

Division of Enforcement, Securities and Exchange Commission, 100 F Street, 

N.E., Washington, D.C. 20549, with a copy to the Office of Chief Counsel of 

the Enforcement Division, no later than sixty (60) days from the date of the 

completion of the undertakings. 

(b) For good cause shown, the Commission’s Staff may extend any of the 

procedural dates set forth above.  Deadlines for procedural dates shall be 

counted in calendar days, except that if the last day falls on a weekend or 

federal holiday, the next business day shall be considered to be the last day. 

(c) The periodic reviews and reports submitted by Citadel Securities will likely 

include confidential financial, proprietary, competitive business or commercial 

information.  Public disclosure of the reports could discourage cooperation, 

impede pending or potential government investigations or undermine the 

objectives of the reporting requirement.  For these reasons, among others, the 

reports and the contents thereof are intended to remain and shall remain non-

public, except (i) pursuant to court order, (ii) as agreed to by the parties in 

writing, (iii) to the extent that the Commission determines in its sole discretion 

that disclosure would be in furtherance of the Commission’s discharge of its 

duties and responsibilities, or (iv) as otherwise required by law. 

 

 



 

 

 

8 

IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest to 

impose the sanctions agreed to in Respondent Citadel Securities’s Offer. 

 

 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 

ORDERED that: 

 

A. Respondent Citadel Securities cease and desist from committing or causing any 

violations and any future violations of Rule 200(g) of Regulation SHO.   

 

B. Respondent Citadel Securities is censured. 

 

C. Respondent Citadel Securities shall, within 10 days of the entry of this Order, pay a 

civil money penalty in the amount of $7 million to the Securities and Exchange Commission for 

transfer to the general fund of the United States Treasury, subject to Exchange Act Section 

21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 

3717.   

 

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center  

Accounts Receivable Branch HQ Bldg., Room 181, AMZ-341  

6500 South MacArthur Boulevard  

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Citadel Securities as a Respondent in these proceedings, and the file number of these proceedings; 

a copy of the cover letter and check or money order must be sent to D. Mark Cave, Associate 

Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 

Washington, DC 20549.   

 

D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 

treated as penalties paid to the government for all purposes, including all tax purposes.  To preserve 

the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it 

http://www.sec.gov/about/offices/ofm.htm


 

 

 

9 

shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 

compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in this 

action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty Offset, 

Respondent agrees that it shall, within 30 days after entry of a final order granting the Penalty Offset, 

notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the 

Securities and Exchange Commission.  Such a payment shall not be deemed an additional civil 

penalty and shall not be deemed to change the amount of the civil penalty imposed in this proceeding.  

For purposes of this paragraph, a “Related Investor Action” means a private damages action brought 

against Respondent by or on behalf of one or more investors based on substantially the same facts 

as alleged in the Order instituted by the Commission in this proceeding. 

 

E. Respondent Citadel Securities shall comply with the undertakings enumerated above. 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

        Secretary