FCA fines CGML £27,766,200 for failures in its trading systems and controls

Failures in the firm’s systems and controls led to US$1.4bn of equities being sold in European markets when they should not have been.

On 2 May 2022, a CGML trader had intended to sell a basket of equities to the value of US$58m. The trader made an inputting error while entering the basket in an order management system. This resulted in a basket to the value of US$444bn being created.

CGML controls blocked US$255bn of the basket progressing, but not the remaining US$189bn which was sent to a trading algorithm. The algorithm selected was designed to place portions of this total order to be sold in the market over the rest of the day.

In total US$1.4bn of equities were sold across European exchanges, before the trader cancelled the order. This coincided with a material short-term drop in some European indices which lasted a few minutes. 

While parts of CGML’s trading control framework operated as CGML expected, some primary controls were absent or deficient. In particular, there was no hard block that would have rejected this large erroneous basket of equities in its entirety and prevented any of it reaching the market.

Due to poor design, the trader was also able to manually override a pop-up alert, without being required to scroll down and read all the alerts within it. The firm’s real-time monitoring was ineffective, which meant that it was too slow to escalate internal alerts about the erroneous trades.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: ‘The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring.

‘These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets.’

CGML did not dispute the FCA’s findings and agreed to settle, which means it has qualified for a 30% discount. Without this discount, the amount of financial penalty imposed by the FCA would have been £39,666,000.

On 22 May 2024, the Prudential Regulation Authority (PRA) also imposed a financial penalty of £33,880,000 on CGML following its own investigation into related matters.

Notes to editors

1. Read the FCA’s Final Notice to CGML[1].

2. Read the PRA’s Final Notice to CGML[2].

3. The FCA found that CGML breached the following during the relevant period: 

   • Principle 2 of the FCA Handbook[3] (requires a firm to conduct its business with due skill, care, and diligence)
   • Principle 3 of the FCA Handbook[3] (requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems)
   • Rule 7A.3.2[4] of the Market Conduct part of the FCA’s handbook known as MAR (requires firms that engage in algorithmic trading to have in place effective systems and controls, suitable to the business it operates)

4. CGML is regulated by the Prudential Regulation Authority (PRA) for prudential purposes and by the Financial Conduct Authority (FCA) for conduct matters. 

5. Read the FCA’s approach to enforcement[5].

6. Read the FCA enforcement information guide[6].

7. Read the PRA’s statutory supervisory powers[7].

8. Read the PRA’s approach to enforcement[8].