By Sarah N. Lynch
WASHINGTON, March 18 A unit of Citigroup Inc will pay $1.1 million to settle civil charges it violated certain short-selling rules designed to reduce market manipulation risks, a Wall Street-funded regulator and BATS Global Markets said on Tuesday.
The Financial Industry Regulatory Authority (FINRA) said Citigroup Global Markets violated what is known as Rule 105 of "Regulation M," which prohibits a trader from shorting stock prior to a public offering, then buying the same stock through the offering.
Citigroup is settling the case without admitting or denying the charges. A spokeswoman said the company was "pleased to resolve" the matter.
Regulators including FINRA and the U.S. Securities and Exchange Commission have been on the prowl during the past year for short-selling violations under Regulation M.
Earlier this month, the SEC obtained a record $7.2 million sanction against a New York-based proprietary trading firm for similar violations.
Regulation M is intended to protect against potential market manipulation. But regulators do not need to prove a defendant intended to violate the rule in order to bring charges.
In the latest case, FINRA and BATS, an exchange operator, said Citigroup engaged in short-selling ahead of its participation in five public offerings between May 26, 2009 and Sept. 21, 2010.
They alleged that Citigroup bought more than 1.5 million shares after short-selling 313,890 shares during a restricted period of five business days, when such transactions are prohibited under Regulation M.