The Securities and Exchange Commission said on Friday that Citadel Securities LLC will pay $22.6 million to settle charges that its team that processes retail customer orders from other brokerage firms misled those customers about the way it priced trades. According to the SEC, Citadel Execution Services used two algorithms that did not take the other side of the retail orders, called internalization, at the best price observed nor did it seek the best price in the marketplace. That's despite telling broker-dealer clients that it either took the other side of the trade and provided the best price that it observed on various market data feeds or sought to obtain that price in the marketplace. Citadel Securities executes approximately 35% of the average daily volume of retail equity shares traded in the U.S. markets, according to the SEC's order. Citadel Securities has since discontinued use of the two algorithms which violated the law from late 2007 through January 2010. Citadel did not admit or deny the findings, but agreed to be censured and pay a penalty of $16 million, return $5.2 million in gains and pay interest of more than $1.4 million.
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