The Guardian: Citigroup's £7bn bond trade under investigation: The largest penalty it has ever handed to a firm was £17m to oil company Shell last month. (ShellNews.net)
Jill Treanor
Thursday August 19, 2004
Citigroup, the world's biggest bond broking firm, could face disciplinary action from the Financial Services Authority following an unprecedented £7bn trade in European government bonds this month.
The City regulator said it had decided to launch a formal investigation into "unusual trading activity" which took place on August 2 following its initial inquiries into the trades.
In a move which stunned its rivals and left many of them nursing heavy losses, the US financial firm sold 11bn (£7bn) of bonds in a few minutes, largely through an electronic trading system known as EuroMTS.
Citigroup is thought to have made a 12m profit when it bought back 4bn of the bonds around half an hour later when their price had fallen because of the pressure from its sell order.
The FSA made it clear that it did not just intend to look for specific breaches of its principles or rules, saying: "The FSA requires large players in financial markets to have regard to the likely consequences of their trading strategies in the market concerned [for example, the implications for liquidity, spreads and the market's general stability]".
"This is quite separate from whether or not specific FSA principles or rules have been infringed." It added that while its formal investigation might lead to disciplinary proceedings under the Financial Services & Markets Act 2000 no decision could be made until "all the facts are clear".
Citigroup has refused to discuss the motivation for the sale, other than to say that it would cooperate with the FSA investigation.
The trade is thought to have been executed by its trader Spiros Skordos. The bank would not comment on his status last night.
Francesco Margini, deputy chief executive of EuroMTS, said it too would cooperate with the FSA and "all relevant European regulators".
Officials from EuroMTS are thought to have met the FSA last week. As a result of the Citigroup trade it has limited the size of transactions that can be executed through its system, although its board is meeting on September 10 to decide whether the restrictions need to be maintained.
Citigroup's rivals - most of the City's major financial firms - are thought to believe that it breached an informal agreement not to place such large orders into the market.
Sources in the market believe that when Citigroup placed the orders on to the MTS system it must have known they would be immediately filled because of the way the market operated.
If the FSA establishes that Citigroup did not behave properly, it can issue a private warning or a public censure, including fines. The largest penalty it has ever handed to a firm was £17m to oil company Shell last month.
Citigroup is the world's biggest bank. It bought the investment banking arm of City firm Schroders four years ago.
http://www.guardian.co.uk/business/story/0,,1286124,00.html