UK- The Financial Services Authority has fined Citigroup Global Markets Limited (CGML) £13.9m over its trading activities in the European government bond and derivatives markets in August, 2004.
The regulator said the group had failed to conduct its business with due skill, care and diligence and had not controlled its business effectively.
The FSA found that CGML executed a trading strategy on the European government bond markets on 2 August, 2004, which involved the firm building up and then rapidly exiting from very substantial long positions in European government bonds over a period of an hour.
The trade caused a temporary disruption to the volumes of bonds quoted and traded on the MTS platform, a sharp drop in bond prices and a temporary withdrawal by some participants from quoting on that platform.
Hector Sants (pictured), FSA managing director for wholesale business, said: “The FSA views firms' adherence to its principles as fundamental in helping to maintain efficient, orderly and fair markets.
CGML planned, authorised and executed a trading strategy without having due regard to the risks and likely consequences of its action for the efficient and orderly operation of the MTS platform.
“Furthermore the lack of adequate systems and controls meant that the strategy was never fully considered, as would be expected, at an appropriate senior level within CGML.
The FSA expects high standards from all its regulated firms but especially from firms such as CGML, whose size and resources allow them to trade in large volumes and take significant risks.
Citigroup confirmed it would pay £4m (US$ 7.29m) to the FSA. The firm also agreed to relinquish to the FSA approximately £9.96m (US$ 18.15m) in profits generated by the trade. William J. Mills, chairman and CEO of corporate and investment banking for Citigroup in EMEA, and Tom Maheras, CEO of global capital markets, commented: “Today’s decision confirms our position that the trade did not breach rules of market conduct.
“However, we regret that this trade took place because it did not meet our high standards and consequently caused damage to Citigroup’s reputation.” Robert Druskin, president and CEO of corporate and investment banking, added: “Our colleagues in Europe and around the world have responded quickly and effectively in improving controls around escalation and training so that the broader ramifications for a trade such as this will always be escalated appropriately and considered properly.”
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