FT.com / Industries / Financial services - Citigroup trades spark call for EU regulation

FT.com / Industries / Financial services - Citigroup trades spark call for EU regulation

Citigroup trades spark call for EU regulation
>By Päivi Munter in London
>Published: February 7 2005 19:33 | Last updated: February 7 2005 19:33

Citigroup's controversial eurozone government bond trades, which are currently being investigated by several European watchdogs, have sparked calls for Europe-wide regulation in the market.

Pervenche Bères, who chairs the European Parliament's influential committee on economic and monetary affairs, on Monday told the Financial Times that co-ordination among the national regulators in the Citigroup case was lacking and had highlighted the need for a regulator with Europe-wide powers.

"You can't have a single market without a lead regulator overseeing it," Ms Bères said.

Eurozone governments issue most of their debt in euros but supervision of the euro market is in the hands of national regulators.

The comments follow the publication in the FT last week of an internal Citigroup memorandum, which was dated two weeks before the August trades. It outlined an aggressive strategy to increase the bank's profits by destabilising the eurozone government bond futures market and "killing off" smaller rivals.

The revelation prompted a call by Jean-Claude Trichet, the president of the European Central Bank, for a thorough and deep investigation.

On August 2, Citigroup stunned the eurozone bond market by selling about €12bn ($15.3bn) of the paper within seconds, only to buy back €4bn of it at lower prices slightly later. The selling orders, which ran into tens of billions of euros, overwhelmed the electronic MTS trading system and angered eurozone governments.

Investigations into the trades, which also involved transactions in German government bond futures on the Frankfurt-based Eurex exchange, are being led by BaFin of Germany and the UK's Financial Services Authority. Parallel inquiries are being conducted in several other European countries.

Last month, BaFin said it had found evidence that Citigroup manipulated the Eurex futures market, the benchmark for eurozone government bonds, and moved the case to prosecutors in Frankfurt. The prosecutor has said it expects to conclude preliminary inquiries centring on six traders by next month, after which it would decide whether to charge them.

The FSA, which supervises the UK-based EuroMTS trading platform, is yet to announce the outcome of its formal investigation.

Ms Bères said the case had raised concerns about the level of financial market regulation in the UK. The FSA would say only that its investigation continued.

Dealers in eurozone government bonds are anxiously awaiting the results of the inquiries.


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