FSA Sees Citigroup Bond Probe Ending This Year

by Robin Pilgrim, LawAndTax-News.com, London

06 October 2004

In an interview with Reuters this week, chairman of the UK's Financial Services Authority, Callum McCarthy suggested that a probe into a controversial transaction undertaken by Citigroup on the bond market earlier this year is likely to be concluded by the end of 2004.

On August 2, the US financial services group sold around EUR11 billion of euro-denominated government debt within minutes, causing the bonds to fall significantly in value, then bought many of them back soon afterwards, thus making a profit of between EUR10 million and EUR30 million.

According to the FSA, the trade in question caused other brokers substantial losses, as trading conventions oblige them to provide liquidity to the seller.

Asked by the news service whether he anticipated a similar situation arising with another firm in the future, Mr McCarthy commented:

"I hope not. I think that any firm that did it would form a view of the reaction that the second of August gave rise to, and would be extraordinarily ill-advised to go forward with it."

He went on to suggest that the FSA would consider pushing for the trading conventions to be enshrined in law in the UK, observing that:

"If they are important should they be more hardwired into the system or an they be left as part of the general ethos?"

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