Citigroup Global Markets Limited

On 28 June 2005, the Financial Services Authority imposed a financial penalty on Citigroup Global Markets Limited (CGML) for breaching FSA Principles 2 and 3 by failing to conduct its business with due skill, care and diligence and failing to control its business effectively. The penalty consisted of two elements 1) a relinquishment of profits of £9,960,860 and 2) an additional penalty of £4 million. A summary of the decision is set out below. Full details of the decision can be found in the Final Notice on the FSA's website. On 2 August 2004 CGML executed a trading strategy on the European government bond markets which involved the building up and rapid exit from very substantial long positions. The centre-piece of the strategy was the simultaneous execution of a large number of trades on the MTS platform using specially configured technology. In contravention of Principle 2 of the FSA's Principles for Businesses CGML failed to conduct its business with due skill, care and diligence in that in planning, authorising and executing the strategy: i) CGML did not have due regard to the inherent risks including the likely consequences the execution of the trading strategy could have for the efficient and orderly operation of the MTS platform. ii) CGML did not ensure that clear parameters for the size of the trade were understood, communicated and reviewed. In contravention of Principle 3 of the FSA's Principles for Businesses, CGML failed to take reasonable care to organise and control its affairs responsibly and effectively and to implement adequate risk management systems in that: i) There was a failure within CGML to escalate the detailed trading strategy on 2 August 2004 adequately and in advance to senior management, and a failure to consult with applicable control functions. ii). There were inadequate systems for the supervision of traders. The effect of the trade was to cause short term disruption to volumes of bonds quoted and traded on the MTS platform, and sharp drops in prices.