Call for EU regulator after Citigroup's bond trades

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

Prevent Bares, who chairs the European Parliament's influential committee on economic and monetary affairs, yesterday warned 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 Bares said.

Euro-zone 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 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 euro-zone 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 2nd, Citigroup stunned the euro-zone bond market by selling about €12 billion ($15.3 billion) of the paper within seconds, only to buy back €4 billion of it at lower prices slightly later. The selling orders, which ran into tens of billions of euro, 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 centering 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, has yet to announce the outcome of its investigation. Ms Beres said the case had raised concerns about the level of financial market regulation in the UK. - (Financial Times service)