Citigroup Faces $1.2 Million Fine for Allegedly Manipulating Japanese Government Bond Futures

(Bloomberg) -- Citigroup Inc. faces a 133 million yen ($1.2 million) fine for allegedly manipulating prices in the Japanese government bond futures market, its latest regulatory setback in Asia.

Japan’s securities watchdog said Citigroup placed orders in October for JGB futures contracts at the Osaka Exchange without intending to execute them, a practice known as spoofing. The Securities and Exchange Surveillance Commission recommended that the Financial Services Agency impose the fine on Citigroup Global Markets Ltd.

The allegation puts another spotlight on Citigroup’s trading in markets in Asia, where it has a major presence. In Hong Kong, the U.S. bank ousted eight equities traders following an investigation into whether staff properly disclosed the bank’s own financial interest when facilitating stock trades, people familiar with the matter said last week.

An employee of London-based Citigroup Global Markets placed large buy and sell orders outside of Japan trading hours that weren’t executed, misleading other investors into believing that the 10-year JGB futures market was “thriving,” the SESC said in a statement on Tuesday. The watchdog reports to the FSA, which usually carries out its recommendations.

“Citi takes the recommendation seriously and apologizes for any inconvenience or concern the conduct that gave rise to today’s recommendation may have caused,” the New York-based company said in a statement. It pledged to enhance governance and internal controls.

Similar Case

The accusation bears similarities to a case involving Mitsubishi UFJ Financial Group Inc.’s joint venture with Morgan Stanley, which was found to have manipulated JGB futures prices last year. As well as receiving a 218 million yen fine from the FSA, Mitsubishi UFJ Morgan Stanley Securities Co. was suspended from a key group of JGB dealers and dropped from managing several bond sales, hurting its reputation and fee income.

Citigroup is ranked 13th among underwriters of Japanese corporate bonds for the fiscal year ending March 31, data compiled by Bloomberg show. Local unit Citigroup Global Markets Japan Inc. is among 21 primary dealers in the JGB market that participate in bond auctions and exchange information with Finance Ministry officials, according to the ministry’s website.

The Wall Street firm had another recent regulatory setback in Asia. In India, it decided against seeking a new term for local chief Pramit Jhaveri after the central bank signaled that it wouldn’t approve an extension, Bloomberg reported in February. The RBI’s decision stemmed from personal investments by Jhaveri, a person with knowledge of the matter said.

In the U.S., Citigroup was fined $25 million in 2017 after regulators found that five of its traders manipulated the U.S. Treasury futures market more than 2,500 times. The fine was the biggest spoofing settlement on record at the time.

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