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Citigroup Suspended From Japan Bond Auctions on Manipulation

Takashi Nakamichi and Takako Taniguchi
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Citigroup Suspended From Japan Bond Auctions on Manipulation

(Bloomberg) -- Citigroup Inc. was suspended from the primary group of dealers that participate at certain Japanese government bond auctions after it was found to have manipulated futures prices, another strike against the lender’s markets business in Asia.

The Ministry of Finance ordered Citigroup Global Markets Japan Inc.’s exclusion from participating in “non-price competitive auctions” and certain other government bond sales for a month from June 13, it said in a statement Tuesday.

The suspension comes days after the Financial Services Agency fined the firm 133 million yen ($1.2 million) and ordered it to improve internal controls for failing to detect instances of manipulation of the Japanese government bond market. Citigroup was found to have placed orders last October for JGB futures contracts without intending to execute them, a practice known as spoofing.

“The company had deficiency in trade surveillance related to market transactions of derivatives,” the finance ministry said.

The fine and temporary ban are unlikely to dent Citigroup’s massive fixed-income business, which generated $11.6 billion in revenue in 2018. Still, the firm’s institutional franchise in Asia has been burned by a series of missteps in recent months. In December, the bank faced losses of as much as $180 million on loans made to an Asian hedge fund whose foreign-exchange wagers went awry. Three months later, it ousted eight equities traders in Hong Kong and suspended three others following a broad internal investigation.

MOF Access

The orders, placed at the Osaka Exchange by an employee of London-based Citigroup Global Markets Ltd., misled other investors into believing that the 10-year JGB futures market was “thriving,” the Securities and Exchange Surveillance Commission said in March.

Primary dealers are given access to finance ministry officials in return for an obligation to bid for and purchase a certain amount of government bonds at each auction. There are currently 21 of them, including Citigroup, according to the ministry’s website.

Citigroup apologized, saying it will “continue to enhance governance and internal controls and to develop and implement preventive measures to ensure that the issues identified by the regulators will not occur again.”

Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley was suspended from the group for a month last year for a similar breach. It was also dropped from underwriting several bond sales.

Citigroup is ranked 12th among underwriters of Japanese corporate bonds over the past 12 months, data compiled by Bloomberg show.

(Updates with Citigroup figures in fifth paragraph.)

--With assistance from Jenny Surane.

To contact the reporters on this story: Takashi Nakamichi in Tokyo at tnakamichi1@bloomberg.net;Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, Steve Dickson

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