It took regulators one long year to work out what exactly Citigroup did wrong in August 2004 on the EuroMTS trading platform. In the interim, Citi has apologized repeatedly for its actions, perhaps because the firm itself has been the biggest victim. Having lost a fair chunk of fees underwriting business – apart from when the Greek debt office broke step in March on its €5billion 32-year deal – the firm has been notably absent in benchmark euro sovereign new issues since the misguided trade.
Although some rival bankers suspect Citigroup has still been involved indirectly in the primary European government bond marks by carrying out swaps for new issues, its last euro trade of note for the Republic of Italy – the sovereign said to have taken particular issue with the rogue trade – came way back in February 2004. While Citi continues to enjoy success in other sectors of the international bond markets, the firm must be hoping that it will return to favour soon.
Will an official ticking-off hasten the rapprochement? So far the regulators have been surprisingly lenient. Back in March, German prosecutors decided not to proceed against the firm. In June, Eurex too cleared the firm of any breach of Eurex general principles, including the principle of commercial trust. Following many months of speculation the UK's FSA decided the US bank was guilty not of market abuse – by far the worst accusation that the regulator can throw at an institution – but of inappropriate actions. Nothing, in hindsight, was more inappropriate than raising the ire of so many of its counterparties and certain sovereigns, aside perhaps from stupidly christening its trade idea Dr Evil.
Its customers have been tougher on Citi than the regulators. Maybe the firm would quietly welcome a harder slap on the wrist from an official body, to help it put the sorry episode behind it.
Meanwhile, pity the innovative, ballsy traders who came up with the trade. What lesson should they learn? If you've got a smart idea to profit by arbitraging the market infrastructure, go and work for a hedge fund. There are no Chinese walls, you'll have all the best trade ideas the banks' research teams can throw at you, knowledge of all the flows from their sales coverage and a light regulatory hand.
And your customers will probably be pleased with you – that's if you ever tell them what you've done.