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The markets are no place for gentlemen

Citigroup's trading on European government bond platform MTS on August 2 has provoked a lot of hyperbole. Citigroup sold e11 billion of European government bonds on MTS and bought e4 billion back a few minutes later at a lower price, making a profit and causing losses at other primary dealers. According to one financial newspaper, Citigroup has "systematically targeted other market makers' mandatory price quotes", which has "shocked rivals". Consequently, the eurozone government bond market has been "thrown into turmoil" and apparently national debt agencies have been forced into a period of "intense soul searching".

This is nonsense. Out loud primary dealers might well take the opportunity to knock Citigroup or express moral outrage. Off the record, they say Citi has done nothing illegal and no investors have been hurt. Some even admire Citigroup for finding a way to make money from a system that has become increasingly unprofitable. The fact that on MTS, unlike other systems, dealers have to list two-way prices for over five hours a day means that they make prices as neutral as possible. Bid-offer spreads are so tight " sometimes one or two cents " that to make a decent turn you'd have to do something on a grand scale, as Citi did.

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