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Citigroup unit suspended from Japan bond auctions for manipulation

Tokyo

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.

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 on Tuesday.

The suspension comes days after the Financial Services Agency fined the firm 133 million yen (S$1.67 million) and ordered it to improve internal controls for failing to detect instances of manipulation of the Japanese government bond market.

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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 on Tuesday.

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.

A Tokyo-based Citigroup spokeswoman wasn't immediately able to comment. The firm said last week that it will take "swift actions" to meet the regulator's business improvement order.

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 shows. BLOOMBERG