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Citigroup facing more stock market embarrassment

Diversified financial services company Citigroup is contemplating the impact of a 30-day ban from the derivatives exchange Eurex. The ban could be the outcome of current investigations by German prosecutors into allegations that Citigroup manipulated the market.

The latest revelation, reported by the Times Online, adds to an already bad few days for Citigroup, which earlier in the week hit the headlines when Jean-Claude Trichet, president of the European Central Bank, called for a thorough investigation into its recent conduct.

The controversy that caused the world’s largest financial organization’s current woes dates back to August last year. Traders for the company rapidly sold E12 billion of eurozone bonds on the pan-European MTS electronic system on August 2, causing the price of the bonds to significantly drop. The traders then bought E4 billion worth of bonds back at the depressed values which created a profit of around E17 million for the company.

Citigroup has defended the actions by claiming that its traders mistakenly sold too many bonds and therefore had to buy some back to recover the originally desired quota. Citigroup also apologized for the conduct of some of its traders, but pointed out that the dealings, did not violate any applicable rules or regulations.

However despite Citigroup’s reiteration of its position, the German prosecutors are still considering charging it with manipulating the market, while the six-strong trading desk that carried out the trade in question could yet face legal action.