According to ASIC, Citigroup did not establish and document maximum price change limits, as required under ASIC market integrity rules.
ASIC noted that the breach had the potential to “damage the reputation and integrity of the market.”
It is alleged that on 23 November 2011, Citigroup initially published a daily settlement price for the January 2013 ASX 30-Day Interbank Cash Rate Futures Contract (IBF3) of 97.070.
A client of Citigroup then ordered to buy one December 2011/January 2013 ASX 30-Day Interbank Cash Rate Futures Contract (IBZ1F3) spread with a price differential of -15 points through Citigroup’s direct market access system.
This initial order was able to be entered into the Citigroup system as it was set to allow a maximum price change of 999.9 basis points for its ASX 20-Day Interbank Cash Rate Contracts.
The client then entered another order through Citigroup’s direct market access system, modifying the initial order price differential from -15 to -13 points for one IBZ1F3 contract, creating an implied offer of 95.900 for one IBZ1F3.
The client then entered a third order, modifying its previous order by increasing the volume from one to 200 IBZ1F3 at -13 points.
This created an implied offer of 95.900 for 200 IBZ1F3 contracts.
Another buyer then entered an order to buy 200 1BZ1F3 at 95.900, 117 points lower than the initial IBF3 daily settlement price of 97.070, and $600,000 away from fair value.
This trading price placed the deal in the mandatory cancellation range under the ASX 24 operating rules.
Citigroup requested the deal to be cancelled from the ASX on three different occasions but was denied under the ASX 24 operating rules.
ASIC was then informed of the breach by Citigroup on the 24 November 2011.
Following the breach, Citigroup has updated its system’s maximum price change limit for the ASX 30-Day Interbank Cash Rate Futures Contracts and implemented a new system incorporating a risk management tool tailored from volume and price limits.
It has also enhanced its client setup manual in relation to the cancellation process, trained its futures sales and electronic executive teams on a number of issues and has undertaken a review of automated trading.
