CITIGROUP FINED $425M FOR RATE-

Citigroup fined $425m for rate-rigging violations
London (UK) – 26 May 2016 – FT - Senior managers at Citigroup’s markets business knew Libor trader Tom Hayes sought to manipulate the market at his former employer before he started work at the US bank, authorities found as they ordered the group to pay $425m.
US authorities on Wednesday handed out the first penalty to an American bank over attempted manipulation and misreporting of Libor, as part of a settlement with Citi over alleged abuses of several global benchmarks.
Hayes, a former UBS and Citi trader, is serving an 11-year prison sentence in the UK for conspiring to manipulate Libor. He was the first individual to be found guilty by a jury over the scandal that has ensnared global banks.
Despite the findings from the Commodity Futures Trading Commission, however, Citi itself looks set to avoid criminal charges.
The Department of Justice said on Wednesday it had closed an investigation into the bank over alleged manipulation of the global derivatives benchmark known as Isdafix. It had already told Citi it would not prosecute over Libor.
US authorities have issued fines running into several billion dollars over Libor to several European banks, including Deutsche Bank, Royal Bank of Scotland and Lloyds Banking Group.
Some European banks have complained privately that their US counterparts have escaped similar scrutiny, although American regulators have issued penalties to domestic institutions over alleged currency manipulation.
In documents published on Wednesday the CFTC did not identify Hayes by name but people familiar with the matter confirmed it was referring to him.
The regulator said that in meetings with Citi managing directors after the trader was hired but before he started work, he “talked openly about how he had tried to manipulate” Yen Libor fixings while at UBS.
Yet Citi managers “did not convey” the disclosures of the illicit practices to anyone in the bank’s compliance or legal departments, the watchdog added — even though they knew regulators were already investigating its Libor submission practices.
As soon as Hayes began trading, according to the CFTC, he began attempts to manipulate Yen Libor — using some of the brokers and other market contacts he had known at UBS.
The regulator said that on “multiple occasions” Citi also misreported and attempted to manipulate US Dollar Isdafix between 2007 and 2012.
It did so to benefit the bank’s trading positions at the expense of its derivatives counterparties.
Citi falsely reported US Dollar Libor during the financial crisis as accurate submissions could “raise questions about the stability of the bank”, the CFTC found.
“The submitters realised that the bank’s submissions could draw negative media attention”, it said. Some of the submissions, as a result, “did not accurately or solely reflect Citi’s assessment of the cost of borrowing unsecured funds in the London interbank market.”
Divisions of the bank also sought to benefit derivatives trading positions by manipulating Yen Libor and Euroyen Tibor, the regulator said.
The order on Wednesday brings the CFTC’s total penalties to more than $2.8bn for manipulative conduct over Libor and other benchmark interest rates, and $2.2bn for rigging Isdafix and FX benchmarks.
Aitan Goelman, director of enforcement, said: “As evident by today’s actions, the CFTC’s vigilance includes holding a financial institution, like Citi, responsible each time it acts to undermine a benchmark for its personal profit or benefit.”
Citi said the settlements “represent a significant step for Citi in resolving its legacy benchmark rate investigations”.
“In addition to adopting industry-wide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behaviour.
“Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards. We continue to fully co-operate with pending investigations conducted by other agencies related to benchmark rate submissions.”
Citigroup said the costs of the settlement would be covered by its existing legal reserves. Investors appeared to take the penalty in their stride. At the close in New York, shares in the bank were up 2.4 per cent at $46.94, about in line with its peers.

Citi traders’ 2008 manipulations revealed
Staff boasted in messages how far they had ‘moved the screen’
London (UK) – 26 May 2016 – FT - As Citigroup became the latest big bank to pay a fine over the attempted manipulation of Libor, the US regulator’s investigation revealed embarrassing evidence about the behaviour of its traders during the financial crisis.
Settlements totalling $425m with the Commodity Futures Trading Commission, the main US derivatives regulator, brought to an end allegations the bank had manipulated and falsely reported critical market benchmarks.
Those charges, which stretched from 2007 to 2012, included allegations that employees — many now departed — had attempted to manipulate Libor and Isdafix.
On instant messages published by the CFTC, traders said it was “surprising[ly] easy to push” the Isdafix dollar benchmark close to the daily 11am fixing time and boasted to each other in 2008 how far they had “had moved the screen”.
Although seemingly immaterial, they are among the world’s most important market gauges, used to set prices daily on millions of dollars worth of contracts. The CFTC’s lengthy pursuit of abuses of benchmarks used in over-the-counter markets has now levied more than $5bn in fines on banks around the world.
The moves had become so striking some of the customers had also noticed that Isdafix’s value changed dramatically at the 11am fixing. “[E]ach person tells me that there is no manipulation by the traders; however, the coincidence of us losing on every one but one fixing … is starting to get old,” one customer said, the CFTC found. A Financial Times report into potential Isdafix manipulation in 2010 was greeted with “GAME OVER” and “oh jesus do I want to read this?” by Citi traders.
Citi’s settlement relating to yen and dollar Libor, and Euroyen Tibor, all rates for lending between banks, was $175m; it also agreed a $250m settlement for Isdafix, used by traders to set the prices for interest rate swaps.
The US bank did not admit or deny any wrongdoing as it became the first US bank to resolve claims with the CFTC over Libor and IsdaFix. “We continue to fully co-operate with pending investigations conducted by other agencies related to benchmark rate submissions,” it said in a statement.
The former UBS and Citigroup trader jailed for 11 years for conspiring to manipulate Libor is making a last-ditch attempt to appeal his conviction.
Even so, the regulator brought the matter to a close with its own choice revelations. Citi’s former trader Tom Hayes has become the reluctant face of the Libor scandal. He is currently serving 11 years in prison in the UK, arguing that his bosses were well aware of his actions.
On Wednesday the CFTC reinforced findings from its Japanese counterpart in 2011 that Hayes had been working alone and deceiving his bosses. In a series of revelations — caught via electronic messages that have ensnared others — the regulator argued Hayes’s bosses talked openly about his reputation for controlling the market before he had even started.
Instead, the bank was greatly influenced by its desire to generate profits of between $50m to $150m from his interest rates trading, the CFTC said.
Once in place, a senior manager at Citi in Tokyo, where Mr Hayes worked, also pressured submitters for euroyen Tibor, to benefit “the senior yen trader’s” derivatives trading positions, according to the CFTC. The trader was Hayes.
In a selection of emails one senior yen manager told a colleague: “We want it to be very sticky for four weeks [?…] our fear is like when you move it down, right, then you get another round of people who just pile on and they all start moving shit down as well.”
The CFTC said the senior manager was well aware that Citi’s position in the market could influence others.
Another email read: “We’re the highest foreign bank. So, that’s the point, right? The point is the foreign banks will all move in concert with each other and we’re the highest one.” Citi’s submitters “on a few occasions,” took the senior yen manager’s requests into account, the CFTC found. Hayes was dismissed by Citi for manipulating Libor rates later that year.
It also found that Citi was concerned about their submissions for Libor even at the height of the financial crisis, when Citi was receiving funding from the US government. As the availability of short term unsecured money dried up, submitters “realised the bank’s submissions could draw negative media attention and raise questions about the stability of the bank.”