Getting into the market abuse mindset

I remember mentioning the EU's Market Abuse Directive to an op risk manager at a conference in the spring. The executive – who shall remain nameless – rolled his eyes, then indicated that it was nothing to do with him.

I think he has probably now changed his mind. The UK Treasury and the Financial Services Authority were wrapping up their consultation on the directive in mid-September, and executives said their firms were preparing robust responses. What has galvanised this attention? The Citigroup bond trading scandal.

Essentially, traders at Citigroup sold about e11 billion of euro-denominated government bonds in just a few minutes in one morning in early August. The massive sale caused the price of many of the securities to fall substantially. Then, the same traders bought the securities back hours later at a tidy profit. Several days later, the FSA announced an inquiry.

Certainly, this kind of trading will be more difficult to undertake lawfully under the new EU rules, and penalties will be stiffer. Also, the reputational risks firms will suffer will be larger – already Citigroup has taken a black eye over the bond affair from clients and other City and Wall Street firms alike. Op risk managers should take notice of the Market Abuse Directive, and its potential impact on their firms.