The U.K. Financial Services Authority on Tuesday fined Citigroup Global Markets Limited £13.9 million, or US$25.4 million, for breaching reaching standards of behaviour in bond trades last year.

The FSA found that Citigroup executed a trading strategy on the European government bond markets on Aug. 2, 2004 that involved the firm building up and then rapidly exiting from very substantial long positions in European government bonds over a period of an hour.

The trade caused a temporary disruption to the volumes of bonds quoted and traded on the MTS platform, a sharp drop in bond prices and a temporary withdrawal by some participants from quoting on that platform, it noted.

“The FSA views firms’ adherence to its principles as fundamental in helping to maintain efficient, orderly and fair markets,” said Hector Sants, FSA managing director for wholesale business. “Citigroup planned, authorized and executed a trading strategy without having due regard to the risks and likely consequences of its action for the efficient and orderly operation of the MTS platform.”

And, it added that the lack of adequate systems and controls at the firm meant that the strategy was never fully considered, as would be expected, at an appropriate senior level within CGML. “The FSA expects high standards from all its regulated firms but especially from firms such as Citigroup, whose size and resources allow them to trade in large volumes and take significant risks.”

During July 2004, the European government bond desk at Citigroup was encouraged to increase profits through increased proprietary trading and the development of new trading strategies, the FSA explains. “In pursuit of this the desk developed a trading strategy to take advantage of the increased liquidity on the MTS electronic trading platform in European government bonds,” it says, noting the the strategy was escalated to senior management, but Citigroup did not ensure that clear parameters for the size of the trade were understood, communicated and reviewed.

On August 2, 2004, the firm’s trading strategy roiled the markets, the FSA said, and CGML made a profit of £9,960,860.

The FSA acknowledges that CGML has co-operated fully in the course of the investigation, that senior management in the firm have taken the matter seriously and recognize that significant remedial work has been taken in the areas where controls were lacking.