More developments in the Citigroup-insider trading case in Sydney today. And reading the court document filed by the Australian corporate regulator today left me wondering whether the Australian Securities and Investments Commission is backing down. And it also showed the problems regulators face when they try to change market practices through the courts.

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I have already blogged extensively on this case which really seeks to challenge the way merchant banks work and I have given a radio interview on it.

Today, Citigroup and ASIC were in court for a directions hearing but what really struck me was the Amended Statement of Claim filed by the regulator.

Check 32H in the statement of claim and you will see that the regulator is setting out conditions where Citigroup could engage in proprietary trading without getting into trouble.

This is quite a contrast to the claim ASIC made in its press release on the day it took ASIC to court.

"Some conflicts of interest have such a serious potential impact that the only way to manage those conflicts adequately will be to avoid them. In such cases, mere disclosure or use of internal controls will be inadequate."

So ASIC has moved from a position where it seemed to be telling the world that prop trading was bad, to one where it says it can be done under certain conditions. Seems the regulator seems to be realising it has bitten off more than it can chew.