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litigation
by leon on December 20, 2006

The Australian Securities and Investments Commission now seems have upped the ante with its latest statement of claim saying that Citigroup had no business engaging in proprietary trading once it had signed up a client.
Citigroup is being sued by ASIC over insider trading and conflicts of interest stemming from the hours immediately before its client Toll Holdings launched a takeover bid for Patrick Corporation last year. ASIC's line is that there should have been no prop trading from the time the letter of mandate was signed. I have covered the case extensively, including this blog entry.
For more detail about the latest development, turn to ASIC's further amended statement of claim.
The important clauses in relation to prop trading are 103, 105, 107 and 109. According to the statement of claim, the only way Citigroup could have avoided the conflict of interest was if it had in place an arrangement stopping it from "trading in its own account in Patricks shares from the date of the Mandate."
ASIC's claim is unambiguous. And potentially, it's far-reaching because prop trading is the bread and butter for investment banks worldwide. Furthermore, it's standard procedure for investment banks to let their clients know in the letters of mandate and other correspondence that they intend to continue to prop trading. And by signing up, the clients seem to accept that this comes with the territory. The Australian regulator begs to differ.
ASIC's plans to eliminate conflicts of interest could mean an end to proprietary trading once an advisory mandate is awarded. By logical extension, that might also extend to client trading and publication of research. Investment banks and regulators in the northern hemisphere will be watching this case carefully.
Permalink: Citigroup prop trading litigation
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Significant developments in the Australian regulator’s insider trading case against Citigroup. The court documents filed today could rewrite the rules for investment banking worldwide by banning proprietary trading, the bread and butter for investment ...
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Significant developments in the Australian regulator’s insider trading case against Citigroup. The court documents filed today could rewrite the rules for investment banking worldwide by banning proprietary trading, the bread and butter for investmen...
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Significant developments in the Australian regulator’s insider trading case against Citigroup. The court documents filed today could rewrite the rules for investment banking worldwide by banning proprietary trading, the bread and butter for investment ...
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