The UK's Financial Services Authority has launched a formal investigation into "unusual trading activity" initiated by Citigroup in European government bond and bond derivative markets on 2 August.
The financial watchdog says the probe may lead to disciplinary proceedings under the Financial Services & Markets Act 2000 "but no decision on that can be taken until all the facts are clear".
The market was thrown into confusion on 2 August when Citigroup pushed through a total of EUR11 billion in paper sales in two minutes over the automated MTS platform. As the value of futures contracts went into freefall and traders moved to cover their positions, Citigroup re-entered the market and bought back about EUR4 billion of the paper at cheaper prices.
In launching the probe, the FSA says that one of its key aims is the maintenance of efficient, orderly and clean financial markets.
The watchdog notes: "In the view of the FSA, achievement of that aim requires large players in financial markets to have regard to the likely consequences of their trading strategies...This is quite separate from whether or not specific FSA Principles or Rules have been infringed."