(Bloomberg) -- Citigroup Inc. denied moving too slowly to close out a client’s trades in a lawsuit linked to the market turmoil that followed the Swiss National Bank’s surprise decision to scrap its currency cap last year.
Citigroup is suing Australian firm Go Markets Pty Ltd. to recover $1.7 million in trading losses, its lawyers said at a preliminary hearing in London today. Go Markets says the bank caused larger than necessary losses because it didn’t close out the positions until 11 a.m. and 1 p.m., several hours after the SNB’s announcement sent shock waves through currency markets on Jan. 15, 2015.
The delay was caused, in part, because the automated trading system used by Citigroup shut down because of market swings, the bank’s lawyer, John Taylor, told the judge. “Because of market volatility, this trading system, which they had signed up to use, disabled for a period of time,” he said. Thomas Plewman, Go Markets’ lawyer, said the firm hadn’t been told about the “circuit breaker” until last week.
The lawsuit gives an insight into the chaos that followed the SNB’s decision to abandon its policy of capping the Swiss currency against the euro, sending the currency soaring by as much as 41 percent as traders reacted to the unexpected move. Citigroup, the world’s biggest currencies dealer, itself lost more than $150 million.
Time “is the key issue in this case,” Taylor said at the pre-trial hearing dealing with evidence exchange and the scope of the bank’s claim. Go Markets argues “we should have closed out immediately,” he said.
Citigroup’s circuit breaker kicked in after the announcement, suspending price generation. The system re-activated at 9.51 a.m. for 18 seconds before shutting off again. The suspension of automatic trading is clearly provided for in the contract signed by Go Markets, Taylor said. The firm initially agreed to pay the debt before having a “change of heart,” he said. The trades were concluded manually later in the day.
Go Markets was not given proper information about how the trades ended in a $1.7 million loss and wants to “understand where this number comes from,” Plewman said. The firm was trading with another bank that reacted more quickly and “got a result that was very, very dramatically better,” he said.
Citigroup spokesman Jeffrey French didn’t immediately respond to an e-mail and phonecall seeking comment.
The available documents don’t set out the date for a trial.
The case is Citibank International Ltd. v. Go Markets Pty Ltd., High Court of Justice, Queen’s Bench Division, Commercial Court, CL-2015-000842
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