A regulator investigating Citibank Korea potential trading losses told DW there were no novation agreements in place for derivative trades between two units merged to form the business. "We're in the process of examination. We hope to finalize this shortly," said an official at the Financial Supervisory Service in Seoul. He continued the investigation stems from potential losses in fixed income derivative trades that may have been improperly hedged and were not properly transferred last year from Citi's former trading arm to the new Citibank Korea given the lack of novation agreements in place. Citibank Korea was formed by the merger of Citi's local unit with domestic house KorAm Bank. The official declined to further comment.
Local media reports have placed the trading losses at more than KRW10 billion (USD10.3 million). Richard Tesvich, spokesman at Citi in Hong Kong, did not return messages by press time.
Regulators in the U.S. and Europe have been paying close attention to the process of transferring trades to new counterparties, and this scrutiny led the International Swaps and Derivatives Association to issue its Novation Protocol late last year (DW, 9/23).
