Last month the Australian Securities and Investments Commission (ASIC) launched legal action against ANZ relating to the bank’s involvement in the manipulation of the bank bill swap rate (BBSW). ASIC had been conducting an investigation of the 14 member BBSW panel since mid-2012 following similar investigations by UK authorities relating to the comparable British benchmark known as LIBOR (London Inter-Bank Offer Rate). These benchmark rates are used to establish the final rates for many thousands of corporate loans and investments. As part of its brief of evidence, ASIC tendered chat room and telephone conversations which ASIC says is evidence of ANZ traders’ plans for moving the BBSW rate in a certain direction.
This week, ASIC has launched action against Westpac and ASIC will allege in the Federal Court that Westpac and its agents created an artificial price for bank bills on 16 occasions between 6 April 2010 and 6 June 2012. Banks such as Westpac facilitate investments, swaps or hedging transactions for their customers by taking the opposite side of the transaction. Many of these transactions are priced using BBSW as a reference point and movements in BBSW therefore effect the value of a bank’s “house” positions which are accumulated over time. There are also the banks’ trading desk positions, which are essentially bets made by bank employees, many of which are a priced relative to BBSW. Major Australian banks have the financial firepower to temporarily move prices at important times and this is what ASIC has alleged Westpac has done. “ASIC alleges that Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac’s.”
Two banks have already admitted some wrong-doing. Both UBS and Royal Bank of Scotland have given enforceable undertakings to the ASIC in 2014 after admitting their traders had engaged in conduct at odds with their obligations. There are likely to be further claims made against some of the other banks in the BBSW panel and although ASIC has said publicly that it would prefer not to have to go to court, it is clearly prepared to pursue those it believes have breached their obligations.