National Australia Taken to Court as Rate-Fixing Case Widens

Updated on
  • Regulator claims bank tried to manipulate BBSW on 50 occasions
  • The bank is the third domestic lender to face such action

Australia’s securities regulator said it has started civil legal proceedings against National Australia Bank Ltd. for allegedly manipulating the nation’s benchmark swap rate, the third such action against a domestic lender in a more than a three-year investigation.

The Australian Securities & Investments Commission alleges that on 50 occasions, from June 8, 2010 to Dec. 24, 2012, the Melbourne-based bank traded in a manner intended to create an “artificial” price for bank bills, the watchdog said in a statement Tuesday.

“We do not agree with ASIC’s claims which means they will now be settled by a court process,” National Australia’s Chief Risk Officer David Gall said in a separate statement.

Three of the four largest Australian lenders are now facing court action for allegedly trying to profit from tampering with the bank-bill swap rate -- the local equivalent of Libor that’s also known as BBSW. The regulator, which has been investigating the setting of the swap rate since mid 2012, has already lodged similar actions against Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp.

Traders’ Talk

ASIC alleges that on the 50 occasions, National Australia had a large number of products which were priced or valued off BBSW, and that it traded in the bank-bill market with the intention of moving the benchmark higher or lower. ASIC alleges that National Australia was seeking to maximize its profit or minimize its loss to the detriment of those holding opposite positions.

The regulator’s court filing includes transcribed extracts of communications between two National Australia traders who it says took place in December 2011. The lender had a long exposure of A$1.89 billion ($1.41 billion) to the 90-day BBSW rate set on Dec. 22 and one of its traders sold same-tenor bank bills with a face value of A$620 million -- 82.7 percent of all such sales through brokers that day -- in a bid to set the BBSW rate higher, ASIC alleges.

ASIC is seeking declarations that National Australia contravened sections of the Australian Securities and Investments Commission Act and the Corporations Act. It is also seeking pecuniary penalties against the bank and an order from the court requiring the lender to implement a compliance program, according to its statement.

Westpac, ANZ

The regulator, in a court action filed in April, alleged that Westpac intended to manipulate the benchmark on 16 occasions from April 2010 to June 2012. In March, it sued ANZ, claiming that the lender tried to alter the price for bank bills on 44 separate days from March 2010 to May 2012. The two banks have denied the allegations and said they would “vigorously defend” the claims.

Probes into the rigging of foreign-exchange markets and interest-rate benchmarks have led to lenders across the globe paying billions of dollars in fines and an overhaul of how such rates are set.

Australia changed its rate-setting regime in 2013 following the rigging scandal surrounding the London interbank offered rate, a major global benchmark. The Australian Financial Markets Association, which oversees the process for setting BBSW, scrapped a 14-bank panel that made submissions on the benchmark and moved to a system where the rate is compiled using prices sourced from approved interbank trading platforms.