Westpac Banking Corporation (Westpac) has seen proceedings commence against it from Australian regulator, ASIC. This week, the Federal Court will host proceedings against allegations of unconscionable conduct, breaches of licensee obligations for financial services in Australia, and insider trading.
These allegations feed into a controversial transaction made back in October 2016, when Westpac played a role in processing an interest rate swap of around $12 billion. The swap was executed alongside a consortium that included a group of IFM entities, and AustralianSuper. Five years later, and the transaction is still the highest recorded interest rate swap in the history of Australian financial markets to be executed in one go.
On the morning of 20th October 2016, the Consortium completed a deal that would secure them the acquisition of electricity provider Ausgrid, made with the NSW government, which was in the process of privatising the company at the time. ASIC suggests that Westpac held inside information with regard to the transaction, as it has been alleged that the company was already aware that the Consortium would be successful in its application for a majority stake of Ausgrid.
It has been suggested that upon market opening, at 8:30 am that day, Westpac traders obtained and then disposed of interest rate derivatives in an attempt to pre-position the company leading up to the confirmation of the swap transaction. Westpac allegedly held the above transaction knowledge when all of this took place, and that this information was not available on a general basis for other participants to access on the morning of the transaction. ASIC made it clear that its choice to prohibit insider trading is a fundamental aspect of the integrity of the market.
ASIC also alleges that Westpac’s now seemingly illicit trading held the potential to make an impact on the value of the trade, all to the detriment of both the special purpose vehicle involved in the transaction, as well as the Consortium itself. Additionally, the regulator has alleged that the circumstances which surrounded the trading ultimately amounted to visible unconscionable conduct.
ASIC reiterated its commitment when it comes to bettering market practices in both institutional and FICC markets. It stated that the recent proceedings provide an essential reminder to traders that prohibitions surrounding insider trading are applied across the entire Australian financial market.
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