ASIC Launches Criminal Proceedings Against WestPac for Insider Trading

Karthik Subramanian

ASIC announced today that it is initiating criminal proceedings against Westpac for insider trading, unconscionable conduct and breaches of its licensing requirements.

This is in relation to the role of the bank in the execution of a $12 billion interest rate swap transaction of AustralianSuper and a group of IFM entities (Consortium).

In September 2016, the Consortium submitted a bid to buy controlling stake in Ausgrid from the New South Wales government. Once this bid had passed scrutiny and other due diligence, a special purpose vehicle was formed to complete the transaction and other formalities and Westpac was engaged for the same as debt funding was required.

But this debt of around $12 billion had floating interest rates and had a repayment period of over 10 years. In order to hedge this risk of floating interest rates by buying interest rate swaps which would effectively nullify this risk and make it similar to a fix interest rate debt.

The allegation against Westpac is that on 20th October 2016, the agreement was signed between the Consortium and the NSW government at 7 AM and by 8.30 AM, Westpac somehow had the knowledge that the interest rate swap would come to it. So, when the markets opened at day, it took the appropriate positions in order to illegally benefit from the execution of this swap.

ASIC said that this knowledge was not available to the rest of the market participants at that time and hence this wasnt a level playing field as far as the market and its participants were concerned. This also meant that the execution of such large positions at that time had impacted the market prices of that interest swap. These actions were illegal as it had been done with insider information, ASIC deemed.

The actual interest rate swap was executed by the Consortium at 10:27 AM on the same day. Westpac had not informed the Consortium that it had pre-positioned itself in anticipation of this swap being executed and ASIC decided that this amounted to an unconcionable conduct.

ASIC has been getting its whip cracking over the last year or so and though sometimes it has been accused of being late with its actions like license suspension etc, it has to be appreciated that they continue to take a vigilant and strict stance and they seem to be determined to do a cleanup of the financial system in Australia.

ASIC is seeking penalties and declarations from Westpac for its conduct.

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