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  • Big four banks sued by US hedge funds over BBSW
  • By James Eyers
  • 18/08/2016 Make a Comment
  • Contributed by: Janine ( 1 article in 2016 )
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The big four Australian banks, Macquarie and a dozen international investment banks who were members of the panel that set the bank bill swap rate, a key benchmark interest rate, have been sued in the US District Court by two US hedge funds and a derivatives trader.

The banks "generated hundreds of millions of dollars in illicit profits by artificially fixing BBSW-based derivatives prices at levels that benefited their trading books," says the claim commenced in the United States District Court for the Southern District of New York.

The US investors are alleging that the prices of various derivatives - including swaps, forward rate agreements, Australian dollar futures contracts, Australian dollar foreign exchange swaps and forwards, and 90-day bank accepted bill futures contracts - were impacted because they were linked to BBSW.

The applicants are Florida-based derivatives trader Richard Dennis and two US-based investment funds, Sonterra Capital Master Fund and Frontpoint Financial Services and some of its related funds.

ANZ Banking Group told the Australian Securities Exchange on Thursday afternoon it will "be vigorously defending the US class action complaint".

National Australia Bank said in an ASX release that the US action references the proceedings brought by the Australian Securities and Investments Commission in relation to BBSW and "as we have stated previously, NAB does not agree with the claims by ASIC in relation to BBSW."

Westpac told the ASX it not been formally served with any proceedings but "denies the allegations in this claim and, if served with the claim, will defend those allegations vigorously. As the matter is now before the courts it would not be appropriate to comment further at this time."

Commonwealth Bank of Australia have also been sued in the action. ASIC has brought proceedings for alleged market manipulation and unconscionable conduct against ANZ, NAB and Westpac but has not yet brought proceedings against CBA or Macquarie.

The US claim refers to ASIC's proceedings as "smoking gun evidence including emails, phone calls, and electronic chats, demonstrating a conspiracy among BBSW panel banks and interdealer brokers to fix the prices of BBSW-based derivatives".

The US claim goes further than ASIC's case by alleging collusion between the banks.

ANZ said in its ASX release there have been no allegations by ASIC of collusion between it and other institutions.

The banks "manipulated BBSW so frequently that traders often joked about how easy it was to fix the rate," the US claim says. Their "ultimate goal was to increase the profitability of their BBSW-based derivatives positons [sic]," the claim says.

"ASIC's ongoing investigation has already uncovered communications in which [the] defendants openly conspire to fix BBSW and the prices of BBSW-based derivatives. [The] plaintiffs have good reason to believe and do allege that the limited, public materials available to date are only the "tip of the iceberg"," the claim states.

The claim said that because BBSW is a component in the formula used to price CME Australian dollar futures contracts, "there is a statistically significant relationship between a change in BBSW and a change in the prices of CME Australian dollar futures contracts."

The claim alleges the hedge funds and other members of the class action "sustained damages" from the banks' actions.

"The injuries and damages of each member of the class were directly caused by defendants' wrongful conduct in violation of the laws as alleged herein."

The other banks that are defendants in the action are Citibank, BNP Paribas, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Lloyds, Morgan Stanley, Royal Bank of Canada, Royal Bank of Scotland and UBS. International broking houses ICAP and Tullett Prebon are also named.

ASIC settled claims with UBS, RBS, and BNP Paribas over alleged BBSW manipulation in 2013 and 2014.

Source: https://www.smh.com.au/business/banking-and-finance/big-four-banks-sued-by-us-hedge-funds-over-bbsw-20160818-gqvk8u.html


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