ASIC discovery 'tip of BBSW iceberg'
The plaintiffs in a new, and US centred, class action directed at five Australian banks and more than a dozen other defendants on allegations of manipulating short term interest rate benchmarks have taken a cocky, and even arrogant, tone in their statement of claim.The defendants, including Australia's four major banks and Macquarie, have been sued in the US District Court by two US hedge funds and a derivatives trader (as reported in Banking Day on Friday).The plaintiffs, in language more colourful than employed by ASIC in civil proceedings in Australia, contended the banks engaged in a "multi-year conspiracy" that was "persistent, pervasive, and secret."The case builds on material already introduced to the public record by the Australian Securities & Investments Commission in actions so far bought against ANZ, National Australia Bank and Westpac (but not CBA or Macquarie)."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 statement of claim asserts, while 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 plaintiffs said they "believe that substantial evidentiary support for the claims alleged will be unearthed after a reasonable opportunity for discovery."The defendants "agreed to and did restrain trade in, and intentionally manipulated the prices of, BBSW-based derivatives," the plaintiffs contend, echoing the theme of ASIC's case against three banks.The claim asserts that "bank defendants rigged BBSW by engaging in transactions during the fixing window to manipulate the supply of prime bank bills [and] these illegitimate trades were often uneconomic."Communications show that defendants would intentionally lose money on prime bank bill transactions to manipulate BBSW in a direction that generated considerably larger profits from their derivatives positions. "Thus, the net gain from manipulating the fixing was positive even when the prime bank bill transactions that defendants' used to manipulate thefixing resulted in a loss."The claim continues: "To maximize their impact on the BBSW fixing, bank defendants conferred with each other before executing these manipulative transactions, aligning their interests and recruiting co-conspirators to trade in the same direction. "Bank defendants also engaged in transactions with each other before the start of the fixing window to concentrate the supply of prime bank bills, which they referred to as 'stock', 'ammo' or 'bullets' so that their traders, with help from the broker defendants, could 'puke out' a massive quantity during the fixing window."The banks allegedly "shar[ed] proprietary information about BBSW exposure and derivatives positions [that] allowed the bank defendants to reach consensus on the direction they would manipulate BBSW and amplify their effect on the rate."The broker defendants were, the plaintiffs claim, "in turn, rewarded for their participation in the conspiracy with outsized commission payments, generated by facilitating the high-volume trades used by the bank defendants to manipulate the BBSW fix."