NAB made P&L the priority in rates trading
NAB's rate traders "were judged by [their] P&L outcomes", while the bank was "incentivised to manipulate BBSW", two operatives of the bank's treasury told the Federal Court yesterday.The Australian Securities and Investments Commission called one former junior trader and a more senior risk manager from National Australia Bank to support its cases of unconscionable conduct bought against Westpac.Both largely affirmed a narrative on their employer's conduct in the market for prime bank bills spelled out by Westpac's counsel.Brock Johnson - now a market risk officer at Commonwealth Bank - was ASIC's first witness."I'm not sure what qualifies me was an expert. I participated for three years in that market," Johnson told Justice Jonathan Beach at a hearing in Melbourne, before going on to confirm his affidavit statements that NAB's price submissions on pricing on bank bill swaps many mornings was "something advantageous to the NAB, rather than just an arithmetical calculation on weighted average volume."Beach pressed Johnson to elaborate on references to the "practice of other traders", asking: "Is there some instruction that was given to the traders and if so, by whom?"?The now CBA employee said of his time at NAB: "We [were] judged by our performance in this market … we were judged by our P&L outcomes."Matthew Darke, for Westpac, put it to Johnson that "making BBSW submissions on that basis was contrary to AFMAs procedures for fixing BBSW", before asking: "the reason for making submissions to AFMA on the basis that you describe … is that … because you were judged on your P&L outcomes?""That's correct," Johnson said.Darke then went to say: "I suggest to you, Mr Johnson, the culture within [the short term rates desk at NAB] at the time was to disregard the rules in the interests of maximising its profits?"No," Johnson said, but added: "It was a practice of NAB long before I got there to perform this way, and I believed it was an accepted practice at other banks. I didn't see it as being contrary to the AFMA rules."Asked by the judge if he'd "ever read the AFMA rules before you started trading in 35 bills?", Johnson responded: "we had some training, but no, I had not read the AFMA rules."Asked by Darke: "You couldn't have been making submissions in accordance with AFMA's process for setting BBSW?" Johnson agreed: "Correct."Asked also: "When you had a choice between a higher rate or a lower rate, you would select the rate that favoured NAB's rate set exposure, wouldn't you?" Johnson allowed the Westpac counsel's view."Generally, yes," he said."We were generally given direction as to what yield point the cash desk would be prepared to issue [NCDs] at, so pushing it [prime bill yields] to an unreasonable level past that, they weren't willing to issue, so we wouldn't do it," Johnson said."There was," Johnson said, "no formal instruction on BBSW" at NAB."But, employees in the markets area had training about front-running and other market conduct which was perceived as not being legitimate."ASIC's second witness from NAB,