ANZ traders admit BBSW a measure of who has the 'bigger balls'

ANZ's top traders privately admitted the bank bill swap rate reflected "who has the bigger balls" rather than the true state of the market and suspected rival banks shifted the rate to increase their bonuses.

The admissions are included in transcripts filed in the courts on Monday by the Australian Securities and Investment Commission as part of its case against ANZ for allegedly manipulating the bank bill swap rate, or BBSW.

Traders at ANZ seemed to share the regulators concerns that all was not kosher in BBSW-land.Credit: Darrian Traynor

The transcripts suggest how ANZ's senior balance sheet trader, Jason Pritchard, and a Credit Suisse broker openly speculated whether influential Westpac trader Colin Roden was trying to set interest rates to boost his bonus as their own attempts to set the BBSW in their favour failed.

They reveal what ASIC believes are instances in which the client-facing markets division of the bank appeared to work closely with the treasury team in an effort to favourably influence the setting of the BBSW, and that management took steps to increase the credit limits of traders so they could buy and sell more bank bills during the rate-setting period.

"… limits need to be increased to adequate levels which allow ANZ to fulfil its role as an AFMA Prime Bank and setting of the bills rate," wrote risk director Clemente Perez in an internal email dated January 8, 2010.

As in previous transcripts, ANZ traders joked about the integrity of the bank bill swap rate, suggesting manipulation of this key rate, which is used to set prices of hundreds of billions of dollars of loans, bills and bonds, was rife.

In a conversation of November 9, 2009, balance sheet trader Mark Budrewicz complained to treasury manager Sean Collier about the rate sets "giving him the s-hts" because there was "to [sic] much manipulation. "Which I am sure we are not ever guilty of," Mr Collier responded.

In a further instant chat conversation dated July 25, 2011, in which Collier tells trader Jim Vouziotis the BBSW setting as "total crap" and that the "market needs to get a better mechanism than bbsw … its just a total crock and doesn't reflect much aside from who has the bigger b.lls on the day … the manipulation that occurs just proves its not an accurate reflection."

"We as a bank perhaps have been as guilty as others," he said.

The ASIC filing also includes a conversation between sacked ANZ trader Etienne Alexiou and Commonwealth Bank's Garfield Lee, who has since left the CBA, which the regulator says shows that ANZ senior management "knew, believed or understood that" the "BBSW was susceptible to manipulation".

Mr Alexiou asked Mr Lee if his colleagues "got annoyed" about the rate set, to which he replied they did not. "But things like this aren't good for the market ... and costs all the banks"

In another conversation, Mr Budrewicz tells a colleague that regulators "should do something" about the BBSW rate-setting mechanism.

"Yesterday NO buyers, to NO sellers today," he said.

ASIC also presented evidence in the form of an email chain, which included senior staff within ANZ's markets and treasury divisions, in the wake of the Libor scandal in which they express their comfort with the BBSW setting process.

"Contributors to the setting mechanism in Australia are all members of AFMA and the variances are reasonably small. Outliers are top and tailed, so that significantly reduces any one contributor's ability to influence the rate by uploading a favourable rate," Mr Morris wrote.

"Mmm. Me not so convinced," replied ANZ treasurer Rick Moscati.

One of the more intriguing instant chat conversations is between senior bank balance sheet trader Jason Pritchard and Credit Suisse trader Bradley Harper, which Pritchard shared with his fellow traders in an attempt to "work out what the F$$k Col Rhoden [sic] and WPAC are doing".

"It is killing us … we have paid a lot ... up front to get good rates sets at the appropriate dates and we are not being paid off … we are going to try and make a statement next week," Pritchard wrote in an email.

In the chat, Credit Suisse's Harper speculates that Westpac's treasury trader Colin Roden may have been seeking to influence the bank bill swap rate to boost the profits of the treasury team, and boost his profits, at the expense of shareholders.

"Mr Pritchard suspected that Colin Roden was motivated by his personal bonus which in turn was affected by the influence of the BBSW on Westpac's internal transfer price mechanism," the documents filed by ASIC allege.

Westpac is also being sued by ASIC for allegedly manipulating the bank bill swap rate. Both ANZ and Westpac have pledged to defend themselves against the charges.

"its definately [sic] transfer price driven," Harper said in the chat, referencing an internal Westpac policy in which various divisions of the banks pay a charge to Westpac for access to funds. Industry sources said it was unlikely that Roden, or Westpac, had this intention or whether bonuses were calculated in this manner.

"I just cant work out the details … he's good…there is no denying that," Pritchard wrote to Harper about the much-feared trader, known as the Rat.