Rate-rigging: Westpac engaged in unconscionable conduct, court rules

Westpac acted unconscionably by trying to rig a key interest rate, a court found, but has been cleared of market manipulation.

Westpac had a mixed result in the rate-rig ruling. Pic: Hollie Adams

Westpac engaged in unconscionable conduct by trying to rig the benchmark BBSW rate on four occasions out of 16 alleged by the corporate watchdog, the Federal Court has found.

However Justice Jonathan Beach threw out more serious allegations of market manipulation brought against the bank by the Australian Securities and Investments Commission.

“Westpac’s conduct was against commercial conscience as informed by the normative standards and their implicit values enshrined in the text, context and purpose of the ASIC Act specifically and the Corporations Act generally,” he said.

He said that on April 6, May 20 and December 1 and 6, 2010, Westpac traders traded with the “dominant purpose of influencing the rate at which the BBSW was set” to the bank’s benefit.

He also found that “by reason of inadequate procedures and training” the bank breached its financial service licence conditions.

Penalties are to be set at a later date.

An ASIC spokesman said: “This is a very significant and positive outcome for the integrity of Australia’s financial markets.”

ASIC had alleged there was a general practice at Westpac of trying to rig the bank bill swap rate, but Justice Beach said that he was “not prepared to infer from the isolated instances on the specific four occasions that I have identified or from the totality of the evidence that there was a pattern or system such as to give rise to such a practice”.

He said testimony from Westpac’s star trader, Col “The Rat” Roden was mostly reliable, “but there were aspects of his evidence that I found to be problematic” and he did not accept some of it.

He rejected Mr Roden’s evidence as to why, when explaining one trade to junior trader Sophie “The Perfumed Steamroller” Johnston, he said: “I knew it was completely wrong but I thought f**k it, I may as well f**k it. We’ve got so much money on it, we just had to do it, right. Just had to be done.”

In the witness stand, Mr Roden said he was discussing the effect of his trading on the bank bill price.

“But in my view, when one listens to the tape it seems to me that it is more suggestive of purpose rather than effect,” Justice Beach said.

“True it is that Mr Roden’s use of the “f**k” word and its derivatives was rich and diverse,” Justice Beach said.

“He had a sense for every occasion. But it seems to me that on balance the f**k word was being used here with its classic active transitivity.”

Justice Beach said Westpac’s traders engaged in “diverse and rich deployment” of the word “f**k” in conversations tendered in evidence during the trial.

“Clearly, the “f***” word and its derivatives are not terms of art in the finance industry,” he said.

“Nevertheless, their use in otherwise polite conversation appears to have been well understood by the colourful interlocutors.”

Col Roden: a “rich and diverse” use of the language.

ASIC launched civil penalty proceedings against Westpac (WBC) in April last year, accusing it of trading in a manner designed to create an artificial price for BBSW 16 times between April 6, 2010 and June 6, 2012.

At the time, the BBSW was set during a five minute trading frenzy between 9.55am and 10.05am. The system has since been changed and is now run by the ASX.

ASIC claimed that on the days it tried to rig the market Westpac had a large number of products priced-based on BBSW, and it tried to move the benchmark higher or lower to maximise its profit or minimise its loss.

This was to the detriment of those holding positions opposite to Westpac’s, ASIC claimed.

The other three big banks settled similar claims against them by admitting to attempted unconscionable conduct.

In November ANZ and NAB agreed to pay $50 million each and CBA followed earlier this month by agreeing to pay $25m.

All three banks also agreed to overhaul monitoring of their interest rate trading desks.

However, Westpac fought its case all the way through a six-week trial that revealed embarrassing phone calls in which Mr Roden, spoke of lesbian threesomes, his desire to “f**k” the BBSW and delivered obscenity-laden abuse of rivals at NAB.