BBSW traders believed they could rig the rate, court hears

Emails show bank’s traders thought they could manipulate the BBSW to Westpac’s advantage, court hears.

Westpac Building in Adelaide. (AAP Image/Emma Brasier)

Obscenity-laden phone calls in which Westpac’s star interest rate trader Col “The Rat” Roden boasted he could move the benchmark bank bill swap rate have been “misinterpreted” by the corporate regulator, the bank has told a court.

Counsel for Westpac, Matthew Darke, SC, told the Federal Court the bank denied engaging in any rate-rigging.

The Australian Securities and Investments Commission accuses Westpac (WBC) of market manipulation and unconscionable conduct by trying to set an artificial price for the BBSW on 16 dates between April 6, 2010 and June 6, 2012.

Mr Darke said this was a “small fraction” of the 540 days in which the BBSW was traded during the period.

“No attempt is made to prove that Westpac’s trading in bank bills was uneconomic or irrational,” he said.

“There were legitimate commercial reasons for Westpac’s trading on each occasion.”

Yesterday, counsel for ASIC, Philip Crutchfield, QC, played the court recordings of phone calls featuring Mr Roden, including one in which he talked about moving the BBSW even though he “knew it was completely wrong”.

“Those communications it should be noted are an absolutely minuscule proportion of the 12 million communications Westpac has produced to ASIC in the course of its investigation,” Mr Darke told the court.

“They are it seems the best ASIC can do.

Our response to that subset of communications is to say they have been misinterpreted by ASIC.”

Earlier this morning, counsel for ASIC, Peter Collinson, QC, urged Justice Jonathan Beach to rely on the words of Westpac and other banks’ experienced traders, rather than expert evidence.

The bank’s traders thought they could manipulate the BBSW to Westpac’s advantage, Mr Collinson told the court.

Mr Collinson said emails between Paul Howarth, of NAB, and Matthew Blades, of broker ICAP, showed BBSW market players believed they could rig the rate.

“In substance it’s an artificial price for the bank bills,” he said.

“The yield that was set does not reflect competitive supply and demand”.

Justice Jonathan Beach challenged Mr Collinson on what information was available to traders during the five-minute trading window before 10am during which the BBSW was set at the time.

They might not know the identities of counterparties with which deals had been done, he said.

Mr Collinson said “some information” was available.

“These are sophisticated traders,” he said.

“They become very knowledgeable about how these markets work and whether the market is moving or whether it is not.”

Westpac is the only bank of three originally pursued by ASIC over the BBSW that is defending the case.

ANZ and NAB settled last week, agreeing to pay a total of more than $100m in penalties, legal fees and donations to a financial charity.