The allegations also include charges relating to unconscionable conduct and breaches of its Australian financial services licensee obligations.
ASIC said the transaction occurred on 20 October 2016 and was associated with the privatisation of a majority stake in the electricity provider Ausgrid by the NSW government. The transaction remains the largest interest rate swap transaction executed in one tranche in Australian financial market history.
An interest rate swap is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount.
The allegations are time-specific. ASIC said at about 7am on 20 October 2016, the consortium signed an agreement with the NSW Government for the acquisition of Ausgrid and 90 minutes later Westpac knew, or believed, it would be selected by the consortium to execute the interest rate swap transaction on that morning.
“ASIC alleges this was inside information. When the market opened at 8:30am, whilst in possession of the alleged inside information, Westpac’s traders acquired and disposed of interest rate derivative products in order to pre-position Westpac in anticipation of the execution of the swap transaction.
“ASIC alleges that Westpac’s trading occurred while it was in possession of information that was not generally available to other market participants including those that traded with Westpac that morning. Prohibitions against insider trading are a fundamental tenet of market integrity.”
The consortium, via a special purpose vehicle, executed the interest rate swap transaction with Westpac at 10:27am.
ASIC alleges that Westpac’s trading on the morning of 20 October 2016 had the potential to impact the price of the swap transaction to the detriment of the consortium or the special purpose vehicle.
In addition to the insider trading allegation, ASIC also alleges that the circumstances surrounding Westpac’s trading on the morning of 20 October 2016, including its failure to provide to the consortium full and informed disclosure about its intention to pre-position its trading books prior to and with notice of the execution of the swap transaction, amounted to unconscionable conduct.
ASIC is seeking declarations and pecuniary penalties for Westpac’s alleged contraventions s1043A of the Corporations Act and s12CB of the ASIC Act, a declaration for Westpac’s alleged contravention of s912A of the Corporations Act, and ancillary orders.
Westpac said it took the allegations seriously and was considering its position.
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