The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

ASIC
The Australian Securities and Investments Commission has started legal action against Westpac for insider trading and other offences, it said yesterday. 

The allegations relate to Westpac’s role in executing an A$12 billion interest rate swap transaction with a consortium of AustralianSuper and a group of IFM entities, aka a “consortium.” The transaction, which occurred on 20 October 2016, was linked with the privatisation of a majority stake in the electricity provider Ausgrid by the New South Wales government. The transaction remains the largest interest rate swap transaction executed in one tranche in Australian financial market history.

The watchdog said that it has commenced proceedings in the Federal Court against the bank for “insider trading, unconscionable conduct and breaches of its Australian financial services licensee obligations.”

At about 7:00 am on 20 October 2016, the consortium signed an agreement with the NSW Government for the acquisition of Ausgrid, ASIC said. 

The regulator said that by about 8:30 am on 20 October 2016, Westpac knew, or believed, it would be selected by the consortium to execute the interest rate swap transaction on that morning. ASIC alleges that this was inside information. When the market opened at 8:30 am, 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 said in its statement. 

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 10:27 am. 

ASIC alleges that Westpac’s trading on the morning of 20 October 2016 had the potential to affect the price of the swap transaction to the detriment of the consortium or the special purpose vehicle.

The regulator also alleges that the circumstances surrounding Westpac’s trading on the morning of 20 October 2016, including its failure to provide the consortium with 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.”