The new chief executive of the Commonwealth Bank (CBA), Matt Comyn will be confronted with an early challenge, with the Australian Securities and Investments Commission (ASIC) commencing legal proceedings against the bank for unconscionable conduct and market manipulation in relation to the Bank Bill Swap Reference Rate (BBSW).
The regulator announced the legal proceedings in the Federal Court stating that the action referenced activity between 31 January 2012 and October 2012.
The Commonwealth Bank will defend the action noting that it had fully co-operated with ASIC’s investigation over the last two years.
Its official statement said: “Commonwealth Bank disputes the allegations made by ASIC. As this matter is before the courts, it is not appropriate to comment further at this time”.
Explaining the move, ASIC said the BBSW is the primary interest rate benchmark used in Australian financial markets and was administered by the Australian Financial Markets Association (AFMA) during the relevant period. On 27 September 2013, AFMA changed the method by which the BBSW is calculated.
It said the conduct that the proceedings relate to occurred before this change in methodology. Since 1 January 2017 ASX Limited has been the administrator of the BBSW, introducing a new Volume Weight Average Price (VWAP) based calculation methodology.
During the relevant period CBA had a large number of products which were priced or valued off BBSW. ASIC alleges that on three specific occasions CBA traded with the intention of affecting the level at which BBSW was set so as to maximise its profits or minimise its losses to the detriment of those holding opposite positions to CBA's.
The announcement said ASIC was alleging that it was unconscionable for CBA to trade in this way, and also to enter into products priced off the BBSW without disclosing its trading practices to its customers and counterparties.
The regulator said it was also alleging that CBA's trading created an artificial price and a false appearance with respect to the market for some of these products.
ASIC is seeking declarations that CBA contravened s12CA, s12CB, s12DA, 12DB and s12DF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s912A(1), s1041A, s1041B and s1041H of the Corporations Act 2001 (Cth) (Corporations Act). Further, ASIC has sought from the Court pecuniary penalties against CBA and an order requiring CBA to implement a compliance program.