Case note: ASIC v Westpac BBSW decision

In Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751 Justice Beach of the Federal Court of Australia concluded that Westpac had engaged in unconscionable conduct under section 12CC of the ASIC Act (as in force prior to 1 January 2012) on four occasions in 2010 by trading Prime Bank Bills in the Bank Bill Market with the dominant purpose of influencing yields and where BBSW set.

He also decided that by reason of inadequate procedures and training Westpac had contravened its Australian Financial Services Licence obligations in sections 912A(1)(a), (c), (ca) and (f) of the Corporations Act.

However he decided that ASIC has not made out its case against Westpac under sections 1041A and 1041B of the Corporations Act concerning market manipulation or market rigging or in respect of any of its other claims involving misleading or deceptive conduct and misrepresentation.

Westpac was the only bank of the four major banks to contest ASIC’s claims. Background.

A further hearing on penalty will be held on a date to be determined.

Penalty case note (November 2018).

ASIC contended Westpac used its trading in Prime Bank Bills in the Bank Bill Market in the BBSW Rate Set Window with the sole or dominant purpose of influencing the level at which the BBSW was set in a way that was favourable to its BBSW Rate Set Exposure. It said that Westpac developed and pursued a practice in furtherance of enhancing the earnings generated from its BBSW Rate Set Exposure to the disadvantage of counterparties resulting in yields which did not reflect the forces of genuine supply and demand.

Justice Beach decided that “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.”

But he also observed:

I am not satisfied that the holding of the relevant dominant purpose on the said four occasions, together with the other evidence, establishes the effect or likely effect of creating or maintaining an artificial price for or under such derivative instruments. And as for s 1041B, I likewise do not consider that establishing such a purpose for trading in Prime Bank Bills establishes a false or misleading appearance with respect to the market(s) in or price for trading of such derivative instruments. …
I would reject ASIC’s more general allegation concerning the existence of the Rate Set Trading Practice during the relevant period. I am 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. Further, to characterise such isolated examples as in and of themselves constituting such a practice over the relevant period would be to prefer form over substance and to allow the pleader’s construct to inappropriately distort the analysis.

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