ASIC has commenced civil proceedings against Westpac for insider trading on a $12 billion deal with AustralianSuper and a group of IFM entities.
Westpac will face off against the regulator in the Federal Court on allegations of insider trading, unconscionable conduct and breaches of its AFSL obligations in relation to interest rate hedging undertaking during a $12 billion interest rate swap transaction with a consortium comprising AustralianSuper and several IFM entities.
The allegations relate to the consortium's majority stake in Ausgrid, which it purchased from the NSW government in 2016. The consortium signed the deal at about 7am on 20 October 2016, taking control of 50.4% of the electricity provider.
ASIC alleges that by 8.30am Westpac knew or believed it would be selected by the consortium to execute the interest rate swap transaction that morning - a transaction that remains the largest of its kind to be executed in one tranche in Australian financial market history.
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It is alleged Westpac knew this by way of inside information and, when the market opened at 8.30am, Westpac's traders acquired and dumped interest rate derivatives to pre-position Westpac in anticipation of the transaction which was completed via a special purpose vehicle just shy of two hours later. This had the potential to impact the price of the transaction to the detriment of the consortium or the special purpose vehicle, ASIC said.
The special purpose vehicle was established with the purpose of obtaining $12.77 billion in syndicated debt funding for the acquisition and ongoing related costs. It also sought to hedge the floating interest rate risk by way of 11 interest rate swaps, to be paid off over 10 years, in one transaction with a notional value of $11.93 billion; "This effectively enabled the conversion of variable interest rates for the debt funding to a fixed rate, being the price 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," ASIC said.
"Prohibitions against insider trading are a fundamental tenet of market integrity."
It is also alleged Westpac failed to provide the consortium full and informed disclosure about its intention to pre-position its trading book prior to and with notice of the transaction. This amounts to unconscionable conduct, the regulator said.
Acknowledging the proceedings, Westpac said it takes the allegations very seriously and is considering its position.
AustralianSuper was contacted for comment but did not provide one prior to 1pm. IFM declined to comment.