Banks facing US legal action over BBSW

Banks facing US legal action over BBSW

The big four Australian banks and 32 other financial institutions are being sued in a US court case regarding bank trading and the bank bill swap rate (BBSW).


The case, filed at the US District Court for the Southern District of New York by attorney Vincent Briganti, is being brought against the big four Australian banks.

In addition, the Australian branches of BNP Paribas, Citibank, Deutsche Bank, HSBC, JPMorgan Chase Bank, Morgan Stanley, RBS, UBS, and Royal Bank of Canada, are named in the case.

The action is being brought by derivatives trader Richard Dennis and hedge funds Sonterra Capital Master Fund and FrontPoint Financial Services Fund (as well as FrontPoint Asian Event Driven Fund and FrontPoint Financial Horizons Fund).

FrontPoint gained international prominence after one of its money managers, Steve Eisman, was profiled by Michael Lewis in his book, The Big Short: Inside the Doomsday Machine. The 2015 film version of the book based the character Mark Baum, portrayed by Oscar-nominated actor Steve Carrell, on Eisman.

The lawyer representing the plaintiffs has previously filed similar class actions against numerous global financial institutions responsible for similar alleged manipulation of the setting of the London Interbank Offered Rate for the Pound Sterling (Sterling LIBOR), the Swiss Franc LIBOR, the Euro Interbank Offered Rate (Euribor), the Japanese Yen LIBOR, and the Euroyen Tokyo Interbank Offered Rate (TIBOR), among others.

According to the US claim, lodged earlier this week, the defendants made “hundreds of millions of dollars” in profits by “artificially fixing BBSW-based derivatives prices at levels that benefited their trading books”.

Many of the banks involved in this claim — such as NAB, Westpac, and ANZ — are also the subject of legal proceedings brought by ASIC regarding alleged “unconscionable conduct and market manipulation in relation to … setting the bank bill swap reference rate”.

According to ASIC's civil penalty proceedings, the banks were allegedly involved in trading "in a manner intended to create an artificial price for bank bills" on multiple occasions between 2010 and 2012. 

ASIC alleges that on these occasions, the banks "had a large number of products which were priced or valued off BBSW and that [they] traded in the bank bill market with the intention of moving the BBSW higher or lower" in a bid to "maximise [their] profit or minimise [their] loss[es] to the detriment of those holding opposite positions to [theirs]".

In a statement late last week, NAB noted that the class action had commenced and reiterated that it “does not agree with the claims by ASIC in relation to the BBSW”.

Likewise, ANZ confirmed it was named in the US class action relating to bank trading and the BBSW but rejected the allegations regarding bank trading and the BBSW made by ASIC and said it would be “vigorously defending” both the US class action complaint and the legal action brought by ASIC earlier this year.

It noted that there has been “no allegation by ASIC of collusion between it and other institutions”.

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Banks facing US legal action over BBSW
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