Westpac hit with insider trading lawsuit by ASIC

Summary

  • ASIC takes Westpac to court over alleged insider trading in Ausgrid deal.
  • Westpac has declined to comment on the issue.
  • Despite this, the shares of WBC are trading 46 bps higher.

Australian corporate regulator Australian Securities & Investment Commission (ASIC) has sued the banking major Westpac Banking Corporation (ASX:WBC) on charges of insider trading, unconscionable conduct and breaches of its Australian financial services licensee obligations.

The transaction in question here is the largest interest rate swap in the Australian history. The allegations put under scanner a $12  interest rate swap transaction between a consortium of AustralianSuper and a group of IFM entities (Consortium) – that took place on 20 October 2016.

The regulator has alleged that on market opening of 20 October 2016, 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.”

Two hours earlier on the same day, IFM Entities had signed an agreement with New South Wales Government for the acquisition of power distribution company Ausgrid. After the privatisation deal, IFM Entities became majority shareholders in Ausgrid with 50.4% stake while the provincial government’s ownership was truncated to 49.6%

As part of the transaction, a special purpose vehicle (SPV) was established for attaining AU$12.77 billion in debt for the acquisition. It further sought to hedge the floating interest rate risk from this financing through the execution of eleven interest rate swaps notionally worth AU$$11.931 billion.

The ASIC has alleged that Westpac had access to insider information which other market participant did not have.

It further alleges that actions of Westpac shows “its failure to provide to the Consortium 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.”

Even as Westpac acknowledged the ASIC’s action, yet it declined to comment over the issue stating that it is taking “these allegations very seriously and is considering its position having just received the Originating Application and Concise Statement of Claim.”

Despite this, the shares of the lender were trading up 46 basis points on Wednesday on the ASX. Other three banks of the Big Four club, with exception of ANZ Banking Group (ASX:ANZ), were trading in black. The largest Australian lender Commonwealth Bank (ASX:CBA) was up 239 bps, while National Australia Bank (ASX:NAB) was up 70 bps.


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