Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Dealer banks allegedly conspired to manipulate Australian bank bill swap reference rate, (Aug 17, 2016)

By Linda O’Brien, J.D., LL.M.

A group of foreign and domestic dealer banks and two brokerage firms conspired to fix and manipulate the prices of financial products traded within the United States that were based on the Australian bank bill swap reference rate, according to a complaint filed in the federal district court in White Plains, New York (Dennis v. JPMorgan Chase & Co., August 16, 2016).

Investor Richard Dennis and investment funds Sonterra Capital Master Fund, Ltd., Frontpoint Financial Services Fund, L.P., Frontpoint Asian Event Driven Fund, L.P., and Frontpoint Financial Horizons Fund, L.P., have engaged in U.S.-based transactions for Australian dollar futures contracts.

The complaint states that the bank bill swap reference rate (BBSW) is administered by the Australian Financial Markets Association (AFMA) and is intended to represent the cost of borrowing funds in the Australian interbank money market based on actual transactions occurring between 9:55 a.m. and 10:00 a.m. Sidney time ("fixing window"). BBSW-based derivatives are financial instruments that incorporate the BBSW as a component of price and more than $1 trillion in BBSW-based derivatives were traded over-the-counter within the United States during the month of April 2013 alone.

JPMorgan Chase & Co.; Citigroup, BNP Paribas, The Royal Bank of Scotland, UBS, Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank,Westpac, Deutsche Bank, HSBC, Lloyds Banking Group, Macquarie Group, Royal Bank of Canada, Morgan Stanley, and Credit Suisse were members of the BBSW panel and designated AFMA prime banks. ICAP and Tullett Prebon were the only brokerages operating in the prime bank bill market during the daily BBSW fixing window.

Banks both borrow from the money market and act as dealers in related over-the-counter interest rate derivatives. Banks borrow money by selling certificates of deposit (CDs) and by issuing "bank bills" at a discount to their face value that require the issuing bank to pay a specified amount on a certain maturity date. The advantage to prime bank designation is that negotiable CDs and bank bills issued by prime banks trade at the lowest possible interest rates which increases liquidity and allows prime banks to raise funds in the money market at a discount, the complaint alleges.

According to the complaint, the BBSW is intended to reflect the observed rate of interest paid on prime bank bills actually traded in the Australian money market and is calculated every business day based on submissions from a group of panel banks. In 2016, the Australian Securities and Investments Commission (ASIC) initiated proceedings against three BBSW panel banks—Australia and New Zealand Banking Group, Westpac, and National Australia Bank— regarding evidence of a conspiracy among BBSW panel banks and interdealer brokers to fix the prices of BBSW-based derivatives.

The plaintiffs claim that the investigation uncovered evidence, including emails, telephone calls, and electronic chats, that the defendants systematically manipulated the BBSW by manipulating transactions during the fixing window through increased or decreased prime bank bills supply, making false BBSW submissions, sharing proprietary information regarding BBSW-based derivatives positions, and using their control over the AFMA rulemaking process to ensure that the BBSW remained susceptible to manipulation. The defendants allegedly generated hundreds of millions of dollars in illicit profits by artificially fixing BBSW-based derivatives prices at levels that benefited their trading books. As a result of the defendants’ purported manipulative conduct, the plaintiff investors were overcharged and received less interest on their BBSW-based swap transactions that they should have.

The plaintiffs assert claims for violations of Section 1 of the Sherman Act, the Commodity Exchange Act, and the Racketeer Influenced and Corrupt Organizations Act, as well as unjust enrichment and breach of the implied covenant of good faith and fair dealing claims. The action seeks declaratory and injunctive relief, treble damages, disgorgement, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:16-cv-06496.

Attorneys: Vincent Briganti, Geoffrey M. Horn, Peter D. St. Phillip, Raymond Girnys, Christian Levis, Christopher Lovell, Victor E. Stewart, and Benjamin M. Jaccarino (Lowey Dannenberg Cohen & Hart, P.C.) for Richard Dennis, Sonterra Capital Master Fund, Ltd., Frontpoint Financial Services Fund, L.P., Frontpoint Asian Event Driven Fund, L.P., and Frontpoint Financial Horizons Fund, L.P.

Companies: Sonterra Capital Master Fund, Ltd.; Frontpoint Financial Services Fund, L.P.; Frontpoint Asian Event Driven Fund, L.P.; Frontpoint Financial Horizons Fund, L.P.; JPMorgan Chase & Co.; Citigroup Inc.; BNP Paribas, S.A.; The Royal Bank of Scotland Group plc; UBS AG; Australia and New Zealand Banking Group Ltd.; Commonwealth Bank of Australia; National Australia Bank Limited; Westpac Banking Corporation; Deutsche Bank AG; HSBC Holdings plc; Lloyds Banking Group plc; Macquarie Group Ltd.; Royal Bank of Canada; Morgan Stanley; Credit Suisse Group AG; ICAP plc; Tullett Prebon plc

News: Antitrust NewYorkNews