Derivatives Exchange
Traders relay trades on the floor of the Chicago Board of Trade July 9, 2007. Shareholders on Monday wrap up voting on a merger deal that would combine the parents of the Chicago Mercantile Exchange and Chicago Board of Trade to create the world's largest derivatives exchange. Reuters/John Gress

The big 4 Australian banks are not yet off the hook for not passing in full the Reserve Bank of Australia (RBA) interest rate cut, and now, the lender as well as other banks are facing another lawsuit. Two US hedge funds and a US-based derivatives trader filed a class action suit in New York for alleged losses they suffered trading derivatives contacts linked to the bank bill swap rate (BBSW).

Sonterra Capital Master Fund, Frontpoint Financial Services and Richard Dennis filed a suit against ANZ Banking Group, Westpac Banking Group, National Bank of Australia, Commonwealth Bank of Australia, Macquarie and several international banks, reports Australian Financial Review. They claim the lenders “generated hundreds of millions of dollars in illicit profits” through artificial fixing of BBSW-based derivatives prices at levels which benefitted the trading books of the banks.

The three filed the lawsuit in the US District Court for the Southern District of New York on Aug 16. They claim prices of several derivatives, such as swaps, forward rate agreements, Australian dollar futures contracts, Australian dollar foreign exchange swaps and forwards, and 90-day accepted bill futures contacts, were affected since these were all linked to BBSW.

Frontpoint previously filed lawsuits related to Libor manipulation and partnered with Sonterra in another case about alleged rigging of the Libor rate for Swiss franc. The three accuse the lenders of racketeering, wire fraud and collusion under the US Racketeer Influenced and Corrupt Organizations Act (RICO Act), reports Sydney Morning Herald.

Sonterra estimates US$490 million (A$640.88 million) in trades were affected by the banks’ alleged rigging, while the amount which Frontpoint cites is US$100 million (A$130.82 million).

Besides the new lawsuit, the Australian Securities and Investments Commission (ASIC) also filed a case against ANZ, Westpac and NAB for alleged market manipulation and unconscionable conduct. Investors point to the ASIC case as “smoking gun evidence” against the banks.

The lawsuit is the first class action by victims of alleged rigging of bank bill swap rate in Australia to claims losses. It would be a landmark case which could open the floodgate for other similarly affected traders to also sue the banks.

In response to the class action suit, ANZ says it would vigorously defend the bank from the complaint, NAB says it disagrees with ASIC claims in relation to BBSW. Westpac denies the allegations in the claim and would defend the bank if served the claim.

VIDEO: Derivatives trading explained

Source: Eurex Group

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