ASIC is investigating a range of financial institutions to determine whether or not there has been benchmark-related misconduct in Australia’s financial markets. Their inquiries are still underway and, given the size and complexity of the relevant markets, will take some time to complete. They are looking at the activity of Australian financial institutions domestically and overseas, as well as foreign financial institutions that are active in Australia.
Benchmarks are of critical importance to a wide range of users in financial markets and throughout the broader economy. Different benchmarks affect the pricing of key financial products such as credit facilities offered by financial institutions, corporate debt securities, exchange-traded funds (ETFs), FX and interest rate derivatives, commodity derivatives, equity and bond index futures and other investments and risk management products.
In Australia, ASIC consider the following benchmarks to be of potential systemic importance:
- Bank Bill Swap Rate (BBSW)
- the Interbank Overnight Cash Rate (cash rate)
- S&P/ASX 200 equity index
- ASX Clear (Futures) Pty Ltd’s Commonwealth Government Securities (CGS) yields survey for settling bond futures
- Consumer Price Index (CPI).
Internationally, they consider the IBOR interest rate benchmark family and the WM/Reuters and European Central Bank (ECB) foreign exchange (FX) ‘fix’ rates, among other benchmarks, to be systemically important.
Their investigations are informed by the conduct issues relating to financial benchmarks that have been observed overseas and which have formed the basis of significant settlements by financial institutions with foreign financial regulators. For example:
- trading designed to move a benchmark rate so that the financial institution derives a benefit (e.g. by increasing the value of a derivative position held by the institution that references the benchmark)
- inappropriate handling of client orders or positions (e.g. by deliberately triggering ‘stop-loss’ orders)
- inappropriate disclosure of confidential client information (e.g. by disclosing client orders to traders at competing banks); and
- inappropriate submitter conduct (e.g. by making submissions in order to reduce the institution’s borrowing costs).
