The corporate regulator is investigating ANZ Bank’s handling of a $14 billion federal government bond sale.
Some investors who buy bonds based on the spread of 10-year government futures seek to hedge exposures with the B&D bank. This means the B&D bank is exposed to movement in futures prices, which can swing wildly, depending on when the AOFM prices a new deal. This conduct would also mean the issuer – in the case of the AOFM, the federal government – pays more. On the day of the sale last April, 10-year bonds were trading at their highest yield that month.Part of the functioning market
Section 1043A of the Corporations Act prohibits trading on inside information; section 12CB of the ASIC Act outlaws unconscionable conduct; and section 912A of the Corporations Act requires Australian financial services licensees to act “efficiently, honestly and fairly”. The regulator acknowledged pre-hedging plays a role managing intermediaries’ risk associated with anticipated client orders, and in assisting in liquidity and execution for clients. But ASIC added the practice “can also create significant conflicts of interest”.