ANZ ASIC: Traders finger ‘pre-hedging’ in ANZ bond probe

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”.

Source: Financial Digest (financialdigest.net)

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