It’s real lunatics meet asylum stuff today. From Banking Day:
Exposure draft legislation issued yesterday amending the Competition and Consumer Act to incorporate recommendations of the 2014 Harper Review includes the repeal of the price signalling provisions of the Act.
The prohibition on price signalling was introduced in 2012 and applies only to banks. It prohibits banks disclosing prices to competitors in private, where doing so is not in the ordinary course of business. It also prohibits public or private disclosure that is for the purpose of “substantially lessening competition”.
The Competition Policy Review, which Deloitte partner Ian Harper chaired, said that anti-competitive price signalling did not need a separate division in the Act and could be addressed by extending section 45 to cover “concerted practices that have the purpose, effect or likely effect of substantially lessening competition.”
The Harper Review said: “The panel considers that, in their current form, the prohibitions against price signalling in the CCA do not strike the right balance in distinguishing between anti-competitive behaviour and pro-competitive conduct.
“Being confined to a single industry, the current provisions are also inconsistent with the principle that the CCA should apply to all business generally.”
The Government has adopted Harper’s recommendation that the Act include a more general “concerted practices” provision.
The explanatory memorandum accompanying the draft bill says: “International jurisprudence suggests that co-ordination between competitors, where co-operation between firms is substituted for the uncertainties and risks of independent competition, is potentially a concerted practice.”
Such conduct would be prohibited “if it can be shown that the concerted practice has the purpose, effect or likely effect of substantially lessening competition.”
Meanwhile, last week in a New York court, also from Banking Day:
The explicit use, or misuse of AFMA (an Australian industry association) is a pillar of the US class action claim brought by Sonterra Capital, Frontpoint Financial and Richard Dennis against an array of banks over the alleged BBSW rate fix.
The statement of claim in a matter to be heard in a New York court sets out in unambiguous terms the mechanics and lead actors of the alleged rate fixing conspiracy.
Yesterday, Banking Day headlined “AFMA slaughtered in US BBSW claim”, and the following material is a companion to that report. The Australian Financial Markets Association distanced itself from the matter in comments reported yesterday.
The bank defendants – ANZ, CBA, Macquarie, NAB, Westpac and others – “used their domination of the AFMA market governance committees, including the BBSW and NTI committees, to control the BBSW rule-making process, conceal complaints from other market participants, and perpetuate the BBSW methodology that they used to secretly manipulate BBSW,” one section of the claim begins.
A later cracker is that the banks “used their domination of the AFMA market committees to propose rules and regulations that kept the committees’ activities secret.”
One of the biggest claims: “The defendants used their control of the BBSW rate-setting process to keep BBSW susceptible to manipulation.”
The body of the material unfolds almost as tragedy.
“The existence of the BBSW and NTI committees, and the supposed oversight that these committees maintained over the BBSW rate-setting process, created the illusion that BBSW was a trustworthy, reliable market rate.
“By placing BBSW-based derivatives traders on the market governance committees, the defendants created a conflict of interest.
“In many instances, defendants went one step further and placed BBSW manipulators in important positions on the BBSW and NTI committees.
“For example, Paul Woodward, who was ANZ’s single face to market during the class period, also served as ANZ’s representative on both the BBSW and NTI Committees.
“ANZ also appointed traders Matthew Morris and Andrew Miller to serve on both the NTI and BBSW committees during the class period.
“All three of ANZ’s representatives regularly manipulated BBSW. (See Part II.A-B supra).
“Similarly, Westpac placed its most prolific BBSW manipulators, Colin Roden, Sophie Johnston, and Michael Dodd on both the NTI and BBSW committees during the class period.
“In fact, Sophie Johnston served as chairperson of the NTI committee in at least 2010 and 2011.
“NAB traders Paul Howarth and Michael Tsakiris served as NAB representatives on the NTI committee, during the same time period when Howarth and Tsakiris regularly manipulated BBSW.
“NAB traders Robert Collins and Hermeet Najjhur, both of whom also manipulated BBSW during the class period, represented NAB on the BBSW committee.
“The defendants appointed senior executives at the highest ranks of the AFMA, including Chair (Morgan Stanley) and Deputy Chair (NAB) of the AFMA, ensuring that oversight of the BBSW process by the board of directors was illusory because of each banks’ conflicting motive to keep BBSW susceptible to manipulation so they could generate additional illicit profits.
“The following defendants placed senior executives on the AFMA Board of Directors during the class period: Morgan Stanley, NAB, Deutsche Bank, UBS, JPMorgan, Citi, CBA, Macquarie, Westpac, ANZ, Credit Suisse, and RBS.
“Throughout the class period, the defendants maintained a substantial majority of seats on the AFMA board of directors.
“Defendants used their domination of the AFMA market committees to propose rules and regulations that kept the committees’ activities secret.
“For example, throughout the period, a market committee rule held that ‘minutes are confidential documents and care should be taken in their circulation’.
“The defendants used their control of the BBSW rate-setting process to keep BBSW susceptible to manipulation.
“For example, in a 2012 position paper, AFMA rejected a proposal to switch to a mechanical calculation system whereby BBSW would be calculated by averaging of the National Best Bid and Best Offer rates for prime bank bills at each tenor, as well as introducing a number of complementary measures.
“AFMA rejected the proposed reforms and defended the existing methodology, despite the fact that the proposed changes would lead to less manipulated BBSW rates.
“This decision is indicative of collusion in the rule-making process because the defendants knew that the BBSW rate-setting mechanism allowed them to manipulate BBSW to gain an unfair advantage over counterparties.”
So, we’ve just repealed banking price signalling rules amid the greatest price signaling scandal in the history of Australian banking. It may or not be the right course of action but can we at least figure out the problem before we apply the solution?
