Australia’s ANZ faces fire for alleged market manipulation

ANZ is being investigated by the Australian Securities and Investments Commission (ASIC) amid serious allegations the bank manipulated markets when it facilitated a A$14 billion (US$9.2 billion) sale of government bonds in April last year.

ASIC has now publicly stated it suspects ANZ broke the law. Speaking to the Australian Financial Review on Tuesday, ASIC chairman Joe Longo said:

Earlier this month, ANZ launched its own internal probe into alleged misconduct within its markets division. ANZ says it is treating the allegations “with the utmost seriousness” and has engaged external legal counsel to assist with its investigations.

ANZ has also been accused of inflating the value of its bond trading by billions of dollars to win “lucrative” government mandates that accrue to firms trading big quantities.

Bond markets? Government mandates? You’d be forgiven for feeling a bit lost.

On its face, the alleged wrongdoing might seem quite esoteric and technical. But the Australian Financial Review has suggested the matter could end up becoming “the biggest scandal” in ANZ’s 182-year history.

To be clear, these are allegations amid an ongoing investigation by Australia’s corporate regulator. But it’s important to understand exactly what the bank has been accused of here, and how what happens in the bond market has the potential to affect us all.

It’s all about government borrowing

To understand the allegations against ANZ, you need a good grasp of a slightly dry-sounding and fairly routine transaction.

The Australian government often borrows money. It does this by selling so-called “bonds” to investors.

An investor buys a bond – which used to be a piece of paper but is now electronic – and in return receives (usually fixed)