The Australian Securities and Investments Commission has commenced legal proceedings in the Federal Court in Melbourne against the Commonwealth Bank of Australia for unconscionable conduct and market manipulation in relation to the bank's involvement in setting the bank bill swap reference rate (BBSW) between January and October 2012.

The BBSW is the primary interest rate benchmark used in Australian financial markets and was administered by the Australian Financial Markets Association (AFMA) during the relevant period (AFMA changed the method by which the BBSW is calculated in 2013). Since 1 January 2017 ASX Ltd has been the administrator of the BBSW and has introduced a new method that rests on a Volume Weight Average Price.

In 2012 the bank had a large number of products which were priced or valued off BBSW. ASIC alleges that on three specific occasions CBA traded with the intention of affecting the level at which BBSW was set so as to maximise its profits or minimise its losses to the detriment of those holding opposite positions to CBA's.

ASIC says that it was unconscionable for CBA to trade in this way and to deal with products priced according to the rate without divulging its trading practices to its customers and counterparties. ASIC also alleges that CBA's trading created an artificial price and a false appearance with respect to the market for some of these products.

ASIC is asking the court to declare that CBA contravened ss12CA, 12CB, 12DA, 12DB and 12DF Australian Securities and Investments Commission Act 2001 and ss912A(1), 1041A, 1041B and 1041H Corporations Act 2001. It is asking it to impose pecuniary penalties and to order the bank to draw up plans to comply with various regulations. The regulator is making no further comment at the moment.

Last year the Government drew up the Treasury Laws Amendment (2017 Measures No. 5) Bill to reform financial benchmark regulation. This Bill seeks to amends the Corporations Act 2001 to establish a new licensing regime to require administrators of designated significant financial benchmarks to obtain benchmark administrator licences from ASIC, to enable ASIC to make rules for them to obey and to create offences and penalties for the manipulation of financial benchmarks. (The Bill is also designed to amend the Productivity Commission Act 1998 and the Treasury Laws Amendment (2016 Measures No. 1) Act 2017.) In the meantime, ASIC has consulted interested parties about its proposals for rules to govern financial benchmarks and its response to their replies is on the way.

ASIC has already taken the Australia and New Zealand Banking Group, Westpac and National Australia Bank to court over the benchmark débâcle. In November, the Federal Court imposed pecuniary penalties of A$10 million (US$8 million) apiece on ANZ and NAB, both of which had to sign enforceable undertakings. The Westpac case is still pending. ASIC previously accepted BBSW-related enforceable undertakings from UBS, BNP Paribas and the Royal Bank of Scotland.