Westpac is readying to get rid off its shareholding in BTIM. Credit:Carla Gottgens Managing exposures Central to understanding the actions of the traders are the exposures of the bank at any given bank bill rate setting. These exposures, of anywhere up to $14 billion, meant the bank can gain or lose about one hundredth of 1 per cent for every move in the BBSW. The exposures arise from the broader bank's accumulated positions in "bills or loans or deposits or swaps…" that will be set based on the bank bill setting that day. As the bank treasury teams quantified these exposures to the rate set, they had an interest in managing the rate in the favoured direction.

It didn't always go according to plan. On Friday, April 30, 2010, when Westpac had a short position of $2.85 billion (which meant it would desire a fall in the BBSW rate), the bank bought $980 million of bills though inter-dealer brokers ICAP and Tullet. Buying bills creates demand pushing the rate downward. Ms Johnston instructed ICAP broker Jason Howell to buy "44 bid I don't want to see 50. Keep me at 44 bid". "Jesus, hang on," he said when Ms Johnston later asked for the total. "You've got a fair bit… getting multiple hits by ANZ, CBA and NAB." 'Black eye'

Later on Colin Roden, a senior treasury executive and well-known trader, was in touch with Mr Howell. "Johnston's got a f***ing black eye today," Mr Roden told Mr Howell, the broker that stands between the banks so that they don't trade directly with each other. Mr Roden then instructs Mr Howell to "just get rid of the ANZ stuff mate" .."we're just choking on the name…", implying it had too much ANZ bills. This and other conversations do suggest how the banks seemed to be engaged in an intense battle to manage their risks and outwit their rivals. Attempts to influence the rate weren't always successful. In an email dated May 16, 2011, Ms Johnston seemed to formulate a plan of attack for the days in which the bank was likely to have large rate-set exposures, following the previous December and March when it "had huge sets primarily against NAB".

She proposed a number of solutions such as pre-hedging using derivative contracts. On June 6, 2012, Westpac had a $5.2 billion short exposure to the BBSW (which meant it wanted a lower BBSW) and bought $3.06 billion of bills, accounting for 80 per cent of all trades. In a conversation that afternoon, Ms Johnston told Westpac colleague Richard Conway the rate was set 9 basis points higher. "Col purchased 3bn!! Off nab …(thanks jase….)" she said. "Col is warning it could get ugly tho given his possie haha Not if he has all that stock to offload tell him."

'Dropping by the casino?' The Westpac court documents follow similar filings by ASIC detailing how ANZ traders were alleged to have manipulated the bank bill rate. Westpac said in a statement that it will continue to vigorously defend the proceeding in the court "which is the most appropriate forum for these issues to be determined'. "Westpac's Treasury area is responsible for raising wholesale funding and managing the interest rate risk on the $850 billion balance sheet. Westpac will provide its defence to the allegations in due course," the statement said. "In the meantime, the edited communications in ASIC's claim require substantial additional context to be properly understood and Westpac's view is that they do not have the meaning which ASIC seeks to give them." While Westpac traders tended to share information within the treasury team, ANZ's treasury and dealers in the markets division shared information.

The treasury and markets functions are typically separated by "Chinese walls" as the banks are large participants in money markets, while market dealers act as intermediaries for other participants, such as companies and fund managers. The chat transcripts show the traders were conscious that the bank bill swap rate wasn't operating as it should. "You dropping by the casino for Christmas day?" Roden asked Garfield Lee, the Commonwealth trader whose chats formed part of ANZ's case against sacked trader Etienne Alexiou, and has since left the bank. "Which casino? BBSW?," was Lee's response.