The Australian Securities and Investments Commission (ASIC) has reached a settlement with ANZ Bank regarding significant misconduct related to a federal government bond sale in April 2023. This incident reportedly cost taxpayers an additional $26 million in interest payments while ANZ profited nearly $10 million from trading activities.

ANZ was contracted by the Australian Office of Finance Management (AOFM) to assist in selling approximately $14 billion in Commonwealth bonds. As the designated duration manager, ANZ was responsible for managing the risks associated with interest rate fluctuations leading up to the bond sale. The bank had the authority to determine the timing for pricing the bond issue, which it set for 1:50 PM AEST on April 19, 2023.

However, as the pricing time approached, ANZ's traders had only partially mitigated their risk. Instead of postponing the pricing call, they reaffirmed the scheduled time. In a rush to hedge their position, the traders sold tens of thousands of bond futures contracts in the final 20 minutes before the pricing call. During this period, they accounted for 76 to 87 percent of the trading in the 10-year Australian government bond futures market.

This surge in selling pressure led to a decrease in bond prices, which ASIC estimates resulted in a 0.02 percentage point increase in the interest rate on the bonds. While this may seem minor, it translates to significant costs over the life of the bonds, amounting to $26 million in extra interest payments for the federal government.

ASIC's investigation revealed that ANZ earned $9.98 million as the duration manager, in addition to a $2.8 million fee for managing the bond issue. Concerns were raised about potential market manipulation, as a lower bond price would benefit ANZ by allowing it to acquire futures at a reduced cost. However, ASIC concluded that the evidence suggested a mistake rather than intentional wrongdoing. The regulator stated, "ASIC does not allege that ANZ's conduct of its role as duration manager and its manner of trading constituted over-hedging or market manipulation."

ASIC Chair Joe Longo acknowledged the seriousness of the situation, noting that ANZ's actions constituted "unconscionable conduct." He described the $80 million penalty imposed on ANZ as the highest ever for such a breach. Longo remarked, "Objectively it wasn't intentional, but it was certainly incompetent," and criticized ANZ for failing to adhere to its own policies and for not keeping the AOFM adequately informed.

In addition to the bond sale issues, ANZ faced scrutiny for its consumer banking practices, including unpaid bonus interest on savings accounts, incorrect fees charged on deceased customers' accounts, and delays in processing hardship applications. The settlement with ASIC also included $40 million related to ANZ's overstatement of bond trading activities in reports to the AOFM, which influenced the selection of banks for future bond sales.