Australian Securities and Investments Commission v Australia and New Zealand... [2025] FCA 1592 | Case summary

Australian Securities and Investments Commission Act 2001 (Cth) ss 12BA, 12BAA, 12BAB, 12CB, 12CC, 12DA, 12DB, 12GBA, 12GBB, 12GLA

Australian Securities and Investments Commission v Australia and New Zealand... [2025] FCA 1592 | Case summary | Zoe

[48]

(a) Within four months of the date of these Orders or such other time as agreed in writing between ASIC and ANZ, ANZ will undertake a self-assessment and prepare a report (ANZ Report), having regard to relevant Australian laws and Australian and global regulatory and industry guidance, assessing the adequacy and effectiveness of ANZ's application of the systems, controls, policies, procedures, training, guidance and framework for monitoring and supervision of employees, and governance in ANZ Institutional Bank to prevent, detect and respond to risks of:

(i) trading, in the context of pre-hedging of Australian material size transactions, including reference price transactions, that exerts undue pressure on price or results in materially higher market volatility or disruption of the reference price around the reference time; and

(ii) disclosures to clients before, during and after the pre-hedging of Australian material size transactions including reference price transactions about that pre-hedging which are misleading or not clear, accurate and fulsome.

(b) Within two months of the finalisation of the ANZ Report or such other time as agreed in writing between ASIC and ANZ, ANZ will instruct the independent expert to:

(i) having regard to the ANZ Report, relevant Australian laws and Australian and global regulatory and industry guidance, independently assess the adequacy and effectiveness of ANZ's application of the systems, controls, policies, procedures, training, guidance and framework for monitoring and supervision of employees, and governance in ANZ Institutional Bank to prevent, detect and respond to risks set out in sub paragraph (a);

(ii) within three months provide a written report (Expert Report) to ASIC and ANZ which sets out the results of the assessment and identifies any deficiencies and make recommendations to address those deficiencies.

(c) In relation to any deficiencies identified in the Expert Report, ANZ will action all reasonable recommendations of the independent expert to address those deficiencies within six months of receiving the Expert Report. Where applicable, ANZ will provide a statement to ASIC explaining why a recommendation has not been adopted or implemented.

(d) The appointment and terms of engagement of the independent expert are to be approved by ASIC in accordance with the terms set out in the Annexure to these orders.

[51]

These reasons deal with one of four cases that I heard over two days concerning proceedings brought by the Australian Securities and Investments Commission against the Australia and New Zealand Banking Group Limited concerning contraventions of various provisions of the corporations legislation and credit legislation. The present reasons concern ANZ's conduct relating to Treasury bonds. I have delivered a separate set of reasons dealing with the other three cases concerning what I would describe as retail conduct (see Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited (Retail Cases Omnibus) [2025] FCA 1593). Let me turn to the present case.
ANZ is and has been a registered bidder participating in bond tenders conducted by the Australian Office of Financial Management (AOFM), which is a department of the Commonwealth Treasury. AOFM is the issuer of Australian Government Treasury bonds to borrow money on behalf of the Commonwealth government.
As part of its role as a registered bidder, ANZ provided information to the AOFM about its monthly turnover in trading Australian Government securities including Treasury bonds in the secondary market.
As a registered bidder, ANZ also promoted itself to the AOFM for the role of joint lead manager and duration manager on syndicated issuances of Treasury bonds. The duration manager role is considered prestigious and being awarded the duration manager mandate is conducive to ANZ being perceived as a market leader in the Australian bonds business.
ANZ has admitted to engaging in conduct in contravention of ss 12CB and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth) and ss 912A, 912DAA and 1041H of the Corporations Act 2001 (Cth) concerning its activities relevant to the primary bond market as a duration manager and the reporting of its activities in the secondary bond market. The contraventions admitted by ANZ relate to two aspects.
The first aspect concerns ANZ's inappropriate conduct in executing a mandate that it succeeded in obtaining in April 2023 to act as the duration manager for the AOFM's planned issuance of new 21 December 2034 maturing Treasury bonds via syndication in the week beginning 17 April 2023. I would note here that Treasury bonds are financial products under s 12BAA of the ASIC Act and s 764A of the Corporations Act. Further, I would note that at all relevant times, ANZ provided financial services which were supplied in relation to Treasury bonds and dealt in and made a market in Treasury bonds for the purposes of s 12BAB of the ASIC Act and s 766D of the Corporations Act. ANZ is the holder of an Australian Financial Services Licence (AFSL).
The second aspect concerns inaccuracies in the reporting of secondary market bond turnover which ANZ reported to the AOFM in the period from 14 September 2021 to 22 June 2023 and ANZ's failure to lodge with ASIC a report in relation to a reportable situation in connection with those inaccuracies in circumstances where ANZ had reasonable grounds to believe that it had breached a core obligation, which is a statutory construct.
Now ASIC and the ANZ have tendered a statement of agreed facts and admissions (SAFA) setting out facts agreed between the parties pursuant to s 191(3)(a) of the Evidence Act 1995 (Cth). And the parties have put a joint position concerning the orders that they say that I should make concerning the ANZ's conduct.
First, declarations are sought pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth), s 1317E of the Corporations Act and s 12GBA of the ASIC Act.
Second, pecuniary penalties are sought pursuant to s 1317G(1) of the Corporations Act and s 12GBB(3) of the ASIC Act in a total amount of $125 million. I should say straight away that I have determined to increase the total amount of the penalties to $135 million for reasons which I will explain later. I would also note that I have imposed penalties in the other three retail cases totalling $115 million.
Third, an order for a compliance program is sought pursuant to s 1101B(1) of the Corporations Act and s 12GLA(2)(b) of the ASIC Act.
Let me start with some background and then delve more into the factual detail concerning the first aspect of the case dealing with the ANZ's conduct as the duration manager in April 2023 and which I have synthesised from the SAFA.

[52]

As I have said, the AOFM issues Treasury bonds to borrow money on behalf of the Commonwealth government. This is to ensure that the Australian Government can meet its spending, investment and debt payment obligations. Treasury bonds are medium to long term debt securities which provide a fixed rate of interest, paid semi-annually to the investor. Treasury bonds are also referred to as Australian Government bonds or Australian Commonwealth Government bonds.
The AOFM is the largest issuer of bonds in the Australian market. Some of its personnel are sophisticated participants in the Australian fixed income market. Notwithstanding this, in April 2023 the AOFM was in a position of situational vulnerability concerning ANZ's conduct as I will later explain.
The AOFM regularly issues Treasury bonds through periodic auctions conducted by competitive tender, in which registered bidders submit bids.
From time to time, the AOFM conducts syndicated issuances of Treasury bonds, typically for a new maturity and for larger volumes than can be obtained through the tender process. A syndication involves the AOFM appointing financial institutions as joint lead managers to support and promote the transaction, with the bonds being placed directly with investors, and appointing one of the joint lead managers as the duration manager to manage the interest rate risks associated with the issuance. The duration manager assumes and manages the risk as principal, and not as agent for the AOFM.
In transferring the management of the interest rate risks associated with the issuance to the duration manager, the AOFM relies on the skills and expertise of the financial institution as a sophisticated market participant. Whilst the AOFM is a sophisticated market participant, it does not have the skill set nor expertise to manage this interest rate risk itself. As such, the duration management service is a significant benefit to the AOFM and Commonwealth. The duration manager is not paid a separate fee for this role, beyond the allocated joint lead manager fee. The duration manager has an opportunity to earn a profit if there is a positive spread between the average price at which it sells its futures hedge and the price at which it acquires the bond futures from investors in the bond issuance. If there is a negative spread, the risk manager may incur a financial loss. In providing the duration management, the duration manager may take on significant market risk and deploys its own capital in the management of such risk.
Now this all gives rise to an inherent conflict between the financial institution which seeks to manage its risk and make a profit from the provision of the service and the AOFM which will be disadvantaged by any downward price pressure on the reference price. The duration manager manages risk by selling the reference bond futures in the market during the transaction which can place downward pressure on the reference price. Accordingly, whilst the AOFM receives a significant benefit from the services provided by the duration manager, and the AOFM expects that the duration manager will seek to make some profit, it is an expected part of that role that the financial institution will conduct its hedging in such a way as to minimise market disruption, price volatility and price impact; I will elaborate further on the need for and the type of hedging in a moment.
At all relevant times, ANZ was a registered bidder participating in tenders conducted by the AOFM. As part of this role, ANZ provided information to the AOFM about its monthly turnover in trading Australian Government securities including Treasury bonds in the secondary market. Secondary market bond turnover refers to the buying and selling of Treasury bonds and other Australian Government Securities to and from intermediaries being the market makers to clients, such as investment funds, asset managers, central banks and other financial institutions.
Further, at all relevant times, ANZ promoted itself to the AOFM for the role of joint lead manager and duration manager on syndicated issuances.

[54]

Now towards the end of 2022 and by early 2023, ANZ expected that the AOFM would be conducting a new syndicated bond issuance by April 2023. ANZ had a strong desire to be awarded the duration manager mandate on this transaction.
In April 2023, ANZ was appointed by the AOFM as a joint lead manager and as the duration manager for a $14 billion syndicated Treasury bond issuance by the AOFM. But before elaborating on the chronology I need to say a little more about risk and ANZ's knowledge.
Now investors participating in the AOFM's syndicated bond issuance could do so on either: (a) an outright basis, where the investor purchases the bonds; or (b) an exchange-for-physical (EFP) basis, that is, the investor purchases the bonds combined with a sale of 10-year Australian bond futures. This arrangement allows the investor to hedge the interest rate risk arising from their purchase of the bonds. EFP describes a transaction where one party buys the physical assets and sells Treasury bond futures contracts whilst the opposite party sells the physical assets and buys Treasury bond futures contracts.
The role of the duration manager involves accepting the risk associated with the 10-year Australian bond futures which form part of the EFP orders from investors, which may be significant; such bond futures are interest rate derivative contracts traded on the ASX24 under commodity code XT. The duration manager would buy the bond futures from the investors, but this would in turn expose the duration manager to risk. Accordingly, to manage this risk it had to sell bond futures. But of course in selling bond futures, this could place downward pressure on the reference price and the pricing of the Treasury bonds to be issued.
Now as part of the duration manager role in April 2023, ANZ knew the following nine matters.
First, it would acquire a significant number of 10-year Australian bond futures from investors who were allocated bonds on an EFP basis. This volume was expected to significantly exceed average daily traded volume in 10-year Australian bond futures.
Second, it was ANZ's role, as duration manager, to manage the risk it expected to acquire associated with these bond futures. In doing so, it was permitted by the AOFM to trade before, during, and after pricing. The AOFM disclosed to the market that ANZ could do so.
Third, ANZ would be selling 10-year Australian bond futures to pre-hedge the anticipated risk. In doing so, it could also acquire positions in other Australian bond futures, US Treasury futures and foreign exchange positions to offset the risk to ANZ of its pre-hedging position, described as correlated hedges. This trading would be conducted in a segregated portfolio and ANZ would measure the risk of its trading positions in DV01, which is a common approach to managing and measuring risk. This risk metric measures the change in value of a position per each 1 basis point change in yield of the futures contract.
Fourth, the AOFM expected, including as a result of ANZ's representations to the AOFM about how it would undertake the role of duration manager, that ANZ would manage the risk in an orderly manner to minimise market disruption, price volatility and price impact, and in a manner which promoted the fair treatment of the AOFM, and in compliance with ANZ's policies and industry guidance.
Fifth, the price at which ANZ would acquire these bond futures from investors would be set, during the pricing call which commences at a time nominated by ANZ, by ANZ's nominated trader spotting the prevailing bid-side of the futures price, which is then agreed to by the AOFM and the other joint lead managers. So, the duration manager nominates the time of the pricing call and the AOFM relies on the judgement of the duration manager to select the pricing call time.
Sixth, pricing of the bond means the time at which the price or level of the fixed interest rate or yield that will be payable by the AOFM on Treasury bonds for a new bond issuance is set. Pricing is determined by reference to the bid-side spread of the 10 year Australian bond futures contract at the pricing call time and expressed as yield to maturity. The yield of the bond issued by the AOFM on behalf of the Commonwealth is determined by adding a spread, which is predetermined by the AOFM, to the yield implied by the futures bid price agreed on the pricing call. This determined the amount that the Commonwealth would receive from investors who purchased the bonds issued.
Seventh, the ANZ would receive no fee or spread for accepting the risk of acquiring the significant number of 10-year Australian bond futures. Instead, it would make a profit or loss from the difference between the price at which it acquired the 10-year Australian bond futures from investors and the price at which it sold an equivalent volume of those contracts in the market during its hedging.
Eighth, each basis point reduction in the price of the 10-year Australian bond futures at pricing, and the consequential change in the yield of the bonds, would: (a) disadvantage the Commonwealth because it would reduce the proceeds received by the Commonwealth from the bond issuance; and (b) benefit ANZ because it would pay a lower price to acquire the significant number of 10-year Australian bond futures to be acquired by ANZ from investors in the bond issuance, thereby increasing ANZ's revenue or reducing its loss associated with managing the EFP risk.
Ninth, in managing the risk and to minimise the price impact of its trading activity, a duration manager was expected to liaise with the AOFM on any issues that arose in the course of the trading day which might impact upon its risk management or the timing of the pricing. ANZ also knew that it could: (a) withhold some of its hedging activity, which it was common to do so, until after the time of the bond issuance pricing; and/or (b) adjust the time of the pricing call to occur later in the day to allow itself more time to trade. Withholding some of the hedging activity would cause the duration manager to hold the risk of an unhedged position for a longer period of time. Adjusting the time of the pricing call carries the risk that the reference price may rise in that period.
Let me turn to the relevant chronology.
On Friday 14 April 2023, the AOFM announced that it planned to issue new 21 December 2034 treasury bonds via syndication in the week beginning 17 April 2023, subject to market conditions; these bonds would have a maturity date of December 2034.
Later on the same day, the AOFM appointed ANZ, Commonwealth Bank of Australia, Deutsche Bank and National Australia Bank Limited as joint lead managers. The AOFM also appointed ANZ to be the duration manager.
In accepting the appointment as joint lead manager, ANZ agreed to the Syndication Common Terms which required ANZ to: (a) "act efficiently, honestly and fairly in the interests of the Commonwealth during the Bond issuance process" (Clause 7.2(a)); and (b) comply, and ensure its employees comply, with "all Australian laws applicable to the performance of its obligations under the Relevant Agreements" (Clause 17.1). The Terms also record that "The Commonwealth acknowledges that in connection with any offering of Bonds....the Joint Lead Managers ... owe no fiduciary duties to, the Commonwealth or any other person."(Clause 12.2).
In accepting the role of duration manager, Mr Sloane on behalf of ANZ informed the AOFM during a telephone call that Mr Christopher Corbett (Head of Rates Trading Australia, Markets) would be the nominated trader and that ANZ would:

[60]

By 17 April 2023, as required by its material size transaction (MST) guidelines, ANZ had assessed the likely risk it would acquire from the bond issuance transaction. It expected the transaction size to be approximately $10 to 15 billion, with an indicative risk size of $8 to 10 million per basis point, which is referred to in terms of DV01 as I have already said. It assessed the transaction as being material and having a market impact.
ANZ established a deal team for the transaction which included Mr Jampala and Mr Corbett.
In a call commencing at 2:09pm on 17 April 2023, Mr Jampala described to members of the Desk Risk Management and Compliance teams that: (a) ANZ's advice to the AOFM will be to launch the transaction the next day (Tuesday), "which means pricing on Wednesday"; and (b) Mr Corbett will be the trader managing the risk of the transaction. Mr Jampala will "be with him pretty closely working - basically, doing it with him and just providing counsel right throughout which is why I'm on the deal team."
ANZ's MST guidelines and trading practice guidelines in place as at April 2023 required the following.
First, traders "should use reasonable endeavours to execute the MST in a manner that: is not disadvantageous to the client" and "is minimally disruptive to the market. You should manage the execution of the MST in a way that promotes the fair treatment of the Client" and pre-hedging "must be carried out insofar as possible in a way that is not detrimental to the Client".
Second, hedging should be aligned with "any applicable ANZ Policy/Procedure/internal guidance and relevant market standard" and in compliance with the following general principles: (a) "When hedging, it should be conducted in a manner that has little influence on market pricing, at a pace consistent with the normal market volumes at that time of day in the relevant instrument, and does not result in undue pressure on pricing around the fixing window/ reference time/ pricing call"; (b) "Trader[s] should ensure that the sole purpose behind hedging is risk mitigation [and] should not be performed for the purpose of influencing or manipulating the fixing rate / reference price / reference rate / reoffer yield"; and (c) "Traders should comply with FMSB's Risk Management Transactions for New Issuance Standard" and "FMSB's Reference Price Transactions Standard".
Third, there must be no over-hedging, that is, related hedging should never be more than 100% of ANZ's risk exposure.
Fourth, pre-hedging must only be executed by the MST Trader and that "[t]he Deal Team can include the Senior Trading Manager (if approved by Desk Risk Manager and Compliance). The Deal Team should not include the MST Trader".
ANZ's Information Flow Guidelines outline principles governing communications from ANZ employees to clients. Relevantly, 'Principle 3 - Communications' notes that:

[62]

Let me set out some other relevant standards.
The FICC Markets Standards Board (FMSB) was a UK-based industry body that promotes best practice standards for wholesale markets globally including by developing standards and good practice statements. In November 2016, the FMSB issued the Reference Price Transaction Standard, which relevantly provided: (a) A market participant should "balance the objectives of its hedging strategy against the possibility of putting undue pressure on the reference price, recognising that some price pressure is to be expected as risk is passed, particularly for large transactions or transactions in less liquid markets"; (b) Hedging should generally be "at a pace consistent with normal market volumes at that time of day in the relevant instrument (adjusted as necessary for the volume implicit in the RPT itself, and recognising that this may not be possible for illiquid instruments)" and "Although volatility can be due to many factors, a reasonable hedging strategy would not be expected to induce materially higher volatility of the reference price around the reference time, taking into account the size of the risk being transferred"; (c) Hedging should be designed to neutralize the risk and should not be undertaken for the purpose of creating a new significant open risk position. Further, "Intentional over-hedging (i.e. hedging more than required to cover the firm's risk) should not take place other than where that is a necessary consequence of appropriate hedging activity, such as where the relevant hedging instrument is only available in a size greater than that required to hedge the RPT".
Further, the Australian Financial Markets Association (AFMA) was a financial markets industry association which maintained codes, policies and procedures for the purpose of regulating its members' conduct in certain financial markets.
The AFMA Code of Conduct set out ethical principles for acceptable standards of behaviour in Australian financial markets which members were required to observe and expected to adopt. The Code of Conduct includes: (a) Ethical principle 4, which provides that members were expected to: "Act fairly and honestly when dealing with clients and counterparties"; and (b) Ethical principle 9, which provides that members were expected to: "Observe market standards and conventions, good practice and conduct expected or required of participants in markets when engaging in any form of market dealing".
AFMA's Guidance on Pre-Hedging and Debt Capital Primary Market Guidelines, which included a section titled Reference Price Transactions, relevantly set out the following: (a) The key characteristic of Reference Price Transactions is the "possibility of market pressure arising from Syndicate Manager risk management activity, and the related potential conflict of interest between the Issuer and the Syndicate Manager"; (b) Dealers should conduct hedging "in a manner that is not intended to disadvantage the Client" and communicate "their hedging practices to the Issuer in a clear manner meant to enable clients to understand their intentions and actions in the market"; (c) The sole intention behind hedging should be "risk mitigation"; and (d) In relation to acceptable hedging practices, the AFMA Guidance included the same matters as set out in the FMSB's Reference Price Transaction Standard.

[64]

At 9:00am on 18 April 2023, the AOFM announced the launch of new Treasury bonds maturing on 21 December 2034, which would be priced on 19 April 2023. The announcement noted that the duration manager "may be involved in hedging activities before, during or after pricing".
To execute the duration manager role, ANZ set up a segregated room on the trading floor. From the time that the deal was launched at 9am on 18 April 2023 until the deal was priced, Mr Corbett, as the nominated trader, and Mr Jampala, as his supervisor, were removed from normal trading activities as required by the MST guidelines. Mr Corbett traded in the segregated room. Mr Jampala was also in the room for most of that period, sitting next to Mr Corbett to provide guidance and supervision. All trades executed in connection with the transaction were recorded in a segregated trading book "R BOND AU". The trades and offers set out below are those conducted by ANZ, and made in connection with the risk borne by ANZ, in connection with its duration manager role on this transaction.
ANZ did not have a documented pre-hedging plan or a formal written hedging strategy for this transaction.
Now throughout the course of the transaction, Mr Sloane had a live Bloomberg chat with the AOFM, and Mr Sloane had a further Bloomberg chat with Mr Corbett and Mr Jampala.
At about 4:44pm on 18 April 2023, Mr Sloane informed Mr Corbett through Bloomberg chat messages that the size of the bond issuance was likely to be $13 to 15 billion, of which approximately $11 billion would be EFP orders. This is the risk that ANZ would need to manage as duration manager.
At about 4:55pm on 18 April 2023, Mr Jampala sought confirmation from Mr Sloane through Bloomberg chat messages that the deal size was not expected to exceed $15 billion and that about 72 percent of the deal would be EFP orders.
Mr Corbett had commenced pre-hedging a small volume of the anticipated risk for the transaction on Monday 17 April 2023. By the evening of 18 April 2023, he had accumulated a short position of 13,934 contracts of 10-year Australian bond futures in the R BOND AU portfolio to pre-hedge the anticipated risk. This short position was equivalent to about $1.35 million of DV01 risk, that is, about 13.5 to 16.8% of an anticipated total risk of $8 to 10 million in DV01 terms. He also accumulated a long position of 23,066 contracts of 3-year Australian bond futures, 4,588 contracts of 10-year US Treasury note futures, and 500 contracts of 90-day Australian bank bill futures. His net DV01 position in AU products was equivalent to a short position of about $610,584.

[65]

Between 4:46am and 6:10am on 19 April 2023 and before market open, Mr Corbett purchased 1,000 contracts of 10-year Australian bond futures. By buying 10-year Australian bond futures, Mr Corbett reduced his pre-hedging position. This had the effect of increasing the amount of outstanding 10-year bond futures contracts Mr Corbett needed to sell in order to hedge the anticipated number of contracts ANZ would acquire from investors in the bond issuance. Around the same time, he sold 1,000 contracts of 10-year US Treasury note futures. These trades were part of ANZ using correlated hedge products as described above. His net risk position in DV01 terms was largely unchanged as the combined result of these trades.
At the end of the SYCOM session on the morning of 19 April 2023, 10-year Australian bond futures were trading at 96.495.
ANZ knew, and AOFM reasonably would have expected, that, on this day, in connection with ANZ's need to hedge its risk associated with a transaction of this kind, ANZ intended to sell a substantial volume of 10-year Australian bond futures between market open at 8:32am and the pricing call time nominated by ANZ which would have, or would be likely to have, the effect of placing downward pressure on the price of the bond futures. The potential for the substantial volume to have downward pressure on the price of 10-year Australian bond futures may be consistent with the need to hedge these types of transactions and risk. However, on 19 April 2023, the AOFM did not know, and could not know, without ANZ informing it, that ANZ would trade a significant volume of bond futures in a compressed time period ahead of and during the pricing call and in a manner that placed undue downward pressure on the reference price at the time of pricing, which was inconsistent with the manner of trading expected by reason of the matters set out above.
As a result of the orders, during the time that Mr Corbett was on the pricing call, ANZ had outstanding offers in the market to sell 10-year Australian bond futures at each of the five price levels from 96.465-96.485.
ANZ's trading in the lead up to and during the pricing call applied undue downward pressure on the price of 10-year Australian bond futures at the time of pricing.
Shortly prior to and while on the pricing call, the AOFM was observing the market for 10-year Australian bond futures on a Bloomberg screen. The AOFM observed the prevailing price of 10-year Australian bond futures decreasing. Due to the anonymous nature of the futures market, the AOFM did not, and could not without ANZ informing it of its trading activity, know whether, and to what extent, ANZ was responsible for the trading activity in the market. Further, significant selling which was likely to place downward pressure on the price of the reference product by ANZ in close proximity to and at the pricing time would be inconsistent with: (a) the AOFM's expectations which were understood by ANZ; (b) ANZ's statements to AOFM about how it would manage duration management roles including this role; and (c) industry guidance including from AFMA and the FMSB.
The AOFM had a reasonable expectation that it would be informed if ANZ's pre-hedging was not sufficiently advanced or if ANZ otherwise encountered difficulties in its pre-hedging prior to the indicative pricing call time, and/or that ANZ would seek to adjust the pricing call to a later time if ANZ was unable to manage its risk in accordance with its policies and industry guidance. The AOFM also relied upon ANZ to nominate the pricing call time.
ANZ did not disclose to the AOFM: (a) its intention to seek to be fully hedged by the time of pricing if it could do so at an acceptable price; (b) that its pre-hedging was not sufficiently advanced to achieve that intention without trading a significant volume of 10-year Australian bond futures before and leading into the nominated pricing call time of 1:50pm; and (c) therefore, it intended to engage in such trading which would have, or was highly likely to have, a downward impact on the price of 10-year Australian bond futures as at the time of pricing.
ANZ did not provide the AOFM with an opportunity to consult with ANZ about rescheduling the time of the pricing call in light of the progress by ANZ in its hedging. ANZ did not adjust the pricing call time to a later time to allow itself more time to pre-hedge. ANZ did not withhold some of its hedging activity until after the time of pricing.
To the contrary, when ANZ had substantial volume of risk still to trade, ANZ's traders confirmed a pricing call time of 1:50pm and proceeded to sell significant volumes of 10-year Australian bond futures within a compressed time window shortly prior to and during the pricing call time nominated by it, between 1:10pm and 1:54pm.
Without knowing ANZ's specific intentions and trading, and having relied upon ANZ to manage the inherent conflict in accordance with the expected behaviour of a duration manager, at the time of the pricing call, the AOFM was unable to counteract or to protect itself against ANZ's conduct. To finalise the bond issuance, the AOFM needed to ensure that the issue of $14 billion Treasury bonds would be priced. The AOFM therefore had no alternative but to agree the price which was the bid-side of the 10-year Australian bond futures at the time of pricing on the pricing call. At the time of pricing, the AOFM had no knowledge, and no means of acquiring knowledge without ANZ providing it to the AOFM, of the matters above. As a result and to ANZ's knowledge, at the time of pricing, the AOFM was in a position of informational and situational disadvantage and vulnerability.
ANZ knew, or ought reasonably to have known, that its manner of trading and the undue downward pressure of that trading on the bond futures price was contrary to the AOFM's reasonable expectations about the pricing of the bond issuance and that ANZ's conduct exposed the AOFM and the Commonwealth to significant risk of detriment.
ANZ earned revenue of $9,979,687 as duration manager and a fee of $2.8 million as joint lead manager.
It is convenient to make one other point here. Based on an issuance size of $14 billion, each basis point fall in the futures price, and thereby increase to the yield of the bonds, would detrimentally impact the Commonwealth by reducing the amount received from investors who purchased the bonds issued by about $13.16 million.

[66]

Based on data collected by ASIC, between January 2017 and July 2024, the AOFM conducted a total of 21 syndicated bond issuances. Eleven of these issuances had 10-year Australian bond futures as the reference product and an EFP risk of at least $4.2m on a DV01 basis, being approximately 50% of the April 2023 issuance. Having regard only to notional positions in the reference product, that is, not assessed on a DV01 basis, and not including correlated hedging, ANZ's trading on this transaction when compared to the other 20 issuance transactions, displays the following features.
First, except for one transaction in 2018 for which ANZ was also the duration manager, this is the only transaction in which the duration manager had sold reference products equal to the EFP quantity of the reference product at the time of pricing. In all other issuances, the duration manager withheld a portion of the amount of reference product to be sold until after pricing, for purposes including minimising market disruption, protecting the interests of the AOFM, and/or profiting from the anticipated rise in the price of the futures contracts. Of the other 19 transactions including another two previous transactions in which ANZ was the duration manager, the highest proportion that a duration manager sold of the EFP quantity of the reference product by the time of pricing was approximately 85%. ANZ traded a materially higher proportion of its anticipated risk in the 45 minutes prior to pricing.
Second, on this transaction, noting that ANZ sold a low volume of the reference product between market open and 1:10pm and a significant volume of the reference product between 1:10pm and pricing, the spotted bid price was 2 basis points lower than the best bid price at market open. Across the 10 other issuances where the reference product was 10-year Australian bond futures and where the EFP risk was greater than $4.2 million in DV01 terms, the median bid price movement was a 2.3 basis point drop and the average was a 2.6 basis point drop. Further, on this transaction, the price of the reference product moved by the widest margin (a decrease of 2 basis points) in the 45 minutes leading to pricing in all 21 issuances.
Further, in at least some other transactions, where unanticipated market conditions arose or the duration manager's pre-hedging was not sufficiently advanced, this was transparently disclosed to the AOFM and a discussion occurred about the timing of the pricing call, the duration manager's ability to retain a portion of the risk to hedge post pricing, and the potential impact on price of each course of action.

[71]

The parties have agreed, which I accept, that the threshold requirements of that section have been met and that the impugned conduct was in "trade or commerce", as defined in s 12BA, and in "connection with" the supply or possible supply of financial services for the purpose of s 12CB. As s 12CB(4) makes clear, the concept of unconscionability under s 12CB is more wide-ranging than, and not limited by, the concept of unconscionability in equity. And in the context of commercial dealings, the question is whether such conduct is so far "outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience" (Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [92] per Gageler J).
Section 12CC sets out a non-exhaustive list of factors to which one may have regard in determining whether the conduct answers the description of being unconscionable. But I am not required to evaluate the impugned conduct by reference to the presence or absence of these factors irrespective of the relevance of those factors, but must do so if any of the factors are applicable, noting that the presence or absence of each matter is not a mandatory consideration and the totality of the circumstances dictates whether any such matter is applicable; see Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27; (2024) 419 ALR 30 at [11] and [55] to [57] per Gageler CJ and Jagot J. I have had regard to the relevant considerations in this case.
By reason of the matters above taken together and in all of the circumstances, ANZ's conduct of its role as duration manager and its manner of trading as set out were contrary to the requirements of its own policies and industry guidance issued by the AFMA and by the FMSB, and were inconsistent with ordinary trading behaviour of duration managers appointed by the AOFM in respect of syndicated bond issuances.
I accept, based on the agreed facts, that a trader in the position of ANZ, with the knowledge of ANZ, acting within the range of ordinary trading behaviour of duration managers described above, in all of the circumstances, would have taken one or more of the following steps: (a) sold a greater volume of 10-year Australian bond futures in the period between 8:32am and 1:10pm on 19 April 2023; (b) informed the AOFM prior to the nominated time of the pricing call of some or all of the matters above; (c) revised the chosen hedging strategy to seek to be fully hedged at the time of pricing; (d) adjusted or nominated a different time for the pricing call to allow itself more time to pre-hedge; (e) withheld some of its hedging activity until after the time of pricing; (f) traded in a manner that did not result in the sale of significant volumes of 10-year Australian bond futures in a compressed time window shortly prior to and during the pricing call and did not result in applying undue downward pressure on the price of 10-year Australian bond futures at the time of pricing.
But I accept that ANZ's conduct in its role as duration manager and its manner of trading did not constitute over-hedging or market manipulation.
In my view, based on the facts that I have set out and admissions made by the ANZ, ANZ's conduct in all of the circumstances was unconscionable in contravention of s 12CB(1). Let me elaborate on eight aspects.
First, ANZ represented to the AOFM that it would be transparent with the AOFM. It so represented in advance of the appointment as duration manager, when on 29 March 2023, ANZ emailed the AOFM expressing an interest in such an appointment, and attaching a presentation which referred to a key objective for an issuance as "transparency", specifically a "Transparent process throughout". And it so represented when accepting the role of duration manager. ANZ told the AOFM that ANZ would "certainly try and maintain and manage the risk in a way that is of the least impact to the market and we keep an open and consistent dialogue both with yourselves and myself and the trader who will be looking after the risk."
Second, ANZ knew on 19 April 2023 that it intended to sell a substantial volume of 10-year Australian bond futures between market open at 8:32am and the pricing call time nominated by ANZ. ANZ knew that this selling would have, or would be likely to have, the effect of placing downward pressure on the price of the bond futures, in its favour and to the detriment of the AOFM. Further, by 9.30am, ANZ knew that the deal size was $14 billion and by about 11.20am that ANZ would receive approximately 84,544 contracts of 10-year Australian bond futures at the time of the issuance. Further, by 12pm, the ANZ traders were aware that they would be seeking to sell about 65,950 contracts of 10-year Australian bond futures in less than two hours until the nominated pricing call time of 1:50pm to fully hedge the contracts ANZ would acquire from investors in the bond issuance. They were also aware that selling this volume within that time period would have, or would be likely to have, a downward impact on the price of 10-year Australian bond futures. Further, by 1pm, the ANZ traders intended to be fully hedged at pricing, if they could do so at an acceptable price, and were aware that they would seek to sell about 63,850 contracts of 10-year Australian bond futures in the next 50 minutes, until ANZ's nominated pricing call time of 1:50pm, to fully hedge the contracts ANZ would acquire from investors in the bond issuance. They were also aware that selling this volume within that time period would have, or would be likely to have, a downward impact on the price of 10-year Australian bond futures, in its favour and to the detriment of the AOFM.
Third, the AOFM was to the ANZ's knowledge situationally vulnerable, as a result of not knowing ANZ's specific intentions and trading activity and because, having relied upon ANZ to manage the inherent conflict of interest by conducting itself in accordance with the expected behaviour of a duration manager, the AOFM was unable to counteract or protect itself.
Fourth, ANZ breached its own policies for hedging. Those internal policies included ANZ's MST guidelines and trading practice guidelines in place as at April 2023 which required, inter alia, the following. One aspect was that traders "should use reasonable endeavours to execute the MST in a manner that is not disadvantageous to the client" and "is minimally disruptive to the market. [Traders] should manage the execution of the MST in a way that promotes the fair treatment of the Client" and pre-hedging "must be carried out insofar as possible in a way that is not detrimental to the Client". And another aspect was that "[w]hen hedging, it should be conducted in a manner that has little influence on market pricing, at a pace consistent with the normal market volumes at that time of day in the relevant instrument, and does not result in undue pressure on pricing around the fixing window/reference time/ pricing call."
Fifth, ANZ breached industry guidance, including the following guidance.
The November 2016 Reference Price Transaction Standard issued by the FMSB, which as I have stated is a UK-based industry body that promotes best practice standards for wholesale markets globally including by developing standards and good practice statements, stated that market participants should "balance the objectives of its hedging strategy against the possibility of putting undue pressure on the reference price, recognising that some price pressure is to be expected as risk is passed, particularly for large transactions or transactions in less liquid markets".
Further, AFMA's Guidance on Pre-Hedging and Debt Capital Primary Market Guidelines, which included a section entitled "Reference Price Transactions", formed part of the AFMA Code of Conduct. It stated that dealers should conduct hedging "in a manner that is not intended to disadvantage the Client" and communicate "their hedging practices to the Issuer in a clear manner meant to enable clients to understand their intentions and actions in the market".
Sixth, ANZ's behaviour was outside the range of ordinary behaviour of duration managers appointed by the AOFM. Of the total 21 syndicated bond issuances the AOFM conducted between January 2017 and July 2024 the following may be noted.
Except for one transaction in 2018 for which ANZ was also the duration manager, the April 2023 issuance was the only issuance in which the duration manager had sold reference products equal to the EFP quantity of the reference product at the time of pricing. In all other issuances, the duration manager withheld a portion of the amount of reference product to be sold until after pricing, for purposes including minimising market disruption, protecting the interests of the AOFM, and/or profiting from the anticipated rise in the price of the futures contracts. Of the other 19 transactions, including another two previous transactions in which ANZ was the duration manager, the highest proportion that a duration manager sold of the EFP quantity of the reference product by the time of pricing was approximately 85%. ANZ traded a materially higher proportion of its anticipated risk in the 45 minutes prior to pricing on 19 April 2023.
In at least some of the other transactions, where unanticipated market conditions arose or the duration manager's pre-hedging was not sufficiently advanced, this was transparently disclosed by the duration manager to the AOFM and a discussion occurred about the timing of the pricing call, the duration manager's ability to retain a portion of the risk to hedge post-pricing, and/or the potential impact on price of each course of action. ANZ did not do so on 19 April 2023.
Seventh, ANZ failed to take one or more of the following steps. It failed to sell a greater volume of 10-year Australian bond futures in the period between 8.32am and 1.10pm on 19 April 2023. It failed to inform the AOFM of its lack of progress in its hedging in light of its intention to seek to be fully hedged by the time of pricing if it could do so at an acceptable price when proposing or confirming the time for the pricing call. It failed to propose to delay the pricing call. And it failed to modify its strategy of being fully hedged by the time of pricing.
Eighth, ANZ was not forthcoming in its reporting to the AOFM about its conduct as duration manager after the issuance, including when the AOFM questioned ANZ about its trading, and instead made inaccurate or incomplete statements which involved misleading conduct about the circumstances of ANZ's trading.
Generally, ANZ traded in the manner set out above and in the context of the circumstances as I have set out. Let me turn to the next topic of misleading and deceptive conduct and false representations.

[77]

There are relevant differences between the provisions in respect of certain threshold elements. Section 1041H of the Corporations Act requires the conduct to be "in this jurisdiction" and in relation to either a "financial product" or a "financial service". By contrast, s 12DB(1)(a) of the ASIC Act applies to representations "in trade or commerce" which are in connection with the supply or possible supply of "financial services", where those representations are that services are "of a particular standard, quality, value or grade".
Section 1041H(1) applies to conduct "in relation to a financial product or a financial service". The expression "in relation to" is wide to say the least, and an indirect or less than substantial connection may be sufficient. A "financial service" is defined to include dealing in financial products; see s 766A(1)(b). The term "dealing" is defined to be constituted by, inter alia, issuing, varying or disposing of a financial product; see s 766C(1). And arranging for a person to engage in such conduct is also dealing in a financial product; see s 766C(2).
Section 12DB applies to conduct "in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services". Section 12BAB(1)(g) stipulates that a person provides a financial service if they "provide a service ... that is otherwise supplied in relation to a financial product". The expression "in connection with" may require that the impugned conduct accompany or be involved in the supply of services.
In Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751; (2018) 266 FCR 147; 127 ACSR 110, I commented on the phrase "in connection with" in the context of s 12CB of the ASIC Act. I considered that whilst the specific degree of connection required understandably varies with the statutory context, a narrow or technical approach was not warranted. I said (at [2172]):

[78]

As to the requirement that conduct be "in connection with" the supply or acquisition, or possible supply or acquisition, of financial services, an analogous requirement in s 51AC of the Trade Practices Act was considered in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110. Heerey J held that the expression required that "the conduct impugned 'accompany, go with or be involved in' the supply of goods or services" (at [74]). That observation does not support a narrow or technical approach to the expression. It was made in the context of distinguishing conduct directed at the recipient of the relevant goods or services, and conduct directed at (and only said to be unconscionable in relation to) an unrelated third party. Of course, the expression "in connection with" requires a relation between one thing and another, but the specific degree of connection required understandably varies with the statutory context. But a causal relationship is not required. And no narrow approach is warranted having regard to the protective objects of the provision. In particular, I agree with ASIC that there is no basis for implying into the expression "in connection with" a requirement that conduct said to be unconscionable must have occurred prior to the relevant supply or acquisition of financial services. Such a temporal constraint would be artificial and inconsistent with the following matters. First, the generality of the statutory text directs attention to "all the circumstances". Second, the list of factors expressly identified as relevant to whether s 12CB (or s 12CC) has been breached includes "any conduct that the supplier [or acquirer] or the service recipient [or business supplier] engaged in, in connection with their commercial relationship, after they entered into the contract"; see ss 12CC(2)(j)(iv) and 12CC(3)(j)(iv) (prior to 1 January 2012), and ss 12CC(1)(j)(iv) and s 12CC(2)(j)(iv) (post 1 January 2012). Third, the terms of s 12CB(3)(a) prohibit a court from considering "any circumstances that were not reasonably foreseeable at the time of the alleged contravention". Such a provision implicitly permits prospective matters to be taken into account. Further, the reference time is not the time of entry into of a dealing but the time of the alleged contravention. Fourth, the very terms of s 12CB(4)(c)(ii) state that "in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract ... is not limited to consideration of the circumstances relating to formation of the contract".

[80]

Let me say the following concerning the elements of s 1041H.

First, the concept of "engaging in conduct" is broad. It is defined inclusively by s 1041H(2)(a) of the Corporations Act to include "dealing in a financial product". Further, "this jurisdiction" is, relevantly, Australia (s 5(2)).

Second, the expression "in relation to" is of wide ambit. Now it is trite to observe that its meaning will be determined by the context. The phrase signifies the need for there to be a relationship or correlation between the two subjects formally referenced. Moreover, an indirect or less than substantial connection may be sufficient.

More generally, the relevant principles are largely the same as those which apply to s 18 of the Australian Consumer Law. In ACCC v Get Qualified Australia Pty Ltd (in liq) (No 2) [2017] FCA 709; [2017] ATPR 42-548 at [25]- [42], I summarised the relevant principles in the following terms which no party in the present proceeding contested.

First, there is no meaningful difference between the words and phrases "misleading or deceptive", "mislead or deceive" or "false or misleading".

Second, where the issue is the effect of conduct on a class of persons rather than identified individuals to whom a particular misrepresentation has been made or particular conduct directed, the effect of the conduct or representations upon ordinary or reasonable members of that class must be considered. This hypothetical construct avoids using the very ignorant (or gullible) or the very knowledgeable (or astute) to assess effect or likely effect; it also avoids using those credited with habitual caution or exceptional carelessness; it also avoids considering the assumptions of persons which are extreme or fanciful. The objective characteristics that one attributes to ordinary or reasonable members of the relevant class may also differ depending on the medium for communication being considered. There is scope for diversity of response both within the same medium and across different media.

Third, in considering the hypothetical ordinary and reasonable member of the relevant class, one considers the dominant message conveyed. The question is whether there is a real rather than a remote possibility of the member of the relevant class being misled or deceived by the relevant conduct or statement. In the present context, does the relevant conduct or statement have a tendency to lead persons of the relevant class into error?

Fourth, conduct that exploits the mistaken views of members of the relevant class may be misleading or deceptive or likely to mislead or deceive and may not be corrected by any obscure fine print, whether in content, size or location, that sets out the true position.

Fifth, for the purposes of the relevant provision, one must identify the relevant conduct and then consider whether that conduct, considered as a whole and in context, is misleading or deceptive or likely to mislead or deceive. Such conduct is not to be pigeon-holed into the framework or language of representation.

Sixth, conduct is misleading or deceptive or likely to mislead or deceive if it has the tendency to lead into error. But conduct causing confusion or wonderment is not necessarily co-extensive with misleading or deceptive conduct.

Seventh, the question is whether there was a real but not remote chance or possibility that the relevant conduct was misleading or deceptive or likely to mislead or deceive. To assess this one looks at the potential practical consequences and effect of the conduct.

Eighth, the words "likely to mislead or deceive" demonstrate that it is not necessary to show actual deception. Relatedly, it is not necessary to adduce evidence from persons to show that they were actually misled or deceived.

Ninth, there must be a sufficient nexus between the impugned conduct or apprehended conduct and the consumer's misconception or deception. As was said in SAP Australia Pty Ltd v Sapient Australia Pty Ltd [1999] FCA 1821; (1999) 169 ALR 1 at [51] (per French, Heerey and Lindgren JJ):

[82]

Subject to one qualification, the error or misconception must result from the alleged wrong-doer's conduct and not from other circumstances for which it was not responsible. But conduct that exploits or feeds into and thereby reinforces the pre-existing mistaken views of members of the relevant class may be misleading or deceptive or likely to mislead or deceive.

Tenth, conduct that is merely transitory or ephemeral where any likely misleading impression is likely to be readily or quickly dispelled or corrected does not constitute conduct that would infringe the relevant provision.

Eleventh, and relatedly, it is one thing to say that the conduct must be more than transitory or ephemeral, but it is another thing to say that the conduct or its effect must endure up to some "point of sale" or contracting. There is no such requirement to establish a contravention.

Even if the effect of relevant pre-contractual conduct is or is likely to be dispelled prior to any transaction being effected, it may still be misleading or deceptive. In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [50] (per French CJ, Crennan, Bell and Keane JJ) it was noted that a contravention may occur, not only when a contract has been concluded under the influence of a misleading advertisement, but also at the point where members of the relevant class have been enticed into the marketing web by an erroneous belief engendered by an advertiser. Such a contravention may be established even if the consumer may later come to appreciate the true position before a transaction is concluded. The tendency of pre-contractual conduct to mislead is to be determined not by asking whether it was apt to induce consumers to enter into contracts, but by asking whether it was apt to bring them into negotiation.

The question of whether conduct is misleading or deceptive is anterior to whether a person has entered into contractual relations. It is no answer that relevant consumers who signed up for the service or product could have been expected to understand fully the nature of their obligations by the time they contracted.

Twelfth, terms or conditions of particular offers that have significant advantage for the alleged wrong-doer and disadvantage for the consumer require due notice.

Further on this aspect, in assessing the effect and significance of conduct that diminishes or relegates to obscurity information that is necessary to qualify or correct any dominant message, one looks at the relevant course of conduct as a whole in light of the surrounding facts and circumstances.

Thirteenth, in determining whether a contravention has occurred, the focus of the inquiry is on whether a not insignificant number within the class have been misled or deceived or are likely to have been misled or deceived by the alleged wrong-doer's conduct. There has been some debate about the meaning of "a not insignificant number". The formulation in Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45 looks at the issue in a normative sense. The reactions of the hypothetical individual within the class are considered. The hypothetical individual is a reasonable or ordinary member of the class. Does satisfying the Campomar formulation satisfy the "not insignificant number" requirement? I am now inclined to the view that if, applying the Campomar test, reasonable members of the class would be likely to be misled, then such a finding does not necessarily carry with it that a significant proportion of the class would be likely to be misled. A finding of a "not insignificant number" of members of the class being likely to be misled is conceptually speaking an additional requirement that needs to be satisfied.

Fourteenth, silence will be misleading or deceptive if "the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed" ...

...

The test "requires close analysis of all the circumstances" (at [91] per Heydon, Crennan and Bell JJ).

Let me make the following additional points concerning the relevant elements of s 12DA of the ASIC Act.

First, s 12BA(1) of the ASIC Act provides that "conduct has the meaning given by subsection (2)" and that "engage in conduct has the meaning given by subsection (2)". Section 12BA(2)(a) defines "engaging in conduct" broadly as "a reference to doing or refusing to do any act". That paragraph goes on to define the term inclusively in the remainder of that paragraph.

Second, the meaning of "trade or commerce" has been explained earlier in the context of ss 12CB and 12CC of the ASIC Act. The same principles apply under s 12DA.

Third, the meaning of both the expression "in relation to" and the term "financial services" has been explained earlier in the context of s 12CA of the ASIC Act. The same principles apply under s 12DA.

Fourth, the same principles which apply under s 1041H of the Corporations Act apply under s 12DA of the ASIC Act.

[85]

The first category of ANZ's misleading or deceptive conduct concerns reports submitted to, and other communications with, the AOFM between 20 April 2023 and 3 May 2023 in relation to its activities as a duration manager, which constitutes 3 separate contraventions of s 1041H of the Corporations Act.
The relevant background facts, as agreed between the parties, are briefly summarised below.
On 19 April 2023, after the bond had been priced, the AOFM queried with ANZ that the spotted price was the lowest point that the 10-year Australian bond futures traded that day with only 30 contracts trading at that price.
On 20 April 2023, ANZ provided a report of its activities as a duration manager to the AOFM.
On 21 April 2023, after reviewing the duration management report, the AOFM requested a further explanation from ANZ as to the pricing point. In response to this request, on 28 April 2023, ANZ sent a further written report to the AOFM in which it noted that it still had a substantial amount of risk to clear as pricing approached and that it had been unable to clear its risk at higher levels.
On 28 April 2023, after receiving the additional response, the AOFM sent a Bloomberg chat message to ANZ asking why it had not updated the AOFM as to the above issues and whether it had given consideration to delaying pricing by 20-30 minutes. On 3 May 2023, ANZ sent an email to the AOFM responding to these questions.
ANZ admits that the reports provided to the AOFM were misleading or deceptive in the following three respects. First, the reports described the market for 10-year Australian bond futures as having traded at lower price levels than was in fact the case. Second, the reports described ANZ as being more active in seeking to sell 10-year Australian bond futures from market open to shortly before deal pricing than was in fact the case. Third, the reports described market conditions as more difficult than was in fact the case.
ANZ further admits that it engaged in misleading or deceptive conduct by failing to disclose the following relevant matters in the Duration Management report, the additional response provided on 28 April 2023 or the email response provided on 3 May 2023.
First, ANZ traded significant volumes of 10-year Australian bond futures in a compressed period shortly before and during the pricing call, which placed undue downward pressure on the price on 10-year Australian bond futures.
Second, at the time of pricing, ANZ had outstanding orders in the market to sell a total of 14,591 contracts of 10-year Australian bond futures.
Third, shortly after pricing, ANZ cancelled those large sell orders.
Fourth, at the time of pricing, ANZ had sold 84,473 contracts of 10-year Australian bond futures, which slightly exceeded the 84,374 contracts that it would be acquiring from EFP orders in the bond issuance.
Let me turn now to the second category of conduct concerning the reporting of secondary market bond turnover. For this purpose I need to delve much more into the detail, particularly as I propose to increase the penalty over that submitted to me by the parties.

[87]

This category of conduct concerns ANZ's misleading or deceptive conduct and false or misleading representations concerns its reports to the AOFM as to its secondary market bond turnover, which constituted 24 separate contraventions of s 1041H of the Corporations Act and s 12DB of the ASIC Act.
Secondary market bond turnover refers to the value of existing bonds traded between investors. This is to be distinguished from the primary market bond turnover, which refers to the value of newly issued bonds bought directly from the issuer, here the AOFM.
The AOFM collects and uses the secondary market turnover data it receives from market intermediaries to assess trends in secondary market activity, market makers' ability to distribute bonds to end investors, and to assist the AOFM with its investor engagement activities. The AOFM publishes aggregated secondary market turnover data of all market intermediaries quarterly on its website. The data is published with a note that if revisions are required to the data, those revisions will be made at the time of the relevant subsequent quarterly update. The AOFM also provides to each market intermediary, on an annual basis, that market intermediary's annual volume of secondary turnover, as a percentage of the aggregate secondary turnover and in the form of a ranking.
Prior to collecting this information from market intermediaries, the AOFM did not have reliable data on secondary market activity.
The AOFM requires market-makers to provide information as to their secondary market bond turnover as a condition of being a registered bidder to participate in the AOFM's primary market transaction. In turn, that is a pre-condition to being considered for appointment as a joint lead manager or duration manager.
At all relevant times, the AOFM provided market intermediaries who report secondary market bond turnover data with a reporting template, which included instructions. Those instructions specified that the reports should be submitted monthly, and that primary market transactions, that is, transactions with the AOFM such as bonds won at tenders, be excluded. Let me delve more into the detail.
Since about 2017, ANZ has reported on a monthly basis its secondary market bond turnover data to the AOFM. On an annual basis, it is required to review and confirm the accuracy of the data it has provided to the AOFM for the previous financial year. As I have just said, this is a requirement of being a registered bidder to participate in the AOFM's primary market transactions, which is a pre-condition to being considered for appointment as a joint lead manager or duration manager.
ANZ was, under the conditions of operation of being a registered bidder, required to provide such information as the AOFM considered appropriate regarding sale, purchase and other transactions carried out by ANZ in respect of Treasury bonds. Further, ANZ was taken to represent and warrant to the AOFM that any information provided under such a request was complete and accurate. Further, ANZ was required to provide confirmation as may be required by the AOFM as to the accuracy and completeness of the information provided from ANZ's compliance team, auditors or equivalent.
ANZ was aware that the AOFM's criteria for appointing joint lead managers and duration managers largely comprised, first, the level of support provided by a bank to the AOFM in primary tenders, second, a bank's distribution capacity as measured by its secondary market turnover and, third, a qualitative assessment by the AOFM of the bank's capabilities in areas such as investor relations and research. By 2022, while ANZ believed that the level of support provided by a bank to the AOFM in primary tenders was the most important criteria for the AOFM's selection of banks for syndicated issuances, some individuals within ANZ also believed that secondary turnover data was growing in importance for the AOFM.
Now as I have said, the AOFM provided market intermediaries who report secondary market bond turnover data with a reporting template.
Between at least 1 July 2021 and 23 July 2023, ANZ's process for compiling and verifying the data it reported to the AOFM, as recorded in its procedures, was broadly as follows.
First, data in respect of ANZ's trading in Australian government bonds was not stored in ANZ's systems by reference to the categories requested by the AOFM.
Second, each month, the Front Office Support team located in Bangalore, India (FOS India) extracted raw data for ANZ's trading in Treasury bonds from ANZ's systems using a data repository tool called Qlikview. This data was filtered and categorised in a Microsoft excel document by running a macro, which was then mapped to the template provided by the AOFM containing the categorisations in which the AOFM wished to see the data. The raw data was attributed to the categories required by the AOFM by reference to details such as the relevant trader, trading book and counterparty.
Third, FOS India sent the resulting excel document to members of the Rates Trading team, who reviewed it, provided relevant comments and otherwise approved it.
Fourth, once the spreadsheet was approved by the relevant trading representative, FOS India sent the sheets corresponding to the AOFM's template to the AOFM, copying ANZ's Rates Trading representatives.
During the relevant period, this process was documented in an internal procedure document referred to variously as "AOFM Report" or "AOFM Report - Procedure".
From at least 2021 onwards, in August each year the AOFM requested that ANZ review and confirm the accuracy of the monthly data submissions provided for the previous financial year.

[99]

Each of ANZ's representations to the AOFM referred to, and the turnover reported (as indicated in the columns entitled "Total turnover as submitted to AOFM ($m)") above, thereby materially misstated the value of ANZ's secondary turnover, including the counterparties and geographic locations for such trading, and were false or misleading.
The inaccuracies in the statements about secondary market bond turnover provided by ANZ to the AOFM as set out above were not intentional.
The monthly data for July 2021 was sent to the AOFM by FOS India after receiving approval from the associate Rates Trader.
The monthly data for August 2021 to December 2021, and also February 2022, were sent to the AOFM by FOS India after receiving approval from Mr Ravenscroft.
The monthly data for January 2022, and March 2022 to May 2023 were sent to the AOFM by FOS India after receiving approval from another associate Rates Trader.
The primary market transactions and associated internal trades did not represent secondary market bond turnover and should not have been reported to the AOFM as secondary market turnover.
Since the identification of inaccuracies in the secondary market turnover data reported to the AOFM, ANZ has taken the following steps.
First, ANZ has engaged with the AOFM regarding its reporting requirements, including receiving updated guidance from the AOFM which clarified aspects of its reporting requirements; stated that there was no requirement to amend historical data; recognised that categorisation may be complex; and requested that data be submitted on a best endeavours basis.
Second, ANZ has uplifted the reporting tools and governance to correct for the errors identified.
Third, ANZ has developed a secondary reporting tool for validation purposes and enhanced the governance of the data sign-off process, which now requires sign-off from the Markets Chief Operating Officer.
Fourth, ANZ has undertaken an internal review of the data submitted to the AOFM using the uplifted reporting tools and engaged an external consultant to validate the findings of its internal review.
Fifth, ANZ's Internal Audit team has been engaged to review the design and operational effectiveness of ANZ's enhanced AOFM data governance and control framework.

[100]

So, between 14 September 2021 and 22 June 2023, ANZ provided to the AOFM monthly reports about ANZ's secondary market bond turnover for the period from July 2021 to May 2023. Each report contained a representation that ANZ's total monthly secondary market turnover in Treasury bonds was a certain amount for that month and that the turnover attributable to certain counterparties and geographic locations was a certain amount for that month.
In each of the monthly reports to the AOFM for the period from July 2021 to May 2023, ANZ materially misstated the value of its secondary market bond turnover for that month and the turnover attributable to certain counterparties and geographic locations for that month.
Each of these monthly reports therefore conveyed a false or misleading representation in contravention of s 12DB(1)(a) of the ASIC Act, and constituted misleading or deceptive conduct in contravention of s 1041H of the Corporations Act.
In each of the monthly reports to the AOFM, except for October 2021, January 2023 and February 2023, ANZ incorrectly reported primary market transactions, that is, transactions with the AOFM which the AOFM expressly instructed ANZ to exclude, and associated internal trades as secondary market bond turnover. And by way of example, the accurate value for ANZ's total secondary market bond turnover for July 2021 was $5,203.35 million, whilst the value which ANZ submitted to the AOFM was $6,508.52 million, representing an overstatement of 25.08%. A part of that overstatement was the inclusion in ANZ's submission value of $573 million of primary market purchases from the AOFM.
Further, on 12 August 2022, the AOFM sent ANZ a spreadsheet collating ANZ's monthly submissions as to its secondary market bond turnover in financial year 2022 and requested that ANZ "have a senior sales or trading personnel, or a compliance staff member" review and confirm the accuracy of that data by 19 August 2022.
On 19 August 2022, ANZ responded that it "confirm[ed] the accuracy of this data". By submitting this response, ANZ represented to the AOFM that the secondary market bond turnover data for FY2021-22 that ANZ had previously provided was accurate. That representation was false or misleading: ANZ represented to the AOFM that its total turnover for that financial year was $111,560 million, while the true value was $79,075 million, being an overstatement of 41.08%.
Contrary to the AOFM's request, no senior sales or trading personnel, or compliance staff members, were involved in ANZ's review to confirm the accuracy of the data.
In July 2023, in the process of preparing the survey data for the month of June 2023, a Sydney Rates Trader at ANZ identified that survey data previously submitted to the AOFM contained significant inaccuracies. On 15 August 2023, ANZ submitted revised reports to the AOFM for each of the months in financial year 2023.
It is not in dispute that the representations as to ANZ's secondary market bond turnover were representations that the services, being ANZ's financial services, were "of a particular standard, quality, value or grade" for the purposes of s 12DB(1)(a).
Finally, the parties have proceeded on the basis that ANZ did not intend to be inaccurate in the secondary market bond turnover figures reported.

[109]

(1) There is a reportable situation in relation to a financial services licensee if one of the following paragraphs is satisfied:

(a) the financial services licensee or a representative of the financial services licensee has breached a core obligation and the breach is significant;

(b) the financial services licensee or a representative of the financial services licensee is no longer able to comply with a core obligation and the breach, if it occurs, will be significant;

(c) the financial services licensee or a representative of the financial services licensee conducts an investigation into whether there is a reportable situation of the kind mentioned in paragraph (a) or (b) and the investigation continues for more than 30 days;

(d) an investigation described in paragraph (c) discloses that there is no reportable situation of the kind mentioned in paragraph (a) or (b).

(2) There is also a reportable situation in relation to a financial services licensee if:

(a) in the course of providing a financial service, the financial services licensee or a representative of the financial services licensee has engaged in conduct constituting gross negligence; or

(b) the financial services licensee or a representative of the financial services licensee has committed serious fraud; or

(c) any other circumstances prescribed by the regulations for the purposes of this paragraph exist.

(3) Each of the following is a core obligation:

(a) an obligation under section 912A or 912B, other than the obligation under paragraph 912A(1)(c);

(b) the obligation under paragraph 912A(1)(c), so far as it relates to provisions of this Act or the ASIC Act referred to in paragraphs (a), (b), (c) and (d) of the definition of financial services law in section 761A;

(c) in relation to financial services, other than traditional trustee company services provided by a licensed trustee company - the obligation under paragraph 912A(1)(c), so far as it relates to Commonwealth legislation that is covered by paragraph (e) of that definition and that is specified in regulations made for the purposes of this paragraph;

[125]

Now in reaching this conclusion I have applied the following principles concerning s 912A(1)(a) elucidated in Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (in liq) [2012] FCA 414; (2012) 88 ACSR 206 at [69] per Foster J which I restated in Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751; (2018) 266 FCR 147 at [2347]-[2350].

First, the words "efficiently, honestly and fairly" are to be read as a compendious indication requiring a licensee to go about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty.

Second, the words "efficiently, honestly and fairly" connote a requirement of competence in providing advice and in complying with relevant statutory obligations. They also connote an element not just of even handedness in dealing with clients but a less readily defined concept of sound ethical values and judgment in matters relevant to a client's affairs. I have emphasised here the notion of connotation rather than denotation to make the obvious point that the boundaries and content of the phrase or its various elements are incapable of clear or exhaustive definition.

Third, the word "efficient" refers to a person who performs his duties efficiently, meaning the person is adequate in performance, produces the desired effect, is capable, competent and adequate. Inefficiency may be established by demonstrating that the performance of a licensee's functions falls short of the reasonable standard of performance by a dealer that the public is entitled to expect.

Fourth, it is not necessary to establish dishonesty in the criminal sense. The word "honestly" may comprehend conduct which is not criminal but which is morally wrong in a commercial sense.

Fifth, the word "honestly" when used in conjunction with the word "fairly" tends to give the flavour of a person who not only is not dishonest, but also a person who is ethically sound.

These observations are consistent with the express object of Ch 7 of the Corporations Act set out in s 760A as follows:

[127]

Further, it is also not in doubt that a contravention of the "efficiently, honestly and fairly" standard does not require a contravention or breach of a separately existing legal duty or obligation, whether statutory, fiduciary, common law or otherwise. The statutory standard itself is the source of the obligation.

...

Let me say something about "fairly". Judges applying s 912A(1)(a) have usually not sought to define "fairly" except to explain its structural setting in the composite phrase. This is unsurprising. And of course no dictionary definition could be adequate for the task given the intrinsic circularity with such definitions. For example, take the Macquarie Dictionary definition. First, the concept of "free from injustice" is question begging and conclusionary. It adds little to elucidate "fairly". Second, the phase "that which is legitimately sought, pursued, done, given etc." is also question begging. No content is given to what is legitimate. There is irremediable circularity unless legitimacy simply incorporates other statutory or common law/equitable normative standards of behaviour. Third, the phrase "proper under the rules" is also devoid of content unless "proper" means "in compliance with". Fourth, if one construes "fair" to include "free from dishonesty", then this all just suggests that the phrase "efficiently, honestly and fairly" should be read compendiously.

Could you convincingly define "fairly" by what it lacks? To say that fairly means free from bias, free from dishonesty, etc, is to stipulate necessary negative conditions. And to do so may give you some boundary conditions. But no positive conditions are stipulated. No content is given, let alone sufficient conditions. But to stipulate negative conditions may not be unhelpful.

Should "fairly" only be viewed from the perspective of an investor, borrower or other person interacting with the licensee? No. Fairness is to be judged having regard to the interests of both parties. Other statutory provisions may be designed to tilt the scales, but not s 912A(1)(a) and the statutory composite norm it enshrines. Disproportionate emphasis should not be given to what is the third part of a composite phrase in a manner which creates unsatisfactory asymmetry in favour of those with whom the licensee deals. This section is not a back door into an "act in the [best] interests of" obligation. Other specific provisions of the Act nicely fulfil that role. There is nothing to indicate that s 912A(1)(a) was to have that bias.

Finally, it ought not to be forgotten that s 912A(1)(a) is principally a licensee disciplinary command such that a breach thereof might sound in revocation of the AFSL, conditions being imposed on the AFSL or a pecuniary penalty being imposed. But that context gives rise to three points.

First, in such a context one would expect that the normative standard would be suitably vague and flexible. This is common when dealing with the stipulated standard of behaviour expected of licensees or regulated persons in a wide variety of contexts. But that does not invite conceptual inflation.

Second, one is looking at the licensee's behaviour more generally rather than with regard to any one person. After all, s 912A(1)(a) is expressed:

[138]

ANZ admits that between 19 April 2023 and 3 May 2023, ANZ did not do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly: (a) by engaging in conduct in connection with the supply of financial services to the AOFM relating to the issuance of the December 2034 Treasury bonds that was, in all the circumstances, unconscionable; (b) by providing reports to the AOFM between 20 April 2023 and 3 May 2023 which were misleading or deceptive in describing, or were misleading or deceptive by omission in respect of, ANZ's trading activities as duration manager for the December 2034 Treasury bond issuance; (c) by failing to adequately prevent, supervise, monitor, review or identify the admitted unconscionable and misleading conduct and despite ANZ undertaking its own surveillance of that conduct; and (d) by failing to adequately implement or enforce its policies and procedures regarding material size transactions, reference price transactions and communications with clients.
Further, ANZ admits that between 19 April 2023 and 3 May 2023, ANZ did not take reasonable steps to ensure that its representatives complied with the financial services laws in connection with ANZ's conduct as duration manager for the issuance of December 2034 Treasury bonds. Specifically, ANZ admits that it failed to take reasonable steps to prevent the conduct referred to in the SAFA, to adequately supervise and monitor its representatives as referred to in the SAFA, or to prevent its representatives from providing reports which were misleading or deceptive as described in the SAFA.
Further, ANZ admits that between 19 April 2023 and 3 May 2023, ANZ did not ensure its representatives were adequately trained and competent to provide financial services to the AOFM in connection with ANZ's role as duration manager for the issuance of December 2034 Treasury bonds. ANZ accepts that this is demonstrated by the conduct of ANZ's representatives referred to in the SAFA.

[140]

ANZ admits that between 14 September 2021 and 15 August 2023, ANZ did not do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly, by reason of: (a) making the representations to the AOFM about its secondary market bond turnover that were false or misleading; (b) engaging in misleading or deceptive conduct; (c) failing to have adequate processes and procedures in place to prepare, review and verify the secondary market bond turnover data being submitted to the AOFM to ensure that it was accurate; (d) failing to adequately monitor and supervise staff, to ensure that the secondary market bond turnover data was submitted to the AOFM accurately; (e) failing to ensure that staff who were responsible for the review and submission of the data were adequately trained or competent; (f) failing to conduct risk or assurance reviews of the processes and procedures to ensure that misleading information was not provided to the AOFM in connection with ANZ's secondary market bond turnover data; and (g) failing to take adequate steps to identify and to address the root causes of the misreporting and failing to escalate the issue for further risk assessment and compliance review, even when the scale of the inaccuracies in the secondary market bond turnover data submitted by ANZ to the AOFM for FY23 was identified.
Further, ANZ admits that between 14 September 2021 and 15 August 2023, ANZ did not take reasonable steps to ensure that its representatives complied with the financial services laws in connection with ANZ's reporting of secondary market bond turnover data to the AOFM. This failure to take reasonable steps included the matters identified in the SAFA.
Further, ANZ admits that between 14 September 2021 and 15 August 2023, ANZ did not ensure that its representatives were adequately trained, and were competent, to provide financial services in connection with ANZ's reporting of secondary market bond turnover data to the AOFM.

[144]

Section 1317E of the Corporations Act provides that the Court must make a declaration of contravention if it is satisfied that a person has contravened one of its civil penalty provisions. Further, for conduct from 13 March 2019, s 12GBA of the ASIC Act has similarly provided that the Court must make a declaration of contravention if it is satisfied that a person has contravened one of its civil penalty provisions (see also ss 322 and 327).
Further, the Court also has power under s 1101B(1) of the Corporations Act to make ancillary orders, which includes declarations on the application of ASIC if a person has contravened a law relating to dealing in financial products or providing financial services or a provision in Chapter 7, provided that the proposed orders do not unfairly prejudice any person.
The Court has an almost unlimited discretionary power to make declarations under inter-alia s 21 of the FCA Act, which "[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise" (Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 at 437 per Gibbs J). The only limit on the power itself is that it must fit within the boundaries and content of judicial power, providing of course that there is a "matter" before the Court within which the power is sought to be exercised.
That being so, it naturally follows that before making declarations, three requirements should usually be satisfied being, first, there must be a real controversy, as opposed to a hypothetical or theoretical question, second, the applicant must have a real interest in raising the question and, third, there must be a proper contradictor. Clearly these conditions are satisfied here.
Further, there is a utility in declarations which set out the particular liability found and the basis for penalties ordered. Declarations are appropriate to record the Court's disapproval of the conduct and satisfy in part the objective of general deterrence.

[148]

First, the Court must be persuaded that the penalty proposed by the parties is appropriate: Fair Work at [57]. The agreement of the parties cannot bind the Court in any circumstances to impose a penalty which it does not consider to be appropriate.

Second, if the Court is persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the agreed penalty jointly proposed is an appropriate remedy in all the circumstances, it would be highly desirable in practice for the Court to accept the parties' proposal and therefore impose the proposed penalty: Fair Work at [58]. The desirability of the Court accepting a proposed agreed penalty which it is persuaded is an appropriate penalty derives primarily from a public policy consideration; the promotion of predictability of outcome in civil penalty proceedings: Fair Work at [46]. Predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation. It should be emphasised, however, that this public policy consideration is but one of the relevant considerations to which the Court must have regard and, more significantly, it cannot override the statutory directive for the Court to impose a penalty that is determined to be appropriate.

Third, in considering whether the agreed and jointly proposed penalty is an appropriate penalty, it is necessary to bear in mind that there is no single appropriate penalty. Rather, there is a permissible range of penalties within which no particular figure can necessarily be said to be more appropriate than another. The permissible range is determined by all the relevant facts and consequences of the contravention and the contravener's circumstances. An agreed and jointly proposed penalty may be considered to be "an" appropriate penalty if it falls within that permissible range: NW Frozen Foods at 290-291; Mobil Oil at 48,625-48,626; [47], [51]. It is unlikely to be considered an appropriate penalty if it falls outside that range.

It should be emphasised in this context, however, that even though the process in determining whether an agreed and jointly proposed penalty is an appropriate penalty involves or includes determining whether that penalty falls within the permissible range of penalties, having regard to all the relevant facts and circumstances, it does not follow that the Court's task can be said to amount to no more than determining whether the proposed penalty falls within the permissible range, as the Commission's submission tended to suggest. Nor can it be said that the Court is bound to start with the proposed penalty and to then limit itself to considering whether that penalty is within the permissible range: Mobil Oil at 48,627; [54].

Fourth, in considering whether the proposed agreed penalty is an appropriate penalty, the Court should generally recognise that the agreed penalty is most likely the result of compromise and pragmatism on the part of the regulator, and to reflect, amongst other things, the regulator's considered estimation of the penalty necessary to achieve deterrence and the risks and expense of the litigation had it not been settled: Fair Work at [109]. The fact that the agreed penalty is likely to be the product of compromise and pragmatism also informs the Court's task when faced with a proposed agreed penalty. The regulator's submissions, or joint submissions, must be assessed on their merits, and the Court must be wary of the possibility that the agreed penalty may be the product of the regulator having been too pragmatic in reaching the settlement: Fair Work at [110].

[149]

The following provisions confer power upon the Court to impose pecuniary penalties. For a contravention of a civil penalty provision of the Corporations Act, s 1317G confers the necessary power. And for a contravention of s 12CB or s 12DB of the ASIC Act, s 12GBB confers the necessary power.
The relevant statutes set out matters to which the Court must have regard in determining an appropriate pecuniary penalty: see s 1317G(6) of the Corporations Act and s 12GBB(5) of the ASIC Act. In addition, the authorities have identified various factors which inform the assessment of a penalty of appropriate deterrent value in addition to or overlapping with those mandatory factors. Not all factors that have been identified in the cases will necessarily be relevant or important in every case, and they should not be approached as a rigid catalogue or checklist: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; (2022) 274 CLR 450 at [18] and [19].
The parties have proposed a pecuniary penalty pursuant to s 1317G(1) and s 12GBB(3) of the ASIC Act in a total amount of $125 million comprising the following break-down.
First, an amount of $85 million on account of ANZ's conduct in connection with the bond issuance, of which $80 million is on account of ANZ's breach of s 12CB of the ASIC Act and $5 million is on account of ANZ's breach of s 912A of the Corporations Act.
Second, an amount of $40 million on account of ANZ's conduct in connection with the secondary market bond turnover reporting, of which $30 million is on account of ANZ's contraventions of s 12DB of the ASIC Act, $2 million is on account of ANZ's contravention of s 912DAA and $8 million is on account of ANZ's contravention of s 912A.
Now I have accepted the agreed penalty in total of $85 million in terms of the bond issuance as an appropriate penalty. But I have not accepted the agreed penalty in terms of the secondary market bond turnover reporting. I have increased it to $50 million in total, with the s 12DB contraventions increased to $40 million from $30 million; the other components will remain the same. It is not necessary to further segment the penalties concerning each s 12DB contravention, although one can do this easily by dividing $40 million by the number of individual contraventions, assuming an equal weighting for each which seems reasonable.
So, the total amount is increased for both aspects of the relevant conduct from $125 million to $135 million.
Now the penalties that I will impose, individually and in aggregate, are necessary to impose the necessary "sting or burden" to secure "the specific and general deterrent effects that are the raison d'être of its imposition": Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157 at [116] per Keane, Nettle and Gordon JJ.

[150]

At all relevant times, ss 12CB(1) and 12DB(1) of the ASIC Act and ss 912A(5A) and 912DAA(7) of the Corporations Act were civil penalty provisions.
The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) substantially increased penalties for breaches of civil penalty provisions in the Corporations Act and the ASIC Act. For contraventions arising from conduct which was wholly on or after 13 March 2019, the maximum penalty for such a contravention by a body corporate was increased to the higher of 50,000 penalty units, 3 times the benefit derived or detriment avoided, or 10% of annual turnover (capped at 2.5 million penalty units); see at s 2(1) item 2, Schedule 1 s 117 and Schedule 2 s 8. For each contravention, the largest of those is 10% of ANZ's annual turnover.
Therefore, when penalty units are used, the maximum civil penalty for a single contravention of the relevant civil penalty provisions is 2.5 million penalty units.
The value of a penalty unit is set by s 4AA of the Crimes Act 1914 (Cth). It was set at $222 from 1 July 2020 to 31 December 2022, $275 from 1 January 2023 to 30 June 2023, and $313 from 1 July 2023 to 6 November 2024.
Accordingly, depending on the date of the contravention, the maximum civil penalty for a single contravention of the relevant civil penalty provisions ranged from $555 million to $782.5 million. The theoretical total maximum penalty that could be imposed is $19.445 billion. It is not necessary to display the arithmetic.
In Pattinson, it was accepted that the statutory maximum penalty is "but one yardstick that ordinarily must be applied", and must be treated "as one of a number of relevant factors" to inform the assessment of a penalty of appropriate value (at [54]). The Court rejected (at [49]) an approach by which the statutory maximum penalty was required to be reserved exclusively for the worst category of contravening conduct. It was further emphasised that there should be "some reasonable relationship between the theoretical maximum and the final penalty imposed" (at [55]), noting that the relationship of reasonableness could be established by reference to the circumstances of the contravener and the circumstances of the conduct involved in the contravention. Either set of circumstances may bear on the extent of the need for deterrence.

[151]

In respect of the bond issuance contraventions, and largely for the reasons advanced by the parties, I am satisfied that the proposed pecuniary penalties appropriately reflect the nature and extent of the contravening conduct, and the circumstances in which it occurred.
The contravening conduct occurred in circumstances where ANZ was acting as a duration manager in respect of a Treasury bond issuance, such that any downward price pressure at the time of pricing would reduce the amount the Commonwealth yielded by the issuing of the bonds.
Further, being appointed duration manager is considered prestigious and was seen as essential to ANZ being a market leader in the Australian bonds business, which leads to opportunities for securing additional mandates from semi-government issuers and attracting broader client business.
Whilst the duration manager was entitled and expected to engage in trading to hedge its risk, and the AOFM announced at the launch of the issuance that the duration manager may do so "before, during or after" pricing, that entitlement was not unconstrained. There existed an inherent conflict of interest. ANZ had represented to the AOFM that it would conduct itself transparently and hedge in a way which attempted to minimise market disruption, price volatility and price impact, stating that it would seek "to ensure as smooth and limited impact to the pricing of the proposed transaction" and "manage the risk in a way that is of the least impact to the market and we keep an open and consistent dialogue with both yourselves and myself and the trader who will be looking after the risk". The AOFM reasonably expected that ANZ would do so. The same reasonable expectation underpinned the industry guidance and ANZ's own policies which applied to ANZ's conduct.
Yet, notwithstanding the prestigious nature of the role, the potential impact on the AOFM and in turn the Commonwealth and the expectations of its behaviour, ANZ did not act conscionably, did not act transparently, nor did it trade in the way in which it said it would but, to the contrary, it conducted its hedging in a manner which caused undue pricing pressure on the reference price product at the time of pricing.
The relevant traders held senior roles, respectively the Head of Rates Trading Australia, Markets and Co-Head of Fixed Income, Markets. Those same traders were involved in both the impugned trading and the inaccurate post-transaction reporting to the AOFM.
Senior markets risk personnel were aware of the bond issuance. Two Surveillance managers, along with various members of ANZ's compliance, surveillance and risk teams, attended the segregated room to observe the trading. The Surveillance managers failed to prevent and detect the conduct (including that one of the relevant traders traded on the other trader's account during the pricing call), despite being in the segregated room at the time. Nor did the Surveillance managers identify the inaccuracies in ANZ's post-transaction reporting to the AOFM.
ANZ's behaviour was particularly serious when coupled with ANZ's inaccurate and incomplete statements to the AOFM in relation to the manner of its trading and behaviour as a duration manager, when post-completion of the issuance the AOFM expressed concern about the price at which the bond issuance had priced. ANZ's post-completion conduct reveals a lack of candour and frankness about its trading.
Given the anonymous nature of the market in which ANZ was conducting its hedging, ANZ's behaviour was not able to be detected by the AOFM at the time of pricing or anytime reasonably thereafter.
Further, in cases where the contravening conduct is concealed and not easily detected, deterrence (both general and specific) may justify a penalty that is many multiples of the profits made from the contravening conduct.
In Volkswagen at [152] it was said by Wigney, Beach and O'Bryan JJ:

[156]

Let me turn to the other aspect of the ANZ's conduct concerning the secondary market bond turnover reporting.
Now here, in respect of the secondary market bond turnover reporting contraventions, I am satisfied that the pecuniary penalties which I intend to impose and which are higher than those proposed by the parties, appropriately reflect the nature and extent of the contravening conduct, and the circumstances in which it occurred.
As I have indicated, the AOFM performs a public function by issuing Treasury bonds to borrow money on behalf of the Commonwealth government. This is to ensure the Australian Government can meet its spending, investment and debt payment obligations. Clearly, the AOFM requires accurate information on secondary market activity to perform its functions properly. Such information allows the AOFM to assess and monitor trends in overall liquidity. It allows the AOFM to assess and monitor trends in turnover by reference to particular types of debt securities, and by reference to categories and geographic regions of the end investors. Such information assists the AOFM to assess secondary market turnover which is an important indicator of market liquidity in relation to debt securities, which the AOFM is responsible for issuing on behalf of the Australian Government.
Further, as I have already indicated, the secondary market bond turnover information allows the AOFM to assess particular market makers' ability to distribute bonds to end investors. Indeed, a bank's distribution capacity, as measured by its secondary market bond turnover, was one of the criteria which the AOFM used to appoint JLMs and duration managers. This was a matter of which ANZ was aware, even if ANZ subjectively perceived that the most important criteria was the level of support provided by a bank to the AOFM in primary tenders.
Further, the significance of accurate information as to secondary market activity in the survey was reflected in the conditions of operation which the AOFM imposed to be a registered bidder. ANZ represented and warranted to the AOFM that the information which it provided was complete and accurate.
But notwithstanding all of this, ANZ proceeded to provide substantially inaccurate responses to the AOFM's monthly surveys which in most cases materially overstated the ANZ's secondary market bond turnover over a sustained period.
Further, as has been pointed out, in respect of the data for the 2021-2022 financial year, the AOFM expressly requested that ANZ "have a senior sales or trading personnel, or a compliance staff member" review and confirm the accuracy of the data. As noted above, ANZ confirmed the accuracy of the data despite it being overstated by 41.08%, and without any relevant senior employee having reviewed the data. This occurred in circumstances where ANZ knew that the secondary market bond turnover data was one of the criteria which the AOFM used to appoint JLMs and duration managers.
Moreover, I view the ANZ's contravening conduct over a sustained period concerning the secondary market bond turnover reporting to be both serious and very unsatisfactory.
In respect of the secondary market bond turnover reporting contraventions, ANZ's own review of the root cause of the misreporting found that there was a lack of accountability at both management and execution levels and inadequate senior ownership of formal framework and governance arrangements.
The secondary market bond turnover data which was ultimately used in ANZ's submissions to the AOFM was prepared by FOS India and reviewed mostly by junior team members of the Rates trading desk. No senior sales or trading personnel, or compliance staff members, were involved in the review to confirm the accuracy of the FY2021-22 data. That was so despite the AOFM's express request that that occur and despite the junior team member sending an email to the Director, Debt Syndicate and others asking for assistance to verify the accuracy of the annual data, to which no assistance was provided before ANZ verified that data.
Further, ANZ's lack of accountability at both management and execution levels and inadequate senior ownership of formal framework and governance arrangements meant that ANZ did not identify inaccuracies in the secondary bond turnover data submitted to the AOFM at an earlier point in time. This is in the following circumstances.
First, in July 2021, the Director, Debt Syndicate and the Head of Capital Markets were involved in discussions by email as to whether to include certain internal trades in submissions to the AOFM. The treatment of certain trades was not expressly addressed in the AOFM's instructions, and a decision was made that certain ANZ trading books should be included on the basis that those internal trades reflected genuine price making by the Rates Trading desk traders for other ANZ books. However, in the course of considering the appropriate approach, there was an issue raised that those same trading books also included offsetting "back to back" internal trades. This issue was not resolved with the effect that at least some "back to back" internal trades were included in the majority of the monthly turnover submitted to the AOFM until June 2023. These "back to back" internal trades were not secondary market bond turnover.
Second, since at least February 2022, the Head of Capital Markets, the Head of Franchise Markets and the Managing Director of the Markets division were members of ANZ's Markets senior leadership team. Over the same period as set out above, members of ANZ's Markets senior leadership team and other senior staff from time to time reviewed ANZ's rankings on various trading platforms for its secondary market activities in Treasury bonds.
Third, in May 2022, the Head of Franchise Markets and the Head of Capital Markets were initially assigned responsibility for determining whether internal trades should be included. From around this time, they were aware that there was confusion about the methodology for AOFM submissions and that there were delays in reporting.
Fourth, on 25 May 2022 an eFICC analyst, who was not directly involved in the AOFM reporting process and who was making enquiries for the purposes of a separate internal bond turnover reporting tool, raised with the Director, Rates Trading that the draft report prepared by FOS India for ANZ's secondary market turnover in March 2022 appeared to include trades marked as "do not use" which were primarily internal trades, and if included, would involve double counting traded volume.
Fifth, in around June 2022, the Head of Franchise Markets noted the "paramount" importance of accuracy and independence of the data submitted to Government/Semi-Government bodies. The Head of Franchise Markets was also aware or ought to have been aware of findings in April 2023 of errors affecting the accuracy of draft data for semi-government issuers.
Sixth, in June 2022, the Director, Debt Syndicate was responsible for gathering information from the AOFM (and certain other issuers) about their reporting criteria, and reconciling that with ANZ's process and methodology. During the course of that work, the Director, Debt Syndicate had an email and Bloomberg chat exchange in which an associate Rates Trader stated that, contrary to ANZ's procedures, ownership of the process for compiling the secondary bond market turnover data sat with FOS Bangalore and Rates Trading provided a "best endeavours reconciliation of the data".
Seventh, on 2 August 2022, the Director, Debt Syndicate was involved in conversations with the eFICC analyst who expressed confusion about why certain transactions marked as "do not use" appeared to have been "used" by FOS in spreadsheets used to prepare the AOFM submissions.
In relation to ANZ's admitted breach of s 912DAA by its failure to report the reportable situation to ASIC, the assessment of whether the misreporting was a reportable event was the responsibility of a desk risk manager, who incorrectly assessed the event as not meeting the relevant reputation rating threshold.
The misleading conduct occurred over a significant period of time, and was not identified at an earlier point in time due to ANZ's lack of accountability at both management and execution levels and inadequate senior ownership of formal framework and governance arrangements.
In respect of the secondary market bond turnover reporting contraventions, the misleading conduct occurred over a lengthy period of time: from September 2021 to June 2023. Further, ANZ's lack of accountability at both management and execution levels and inadequate senior ownership of formal framework and governance arrangements meant that ANZ did not identify inaccuracies in the secondary market bond turnover data submitted to the AOFM at an earlier point in time. In my view this all supports the higher penalty that I intend to impose rather than that put forward by the parties.
In my view, the nature, extent and circumstances of the secondary market bond turnover reporting contraventions justify a higher penalty than that proposed by the parties. I will draw the threads together in a moment.

[158]

ANZ's conduct in respect of the bond issuance exposed the Commonwealth to significant risk of detriment. It is difficult to assess the actual or potential detriment to the AOFM (and the Commonwealth). Each basis point fall in the futures price would detrimentally impact the Commonwealth by reducing proceeds from the bond issuance by approximately $13.16 million.
Now before me, ASIC and ANZ did not agree as to whether ANZ's trading caused a loss to the Commonwealth.
ANZ does not admit that its trading caused a loss to the Commonwealth. In ANZ's view, there is insufficient evidence to allow me to make a finding on this issue given that I would need to consider the most likely counterfactual scenario, but for ANZ's contraventions, and the likely reference price in that counterfactual scenario. ANZ notes that the movement in the reference price in the April 2023 issuance between market open and pricing was less than the median and mean reference price movement in the 10 other issuances where the reference product was 10-year Australian bond futures and the EFP risk was greater than $4.2 million in DV01 terms.
Contrastingly, on ASIC's view the potential impact of ANZ's trading on the Commonwealth was approximately $26 million. ASIC relies on the following matters: ANZ's conduct exposed the AOFM and the Commonwealth to significant risk of detriment; ANZ's trading in the lead up to and during the pricing call applied undue downward pressure on the price of 10-year Australian bond futures at the time of pricing; the price of the reference product decreased by 2 basis points in the 45 minutes prior to pricing during which ANZ sold a significant volume of the reference product, which is the widest margin across 21 AOFM issuances; and each basis point fall in the futures price would detrimentally impact the Commonwealth.
I am not able to make a finding on such matters as I am not able to determine the reference price in the likely counterfactual scenario absent ANZ's impugned trading.
In respect of the secondary market bond turnover reporting contraventions, the AOFM relies upon the accuracy of the information provided to it in the secondary market bond turnover surveys to perform its functions. ANZ's failure to provide accurate information to the AOFM impacted its ability to access accurate information about the manner in which its Treasury bonds were traded in the secondary market. Again this all justifies a higher penalty than that proposed by the parties before me.

[165]

ANZ has previously been found by the Court to have engaged in the following attempted or actual contraventions.
First, in relation to conduct concerning the bank bill swap reference rate, the ANZ attempted to contravene ss 12CB(1) and 12CC(1) of the ASIC Act and contravened ss 912A(1)(a) and 912A(1)(f) of the Corporations Act (penalty of $10 million for ss 12CB(1) and 12CC(1) attempted contraventions); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd [2017] FCA 1338; (2017) 123 ACSR 341.
Second, in relation to credit contracts and consumers' financial situations, the ANZ contravened ss 128(a) and (d) and 130(1)(c) of the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) (penalty of $5 million for s130(1)(c) contraventions); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited [2018] FCA 155.
Third, in relation to the charging of bank fees, the ANZ contravened s 12CB(1) of the ASIC Act and ss 912A(1)(a) and 912A(1)(c) of the Corporations Act (penalty of $10 million for s 12CB(1) contraventions); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd (No 3) [2020] FCA 1421.
Fourth, in relation to conduct concerning misrepresentations to its customers, and its customers not receiving certain benefits, the ANZ contravened ss 12DA(1), 12DB(1)(e) of the ASIC Act and ss 912A(1)(a) and 912A(1)(c) of the Corporations Act and ss 47(1)(a) and 47(1)(d) of the Credit Act (penalty of $25 million for s 12DB(1)(e) contraventions); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd [2022] FCA 1251; (2022) 164 ACSR 428.
Fifth, in relation to conduct concerning its "Home Loan Introducer Program" the ANZ contravened ss 29, 31(1) and 47(1)(e) of the Credit Act (penalty of $10 million for s 31(1) contraventions); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited [2023] FCA 256.
Sixth, in relation to false or misleading conduct concerning the charging of fees and interest, the ANZ contravened s 12DB(1)(g) of the ASIC Act and s 47(1)(a) of the Credit Act (penalty of $15 million for s 12DB(1)(g) contraventions); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited [2023] FCA 1150; (2023) 169 ACSR 649.
Seventh, in relation to conduct concerning its continuous disclosure obligations, the ANZ contravened s 674(2) of the Corporations Act (penalty of $900,000 for 1 contravention of s 674(2) (in circumstances where the maximum available penalty was $1 million); Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited (No 3) [2023] FCA 1565.
In relation to the AOFM bond issuance conduct, the most relevant of these previous contraventions is the BBSW case. But generally, although I have taken these other cases into account, they are of limited significance.

[168]

There are three propositions that I should state.
First, I accept that I should seek to promote predictability of outcome in civil penalty proceedings, and that to accept the parties' joint position on the agreed penalty would be conducive to that objective.
Second, I accept that setting a penalty is not an exact science, and that usually one particular figure cannot necessarily be said to be more appropriate than another, providing of course that it is within the permissible range.
Third, I accept that the relevant question to ask oneself is whether the parties' joint position can be accepted as fixing an appropriate amount. And in so posing that question, two consequences follow. The first proposition that I stated must be qualified and subordinate to the third proposition. Further, the third proposition in one sense provides the boundary condition for what is meant by permissible range in the second proposition. A penalty that is not appropriate would normally be outside the permissible range.
I would also refer to what was said in Volkswagen at [125] to [129] which I have already set out and which I have taken into consideration.
Now I have characterised the consequences of the conduct concerning the secondary market bond turnover reporting at a more serious level than the parties, leading to a different conclusion as to what is the appropriate penalty.
I would make the following points.
First, this false reporting would likely have substantially deceived the AOFM over a sustained period, even accepting that the ANZ did not intend to deceive.
Second, the errors in the false reporting were very substantial in both dollars and percentages. Further, with but one exception these errors were all in the ANZ's "favour".
Third, what was involved here was systemic conduct of the ANZ that was inexcusable. Moreover, it sought to engage deliberately in the problematic conduct of including "back to back" internal trades in its reporting without any transparency.
Fourth, the fact that no direct loss can be shown is not to the point. Accurate information is the life-blood of the AOFM in its assessment of the activities in the relevant markets and the position of the participants.
In summary, ANZ's conduct has no redeeming feature whatsoever. And a very substantial penalty needs to be imposed to achieve both specific deterrence and general deterrence.
In that context, I consider that the parties' proposed penalty for the s 12DB contraventions is not appropriate as it does not reflect the stronger weighting that I would give to these four points both individually and collectively. Further, even fixing the total penalty at $40 million for the s 12DB contraventions produces an amount per contravention which is very modest when considered against the permissible maximum per contravention. But in all the circumstances, I consider $40 million to be an appropriate penalty for these contraventions.
As I say, the appropriate penalty for the s 12DB contraventions on this aspect will be $40 million rather than $30 million, leading to a total of $50 million for this aspect of the conduct.
I should make two other points. First, I have not found it necessary to individually itemize the penalty for each particular contravention of s 12DB. Second, in increasing the penalty for the s 12DB contraventions, I have considered this in the totality of all the other penalties.

Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited

At a glance

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Before

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Judgment (186 paragraphs)

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Legislation Cited (6)

Cases Cited (18)