Australian Securities and Investments Commission v Westpac Banking Corporation

Date of hearing: 23, 25, 30, 31 October 2017, 1, 2, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 23, 24, 27, 28, 29, 30 November 2017, 1, 4, 5, 6, 11, 12, 13, 14 December 2017

National Practice Area: Commercial and Corporations

Sub-area: Economic Regulator, Competition and Access

Counsel for the Plaintiff: Mr PD Crutchfield QC, Mr PW Collinson QC, Mr M Borsky QC with Mr C Archibald, Ms C Van Proctor and Mr CJ Tran

Solicitor for the Plaintiff: Johnson Winter & Slattery

Counsel for the Defendant: Mr MJ Darke SC with Mr JRV Williams and Mr J Burnett

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: WESTPAC BANKING CORPORATION (ACN 007 457 141) Defendant

JUDGE: BEACH J DATE OF ORDER: 24 MAY 2018

1. Within 14 days of the date hereof the plaintiff file and serve proposed minutes of orders and short submissions (limited to 3 pages) to give effect to these reasons and for the further conduct of the matter.
2. Within 14 days of receipt of the plaintiff's proposed minutes and submissions, the defendant file and serve proposed minutes of orders and short submissions (limited to 3 pages) in response.
3. The further hearing of this proceeding be adjourned to a date to be fixed.
4. Costs reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BEACH J: 1 The Australian Securities and Investments Commission (ASIC) has brought these pecuniary penalty proceedings against Westpac Banking Corporation (Westpac) concerning its trading over the period 6 April 2010 to 6 June 2012 (the relevant period) in Prime Bank Bills in the Bank Bill Market allegedly to influence the setting of the Bank Bill Swap Reference Rate (BBSW). 2 ASIC's claims are framed: (a) first, as contraventions of ss 1041A and 1041B of the Corporations Act 2001 (Cth) (the Corporations Act) involving market manipulation, market rigging and creating a false or misleading appearance with respect to the relevant market(s); (b) second, as contraventions of ss 12CA, 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), involving unconscionable conduct; (c) third, as contraventions of s 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act, involving misleading or deceptive conduct and misrepresentation; and (d) fourth, as contraventions of s 912A of the Corporations Act, involving various breaches of Westpac's financial services licensee obligations. 3 The BBSW is a key benchmark interest rate in Australian financial markets. The purpose and function of the BBSW is to provide an independent and transparent reference rate for the pricing and revaluation of Australian dollar derivative instruments, securities and commercial loans. 4 Trading in Prime Bank Bills on the Bank Bill Market informed the setting of the BBSW, which setting during the relevant period was dependent upon views submitted to the Australian Financial Markets Association Ltd (AFMA) by AFMA-designated BBSW panellists by 10.05 am on each Sydney business day in respect of the yields of the best bids/offers for Prime Bank Bills in each tenor at or around 10.00 am on that day. Westpac was both a BBSW panellist and an AFMA-designated Prime Bank. Almost all trading in the Bank Bill Market took place in the period between approximately 9.55 am and 10.05 am on each Sydney business day, which I will designate as the BBSW Rate Set Window, albeit that there is a dispute between the parties as to whether trading between 10.01 am and 10.05 am informed the setting of BBSW which strictly ought to have been based on relevant trading as at 10.00 am. 5 Bank accepted bills of exchange (Bank Bills) are instruments by which banks may either borrow or lend funds for a short term. By selling a Bank Bill that a bank has accepted, a bank borrows funds. By buying a Bank Bill, a bank lends funds. Bank Bills entitle the holder to receive the face value of the Bank Bill on maturity. But they are traded at a discount to their face value, with the size of the discount representing the amount of interest (or yield) payable on the Bank Bill. The higher the yield, the lower the price of the Bank Bill and vice versa. Prime Bank Bills are Bank Bills where the acceptor is a Prime Bank. I will explain these and other terms later, although for ease of reference I have annexed a glossary to these reasons. 6 During the relevant period, Westpac was a party to a large number of derivative instruments, lending transactions and deposit products (BBSW Referenced Products) pursuant to which: (a) an obligation to pay an amount of money was quantified when the BBSW in the relevant tenor was set on a particular day; (b) the amount, and in the case of interest rate derivatives whether the amount was payable by Westpac to the counterparty or by the counterparty to Westpac, depended upon the rate at which the BBSW in the relevant tenor set on that day; or (c) more generally, Westpac's or the counterparty's rights or liabilities thereunder were influenced by or derived from BBSW. 7 On each Sydney business day in the relevant period, the books in Westpac's Group Treasury included holdings of BBSW Referenced Products in relation to which: (a) an obligation to pay an amount of money would be quantified when the relevant BBSW was set on that day; and (b) that amount, and, in the case of some of the BBSW Referenced Products, whether the amount was payable by Westpac to the counterparty or by the counterparty to Westpac, depended upon or was influenced by the rate at which the relevant BBSW was set on that day, and therefore the profit and loss of those books was affected by movement in the BBSW on that day (BBSW Rate Set Exposure). For the moment it is sufficient to note that although Westpac had a separate division, Financial Markets, which had its own BBSW Rate Set Exposure, when I am referring to BBSW Rate Set Exposure generally speaking I am referring to the Group Treasury BBSW Rate Set Exposure. This is because Westpac's traders in Prime Bank Bills had reference only to the latter exposure. Equally relevantly, the Group Treasury BBSW Rate Set Exposure can be taken as a proxy for Westpac's BBSW Rate Set Exposure in terms of considering the motivational influences on Westpac's traders trading in Prime Bank Bills. In these reasons I have also refrained from using terms such as "net" or "gross" exposure. But it should be appreciated that the Group Treasury BBSW Rate Set Exposure on a particular day is the sum of individual books' exposures, some of which will have a short exposure and some of which will have a long exposure on a particular day, such that in aggregate there will either be a long exposure or a short exposure. Let me elaborate. 8 On each trading day in the Bank Bill Market and prior to the BBSW Rate Set Window, Group Treasury was able to and did ascertain its BBSW Rate Set Exposure, which was either: (a) a long exposure, meaning that the aggregate of the net earnings of certain books managed by the relevant desks insofar as being referable to the BBSW: (i) would be increased in the event that the BBSW was set by AFMA at a higher rate on that day; and (ii) correspondingly, would be decreased in the event that the BBSW was set by AFMA at a lower rate on that day; or (b) a short exposure, meaning that the aggregate of the net earnings of certain books managed by the relevant desks insofar as being referable to the BBSW: (i) would be increased in the event that the BBSW was set by AFMA at a lower rate on that day; and (ii) correspondingly, would be decreased in the event that the BBSW was set by AFMA at a higher rate on that day. 9 On days when Group Treasury including its relevant desks had in sum a long exposure, it was receiving BBSW and so benefited by the BBSW setting higher. Conversely, on days when there was in sum a short exposure, it was paying BBSW and so benefited by the BBSW setting lower. 10 ASIC contends that there existed throughout the relevant period, including on specific contravention dates, a material profit-making opportunity for Westpac to use its trading in Prime Bank Bills in the Bank Bill Market in the BBSW Rate Set Window to advantage its positions and exposures under the BBSW Referenced Products. It is said that Westpac developed and pursued a practice in furtherance of enhancing the earnings generated from its BBSW Rate Set Exposure to the disadvantage of counterparties. In particular, ASIC says that on specific days in the relevant period (the contravention dates) and also from time to time during the relevant period, it was the practice of Westpac to trade Prime Bank Bills including to trade newly issued Negotiable Certificates of Deposit (NCDs), which I will include in the expression "Prime Bank Bills", in the BBSW Rate Set Window: (a) with the sole or dominant purpose of influencing the level at which the BBSW was set in a way that was favourable to its BBSW Rate Set Exposure; and (b) which therefore resulted in yields which did not reflect the forces of genuine supply and demand. 11 I will refer to this practice as the Rate Set Trading Practice. It is said that the Rate Set Trading Practice was in existence and implemented generally throughout the relevant period, and specifically on purchase contravention dates and sale contravention dates. Let me elaborate further. 12 It is said that on each of the purchase contravention dates (6 April (2 different Prime Bank Bill tenors), 30 April, 20 May, 20 September (2 different Prime Bank Bill tenors), 22 September, 1 December and 6 December 2010, 1 March, 4 March, 1 June and 6 June 2011, and 6 June 2012), Westpac knew that a substantial short BBSW Rate Set Exposure existed, and purchased Prime Bank Bills in the Bank Bill Market during the BBSW Rate Set Window with the sole or dominant purpose of lowering or maintaining the rate at which the BBSW for the relevant tenor(s) was set by AFMA on that day and thereby sought to increase its earnings by minimising its BBSW referenced payment obligations. 13 It is said that the purchase contraventions: (a) were undertaken by Westpac for the sole or dominant purpose of lowering or maintaining: (i) the yield at which Prime Bank Bills were trading at approximately 10.00 am on the relevant day; and (ii) the level at which the BBSW was set by AFMA on the relevant day; (b) therefore resulted in yields which did not reflect the forces of genuine supply and demand in the Bank Bill Market on the relevant day; and (c) had, or were likely to have, the effect of creating an artificial price for trading in three classes of traded BBSW Referenced Products, being relevantly for present purposes limited to bank accepted bill futures contracts (BAB Futures), cross-currency swaps and interest rate swaps. 14 Further, it is said that on each of the sale contravention dates (10 June 2010 and 9 June 2011) Westpac knew that a substantial long BBSW Rate Set Exposure existed, and sold Prime Bank Bills in the Bank Bill Market during the BBSW Rate Set Window with the sole or dominant purpose of raising or maintaining the rate at which the BBSW for the relevant tenor(s) was set by AFMA on that day and thereby sought to increase its earnings accordingly. 15 It is said that the sale contraventions: (a) were undertaken by Westpac for the sole or dominant purpose of raising or maintaining: (i) the yield at which Prime Bank Bills were trading at approximately 10.00 am on the relevant day; and (ii) the level at which the BBSW was set by AFMA on the relevant day; (b) therefore resulted in yields which did not reflect the forces of genuine supply and demand in the Bank Bill Market on the relevant day; and (c) had, or were likely to have, the effect of creating an artificial price for trading in the three types of traded BBSW Referenced Products referred to above. 16 ASIC contends that such conduct including the implementation of the Rate Set Trading Practice contravened ss 1041A and 1041B of the Corporations Act. It is said that the conduct had, or was likely to have, the effect of creating an artificial price for trading in the said traded BBSW Referenced Products, being BAB Futures, interest rate swaps and cross-currency swaps. It is also contended that such conduct also had, or was likely to have, the effect of creating a false or misleading appearance with respect to the market for, or the price for trading in, those derivative instruments. Because of statutory restrictions, the case concerning ss 1041A and 1041B has been confined to the financial products of BAB Futures, interest rate swaps and cross-currency swaps; the detailed reasons as to why this is so will become apparent much later in my reasons. 17 Further, ASIC contends that the trading on the contravention dates and more broadly the Rate Set Trading Practice, coupled with the non-disclosure of the practice, constituted unconscionable conduct and misleading or deceptive conduct in that such conduct had the actual or likely effect of influencing the calculation of payments required under BBSW Referenced Products to the detriment of counterparties to those instruments or put them at a risk of which they were unaware. I would note that this part of the case involves a broader set of derivative and financial instruments than just BAB Futures, interest rate swaps and cross-currency swaps. 18 It is said that counterparties did not appreciate that Westpac and other participants in the Bank Bill Market could manipulate the BBSW and that they were vulnerable to loss. Further, it is said that the counterparties reposed trust in Westpac to deal fairly with them in respect of the BBSW Referenced Products entered into between them and Westpac. In evidence before me, many of the counterparties deposed to their understanding that the BBSW was a benchmark rate that was not affected by actions, including trading during the BBSW Rate Set Window, intended to cause the BBSW to set at a level other than that which should have obtained under the forces of genuine supply and demand. The counterparties have said that had the true position been disclosed to them, they would have regarded Westpac's conduct in trading directed at influencing the BBSW to its advantage as unfair and contrary to the trust that they had reposed in Westpac. 19 Further, ASIC says that Westpac's failure to disclose its Rate Set Trading Practice to counterparties also gave rise in all the circumstances to a representation to counterparties that BBSW Referenced Products referenced a benchmark rate that was genuine, independent and transparent. It is said that by reason of Westpac engaging in its Rate Set Trading Practice such a representation was false or misleading. 20 Further, ASIC contends that Westpac as the holder of an Australian financial services licence breached statutory obligations as to honesty, fairness, compliance with financial services laws, the taking of steps to manage conflicts of interest and to ensure compliance by its employees with such laws, and also failed to ensure the adequate training and competence of its employees. 21 Now as to these four sets of claims, the present trial has proceeded on the basis of liability only at this stage. The case has been presented by the legal representatives for both ASIC and Westpac with notable efficiency. 22 Now as I have said, ASIC alleges that during the relevant period, including on the contravention dates, Westpac traded with the sole or dominant purpose of influencing where the BBSW set. It is said that I should so find having regard to the contemporaneous communications which directly evidence the existence of that practice, the fact that Westpac had the opportunity to engage in such a practice, the fact that Westpac's traders had a broad discretion and there were no hard limits on Prime Bank Bills trading, the fact that Westpac and its traders had an incentive to engage in such a practice, and the fact that Westpac knew that its trading could affect the BBSW. It is also said that objective trading and exposure data is consistent with the existence of this practice, and that Westpac's alternative explanations for its trading are not credible. Now proof of purpose against a corporation usually resorts to inferential reasoning based upon circumstantial evidence and the exclusion of reasonably open exculpatory explanations. But in the present case ASIC says that there is a significant body of contemporaneous evidence comprised of extensive written communications, including by informal means such as instant chat messaging or email, coupled with voice recordings of an array of internal Westpac communications, from which it is said that I can readily infer that the impugned trading was motivated by the alleged dominant manipulative purpose. 23 Now ASIC bears the onus of proof on each of the elements of the causes of action to the requisite civil standard having regard to the gravity of the matters alleged: s 140(2) of the Evidence Act 1995 (Cth) (the Evidence Act) and Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 and 362. But I would note that ASIC's purpose case does not principally follow the conventional path of demonstrating manipulative purpose from the absence of any rational explanation for the impugned trading. In most cases it has downplayed the objective circumstances of the trading and asked me to principally infer manipulative purpose from the contemporaneous communications. But many of these communications are open to competing interpretations, particularly when understood in context. Now ASIC has sought to construe such communications in ways different from the explanations given by Westpac's witnesses. But in order for ASIC to discharge its onus, I am required to be comfortably satisfied that its interpretation is what was meant and intended by the parties to the communications. Accordingly, where there has been uncertainty as to what was said or what was meant or conveyed after considering the context and all relevant circumstances, I have resolved that uncertainty in Westpac's favour. 24 In summary, I have rejected ASIC's case under ss 1041A and 1041B of the Corporations Act. Although I accept that Westpac through its traders did on four occasions during the relevant period (6 April 2010, 20 May 2010, 1 and 6 December 2010) trade in Prime Bank Bills in the Bank Bill Market with the dominant purpose of influencing the level at which BBSW was set in a way that was favourable to its BBSW Rate Set Exposure, I do not consider that contraventions of ss 1041A and 1041B have been made out. I say that for the following brief reasons. First, the statutory provisions are focused upon effect or likely effect rather than on dominant purpose, although purpose in some circumstances can be used to infer effect or likely effect. Second, to the extent that ASIC has relied upon Director of Public Prosecutions (Cth) v JM (2013) 250 CLR 135 to use dominant purpose in essence and in context as a sufficient condition to establish effect or likely effect, that case is relevantly distinguishable in a number of important respects that I will expand upon later. It dealt with the relatively more straight-forward case of share trading on the Australian Stock Exchange where the product traded, the purpose for trading and the effect of trading were all in the same dimension. But in my case I am dealing with a three-dimensional construct. In the present case, it is important not to elide distinctions that need to be made between three dimensions: (a) the first dimension is the trading of Prime Bank Bills in the Bank Bill Market; (b) the second dimension is the setting of BBSW, which is not of itself a price but rather the trimmed average mid-rate of the observed best bid/best offer for Prime Bank Bills for certain tenors calculated by AFMA; and (c) the third dimension is the pricing of BAB Futures, interest rate swaps and cross-currency swaps in separate financial markets. For the purposes of s 1041A, in the present case the relevant "artificial price" that is to be considered is the price(s) for BAB Futures, interest rate swaps and cross-currency swaps. In simplistic terms, ASIC's case proceeds on the foundation of taking a product in the first dimension and its trading (Prime Bank Bills in the Bank Bill Market) to achieve a purpose in the second dimension (influencing where BBSW set) to produce or likely bring about an artificial price in the third dimension (pricing under BAB Futures, interest rate swaps and cross-currency swaps). For the moment, it is sufficient to say that I am not satisfied that the holding of the relevant dominant purpose on the said four occasions, together with the other evidence, establishes the effect or likely effect of creating or maintaining an artificial price for or under such derivative instruments. And as for s 1041B, I likewise do not consider that establishing such a purpose for trading in Prime Bank Bills establishes a false or misleading appearance with respect to the market(s) in or price for trading of such derivative instruments. 25 Second, I would reject ASIC's more general allegation concerning the existence of the Rate Set Trading Practice during the relevant period. I am not prepared to infer from the isolated instances on the specific four occasions that I have identified or from the totality of the evidence that there was a pattern or system such as to give rise to such a practice. Further, to characterise such isolated examples as in and of themselves constituting such a practice over the relevant period would be to prefer form over substance and to allow the pleader's construct to inappropriately distort the analysis. 26 Third, in my view, on the four occasions that I have identified, Westpac engaged in unconscionable conduct under s 12CC of the ASIC Act (as in force prior to 1 January 2012), that is, under the statutory construct rather than under the unwritten law. But in making this finding I have avoided descending into the "formless void of individual moral opinion" (Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [306] per Allsop CJ citing Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 616 who in turn cited Carly v Farrelly [1975] 1 NZLR 356 at 367 per Mahon J). It is sufficient for me to say that applying Allsop CJ's analysis in Paciocco at [259] to [306] and without dwelling in the paradigm of moral obloquy, Westpac's conduct was against commercial conscience as informed by the normative standards and their implicit values enshrined in the text, context and purpose of the ASIC Act specifically and the Corporations Act generally. 27 Fourth, I have also concluded that by reason of inadequate procedures and training, Westpac contravened its financial services licensee obligations under s 912A(1) of the Corporations Act. 28 For convenience, I have divided my analysis into the following sections: (a) Financial and derivative instruments - [30] to [142]; (b) The Bank Bill Market and BBSW - [143] to [271]; (c) Westpac structure and governance - [272] to [351]; (d) Funding and liquidity activities - [352] to [400]; (e) Management of non-interest rate risks - [401] to [417]; (f) Management of interest rate risks - [418] to [544]; (g) Rationales for trading Prime Bank Bills - [545] to [616]; (h) Dynamics of the Bank Bill Market and trading strategies- [617] to [715]; (i) Opportunity and incentives to manipulate - [716] to [793]; (j) Susceptibility of the Bank Bill Market and BBSW to manipulation - [794] to [856]; (k) Reliability of Westpac's witnesses - [857] to [924]; (l) Contravention dates and alleged practice - [925] to [1677]; (m) Trading and price impacts - [1678] to [1885]; (n) Market manipulation (ss 1041A and 1041B) - [1886] to [2126]; (o) Unconscionable conduct - [2127] to [2253]; (p) Misleading or deceptive conduct - [2254] to [2334]; (q) Financial services licensee obligations - [2335] to [2533]; (r) Conclusions - [2534] to [2539]. 29 It has been necessary to deal with these topics in this sequence and with this cumulative development in order to avoid an analysis based only upon superficial snapshots of the key communications and trading behaviour referable to the specific purchase and sale contravention dates. That said, the linear sequence of these reasons cannot fully capture in text the iterative and interactive nature of the analysis which has been necessary to ensure that findings on some aspects are informed by my analysis and findings on other aspects.

FINANCIAL AND DERIVATIVE INSTRUMENTS 30 Let me at this point make some introductory remarks concerning various financial instruments and the use of BBSW as a reference rate. Any capitalised expressions have corresponding definitions set out in this section or in the glossary to these reasons.

(a) Bank Bills 31 A Bank Bill is a bill of exchange, as defined in s 8 of the Bills of Exchange Act 1909 (Cth), which has been accepted by a bank and bears the name of the accepting bank as acceptor, and which obliges the bank to pay the face value of the bill to the holder of the bill on the date that it matures. 32 Bank Bills trade at a price calculated by discounting the face value of the Bank Bills to reflect an interest rate or yield paid by the Bank Bills. The price (present value) of a Bank Bill can be expressed by the following formula: Where: PV = Present value (price) FV = Face value r = Per annum yield to maturity t = Time to maturity in days

33 Where the yield used to price a Bank Bill is BBSW (in cases say where the Bank Bill is bought or sold outside of the Bank Bill Market and it is separately agreed), the formula for the price (present value) of the Bank Bill is: 34 Further, as I have said, there is a category of Bank Bills known as Prime Bank Bills where the acceptor is a Prime Bank; a Prime Bank is one designated as such by AFMA as I will explain later.

(b) 3 month Bank Accepted Bill Futures (BAB Futures) 35 Under a BAB Futures contract one party agrees to buy a 3 month Prime Bank Bill at an agreed yield (and thus price) on the expiry date of the contract and the other party agrees to sell a 3 month Prime Bank Bill at an agreed yield (and thus price) on the expiry date of the contract. For convenience, in these reasons I will refer to the different tenors of Prime Bank Bills in month(s) rather than days. Likewise, references to the applicable BBSW will be described in month(s). The glossary to my reasons sets out any necessary conversion. 36 BAB Futures contracts are standardised contracts with the following terms: (a) the contracts relate to the delivery of 3 month Prime Bank Bill(s) with a face value of $1,000,000; (b) the contracts expire on one of four dates per year being the Thursday before the second Friday in each of March, June, September and December; the expiry date is known as the close out date; (c) the contracts are "deliverable", meaning that if the BAB Futures contract is held to expiry then one party must actually deliver the 3 month Prime Bank Bill(s) to the other party, who must buy the Prime Bank Bill(s); and (d) the contracts expire at 12.00 pm noon on the expiry day and the delivery occurs the following day (so delivery occurs on the second Friday in each of March, June, September and December); the delivery date is known as the settlement date. 37 BAB Futures contracts are traded on an exchange, which was known as the Sydney Futures Exchange (SFE) during the relevant period until 31 July 2010 and then from 1 August 2010 known as ASX24. A party can enter into BAB Futures contracts with a term (time left to the expiry date) of up to five years. BAB Futures contracts are quoted in terms of yield per annum (in percentage terms) deducted from 100. So a BAB Futures contract quoted at "96" means that the parties to the BAB Futures contract agree to buy (or sell) a $1,000,000 3 month Prime Bank Bill on the expiry date at a price that represents a yield of 4% (that is, the "price" of the 3 month Prime Bank Bill will be discounted to reflect a yield of 4%). 38 The BAB Futures contract price reflects: (a) the market's view of what the price of 3 month Prime Bank Bills will be at the date of expiry of the BAB Futures contract; and (b) the current interest rate that applies to the period until the BAB Futures contract expiry date, which determines the cost of holding the BAB Futures contract. 39 The profit or loss made on a BAB Futures contract can be understood by considering a BAB Futures contract which is held to expiry. 40 On the expiry date the party who has agreed to sell 3 month Prime Bank Bills will need to hold or obtain 3 month Prime Bank Bills in order to deliver these to the other party. If: (a) the price of Prime Bank Bills falls (and thus the yield on Prime Bank Bills, and the BBSW, increases) to a level which is below the level implied by the BAB Futures contract price at the time it was entered into (meaning that the Prime Bank Bill yield is above the original BAB Futures contract implied yield), then the selling party will be paying less for the 3 month Prime Bank Bills than they will receive selling them (delivering them) pursuant to the BAB Futures contract (making a gain); and (b) the price of Prime Bank Bills increases (and thus the yield on Prime Bank Bills, and the BBSW, falls) to a level which is above the level implied by the BAB Futures contract price at the time it was entered into (meaning that the Prime Bank Bill yield is below the original BAB Futures contract implied yield), then the selling party will be paying more for the 3 month Prime Bank Bills than they will receive selling them (delivering them) pursuant to the BAB Futures contract (making a loss). 41 On the expiry date, the party who has agreed to buy 3 month Prime Bank Bills will need to take delivery of the 3 month Prime Bank Bills once delivered. If: (a) the price of Prime Bank Bills falls (and thus the yield on Prime Bank Bills, and the BBSW, increases) to a level which is below the level implied by the BAB Futures contract price at the time it was entered into (meaning that the Prime Bank Bill yield is above the original BAB Futures contract implied yield), then the purchasing party will be paying more for the 3 month Prime Bank Bills than the market price they could sell them at or otherwise buy them at (making a loss); and (b) the price of Prime Bank Bills increases (and thus the yield on Prime Bank Bills, and the BBSW, falls) to a level which is above the BAB Futures contract price at the time it was entered into (meaning that the Prime Bank Bill yield is below the original BAB Futures contract implied yield), then the purchasing party will be paying less for the 3 month Prime Bank Bills than the market price they could sell them at or otherwise buy them at (making a gain). 42 Only approved Prime Bank Bills were eligible for delivery. Approved Prime Bank Bills had to, of course, be accepted by a Prime Bank, have a face value of $1 million, mature 85 to 95 days from the settlement date and be classified as "early" month paper; I will explain this concept later. 43 In practice, a significant majority of BAB Futures contracts are not held to expiry, instead they are "closed out". A party can "close out" a BAB Futures contract on the ASX24 exchange by entering into an equivalent BAB Futures contract, but taking the opposite leg (e.g. agreeing to buy the 3 month Prime Bank Bills rather than sell, or sell rather than buy). So, for example a BAB Futures contract which is purchased three months out from expiry can be closed out two months from expiry by entering into an opposite position in another BAB Futures contract which is also two months out from expiry. 44 Further, trading in BAB Futures contracts involves maintaining a margin account. On each day that the BAB Futures contract is held, the margin account is adjusted to reflect the change in the BAB Futures contract price (based on where other BAB Futures contracts with the same expiry date are trading). The effect is that the gain or loss from the BAB Futures contract is not all realised on the expiry date, but is instead reflected in daily changes to the margin account over the term of the BAB Futures contract. 45 This daily adjustment is referred to as the Daily Settlement Price. The Daily Settlement Price was during the relevant period determined under the applicable exchange Operating Rules and Procedures as follows: (a) from 6 April 2010 until about 31 July 2010, pursuant to rule 1.9 "Daily Settlement Price" of the SFE Operating Rules; and (b) from 1 August 2010 until 6 June 2012, pursuant to item [2500] "Determination of Daily Settlement Price" in the ASX24 Operating Rules Procedures. 46 ASIC says that the Daily Settlement Price on a final trading day (prior to expiry) is referred to as the "Expiry Settlement Price", but no provision in the Operating Rules made that express. I will return to the question of the significance of the Daily Settlement Price later. 47 Now although trading in BAB Futures is conducted anonymously on-market via ASX24, which functions as a clearing house for BAB Futures, trading in the BAB Futures market requires a participant to maintain a margin account (as I have said) with the ASX. As trading in BAB Futures is a leveraged transaction, parties do not pay (or receive) the full value of the contract at the time the transaction is entered into. Instead, both buyers and sellers of BAB Futures pay an initial margin and are also liable for daily variation margin calls: (a) The initial margin (paid by both the buyer and the seller) covers the maximum probable one-day move in the rate of the futures contract, as assessed by ASX Clear (a wholly owned subsidiary of the ASX). ASX Clear sets the initial margin for BAB Futures contracts with reference to the volatility of the yields for BAB Futures. It does not do so by reference to volatility in BBSW. ASX Clear uses the "SPAN" methodology to calculate margin requirements, which references historical data in relation to movements in the yields of BAB Futures contracts within the period of approximately the preceding three months. (b) The variation margin is an amount that either is paid, or received, by a party to reflect a movement in the value of its BAB Futures position on a mark-to-market basis. On each day that the BAB Futures contract is held, the margin account is adjusted to reflect that change in the BAB Futures contract rate (based on where other BAB Futures contracts with the same expiry are trading at 4.30 pm on each trading day). In times of high volatility, ASX Clear may also call intra-day margins. 48 The margin posted by a party entering into a BAB Futures contract will be returned when the party "closes out" its position. Now as I have said, a party can "close out" a BAB Futures contract by entering into an BAB Futures contract with the same expiry date but taking the other leg, that is, agreeing to buy a 3 month Prime Bank Bill rather than sell, or sell rather than buy. 49 Further, a party can hold a BAB Futures contract to expiry. If a party is "short" BAB Futures at the close out date, that party is obliged to deliver 3 month Prime Bank Bills on the settlement date to the party who is "long" BAB Futures on expiry. The 3 month Prime Bank Bill must be sold and purchased at the rate agreed when the BAB Futures were initially entered into. 50 Let me say something at this point in terms of the phenomenon of convergence, although I will return to it much later in my reasons. This phenomenon is relevant to the question of whether there is a causal relationship between changes in Prime Bank Bill yields and changes in BAB Futures rates, and if so what. That in turn is relevant to the question of whether the price for trading of BAB Futures was affected by changes in BBSW arising from trading in the Bank Bill Market, which itself is one of the questions that I need to consider under ss 1041A and 1041B for one of the traded BBSW Referenced Products being BAB Futures. For the moment, let me just note the following concerning convergence. 51 Typically, the close out date is the only point in time at which the rate for Prime Bank Bills and the rate for BAB Futures may converge. At any other time, the rate for trading BAB Futures is reflective of the market's view of where 3 month yields or perhaps BBSW will be at the close out date. While each market participant's view of this will be affected by whatever indicia they consider to be important, in general terms the market's view of where interest rates will be at the expiry of BAB Futures is usually informed by participants' expectations of future movements to the cash rate, which, in turn, is affected by a number of other factors including the Reserve Bank of Australia's (RBA) monetary policy stance, global economic events and credit expectations of banks. If the majority of participants trading in the BAB Futures market expect interest rates to decrease, then in the ordinary course the implied yield at which BAB Futures are trading decreases and therefore the rate for BAB Futures increases. Conversely, if participants in the BAB Futures market expect interest rates to increase, then in the ordinary course the implied yield at which BAB Futures are trading increases and therefore the rate for BAB Futures decreases. 52 Now while 3 month yields or perhaps BBSW and the BAB Futures rate should in theory converge on the close out date, there is often a discrepancy between the two due to the market dynamics around the close out date. This discrepancy can be caused by participants in both the BAB Futures market and the Bank Bill Market having a similar view on future movements on interest rates, but with a different result. 53 So, if foreign investors in BAB Futures take the view that the RBA will reduce interest rates as a result of an economic downturn, this will probably cause BAB Futures to trade at a lower implied yield (and a higher rate). However, at the same time, the Prime Banks in the domestic Bank Bill Market may seek to raise funds as a result of economic downturn by issuing Prime Bank Bills, and that issuance may increase the yield at which Prime Bank Bills are trading. 54 In addition, whereas 3 month BBSW is published at 10.15 am, BAB Futures expire at midday. So, a new piece of economic data or financial information may become accessible to the market between the time at which BBSW sets and the time the BAB Futures market closes which affects the rate at which BAB Futures trade and causes the BAB Futures rates to move away from the three month BBSW published at 10.15 am. 55 Further as to the question of convergence, Mr Simon Masnick, an officer in Westpac's Financial Markets division, gave evidence to the following effect: (a) At any point in time prior to the close out date, the BAB Futures rate should represent the market's consensus view of the likely yield of a Prime Bank Bill at the close out date. Typically, the market has greater certainty as to the likely yield of a Prime Bank Bill as the close out date draws nearer (particularly after the RBA's cash rate announcement in the month of the close out date). However, the close out date is the only point in time at which the rate for 3 month Prime Bank Bills and the rate for BAB Futures are likely to converge, and even this is subject to matters which may cause a mismatch at expiry. (b) The BAB Futures rate and the rate of the underlying asset (that is, a 3 month Prime Bank Bill) usually start to converge in the days leading up to the close out date. However, this convergence does not mean that, on any particular day, the level at which 3 month BBSW sets at 10.00 am determines (or even influences) the BAB Futures rate for that day. Momentary or daily movements in the level at which 3 month BBSW sets on any given day have little to no impact on the BAB Futures rate on that same day (particularly if the close out date is not within a few days of trading in BAB Futures). Primarily, this is because the market's view of future movements in the cash rate is the factor which most directly informs both the BAB Futures rate and the level at which 3 month BBSW sets on any given day. For example, Mr Masnick regularly observed instances where important economic information such as Consumer Price Index (CPI) figures or employment data was released at around 11.30 am (that is, after 3 month BBSW set on that particular day). When this occurred, the BAB Futures rate would change prior to, and independently of, any change in the level of BBSW, which would not take place until the following day. (c) In addition, the BAB Futures rate will at any given point in time have additional information built into it which is not yet reflected in, and not relevant to, the rate of Prime Bank Bills (and so the level of BBSW). That is because BBSW is the market's assessment of the correct rate for Prime Bank Bills today, while the BAB Futures rate is the market's assessment of the rate of Prime Bank Bills at a future date (that is, the close out date). (d) The most significant factors that influence the rate at which BAB Futures trade are the following. First, the market's perception of what the level of BBSW will be at the date of the BAB Futures expiry. Second, the term of the BAB Futures contract. That is, whether a participant is buying the BAB Future which expires in less than three months' time, or the following BAB Future which expires in less than six months' time. Third, market volatility which might affect the credit spread between the cash rate and BBSW. Fourth, whether a party is a buyer or a seller. (e) Further, Mr Masnick observed that the volume of trading in the BAB Futures market is significantly greater than the amount of trading in the Bank Bill Market. Typically, parties trading in BAB Futures do not intend to take delivery of, or issue (in the case of Prime Banks), Prime Bank Bills into the futures close out. Instead, many parties trade BAB Futures so as to hedge interest rate swaps or speculate on likely cash rate and BBSW outcomes into the future. Accordingly, he observed that the trading behaviour of some market participants in the BAB Futures market often had little or no regard to the level at which BBSW set on a given day. For example, speculative trading in significant volumes commonly had a material effect upon the rate at which BAB Futures traded irrespective of any daily movements in the level of 3 month BBSW. (f) Mr Masnick had never referred to nor heard of the 3 month AUD Bank Bill 5.00 pm New York closing time yield (the Bloomberg Closing Yield), on which ASIC's expert witness before me, Dr Tiago Duarte-Silva, relied as a key integer for his measurement of the change in Prime Bank Bill yields on any day. Specifically, Dr Duarte-Silva posited that the change in the yield in Prime Bank Bills on each date could be calculated by reference to the difference between the level at which BBSW sets and the Prime Bank Bill yield at the 5.00 pm New York (which equates to 7.00 am to 9.00 am in Australian Eastern time depending on the date). But ASIC has now abandoned any reliance upon the evidence of Dr Duarte-Silva. No doubt this was due to problematic aspects of his statistical methodology which were exposed during one of the three concurrent evidence sessions that I held. But in any event in Mr Masnick's experience, the Bloomberg Closing Yield was not a source of information used by traders to trade in BAB Futures or Prime Bank Bills. I will return to Dr Duarte-Silva's evidence later, notwithstanding ASIC's abandonment of it. It is forensically relevant as far as I am concerned to show what could not be proved.

(c) Interest rate swaps 56 An interest rate swap is an agreement between two parties to exchange streams of single currency cash-flow based on a notional amount for a set period. The most common type of interest rate swap is a "fixed for floating rate swap". Under a "fixed for floating rate swap" there are two legs. One leg of the swap has payment obligations calculated with reference to a floating interest rate (most commonly the BBSW). The swap party taking this leg of the swap has obligations to pay to the other swap party cash-flows equal to the agreed notional amount multiplied by the agreed floating interest rate. The other leg of the swap has payment obligations calculated with reference to an agreed fixed interest rate (known as the "swap rate"). The swap party taking this leg of the swap has obligations to pay to the other party cash-flows equal to the agreed notional amount multiplied by the swap rate. 57 Rather than both parties making payments, the parties exchange cash payments based on the net difference between the two cash-flows (referred to as the "Swap Cash Settlement Amount"). These net interest payments are made at regular intervals (the payment days are referred to as "reset dates"). The intervals (also known as "interest accrual periods") may be set monthly, quarterly, annually, or at another time period agreed between the parties. Typically, the interest accrual period is the same as the relevant tenor of the floating rate. So, for example, an interest rate swap which resets quarterly will use the 3 month BBSW as the floating leg reference rate. Payments only reflect net interest payments. No "principal" payments of the notional amount are made by the parties. 58 As I have said, the "reset date" is the date on which the floating rate is observed, and which typically occurs at the beginning of the interest accrual period. The reset date is usually different from the payment date, which is the date on which the net payment for a particular interest accrual period is made. 59 There is usually a difference between the date that the parties agree to enter into the interest rate swap (the "transaction date") and the date the interest rate swap first resets (the "commencement date"). Often, the commencement date will be the day after the transaction date. This is referred to by traders as being "T + 1". If, for example, the commencement date was three days after the transaction date, this would be referred to as "T + 3". Typically, subsequent reset dates are determined with reference to the commencement date. For instance, if the interest rate swap resets monthly, the second reset date will be the date corresponding to the commencement date in the following month. 60 The formula for calculating the cash-flow obligations of both swap counterparties to a fixed for floating rate swap on a reset date can be expressed as follows: Payment obligation of the party paying the fixed interest rate leg of the swap Where: Afix = Amount required to be paid by the party paying the fixed interest rate leg of the swap Notional = Notional amount d = Day count (between reset dates) Rfix = Fixed rate

Payment obligation of the party paying the floating interest rate leg of the swap Where: Afloat = Amount required to be paid by the party paying the floating interest rate leg of the swap Notional = Notional amount d = Day count (between reset dates) Rfloat = Floating rate

The net cash-flow payment (Swap Cash Settlement Amount) Which can also be written as follows by expanding the equation: Where: Anet = Swap Cash Settlement Amount

61 The floating rate in an interest rate swap is most commonly the BBSW. In these swaps: (a) the "Rfloat" input in the equations above is the BBSW; (b) the payment obligation of the party paying the floating rate is directly referenced to the BBSW; and (c) the Swap Cash Settlement Amount (Anet) is directly referenced to the BBSW. 62 As to pricing, a matter about which I will say something more later, ASIC contends that the price for trading, within the meaning of s 1041A of the Corporations Act, in an interest rate swap: (a) consists of the obligations to exchange periodical cash payments undertaken by both parties to the swap at the time of acquiring an interest rate swap; and (b) is quantified in monetary terms on each reset date using the formula to calculate the Swap Cash Settlement Amount set out above. 63 ASIC contends that where the BBSW is used as the floating rate in an interest rate swap, the BBSW is an input into the formula for calculating the Swap Cash Settlement Amount and therefore the BBSW is an input into the price for trading of the interest rate swap. I would note at this point that Westpac's thesis as to the "price" for trading of an interest rate swap focuses more on the agreement or stipulation of the fixed rate referable to the fixed rate leg. 64 In relation to exposure, for interest rate swaps which used the BBSW as the relevant floating rate, an exposure to the BBSW rate would be realised at each reset date. As set out above, the formulae for calculating the obligations of the swap party paying the floating rate and the Swap Cash Settlement Amount which both parties were obligated to pay directly referenced the BBSW. 65 As for profit or loss, the profit or loss to the parties to an interest rate swap is realised on the reset dates. As set out above, the formula to calculate the Swap Cash Settlement Amount on a fixed for floating swap is: Which can also be written: 66 Where the floating rate used is the BBSW, this equation becomes: 67 Accordingly, where the floating rate in a fixed for floating interest rate swap is the BBSW, the rate at which the BBSW sets on the reset dates will determine which swap party needs to make a payment and the value of the payment (being the Swap Cash Settlement Amount). If the BBSW increases, the swap party paying the floating leg of the swap will have to pay more (or will receive less) and the party paying the fixed leg of the swap will have to pay less (or will receive more). If the BBSW decreases, the swap party paying the floating leg of the swap will have to pay less (or will receive more) and the party paying the fixed leg of the swap will pay more (or will receive less). 68 There are typically four types of counterparties with which one would enter into an interest rate swap relevant to the present context: (a) Other banks and financial institutions, including foreign banks, that primarily use interest rate swaps to hedge their exposure to movements in interest rates as a result of their borrowing and lending activities. (b) Corporate customers, that commonly enter into interest rate swaps as a means of cash flow management in order to convert a floating interest rate exposure (for example, under a finance facility with a bank) to a fixed rate exposure or vice versa. (c) Institutional customers, such as superannuation funds or life insurance funds, that use interest rate swaps to manage the interest rate exposure of their portfolios of assets and liabilities. (d) Speculative investors, such as hedge funds, that might use interest rate swaps to take an outright position in relation to the direction of movements in interest rates in order to generate a profit if that position is realised. 69 Let me turn to some other matters concerning the details of an interest rate swap. One aspect that is of particular relevance is the determination of the amount of the fixed rate on the fixed rate leg of the swap, which is relevant to an issue that I will discuss much later concerning the "price" of an interest rate swap. 70 An interest rate swap is a zero net present value contract on the date on which the transaction is entered into, with the fixed rate leg set so that the payment obligations of the party paying the fixed rate (and receiving the floating rate) is equal to the net present value of the floating rate payment obligations of the party paying that rate. For example, assume that a party enters into a one year "fixed for floating" interest rate swap with a notional principal of $1 million where the reference rate for the floating leg of the swap is 3 month BBSW. In this example, the value of the fixed leg of the swap will equal the net present value of the four quarterly payments on the 3 month BBSW on the notional principal of $1 million. Accordingly, while the payment obligations of the party paying the fixed interest rate are known with certainty and the floating rate is to be determined on the four future rate reset dates, the parties expect them (notionally at least) to have the same total net present value for the term of the swap. 71 After the commencement date of the swap, however, the respective payment obligations of the parties to the swap will change as a result of movements in interest rates. While the fixed rate leg does not change over the term of the swap, the parties' respective payment obligations over the term of the swap will fluctuate depending on movements in the level at which the floating reference rate sets on the relevant rate reset dates. Ultimately, movements in the level of the floating reference rate will affect the sum of the parties' payment obligations over the term of the swap. Similarly, throughout the term of the swap, the mark-to-market value of the swap will change to the extent of subsequent movements of expectation of the level of the floating reference rate. The mark-to-market value of the swap is recalculated on a daily basis and a party may choose to crystallise their position (either at a gain or a loss) by selling an interest rate swap at the mark-to-market rate. 72 In practice, the amount of the fixed rate leg of the swap is determined by reference to two components: (a) the swap yield curve, where the term of the interest rate swap will determine the relevant point on the swap yield curve; and (b) a margin or "spread", where the margin which is applied essentially reflects the credit risk of a specific counterparty plus other transaction costs. 73 Mr Masnick for Westpac gave evidence to the following effect. Westpac regularly reviews the shape of its swap yield curve so as to ensure its traders have the best tools available to trade interest rate swaps effectively. Westpac's swap yield curve is built using a number of sources of information. During the relevant period, the swap yield curve was built using the following sources of information: (a) swaps with a term of up to two years are set by reference to the BAB Futures yield; (b) swaps with a term of longer than two years are set by reference to the Commonwealth government bond futures yield plus a margin (which is referred to as the Exchange For Physical (EFP) margin); (c) the Overnight Indexed Swap (OIS) rate, which was used to discount future cash-flows on the interest rate swap; (d) a credit valuation adjustment to account for the credit risk of counterparties; and (e) Westpac's profit margin (including the cost of capital and other related expenses). 74 In addition to the swap yield curve, Westpac traders during the relevant period would commonly have regard to the following information when trading in interest rate swaps: (a) their assessment of the likely future movements in interest rates; (b) the trading in other financial instruments which are set by reference to market views in relation to future movements in the cash rate, such as interest rate futures and BAB Futures; (c) the current level of trading, and recent market trades, in interest rate swaps; (d) the particular credit worthiness of the specific counterparty with which Westpac was proposing to enter into the swap, which is determined by Westpac's credit risk team; (e) whether an exchange margin (or other credit risk mitigant) can be agreed between the parties; and (f) other factors specific to a particular counterparty (for example, whether the counterparty is a strategic client of Westpac). 75 Because of the variety of information that was taken into account when trading interest rate swaps, during the relevant period there was not, at any point in or period of time, one single rate at which Westpac's traders would enter into an interest rate swap. Each transaction involved considering the full range of factors listed above, which meant that the rate at which interest rate swaps entered into by Westpac at or around the same time would differ as a result of the application of these factors to each transaction.

(d) Cross-currency swaps 76 A cross-currency swap is a variation on an interest rate swap. It is an agreement between two parties to exchange: (a) a principal amount and associated interest payments denominated in one currency; for (b) a principal amount and associated interest payments denominated in another currency. The parties pay their respective interest payments on dates referred to as "reset dates" and typically exchange the principal amount at the swap creation and maturity date (either in the two currencies or in one currency based on an agreed exchange rate). This is, of course, different to an interest rate swap, where no principal amounts are exchanged. 77 There are numerous types of cross-currency swaps. A simple example is a cross-currency swap where the parties agree to swap: (a) an Australian dollar ("AUD") principal plus interest payments determined by an AUD interest rate (such as BBSW); with (b) a principal of another currency (currency X) plus interest payments determined by a X currency interest rate (either fixed or floating as agreed between the parties). 78 A common type of cross-currency swap called a "floating for floating" basis swap involves exchanging a floating rate in one currency (say, BBSW) for a floating rate in another currency (say, the London Interbank Offered Rate (LIBOR)). 79 Cross-currency swaps involving AUD commonly use the BBSW as the AUD interest rate. 80 The formula for calculating the cash-flow obligations of both swap counterparties on a reset date (other than the creation or maturity date) can be expressed as follows: Payment obligation of the party paying the AUD leg of the swap Where: AAUD = Amount required to be paid by the party paying the AUD leg of the swap AUD principal = AUD principal amount RAUD = Australian interest rate d = Day count (between reset dates)

Payment obligation of the party paying the foreign currency leg of the swap Where: AX = Amount required to be paid by the party paying the X currency leg of the swap X principal = X currency principal amount (foreign currency amount) RX = X currency interest rate d = Day count (between reset dates)

81 The rate in a cross-currency swap where one leg uses AUDs is commonly BBSW. In these cross-currency swaps: (a) the "RAUD" input in the equation above is BBSW; (b) the payment obligation of the party paying the AUD leg of the swap is directly referenced to BBSW; and (c) if the payments on the reset dates are netted out (using an exchange rate to convert the non-AUD payment to AUDs) then the net payment amount is directly referenced to BBSW. 82 As for pricing, on which I will say something more later, ASIC contends that the price for trading, within the meaning of s 1041A of the Corporations Act, in a cross-currency swap: (a) consists of the obligations to exchange periodical cash payments undertaken by both parties to the swap at the time of acquiring a cross-currency swap; and (b) is quantified in monetary terms on the creation of the cross-currency swap and on each reset date, using (on each reset date) the formula set out above. 83 ASIC contends that where the BBSW is used as the Australian interest rate in a cross-currency swap the BBSW is an input into the formula for calculating the payment amount paid by the party making AUD payments on each reset date and the maturity date and therefore the BBSW is an input into the price for trading of the cross-currency swap. Contrastingly, Westpac says that the price for trading is more aptly focused, in the present context, on the margin added to the AUD floating rate (say, BBSW) where under the cross-currency swap one has a floating interest rate on each side, say on the AUD side, BBSW, and on the USD side, LIBOR. But where there is a fixed rate on one side, then the fixed rate would determine the price for the trade. 84 In relation to exposure, for cross-currency swaps which used the BBSW as the relevant floating rate on the AUD leg, an exposure to the BBSW rate would be realised at each reset date. As set out above, the obligations of the swap party paying the AUD interest rate and the Swap Cash Settlement Amount which both parties are obligated to pay (if netted off) directly referenced the BBSW. The amount used by Westpac to calculate its BBSW Rate Set Exposure arising from a cross-currency swap was the size of the notional amount upon which the swap obligations were based. 85 As to profit or loss, the profit or loss to the parties to a cross-currency swap is realised on the reset dates. 86 As set out above, the formula for calculating the cash-flow obligations of both swap counterparties (to a swap involving the AUD) on a reset date can be expressed as follows: Payment obligation of the party paying the AUD leg of the swap Payment obligation of the party paying the foreign currency leg of the swap 87 Where the AUD rate used is the BBSW, the rate at which the BBSW sets on the reset dates will determine the payment obligation of the party paying the AUD leg of the swap. Where the two swap payments are netted out (by applying an agreed exchange rate), which swap party needs to make a payment and the value of the payment (being the Swap Cash Settlement Amount) will also be dependent on where the BBSW sets on the relevant reset date. 88 Similar to interest rate swaps, there is also usually a difference between the date that the parties agree to enter into the cross-currency swap (the "transaction date") and the date the cross-currency swap first resets (the "commencement date"). Often, the commencement date will be the day after the transaction date. This is referred to by traders as being "T + 1". If, for example, the commencement date was three days after the transaction date, this would be referred to as "T + 3". Typically, subsequent reset dates are determined by reference to the commencement date. For instance, if the cross-currency swap resets monthly, the second reset date will be the date corresponding to the commencement date in the following month. 89 In terms of matters relevant to the trading of a cross-currency swap and the margin added to the AUD floating interest rate, where one has a floating interest rate on each side, the following may be noted. 90 Theoretically, the net present value of a cross-currency swap is zero because, on the date on which the transaction is entered into, the present value of interest payment obligations on a principal amount determined by an Australian interest rate equals the present value of interest payment obligations on the same principal amount determined by a foreign interest rate. In practice, a margin is added to the Australian interest rate which is due to supply and demand factors. Accordingly, the Australian interest rate of a cross-currency swap is expressed as a floating rate plus a margin. The margin may, inter-alia, reflect the particular credit risk of the individual counterparty. This credit risk is greater for cross-currency swaps than for interest rate swaps because the former requires the exchange of principal amounts whereas the latter involves only the exchange of the difference in the rates on the notional amount. 91 Cross-currency swaps are generally used in the Australian market by large corporate customers to convert interest rate risk from foreign currency raised in offshore wholesale debt markets (typically in the United States) into an exposure to domestic interest rates. For example, assume a party (such as a large Australian company) issues a USD 1 million bond in the United States with a term of two years and receives an equivalent amount of USDs, the floating interest rate on which is referenced to 3 month LIBOR. A cross-currency swap allows that party to convert a floating exposure to 3 month LIBOR to an exposure to 3 month BBSW. As a cross-currency swap involves the exchange of a principal amount, the large Australian company also receives the AUD equivalent of USD 1 million (calculated by reference to an agreed spot foreign exchange rate) with which it can meet its liabilities payable in AUDs. At the maturity date the parties re-exchange the initial principal at the same agreed exchange rate, with which the party receiving the USD 1 million can pay its liabilities with respect to the bondholders. 92 In Australia, the most common type of cross-currency swap entered into is an AUD/USD basis swap. It is common for Australian corporations to issue foreign currency debt into offshore bond markets which can absorb larger debt issuances at competitive levels. As a result, there is generally greater demand for USD floating reference cross-currency swaps in the Australian market, which affects the prevailing rate for AUD/USD cross-currency swaps. In this context, given the imbalance between payment flows, the basis point margin added to the Australian reference benchmark rate incentivises parties to take the USD floating rate leg of the swap because the basis point margin for entering into the swap is paid by the party paying interest determined by reference to Australian interest rates only. 93 During the relevant period, Westpac traders would have regard to the following information to determine the appropriate rate(s) and any relevant margin at which to enter into a cross-currency swap: (a) the rate for cross-currency swaps observed on broker screens; (b) the particular flows within a particular trading book of Westpac; and (c) Westpac's profit margin including a credit spread to reflect the particular credit risk of the individual counterparty.

(e) Electronic platforms 94 During the relevant period, interest rate swaps and cross-currency swaps were either: (a) privately negotiated between two counterparties; or (b) conducted indirectly through facilitation by a broker. 95 During the relevant period, companies offering voice brokerage services such as ICAP Brokers Pty Ltd (ICAP) and Tullett Prebon (Australia) Pty Ltd (Tullett) facilitated cross-currency swap and interest rate swap transactions. That is, they provided the ability for two counterparties to negotiate a swap transaction. They did not provide an active market in which "live" bids and offers were shown on the brokers' screens. Rather, the rates displayed on the screens were only indicative of where a counterparty might be willing to transact. It was only possible to get a confirmed rate at which a party was willing to transact by contacting the counterparty directly or through a broker. 96 There were also various electronic platforms. 97 The electronic platform called BETSY operated by Bloomberg Tradebook Australia Pty Ltd facilitated transactions in interest rate swaps. According to the evidence adduced before me: (a) BETSY was only available to large financial institutions and, as a result, facilitated interest rate swaps to a very narrow section of the broader market for interest rate swaps. The vast majority of interest rate swaps were negotiated bilaterally, either privately or through voice brokering. (b) Only 10 trades in interest rate swaps that had a payment referenced to BBSW were facilitated by BETSY during the relevant period (one of which was a "test" trade). By way of comparison, during the relevant period, the annual market turnover for interest rate swaps and cross-currency swaps was around $6 trillion. During the relevant period, Westpac entered into approximately 10,000 swap transactions each year. (c) BETSY did not allow participants to post "live" bids and offers for interest rate swaps to customers. Rather BETSY allowed participants to propose interest rate swaps with specific terms or make requests for quotes, after which the details of any trade could be negotiated bilaterally between the parties. In this way, BETSY provided a similar service to those companies providing voice brokerage services such as ICAP and Tullett. (d) BETSY did not compel participants to make bids and offers available to customers at any time. In addition, dealers were permitted to ignore orders from customers made via BETSY. (e) The execution, settlement and clearance of any transaction facilitated by BETSY was at the sole discretion of the parties to the transaction and was subject to the parties' independent confirmation and documentation processes. (f) Parties were not contractually obliged to inform Bloomberg of instances where a counterparty did not proceed to settlement despite accepting a transaction via BETSY. 98 Further, the BGC Trader platform (an electronic trading facility operated by BGC Partners (Australia) Pty Ltd and BGC Brokers LP named "BGC Trader") facilitated transactions in various financial products including interest rate swaps and cross-currency swaps. From the evidence adduced before me the following may be noted: (a) BGC Trader was only available to large financial institutions and, as a result, facilitated interest rate swaps to a very narrow section of the broader market for interest rate swaps and cross-currency swaps. By way of comparison, around $6 trillion was traded in the broader market for interest rate swaps and cross-currency swaps during the relevant period. The vast majority of interest rate swaps and cross-currency swaps were negotiated bilaterally, either privately or through voice brokering. (b) BGC Trader's "Volume Match auction" did not allow participants to post "live" bids and offers for interest rate swaps for cross-currency swaps and did not compel participants to show bids or offers. The Volume Match auction for interest rate swaps operated once daily for certain floating rate tenors and maturities, and the auction for cross-currency swap transactions occurred less frequently than that. (c) Given that the bids and offers observed on BGC Trader were anonymous, any trade confirmation provided by BGC Trader was always subject to credit risk checks which was conducted independently by the relevant parties on a bilateral basis (or via their broker). (d) The execution, settlement and clearance of any transaction facilitated by BGC Trader was at the sole discretion of the parties to the transaction and was subject to the parties' independent confirmation and documentation processes. (e) Parties were not contractually obliged to inform BGC Trader of instances where a counterparty did not proceed to settlement despite accepting a transaction via BGC Trader. 99 I will say something more about these electronic trading facilities later in my reasons.

(f) Forward rate agreements 100 A forward rate agreement (FRA) is an agreement to lend or borrow money at a specified price (agreed rate) on a future date for a set period. Expressed another way, a FRA involves two parties agreeing to exchange interest payments based on two different agreed rates, at a future date (called the "settlement date"), based on a specified notional amount. 101 FRAs typically reference a set fixed rate, which is agreed between the parties and a floating rate, which is BBSW. Under these FRAs the parties agree to exchange the difference between cash-flows based on the agreed fixed rate and cash-flows based on the BBSW, for a specified period, based on a notional amount. 102 The payment of interest based on a specified notional amount at a particular interest rate and for a particular period can be implemented by: (a) the lender paying to the borrower the specified notional amount, discounted according to the formula: Where: DA = The discounted amount NA = The specified notional amount r = Applicable interest rate (expressed as an annual rate) d = Number of days (between reset dates)

and (b) the borrower paying to the lender the full specified notional amount. 103 Where such payments of interest are exchanged between two parties based on the same specified notional amount, and in respect of the same period, but at different interest rates, the respective payments of the full specified notional amount (as referred to above) offset each other precisely and can therefore be ignored. 104 On this basis, the formula for calculating cash-flow obligations and the net payment on the settlement date can be expressed as follows: Payment obligation of the party lending at the fixed interest rate (therefore borrowing at the floating rate) Payment obligation of the party lending at the floating interest rate (therefore borrowing at the fixed rate) The net cash-flow payment Which can also be expressed as: Where: Notional = Notional amount d = Day count (between reset dates) Rfix = Fixed rate Rfloat = Floating rate Afix = Amount required to be paid by the party lending at the fixed interest rate leg of the FRA Afloat = Amount required to be paid by the party lending at the floating interest rate leg of the FRA Anet = Cash payment required on payment date

105 The floating rate in a FRA is commonly BBSW. In these FRAs: (a) the "Rfloat" input in the equations above is BBSW; (b) the payment obligation of the party lending at the floating rate is directly referenced to BBSW; and (c) the net payment amount (Anet) due on the settlement date is directly referenced to BBSW. 106 In relation to exposure, for FRAs which used the BBSW as the relevant floating rate, an exposure to the BBSW would be realised on each payment date. As set out above the obligations of the FRA party paying the floating rate and the net payment amount which both parties were obligated to pay, directly referenced the BBSW. 107 In relation to profit or loss, the profit or loss to the parties to a FRA is realised on the settlement date. As set out above, the payment amount due on the settlement date, can be expressed as: 108 Where the BBSW is used as the floating rate in a FRA, the rate at which the BBSW sets on the settlement date will determine which party needs to make a payment and the value of the payment.

(g) Asset swaps 109 An asset swap is a form of interest rate swap in which one of the cash-flow streams relates to an underlying asset. One cash-flow stream of the asset swap is based on a non-asset rate (a financial interest rate), commonly the BBSW. The other stream is calculated based on the yield generated by an underlying asset, for example, a bond held by a party to the swap. In a similar manner to an interest rate swap discussed above, the parties exchange periodic cash payments based on the net difference between the two cash-flows at regular intervals. Usually, only net interest payments are made, and no "principal" payments. 110 The formula for calculating the cash-flow obligations of both swap counterparties on a reset date can be expressed as follows: Payment obligation of the party paying the asset referenced rate Where: Aasset = Amount required to be paid by the party paying the asset referenced interest rate leg of the swap Notional = Notional amount d = Day count (between reset dates) Rasset = Interest rate based on the yield generated by an underlying asset

Payment obligation of the party paying the financial interest rate Where: AfinIR = Amount required to be paid by the party paying the financial interest rate leg Notional = Notional amount d = Day count (between reset dates) RfinIR = Financial interest rate

The net cash-flow payment (Swap Cash Settlement Amount) This can also be written as follows by expanding the equation: Where: Anet = Swap Cash Settlement Amount

111 The non-asset rate in an asset swap is commonly BBSW. In these asset swaps: (a) the payment obligation of the party paying the financial rate is directly referenced to BBSW; (b) the "RfinIR" input in the formula above is BBSW; and (c) the Swap Cash Settlement Amount is directly referenced to BBSW. 112 In relation to exposure, for asset swaps which used the BBSW as the relevant floating rate, an exposure to the BBSW would be realised at each reset (or fixing) date. As set out above, the obligations of the swap party paying the floating rate and the Swap Cash Settlement Amount which both parties are obligated to pay, directly referenced the BBSW. 113 In relation to profit or loss, the profit or loss to the parties to an asset swap is realised on the reset dates. As set out above, calculation of the settlement amount where the financial interest rate is a floating rate can be expressed using the following formula: 114 Accordingly, where the non-asset interest rate used in an asset swap is the BBSW, the rate at which the BBSW sets on the reset dates will determine which swap party needs to make a payment and the value of the payment being the Swap Cash Settlement Amount.

(h) Interest rate options (caps, floors and collars)

Interest rate cap 115 An interest rate cap is an agreement between two parties in which the buyer purchases from the seller one call option, or a series of call options, on future borrowing rates (each individual call option is called a "caplet"). In exchange for payment of a premium, the buyer acquires the right (but not the obligation) to require the seller to compensate it on prescribed reference dates if the agreed floating interest rate is greater than an agreed strike rate (known as the "cap rate"). The floating interest rate used in interest rate caps is typically BBSW. If so: (a) the parties agree that when the BBSW exceeds the cap rate, the seller will pay to the buyer the difference between interest on the notional amount calculated using the BBSW and interest on the notional amount calculated using the cap rate; (b) a payment is only required if the BBSW exceeds the cap rate on the prescribed reference date(s); and (c) if the BBSW exceeds the cap rate, the payment the seller must make to the buyer is based on the difference between the BBSW and the cap rate, the term of the period ending on the relevant reference date, and the contract's notional amount. Payments can be made "discounted in advance" or "non-discounted in arrears". 116 During the relevant period, the AFMA Interest Rate Options Conventions provided that "[w]ith caps and floors, settlement payments by the seller to the buyer will be on a non-discounted in arrears basis or on a discounted in advance basis payable on the reference date following the day on which the reference rate is set, or in the case of the final reference date, on the maturity date." (AFMA, "Interest Rate Option Convention", September 2009, [5.2.3]; AFMA, "Interest Rate Option Convention", March 2012, [5.2.3]). The AFMA Interest Rate Options Conventions set out the formulae for calculation of the settlement amount for caps on a discounted in advance, and a non-discounted in arrears, basis. The formula for calculation of the settlement amount for caps using the BBSW on a non-discounted in arrears basis does not need to be set out.

Interest rate floor 117 An interest rate floor is an agreement between two parties in which the buyer purchases from the seller one put option, or a series of put options, on future interest rates (each individual put option is called a "floorlet"). In exchange for payment of a premium, the buyer acquires the right (but not the obligation) to require the seller to compensate it on prescribed reference dates if the agreed floating interest rate is less than an agreed strike rate (known as the "floor rate"). The floating interest rate used in interest rate floors is commonly the BBSW. If so: (a) the parties agree that when the BBSW falls below the floor rate, the seller will pay to the buyer the difference between interest on the notional amount calculated using the BBSW and interest on the notional amount calculated using the floor rate; (b) a payment is only required if the BBSW falls below the floor rate on prescribed reference date(s); and (c) if the BBSW falls below the floor rate, the payment the seller must make to the buyer is based on the difference between the BBSW and the floor rate, the term of the period ending on the relevant reference date, and the contract's notional amount. Payment can actually be made "discounted in advance" or "non-discounted in arrears". 118 During the relevant period, the AFMA Interest Rate Options Conventions set out the basis upon which floor settlement payments will be calculated. The formula for calculation of the settlement amount for floors on a non-discounted in arrears basis does not need to be set out (see: AFMA, "Interest Rate Option Convention", September 2009, [5.2.4]; AFMA, "Interest Rate Option Convention", March 2012, [5.2.4]).

Interest rate collar 119 An interest rate collar is an interest rate cap and an interest rate floor combined. The effect of an interest rate collar which uses the BBSW as the agreed floating rate is an agreement that: (a) when the BBSW exceeds the cap rate on the reference dates, party one will pay to party two the net difference between interest on the notional amount calculated using the BBSW and interest on the notional amount using the cap rate; and (b) when the BBSW is lower than the floor rate on the reference dates, party two will pay to party one the net difference between interest on the notional amount calculated using the BBSW and interest on the notional amount using the floor rate.

General 120 With respect to interest rate caps, floors or collars which reference the BBSW as the floating rate, whether a payment obligation arises depends on the BBSW. And if a payment obligation arises, its value is calculated with reference to the BBSW (BBSW being an input in the formula). 121 In relation to exposure, for interest rate options which referenced the BBSW, an exposure to the BBSW might be realised at each reference date. The enlivening of the payment obligation (and thus the exposure) and the value of the payment required, were both dependent on the BBSW. 122 Let me say something about profit or loss. 123 The profit or loss to the parties to an interest rate cap is realised on the reference dates. The formula for a payment under an interest rate cap which uses BBSW as the reference rate can be expressed as follows: Caps (if BBSW > strike): 124 Accordingly, where the reference rate used in an interest rate cap is the BBSW, the rate at which the BBSW sets on the reference dates will determine whether the interest rate cap is exercised and if so the value of the payment. 125 The profit or loss to the parties to an interest rate floor is realised on the reference dates. As set out above, the formula for a payment under an interest rate cap which uses BBSW as the reference rate can be expressed as follows: Floors (if BBSW < Rstrike): 126 Accordingly, where the reference rate used in an interest rate cap is the BBSW, the rate at which the BBSW sets on the reference dates will determine whether the interest rate floor is exercised and if so the value of the payment. 127 The profit or loss to the parties to an interest rate collar is realised on the reference dates. The calculation of settlement payments for interest rate collars is the same as the formulae used for calculation of settlement payments for interest rate caps and interest rate floors, detailed above. However, for an interest rate collar there are two strike rates; one for the cap and one for the floor.

(i) Swaptions 128 A swaption is an option contract in which, in exchange for a premium, the seller grants the buyer the right, but not the obligation, to enter into an underlying interest rate swap. The terms of the separate interest rate swap are agreed at the time of entering into the swaption. The underlying interest rate swap operates as set out above. Once a swaption is exercised, the BBSW is relevant to the underlying interest rate swap as set out above. Whether a swaption is exercised will also depend on the BBSW. 129 In relation to exposure, if a swaption was exercised, the parties would enter into an interest rate swap in consequence and would have exposure on each reset date as described earlier. 130 In relation to profit or loss, once a swaption is exercised and the swap entered into, the profit or loss to the parties to the underlying interest rate swap is realised on the reset dates and is as set out above.

(j) Inflation swaps 131 An inflation swap is a form of interest rate swap in which two parties agree to exchange streams of cash-flow for a set period, with one party's payment obligations based on a specified notional amount and a financial interest rate (commonly the BBSW) and the other party's payment obligations based on another notional amount and an inflation related index (such as the CPI). The parties agree to exchange periodic "net" payments, being the difference between the two cash-flows on specified reset dates. 132 The separate payment obligations of each party to an inflation swap can be expressed as follows: Payment obligation of the party paying the inflation related amounts: Payment obligation of the party paying the financial interest rate And the net payment formula (Swap Cash Settlement Amount) can be expressed*: Where: Ainflation = Payment required from party paying the inflation referenced leg of the inflation swap AfinIR = Payment required from party paying the financial rate leg of the inflation swap (the financial interest rate) Anet= Swap cash settlement amount Notionalinflation = Notional amount for the inflation related payments NotionalfinIR = Notional amount for the interest rate payments d = Day count (between reset dates) RfinIR = Financial interest rate Rinflation = An amount determined by reference to an inflation related index such as CPI (with the precise relationship depending on the particular product in question)

*As these Swap Cash Settlement Amount equations have the financial interest rate leg subtracted from the inflation leg, a positive result means the party paying the inflation leg makes the payment and a negative result means that the party paying the financial interest rate leg makes the payment. 133 The financial rate in an inflation swap is commonly the BBSW. If so: (a) the "RfinIR" input in the equations above is the BBSW; (b) the payment obligation of the party paying the financial rate is directly referenced to the BBSW; and (c) the Swap Cash Settlement Amount ("Anet") is directly referenced to the BBSW. 134 In relation to exposure, for inflation swaps which used the BBSW as the relevant financial (non-inflation) interest rate, an exposure to the BBSW would be realised at each reset date. As set out above, the obligations of the swap party paying the floating rate and the Swap Cash Settlement Amount which both parties were obligated to pay, directly referenced the BBSW. 135 In relation to profit or loss, a profit or loss to the parties to an inflation swap is realised on the reset dates. As set out above, the formula to calculate the Swap Cash Settlement Amount on an inflation swap is: 136 Accordingly, where the financial rate used in an inflation swap is the BBSW, the rate at which the BBSW sets on the reset dates will determine which swap party needs to make a payment and the value of the payment being the Swap Cash Settlement Amount.

(k) Floating rate notes 137 A floating rate note (FRN) is a debt instrument which pays a floating interest rate (often referred to as the "coupon") on specified dates over the term of the debt (e.g. quarterly or semi-annually), as well as repaying the principal on the maturity date. The floating rate used is often the BBSW plus a margin (for example, "BBSW plus 50 basis points"). Where the floating rate used in a FRN is the BBSW plus a margin, the payment obligation of the issuer of the FRN on each payment date is directly referenced to the BBSW. 138 In relation to exposure, for FRNs which used the BBSW (or BBSW plus a margin) as the applicable interest rate, an exposure to the BBSW would be realised on each interest rate reset date. As set out above, the value of the obligations of the issuer of the FRN (borrower) to pay interest for the period would directly reference the BBSW. 139 In relation to profit or loss, the value of payments made under a FRN (and thus profit or loss to a bank once costs are accounted for) are realised on the reset dates. Where the FRN is set with the BBSW as the floating interest rate, the rate at which the BBSW sets on the coupon reset dates will determine how much interest the holder of the FRN will be paid by the issuer for that particular coupon period.

(l) Commercial loans 140 Many commercial loans have a floating rate of interest which resets on specified reset dates. Commonly, the floating rate is the BBSW plus a margin (for example "BBSW plus 250 basis points"). Where the floating rate is the BBSW plus a margin, the interest payment obligation of the borrower is directly referenced to the BBSW. 141 In relation to exposure, for commercial loans which used the BBSW plus a margin as the applicable interest rate, an exposure to the BBSW would be realised on each interest rate reset date. As set out above, the value of the obligations of the borrower to pay interest for the period ahead, and the income stream the lender would receive from the loan, directly reference the BBSW. 142 In relation to profit or loss, where the rate applied to a commercial loan is set using the BBSW, the amount of interest paid for a particular period depends on the level at which the BBSW sets on the relevant reset date.

(a) Nature of Prime Bank Bills 143 During the relevant period, Australia's big four banks, National Australia Bank Limited (NAB), Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group Limited (ANZ) and Westpac, the Australian branch of JP Morgan Chase Bank NA (to 30 November 2011) and the Australian branch of BNP Paribas (to 24 February 2012) were designated by AFMA as "Prime Banks". 144 Banks, including Prime Banks, could borrow funds for a short term of usually no longer than 12 months by issuing NCDs or by accepting Bank Bills. I have already given a brief description of Bank Bills. Let me say something further about NCDs. 145 An NCD is a certificate issued by a bank evidencing an interest bearing deposit with the issuing bank for a fixed term, which entitles the holder of the certificate to payment of a specified sum (face value) by that bank on the date that the certificate matures. 146 The descriptions that I have given for NCDs and Bank Bills are broadly consistent with the definitions in clauses 2.1 to 2.3 of AFMA's Negotiable / Transferable Instruments (NTI) Conventions. 147 In the relevant period, Prime Bank Bills (or Prime Bank paper) were NCDs issued and Bank Bills accepted by a Prime Bank for tenors of one, two, three, four, five and six months. Prime Bank Bills were recognised by participants in the short dated securities market as trading as a homogenous asset class and having the highest quality with regard to liquidity, credit and consistency of yield. 148 Prime Bank Bills generally traded at a discount to their face value, because the face value would not be received by a holder until the maturity date. The discount was calculated on the basis of simple interest according to the formula that I have previously set out, but for convenience I will set out again with the components described: 149 As is apparent, the price of a Prime Bank Bill is inversely proportional to its yield. In other words, if two Prime Bank Bills had the same face value and maturity date, the one with the higher yield would trade at a lower price.

(b) AFMA 150 AFMA is a financial markets industry association. Since June 2006, it has operated as a public company limited by guarantee. During the relevant period, it was responsible, amongst other things, for maintaining the conventions for trading in the Bank Bill Market and for the overall management of the BBSW, including the procedure for setting and publishing the BBSW. Evidence about the structure and operation of AFMA was given in this proceeding by Mr David Love, Director of Policy and International Affairs at AFMA during the relevant period. 151 Some of AFMA's objectives as set out in clause 3 of its constitution included: (a) to represent the common interests of members in dealing with issues relevant to the good reputation of the wholesale banking and financial markets in Australia and the regulation of them by Government and market authorities; (b) to promote and facilitate the development and maintenance in Australia of efficient and competitive markets for financial instruments and other related transactions; and (c) to encourage responsible self-regulation by establishing efficient and ethical market practices and conventions and preparing and maintaining standard documentation. 152 AFMA had a secretariat with a permanent staff of about 28 people and over 110 members, including Australian and international banks, brokers, securities companies, state government treasury corporations, fund managers, energy traders and industry service providers. 153 There were two categories of membership of AFMA: (a) "Financial Market Members": organisations that participated directly in Australia's financial markets, including financial institutions. (b) "Associate Members": organisations generally comprising of advisory and legal firms and government agencies. 154 Throughout the relevant period, Westpac was a Financial Market Member of AFMA. As a member of AFMA and pursuant to clause 6.5 of its constitution, Westpac agreed to abide by: (a) AFMA's constitution; (b) AFMA's Code of Ethics and Code of Conduct; (c) the "Standards and Guidelines for Australian OTC Financial Markets"; and (d) any other rules and conventions adopted by AFMA at general meetings from time to time. 155 Under clause 11.4 of the AFMA constitution, Financial Market Members were entitled to nominate a director to AFMA's board. Westpac's representative on AFMA's board was Mr Robert Whitfield, Head of Westpac Institutional Bank. 156 During the relevant period, AFMA's board was advised by a number of committees, including the Market Governance Committee (MGC). The MGC developed and maintained market protocols designed to facilitate and promote the efficient and orderly running of over the counter (OTC) markets in Australia. Ms Joanne Dawson, Managing Director of Group Treasury, was Westpac's representative on the MGC during the relevant period. 157 The MGC was established by clause 15 of the AFMA constitution and met on a quarterly basis. Its aims and objectives included: (a) the development and maintenance of market protocols and operational standards that facilitate and promote the efficient and smooth running of the financial markets in Australia; (b) advising the board on issues that affect the reputation of financial markets and investor confidence; and (c) the promotion of high ethical standards in the financial markets within Australia. 158 The MGC played an important role in approving market conventions, standards and guidelines. 159 The MGC in turn oversaw a number of market committees that met regularly with the objective of developing consensus in the market on technical matters such as transaction documentation, standards, trading conventions and market data. These market committees included the NTI Committee and the BBSW Committee. 160 The NTI Committee was responsible for maintaining the conventions for trading in the Bank Bill Market and the implementation of the rules governing the list of Prime Banks. The table below sets out the dates on which the NTI Committee met during the relevant period, the name of the Westpac representative in attendance and the capacity in which they attended. Date of Meeting Westpac Representative Capacity 26 May 2010 Ms Sophie Johnston Deputy Chairperson 26 August 2010 Ms Sophie Johnston Chairperson 25 November 2010 Ms Sophie Johnston Chairperson 8 February 2011 Ms Sophie Johnston Chairperson 10 May 2011 Mr Colin Roden Alternative 19 August 2011 Ms Sophie Johnston Chairperson 8 November 2011 Ms Joanne Dawson Alternative 2 February 2012 Mr Colin Roden Alternative 10 May 2012 Ms Sophie Johnston Chairperson

161 The BBSW Committee was responsible for the overall management of the BBSW, rates directly related to the BBSW, the procedure for setting and publishing the BBSW, and the resolution of any disputes among AFMA members involving the BBSW and the rate set mechanism. 162 Although the BBSW Committee was a technical committee under the MGC, its role took on greater prominence over time, especially from May 2010 after AFMA received a letter from the RBA noting concerns expressed about BBSW and suggesting that the behaviour of BBSW warranted further investigation. 163 The table below sets out the dates on which the BBSW Committee met during the relevant period, the name of the Westpac representative in attendance and the capacity in which they attended: Date of Meeting Westpac Representative Capacity 26 May 2010 Ms Sophie Johnston Member 30 August 2010 N/A 30 November 2010 Ms Sophie Johnston Member 10 February 2011 Ms Sophie Johnston Member 12 May 2011 N/A 2 September 2011 Ms Sophie Johnston Member 15 November 2011 Ms Sophie Johnston Member 20 March 2012 Ms Sophie Johnston Member 30 May 2012 Ms Sophie Johnston Member

NTI Conventions 164 From time to time during the relevant period, AFMA encouraged self-regulation by preparing and publishing market conventions with a view to providing guidance to AFMA members. Market conventions were usually concerned with operational and technical matters and provided agreed approaches to doing business. These practices were agreed by AFMA members for the purpose of helping the markets work efficiently. 165 The AFMA NTI Conventions: (a) described products traded in the Bank Bill Market, including Bank Bills and NCDs; (b) outlined the criteria by which Prime Banks were designated; and (c) outlined the conventions relating to trading, confirmation and settlement processes in the Bank Bill Market. 166 The July 2009 version of the NTI Conventions applied at the start of the relevant period and the NTI Conventions were updated during the relevant period in November 2010, November 2011 and February 2012.

AFMA Code of Ethics and Code of Conduct 167 The AFMA Code of Ethics and Code of Conduct (AFMA Code of Ethics) set out the minimum standards, principles and rules of behaviour applicable to AFMA members in the conduct of their business. The AFMA Code of Ethics required AFMA members to: (a) conduct their trading activities in a fair and orderly manner; (b) maintain the integrity of financial markets; and (c) not carry out trading that: (i) would interfere with the normal supply and demand factors in the market for a financial product; (ii) had the potential to create artificial markets or prices; or (iii) was not based on a genuine trading or commercial intention. 168 The AFMA Code of Ethics also required that members establish policies and procedures to avoid and manage actual and potential conflicts of interest, with respect to both business and personal conflicts. As an AFMA member, Westpac agreed to use this Code, which in terms encouraged members to use the document as the basis for developing and implementing more detailed internal procedures to effect the objectives of the Code.

Eligibility criteria for Prime Banks 169 In the relevant period, AFMA specified and administered the process for the election and recognition of banks designated by AFMA as Prime Banks, which process was set out in the NTI Conventions. The list of Prime Banks was determined through confidential AFMA surveys of institutions deemed by the NTI Committee to be significant Prime Bank Bill investors. AFMA invited all banks meeting the eligibility criteria to nominate for consideration in the annual Prime Bank surveys. In order to be eligible, a bank had to: (a) be an APRA (Australian Prudential Regulation Authority) authorised deposit taking institution and classified by APRA as an Australian owned bank, a foreign subsidiary bank or a branch of a foreign bank that was authorised to carry on banking business pursuant to the Banking Act 1959 (Cth) (as amended) or comparable legislation in its country of origin; (b) satisfy a credit rating benchmark, the specifics of which changed during the relevant period; and (c) have securities eligible for use in the RBA's open market operations and standing liquidity facilities. 170 Clause 3.7 of the NTI Conventions specified the eligibility criteria for Prime Banks from time to time, as well as the protocols governing the selection of Prime Banks, the ongoing requirements for maintaining Prime Bank status, Prime Bank reporting requirements and the contingency plan should a major bank or banks lose Prime Bank status. 171 The annual survey process for appointing Prime Banks involved the following: (a) On or about the following anniversary of the prior election, AFMA would invite all banks (including existing Prime Banks) satisfying the above eligibility criteria to nominate for inclusion in the Prime Bank survey. (b) Following the receipt of nominations, AFMA would survey institutions deemed by the NTI Committee to be significant Prime Bank Bill traders and investors. The survey asked respondents to indicate which nominated bank or banks they believed should be designated as Prime Banks. A weighted voting system, agreed amongst members of the NTI Committee and which sought to ensure that the most active market participants had a proportionally higher involvement in the process than the least active member, applied to individual survey respondents. (c) Each bank nominating for Prime Bank status was provided with the list of survey respondents in advance of the survey. (d) An 80% response rate of eligible survey respondents had to be obtained in order for a survey to be valid. 172 Ordinarily, at least 70% of the weighted survey vote was required to remain a Prime Bank and 80% of the weighted survey vote was required to be appointed as a new Prime Bank, although alternative criteria would apply if the above process resulted in the selection of less than six Prime Banks. 173 Prime Banks were expected to display an ongoing commitment to the short-term money market, including endeavouring to maintain a minimum issuance level of $5 billion and providing consistent price support for all Prime Bank paper in the domestic short-term securities market.

BBSW panellists 174 Throughout the relevant period, the BBSW panel was comprised of up to 14 organisations that would input rates for the calculation of the BBSW rate set (BBSW panellists) who were listed in Appendix 1 to the Bank Bill Swap (BBSW) Reference Rate Procedures (BBSW Procedures) from time to time. Prime Banks were automatically appointed to the BBSW panel and other organisations were elected to the panel under the ballot procedure described in clause 1.1 of the BBSW Procedures. 175 The BBSW panellists throughout the relevant period were: (a) ANZ; (b) Bank of Scotland plc, Australia Branch (trading under the name Lloyds TSB Bank plc from 15 November 2010); (c) BNP Paribas, Australia Branch; (d) Citibank NA, Australia Branch; (e) CBA; (f) Deutsche Bank AG, Australia Branch; (g) HSBC Bank Australia Limited (HSBC); (h) JP Morgan Chase Bank NA, Australia Branch; (i) Macquarie Bank Limited; (j) NAB; (k) UBS AG, Australia Branch; and (l) Westpac. 176 The following entities were BBSW panellists during part of the relevant period: (a) Société Générale SA, Australia Branch (to 28 May 2010); (b) RBS Group (Australia) Pty Limited (from 11 March 2010 to 1 May 2012); (c) Royal Bank of Canada (a reserve BBSW panellist to May 2010 and a BBSW panellist from 28 May 2010); and (d) Suncorp-Metway Limited (a reserve BBSW panellist until April 2012 and a BBSW panellist from 1 May 2012). I should also note that ABN AMBRO Bank NV, Australia Branch, was a BBSW panellist up to 10 March 2010, shortly before the commencement of the relevant period.

(c) Operation of Bank Bill Market 177 In the relevant period, Prime Bank Bills were traded either in direct trades between counterparties or through interdealer brokers ICAP and Tullett. For the purposes of these reasons, I will use the term "Bank Bill Market" to refer to the market for trading in Prime Bank Bills operated by and through these interdealer brokers principally during the BBSW Rate Set Window; it will be appreciated that the traded product, Prime Bank Bills, was essentially homogenous, putting to one side collateral questions such as deliverability under BAB Futures. ICAP and Tullett acted as intermediaries by quoting prices at which their respective clients would offer to sell and bid to buy Prime Bank Bills to and from other participants in the Bank Bill Market, including Prime Banks, non-Prime Banks and non-banks. It was typical for each participant in the Bank Bill Market to have a broker at each of ICAP and Tullett. 178 Trading in the Bank Bill Market was primarily conducted by reference to the yield and tenor of Prime Bank Bills. The substantial majority of all trading in Prime Bank Bills, including by or on behalf of Westpac, took place between approximately 9.55 am and 10.05 am on each Sydney business day during the BBSW Rate Set Window. 179 In the relevant period, participants trading Prime Bank Bills in the Bank Bill Market did not use electronic platforms to execute trades, but rather executed trades by "voice broking", that is by participants giving verbal instructions to brokers and the brokers verbally executing transactions between themselves (broker to broker). Participants usually communicated and gave instructions to brokers via telephone lines which connected each participant to his or her individual broker(s). The telephone lines through which participants communicated with brokers were often connected to speaker boxes, known as "squawk boxes", at both the participant's and the broker's end. As I have said, typically a participant trading Prime Bank Bills in the Bank Bill Market would have a broker at each of Tullett and ICAP. 180 At or shortly after the time of participants making bids and offers for Prime Bank Bills through ICAP and Tullett, ICAP and Tullett posted the bids and offers for Prime Bank Bills of all tenors on separate electronic systems (that is, one system showing bids and offers through ICAP and one system showing bids and offers through Tullett). This information, once posted, became accessible by, and visible to, participants in the Bank Bill Market with access to the said electronic systems. 181 Let me elaborate further at this point in terms of the positions and perspectives of ICAP and Tullett. I will discuss later the operation of the Bank Bill Market from the perspective of Westpac and its traders; see the section of my reasons "Characteristics and Dynamics of Trading on Bank Bill Market". 182 In relation to ICAP and its operations relevant to the Bank Bill Market, the following evidence was given. 183 The dealing room, where the various "Desks" were located, was one large room. The dealing room contained the following ICAP Desks: the Short End Desk, the Long End Desk, the New Zealand Dollar Swap Desk, the Fixed Income Desk, the Forward Foreign Exchange Desk, the Energy Desk and the Futures Desk (the Futures Desk was reintroduced at ICAP in December 2011). The size of each Desk varied, depending on the number of brokers who worked on that Desk. The Short End Desk was located at a physical desk of approximately three metres by two metres. The brokers who worked on the desk sat beside each other and across from each other at each long side of the desk. Computer monitors sat in the middle of the desk between the brokers who were opposite each other. 184 There was a concentrated period of trading in Prime Bank Bills on the Short End Desk between about 9.55 am and 10.05 am (the concentrated trading period), when the vast majority of daily trading in Prime Bank Bills in which ICAP was involved occurred. Trading of Prime Bank Bills was especially concentrated approximately 2 minutes either side of 10.00 am. During the relevant period, ICAP's brokers arranged trading for, inter-alia, Westpac. 185 In relation to the Short End Desk, bids, offers and acceptances were generally communicated verbally between the brokers on that Desk, ICAP of course being an interdealer broker. 186 In relation to a broker communicating with a trader at a particular bank, each broker had a communication device known as a dealer board, which had a telephone keypad and, generally, two handsets, with a series of telephone lines. Certain lines were set up as lines that required pre-dialling whereas other lines were lines that were dedicated as direct connection with particular clients, being generally traders at banks. The dealer board had numerous buttons which could be configured to correspond with one or more of these dedicated lines. Most dealer boards also had speakers and a microphone, which stood up from the dealer board on a microphone stand that the brokers could use instead of the handsets. 187 A broker could communicate verbally with a trader in one of two ways. First, they could use one of the telephone handsets to activate the dedicated line to that trader. Using this method, the broker would hear the trader through the earpiece of the handset, and the trader would hear only what was picked up by the mouthpiece of the broker's handset. Second, the broker could use the speakers and microphone (also known as the "squawk box"). In order to do so, the broker would hold down the button corresponding with the dedicated line to that trader (referred to as "clicking in" to the line). The broker could also use this method to communicate with multiple traders at once by holding down a button that had been configured to correspond to multiple dedicated lines. Using this method, the trader(s) would hear everything picked up by the dealer board's microphone (including the noise generated by other brokers in the dealing room), and the sound from the trader(s) would be emitted from the dealer board's speakers. If a broker did not want the client to hear his communication with the brokers who acted for other market participants, he could release the button on the squawk box (referred to as "clicking out"). 188 Brokers on the Short End Desk regularly clicked in and out of lines. For periods of intense trading such as during the concentrated trading period, a broker might have a line constantly open to a client so that the broker could hear instructions as soon as they were provided. 189 In addition to the dealing board, each broker on the Short End Desk had a computer with several monitors at their desk. A broker could use their computer to communicate with client traders through instant chat messaging applications and other electronic forms of communication. However these methods of communication were primarily used during less intense periods of trading. 190 Each Short End Desk broker also had access to a screen displaying ICAP's real time internal data on Prime Bank Bill bids and offers from the ISIS computer system, ICAP's in house pricing, data distribution and order management system, as well as screens from information vendors Reuters and Bloomberg displaying information on bids and offers of Prime Bank Bills through ICAP. Each of these screens could be displayed on the broker's computer monitors. It was a matter of preference for each individual broker what they chose to monitor on the screens to which they had access, including whether the Reuters screen or the Bloomberg screen was generally showing on one of the broker's personal monitors. 191 The Reuters and Bloomberg screens were "private" screens in that only those subscribers authorised by ICAP could access them. In his time at ICAP Mr Glenn McMurdy (who was chief operating officer from 2005 to 2007 and from 2013 to date) did not recall ever seeing an ICAP broker with a Reuters or Bloomberg screen of Tullett data displayed. 192 During the concentrated trading period, a number of brokers from desks other than the Short End Desk would provide additional coverage on the Short End Desk to ensure all client voice broking lines were covered. The categories of ICAP personnel involved in the trading and recording of trades in Prime Bank Bills were: (a) Brokers responsible for arranging trades in Prime Bank Bills; (b) Keyboard operators, whose responsibilities included entering into the ISIS system, in real time, the tenor, price and volume of the offers and acceptances of trades in Prime Bank Bills; and (c) Trade support assistants, whose responsibilities included acting as the keyboard operators during the concentrated trading period as well as recording the trades in Prime Bank Bills executed by the brokers into the Graphical User Interface Back Office System or GUIBOS system, which is ICAP's back office and trade confirmation system. 193 During the relevant period the general practice of the Short End Desk during the concentrated trading period was as follows: (a) Brokers and keyboard operators assembled around the Short End Desk prior to 10.00 am each business day, usually around 9.50 am; (b) Brokers took verbal orders (over the squawk box or over the telephone) or written orders (via other electronic means such as messaging apps or emails) from traders at their respective client banks to buy, sell or accept the offer of Prime Bank Bills of a particular tenor at a particular volume and yield; (c) Brokers quoted offers to buy (bids) or sell (offers) Prime Bank Bills of a particular tenor at a particular volume and yield from their respective banks to one another verbally, by calling them out; (d) Keyboard operators entered the tenor, price and volume of bids or offers into ISIS as they were made and called out by brokers; (e) ISIS automatically displayed the details of the bids or offers as entered by the keyboard operators so that those bids and offers were visible to all brokers, provided the brokers had opened and were viewing the ISIS screen on their personal computers; (f) ISIS automatically fed the price and volume data of bids and offers to Reuters or Bloomberg where it was displayed on a specific Reuters or Bloomberg page, visible to people that subscribed to the page when they were accessing the page; (g) Brokers accepted bids or offers, which had been called into the room verbally or which the brokers had seen displayed on the ISIS screen, on behalf of their clients after a trader had communicated the acceptance to their broker either down the squawk box or over the handset or other electronic means; (h) If a bid or offer was accepted in its full volume, the relevant bid or offer would be manually removed by the keyboard operator from ISIS with the next available price being displayed. Similarly, if a bid or offer was accepted but only in lesser volume, the bid or offer would be manually adjusted in ISIS by the keyboard operator to show the remaining volume. 194 The details of the bids and offers as displayed within ISIS to the brokers on the Short End Desk and as displayed on the Reuters and Bloomberg screens listed each tenor horizontally by month. Running beside each tenor were two columns, one headed "Early Bills", which reflected bids and offers made for Prime Bank Bills expiring in the first half of the month (up to and including the 15th of the month) and the other headed "Late Bills", which reflected bids and offers made for Prime Bank Bills expiring in the second half of the month (from the 16th of the month). I will elaborate on this "early" and "late" question later. 195 During the concentrated trading period, each Short End Desk broker kept a running personal tally of bids, offers and acceptances which they had arranged. This personal tally was generally recorded in writing on paper. 196 During the relevant period, the general practice at ICAP after the daily concentrated trading period closed was as follows: (a) Brokers checked and reconciled the trades recorded on their personal tally with each other for accuracy. (b) If there was confusion about transactions or disagreements as to the trading that had taken place, the brokers would seek to resolve any discrepancies, if necessary after speaking with their respective trader/clients. This could extend where necessary to reviewing tape recordings of the communications made through the brokers' dealer boards. (c) Brokers received details of the Prime Bank Bills they had traded from each selling bank's trader, which details included the identity of the bank that was the issuer or acceptor of the Prime Bank Bills the subject of the trade and the exact maturity date of the bills which had been traded. (d) Brokers wrote down the trade details (aggregated in some instances as described in subparagraph (e) following) on a document known as a "scratch ticket" recording details of the parties to the trade, the tenor and dollar value of the Prime Bank Bills traded. (e) When filling in scratch tickets, brokers could aggregate the trades by consolidating parcels of trades made between the same parties in the same tenor at the same price. They could also aggregate trades between the same parties in the same tenor but at different prices, by averaging the prices of the individual trades for the consolidated trade. This aggregation was done at the discretion of the individual broker, and with the consent of the relevant clients. (f) Brokers passed the scratch tickets to the trade support assistants once they had received details of the Prime Bank Bill issuer/acceptor from the selling bank via a broker. (g) Trade support assistants entered the details of the trades into GUIBOS on the basis of the details set out in the scratch tickets. The "Deal Time" recorded in GUIBOS was the time the trade was entered by the trade support assistant. (h) When entering data into GUIBOS, trade support assistants could aggregate the trades by consolidating parcels which traded at the same rate. So, for example, two separate trades of $20 million each at a yield of 4.95% may have been recorded as a single trade of $40 million at a yield of 4.95%. This aggregation was done independently of any aggregation conducted by the brokers, and was also done at the discretion of the individual trade support assistant. (i) After receiving the details of the Prime Bank Bill issuer/acceptor from the selling bank, the brokers would confirm the details to their buying clients (usually over the phone) and would then usually also provide email confirmation, depending on the preference of the particular client. 197 The trade support assistant would typically enter the data into GUIBOS on the same day if the trade occurred prior to midday, and the following day if the trade occurred after midday. 198 In relation to Tullett and its operations relevant to the Bank Bill Market, the following evidence was given. 199 Tullett is also a voice interdealer broker which carries on the business of facilitating transactions between financial institutions. During the relevant period, Tullett's business was divided into desks, which dealt in different securities. One of these desks was the short term interest rate desk (Short End Desk) which traded in short dated securities. The other desks comprising Tullett's business were the Long End Desk and the FX Desk. 200 During the relevant period, Tullett employed brokers on the Short End Desk who were responsible for arranging and facilitating trades in Prime Bank Bills, as well as other short dated securities and short dated derivatives. During the relevant period, Tullett's brokers arranged trading for, inter-alia, Westpac. 201 During the relevant period, Tullett also employed, as part of the Short End Desk, persons (inputters) who were responsible for recording in real time, in Tullett's order management system, the tenor, rate, counterparty name and volume of the offers and bids of trades in Prime Bank Bills arranged by the brokers. The inputters were also responsible for recording and updating the details of trades after the period of active trading in Prime Bank Bills. Depending on how busy they were, brokers on occasion entered trade data into Tullett's system themselves without the involvement of an inputter. 202 During the relevant period, the practice of the Short End Desk was that: (a) each broker worked mainly with a trader from one particular major bank when brokering the trading of the Prime Bank Bills; and (b) a minimum of 3 inputters were assigned to record bids, offers and trades of Prime Bank Bills which had 1, 3 and 6 month maturities. 203 The Short End Desk endeavoured to record the trading in Prime Bank Bills in real time. The Short End Desk was located in an area of approximately 30 square metres within a larger open plan broking room that also housed Tullett's other Desks. That area contained an array of adjoining desks, with the brokers assigned to particular desks sitting beside one another. Inputters were positioned at the desks interspersed between the brokers. 204 During the relevant period, each broker on the Short End Desk had, on their desk, a communication device referred to as a "dealing board". This device provided brokers with access to direct telephone lines to individual traders representing different banks, as well as a series of dedicated direct open lines to particular clients with speaker functionality. The dealing board consisted of two adjacent black boxes. The first component had numerous buttons as well as a keypad similar to that found on an ordinary telephone. The second component, which had a speaker, a microphone and a panel of switches activating dedicated direct open lines, was also referred to as a squawk box. 205 There were different ways in which a broker could use the dealing board to communicate with traders representing banks. 206 First, a broker could communicate via a bilateral phone line with a particular trader. This could be done in one of two ways. The first method of bilateral communication via phone line from the dealing board was by using a pre-programmed direct phone line on the dealing board to communicate with an individual trader. The audio input and output for this communication would be exclusively via an audio handset connected to the dealing board. The left component of the dealing board did not have an in-built microphone or speaker. In order to open a direct phone line to an individual trader by this method, the broker would push the appropriate button. The second method of bilateral communication via phone line from the dealing board was to dial a particular phone number. 207 Second, a broker could use the squawk box component on the right side of the dealing board to communicate with one or more individual traders using an in-built microphone and side by side speakers via dedicated lines. These lines could be opened by depressing and holding a switch or by switching up which would cause the line to stay open until the switch was manually moved back to the neutral position. The line controlled by each of these switches corresponded to a different individual trader at an individual bank or client. While a button was either switched up or held down, the sound picked up by the in-built microphone at the broker's end would be transmitted to the individual trader corresponding to that button. It was not necessary for the trader to accept or answer in order to activate the transmission from the broker's end. 208 Each of the various individual traders at banks could similarly control if and when they transmitted sound from their end back to the broker. When they did so, it would emerge from one of the in-built speakers in the dealing board, and would be audible not only to the broker but also to anyone else within earshot. When on the broker's dealing board there were lines to multiple traders open at the same time and one trader spoke, that trader's voice would be transmitted from one of the speakers in the dealing board, be picked up by the microphone, and be heard by all other brokers on the desk. 209 The close proximity of the brokers enabled them to hear not only the voice that emerged from the speakers of their own dealing board but also the voice that emerged from their neighbours' dealing boards. The position of the inputters enabled them to hear what the brokers were calling out, and also what was coming out of the brokers' dealing boards. 210 In addition to a dealing board, each broker had several computer monitors on their desk which were used by brokers and inputters to access the electronic systems "TP Contributions" and "Ausmarker". The monitors were also used to access, depending on the individual's preference, data screens available via subscription from Reuters, Bloomberg, or both. 211 Trading in Prime Bank Bills through Tullett occurred on each Sydney business day between 8.30 am and 4.30 pm. Trades executed before midday on a particular day were settled that day, while trades after midday were settled on the following business day. 212 There was a peak of activity in the trading of Prime Bank Bills during the relevant period at around 10.00 am on each business day. On average, approximately 90% of trading in Prime Bank Bills on a given day occurred during this period of high activity. The extent and precise time and duration of this peak of activity varied from day to day. During a period of high activity, there might be trades of several billion dollars of Prime Bank Bills. The period of trading would always be at around 10.00 am, but could be on either side of it. 213 During the relevant period, trading during the period of high activity around 10.00 am predominantly involved trading in early bills during the first half of the month and trading in late bills during the second half of the month; I will elaborate on the "early" and "late" question in a moment. 214 The brokers who traded in Prime Bank Bills on any given trading day assembled around the Short End Desk at about 9.45 am each business day together with the inputters. 215 An overview of the practice of the Short End Desk in arranging and facilitating a trade of Prime Bank Bills in the relevant period during the period of high activity in Prime Bank Bill trading around 10.00 am is as follows: (a) A broker would take instructions from a trader representing a particular bank trading Prime Bank Bills to bid or offer Prime Bank Bills of a particular tenor at a particular volume and yield. The trader would usually give such instructions through one of the two methods of communication made available by the broker's dealing board, that is, verbally over the squawk box or via the telephone. (b) The broker would then quote the bid or offer of Prime Bank Bills of the specified tenor, volume and yield to the other brokers on the desk verbally, by calling it out. (c) The other brokers would communicate the bid or offer to their trader(s) verbally through their dealing boards using one of the two methods described above. At the same time, the bid or offer would be inputted into an internal electronic system maintained by Tullett called "TP Contributions". Brokers would often also take handwritten notes of bids and offers from their clients, although there was no uniform system and each broker had their own practice in this regard. (d) Another broker would receive new bids or new offers, counter bids or counter offers, or directions to give or take existing bids and offers from other traders. Again, these instructions were received via one of the methods of communication made available by their dealing board. This broker would process the communicated information by matching any bids and offers, inputting counterbids or offers or adjusting existing orders. When transacting, commonly the broker would say words to the effect of "taken" or "mine" when accepting an offer, and words to the effect of "give" or "yours" when accepting a bid. (e) Acceptance of the bid or offer would then be inputted into the order management system TP Contributions. This would cause the bid or offer to become briefly highlighted in yellow on the TP Contributions screen before disappearing from this screen. Executed trades then appeared on the deal management system called "Ausmarker". The brokers would also inform their respective client traders of the executed trade, again via their dealing boards. (f) During this period of concentrated trading there was a person on the desk who monitored the public screens operated by Reuters and Bloomberg to make sure that the data from TP Contributions was being fed through consistently. (g) Following the concentrated period of Prime Bank Bill trading on a given day, brokers on the Short End Desk would typically: (i) confer amongst themselves to ensure that their respective trades aligned or "squared up" with each other; (ii) obtain information from traders on the selling side of each trade in relation to the Prime Bank Bills that were to be delivered in settlement of the trade (such as the identity of the issuer/acceptor and the precise maturity date), and input this information into the Ausmarker system (or have inputters do so); (iii) aggregate (or have inputters aggregate) the individual trades in the Ausmarker system entered into between the same clients in the same tenor into a consolidated trade for convenience; (iv) report back to traders (usually via their dealing boards) as to the trades arranged on their behalf that day, which allowed traders to conduct a process of reconciliation and to confirm that they accepted the details of the trades as accurate. 216 Tullett was not involved in the actual settlement of trades between clients. 217 In the event of a dispute between clients as to the terms of trades arranged between them through brokers, Tullett would attempt to negotiate an agreed trade between the respective clients. 218 Further, it was possible where a broker was taking instructions from more than one client, which was common, for the same broker to receive and process instructions from the trader-clients on both sides of the same trade. When this occurred, the trade was still inputted into Tullett's systems and handled in the same manner as described above. 219 Tullett invoiced clients in respect of its brokering services on a commission basis calculated by reference to the trades recorded in its systems. So unless a completed trade was executed into TP Contributions (and hence Ausmarker), Tullett would not generate an invoice. This invoicing was done by Tullett's Accounts team at the end of each month, on the basis of all trades arranged on behalf of a given client over that month. There was no systematic practice of providing a written summary of trades to clients on a more frequent basis. 220 The accuracy of the data contained in TP Contributions (and ultimately fed into Ausmarker and the public screens of Reuters and Bloomberg) depended on the accuracy of the inputting performed by brokers and inputters. 221 In addition to the communications referred to above in relation to specific bids, offers or trades, brokers would occasionally provide general information to traders via their dealing boards about the state of the market for Prime Bank Bills at a particular time. This information included, for example, the yield at which each tenor of Prime Bank Bills was trading at that time.

(d) BBSW and the rate setting mechanism 222 During the relevant period, the BBSW was the trimmed, average mid-rate of the observed best bid/best offer for Prime Bank Bills for certain tenors on each Sydney business day published by AFMA. The BBSW was calculated and published by AFMA for the 1 month (30 days), 2 month (60 days), 3 month (90 days), 4 month (120 days), 5 month (150 days) and 6 month (180 days) tenors. It was set on the basis of views submitted by the BBSW panellists as to the yield at which Prime Bank Bills in each tenor were trading at 10.00 am or approximately 10.00 am. The precise time is a matter of dispute, which I will return to later. Westpac was a BBSW panellist throughout the relevant period. 223 Conceptually, the BBSW represented the rate of interest at which banks borrowed funds from one another for a short period of usually no longer than 12 months. It therefore represented a near risk-free interest rate, and naturally provided a benchmark, or otherwise supplied an important variable, for a wide range of transactions within Australia, if not more broadly. 224 In the relevant period, the BBSW was a key reference and benchmark rate in the financial markets in Australia, the independence and transparency of which was an important factor in ensuring the efficiency and integrity of those markets. It was the Australian equivalent of LIBOR and SIBOR (Singapore Interbank Offered Rate) in terms of usage as a benchmark or reference interest rate. The BBSW was, however, defined and calculated in a way that differed from LIBOR and SIBOR. 225 AFMA published the BBSW Procedures, which outlined the responsibilities and membership of the BBSW Committee, the BBSW calculation mechanism and the contingency rate setting procedure. The BBSW Procedures also included procedures for corrections to published and displayed BBSW rates. The BBSW Procedures applied throughout the relevant period and were updated regularly throughout the relevant period, including in April 2010, January and December 2011 and February, April and June 2012. I would note for completeness that Mr Love, Director of Policy and International Affairs at AFMA during the relevant period, relied upon a version of the BBSW Procedures dated April 2010 when describing the submission process. 226 I would also note that ASIC tendered as part of Mr Love's evidence the following additional documents: (a) AFMA document titled "Rate Contribution Best Practice Principles", dated March 2013; (b) an email from Mr Damian Jeffree of AFMA to BBSW panellists (including Ms Dawson of Westpac) requesting copies of their internal guidelines for staff making submissions to the BBSW rate set dated 17 October 2012; (c) documents relating to AFMA's "MGC BBSW Working Group" dated September and December 2012; and (d) a version of the BBSW Procedures dated February 2013. But all of these documents fell outside the relevant period. For the moment, nothing more need be said about them. 227 In the relevant period, AFMA calculated and published the BBSW on each Sydney business day for each of the 1, 2, 3, 4, 5 and 6 month tenors. As I have said, the BBSW was the trimmed, average mid-rate of the observed best bid/best offer for Prime Bank Bills for each tenor. It was set on the basis of views submitted by BBSW panellists as to the yield at which Prime Bank Bills in each tenor were trading. 228 The BBSW Procedures determined the maturity date of a particular tenor on a "modified" following" basis. This meant that if the straight date for the tenor fell on a non-Sydney business day (e.g. a weekend or a public holiday), the maturity date would be rolled over to the next business day. The exception to this convention was when the rollover would push the maturity date over the mid-point of the month, because of the earlies/lates dynamic that was present in the market, on which I will say something more later. In such cases, the Sydney business day preceding the straight date would become the maturity date. 229 BBSW panellists made their submissions through an IT system that was used by AFMA to collect, calculate and disseminate market data, known as the AFMAdata system. Evidence as to the operation of that system was provided by Mr Jason Brown, Senior Information Systems Manager at AFMA during the relevant period. BBSW panellists inputted BBSW mid rates for each tenor quoted to two decimal places into the AFMAdata system. Not every BBSW panel member submitted their view of the mid-rate for each tenor on every Sydney business day. Rates ineligible for inclusion in the BBSW calculation process included those that failed to update by 10.05 am and those that failed to update for each tenor. 230 Mr Brown gave evidence that minimal change took place in the AFMAdata system and procedures relating to the BBSW submission process during the relevant period. Each BBSW panellist nominated one or more staff members as submitters and provided their details to AFMA. Submitters were provided with a unique username and password for accessing the submissions screen on the AFMAdata website. The mid-rates for each tenor could be entered into the submissions screen only between 10.00 am and 10.05 am on each business day (Submissions Period). 231 For the avoidance of doubt, it is appropriate to make a distinction between the Submissions Period and the BBSW Rate Set Window. The former lasted from 10.00 am to 10.05 am and related to the physical input of BBSW submissions. The latter lasted from 9.55 am to 10.05 am and is the shorthand description for the period during which the majority of Prime Bank Bill trading occurred. 232 Let me elaborate on the procedures that were prescribed for the calculation of the BBSW on each Sydney business day during the relevant period: (a) As I have said, AFMA received submissions from the BBSW panellists, who inputted their submissions into the AFMAdata system. The AFMAdata website included a submissions screen, accessible with submitters' login details, into which the mid-rates for each tenor could be entered during the Submissions Period, but not at other times. Each submitter was able to make multiple entries into the submissions screen during the Submissions Period. When a submitter made multiple submissions during the Submissions Period, AFMA used only the last submission as part of the BBSW calculation process. In order for a submission to be made, it was necessary for the submitter to enter mid-rates for all tenors; otherwise, the submission was not accepted by the AFMAdata system. When a submitter made multiple submissions during a single Submissions Period, it was necessary on each occasion for the submitter to enter a mid-rate for all tenors; otherwise the submission was not accepted. (b) AFMA required each BBSW panellist to make a submission to AFMA by 10.05 am Sydney time on each Sydney business day identifying that BBSW panellist's view of the mid-rate of the yield for Prime Bank Bills at 10.00 am, expressed to two decimal places, on that Sydney business day for each tenor. BBSW panellist's submissions on any particular day would not be considered by AFMA unless the BBSW panellist provided a submission for each tenor by 10.05 am Sydney time. (c) Following the receipt of submissions from the BBSW panellists, at 10.06 am on each business day the AFMAdata system automatically calculated the BBSW for each tenor, based on the submissions received during the Submissions Period. The highest and lowest mid-rates submitted for each tenor were eliminated, starting with the highest, until a maximum of eight submissions remained. (d) The BBSW for that day was calculated or "set" by AFMA by eliminating the highest and lowest submissions for each tenor and ascertaining, to four decimal places, the average of the remaining mid-rates for each tenor. (e) The calculated BBSW for each tenor, and the submissions made by each BBSW panellist, were automatically published by the AFMAdata system via XML feed to assigned information vendors including Thomson Reuters and Bloomberg. This occurred shortly after the assigned calculation time. The relevant information was published through the distinct output pages identified with the following codes: (i) "BBSW" (an output page for calculated BBSW mid-rates); (ii) "BBSWAV" (an output page for calculated BBSW mid-rates, BBSW average bid and BBSW average offer); (iii) "BBSWHIST" (an output page for calculated BBSW average mid-rates for the previous 10 business days); and (iv) "BBSWCONT" (an output page for the submissions made by BBSW panellists). (f) The calculated BBSW mid-rates were uploaded onto AFMA's public website (www.afma.com.au) at approximately 10.00 am on the following business day. 233 Under cross-examination, Mr Brown conceded that the above BBSW calculation methodology involved two elimination processes, described in subparagraphs (c) and (d) in the preceding paragraph, such that when eight or more BBSW panellists made valid submissions, the AFMAdata system calculated BBSW as an average of six mid-rates. This concession was made after it was shown, by reference to the submissions of BBSW panellists on a particular day for a particular tenor, that the elimination of submissions to six rather than eight was the only arithmetic possibility given where BBSW set that day in that tenor. 234 For completeness, this is consistent with reading sections 2.5 and 2.6 of the BBSW Procedures to be describing two separate elimination processes: first, the elimination of the highest and lowest rates in each individual tenor until a maximum of eight mid-rates remain to be displayed; and second, the elimination of the highest and lowest of those mid-rates before calculating BBSW. 235 Further, the BBSW Procedures also explicitly stated that: (a) if five, six, seven or eight contributions were displayed for a tenor, only three, four, five or six respectively would be used to calculate BBSW for that tenor; and (b) if there were fewer than five eligible input rates for a particular tenor, no contributions would be displayed and no calculation for BBSW would be performed for that tenor. 236 Now although the BBSW procedures required BBSW panellists to make submissions identifying the mid-rate of the yield for Prime Bank Bills at 10.00 am, submissions could be made or updated until 10.05 am. Westpac submitted that submissions were made based on trading at 10.00 am. Contrastingly, ASIC submitted that BBSW panellists in fact submitted their view of the mid-rate at approximately 10.00 am on each trading day. As will be shown below, the evidence of BBSW panellists revealed a variety of approaches to determining and inputting their submissions. Some of the BBSW panellists took into account trading behaviour that they observed after 10.00 am. 237 Let me deal with some other matters before discussing the specific evidence given by panellists. 238 Mr Brown gave evidence that the submissions made using the AFMAdata system were monitored by Mr Brown or another AFMA officer as they were made, for the purpose of checking whether there appeared to be a mistake in the data input due to a "fat finger" entry, meaning an obvious keyboard input error. If such an error was detected, it was Mr Brown's practice to ring the submitter and ask them whether they were comfortable with the data input. Mr Brown did not recall doing this very often during the relevant period. 239 A submitter was also able to call or email AFMA if they could not access the AFMAdata system, for example due to connectivity issues. As the administrator, Mr Brown could enter data on behalf of the BBSW panellists into the AFMAdata System. Mr Brown recalled that it was very rare for him to submit rates on behalf of BBSW panellists during the relevant period. 240 Further, in the relevant period, the AFMAdata system was programmed to automatically publish the BBSW from approximately 10.10 am on each Sydney business day via XML feed to assigned information vendors. The rates were made available to subscribers to the BBSW service by the information vendors, which in the relevant period included Thomson Reuters and Bloomberg. As a part of this publication process, all BBSW panellists were able to view, at about the same time as the publication of the BBSW, the last submissions of all BBSW panellists made on each business day. If a BBSW panellist had not submitted rates, a blank row would appear next to that panellist's name. 241 Further, on each business day, at approximately 10.00 am, the AFMA website was manually updated by Mr Brown or one of the other IT staff at AFMA to record the previous day's BBSW output. This information would then be available to the general public. 242 Further, AFMA also published the average bid and offer values for each tenor referred to as BBSY, but calculated using a consistent spread of five basis points either side of the BBSW.

(e) Evidence from BBSW panellists 243 ASIC filed evidence setting out the practices of several BBSW panellists during the relevant period. Their evidence demonstrated a variety of submission practices during the relevant period on issues including: (a) whether submissions considered trading that occurred after 10.00 am; (b) whether submissions were updated and re-submitted during the BBSW Rate Set Window; (c) how individual submitters accounted for and weighed against one another the volumes and yields of trading; and (d) how individual submitters determined their submissions for illiquid tenors. 244 The parties are in dispute as to whether I should find that post-10.00 am trading had an effect on BBSW submissions, a consideration which is relevant inter-alia to the question of the likely effect on the BBSW of Westpac's trading on the purchase and sale contravention dates, which will become clear much later in these reasons. ASIC submits that such trading was taken into account, relying upon the evidence of BBSW panellists outlined below as well as comments by Westpac's witnesses. Contrastingly, Westpac contends that I should accept that panellists did what AFMA required them to do, i.e. relied on 10.00 am trading only. I will address this issue again later, although I am inclined to say at this point that ASIC's position is more consistent with the evidence at least in relation to some of the panellists' practices. But I would also note that given the two elimination processes that I have described earlier, the non-conforming submissions may in essence have had little significance on where BBSW set.

HSBC 245 Mr Graeme Bell, an Associate Director in Balance Sheet Management at HSBC throughout the relevant period gave evidence that he was the main person at HSBC making submissions to AFMA during the relevant period. Mr Bell used the HSBC general user ID and password to log in to the AFMA webpage. His general practice was to base submissions on the middle rate of the bids and offers displayed on each of the ICAP and Tullett broker screens at 10.00 am. The broker screens showed the last bid and offer in each of the tenors. Sometimes the two brokers displayed different rates for some tenors and at other times they displayed the same rates. Mr Bell said that he watched the broker screens for the whole Submissions Period and, if there were changes in the rates on the brokers' screens, he would re-submit the mid-rate between the bids and offers on the brokers' screens into the AFMA webpage. It was not unusual for multiple submissions to be made by Mr Bell during a Submissions Period. 246 If there was no trading in a particular tenor and no major changes in economic events overnight, Mr Bell would base his submission on the previous day's rate set and would make an arithmetical adjustment to make the submission for that tenor. 247 Mr Jonathan Hensler was an Associate and later an Associate Director in Balance Sheet Management at HSBC. He was another person who made submissions to AFMA on behalf of HSBC during the relevant period. Mr Hensler estimated that he made the submissions on approximately 30% of the days during the relevant period and Mr Bell made the submissions on approximately 70% of those days. Mr Hensler would log into the AFMA webpage prior to 10.00 am and would watch the ICAP and Tullett broker screens for the whole of the Submissions Period. The information Mr Hensler had regarding the trading of Bank Bills on any day was via the last bid and offer made as displayed on the brokers' screens. Mr Hensler did not know whether the displayed bids and offers actually traded. If there was a difference between either the bids, or the offers, between the two screens, Mr Hensler would try to calculate the mid-rate between them for submission to AFMA based on where he thought the Bank Bills in each tenor were trading at the time. If there were no bids or offers for less liquid tenors (2, 4 and 5 month tenors) on the broker screens, Mr Hensler would make an arithmetical adjustment to calculate the rate to input for those tenors. During the relevant period, Mr Hensler made multiple submissions into the AFMA webpage almost every day that he made the submissions on behalf of HSBC. His first priority at 10.00 am was to make sure that the rates for each tenor were submitted and it was then his practice to re-submit rates during the next five minutes, to 10.05 am, based on any subsequent trading he observed in the Submissions Period on the brokers' screens.

Société Générale 248 Société Générale was a BBSW panellist from the start of the relevant period until 28 May 2010, a period of around one month. Mr Daniel Cortis and Mr Jeffrey Weiss were both employed in Treasury at Société Générale in Australia until approximately September 2010, when it ceased its Australian-based Treasury operations. 249 Mr Cortis and Mr Weiss have not been employed in the banking industry since that time and their evidence is based on their recollections of making submissions to AFMA on behalf of Société Générale in the first half of 2010. Their recollections were not strong. 250 Mr Cortis recalled that between about March and September 2010, his role at Société Générale included submitting Bank Bill rates to AFMA by logging into an AFMA website. If he was away from the office or otherwise occupied, one of his colleagues on the money market desk, usually Mr Weiss, made submissions to AFMA instead. Broker screens were the primary source of information on which Mr Cortis relied in making submissions to AFMA. Mr Cortis recalled looking at the Tullett broker screen and at one or two other broker screens, although he could not recall the names of any other brokers whose screens he watched. Mr Cortis also listened to an open loud speaker phone that was installed on the desk, which conveyed the voices of brokers who were making bids to purchase and offers to sell Prime Bank Bills. This line was open all day. Mr Cortis calculated the mid-point of the bid and offer for each of the tenors and entered this into the AFMA webpage at or around 10.00 am. He recalled that he then continued to observe further trading activity in Prime Bank Bills until approximately 10.10 am. If the mid-point changed for any one or more of the tenors during this time, Mr Cortis would update the data he initially entered into his submission or would make another submission to AFMA. If a flurry of Prime Bank Bill trading during the Submissions Period pushed the rate for a particular tenor above or below the rate Mr Cortis had submitted, he would update and re-submit the midpoint rate for that tenor. Mr Cortis tried to ensure that the mid-points he submitted to AFMA took into account the trading activity he observed and heard occurring in the Bank Bill Market up until the end of the Submissions Period. If trading was quiet, his practice was to submit the rates close to, or at, 10.00 am. If it was busy, he would submit the rates later in the Submissions Period. Where there was no trading of Prime Bank Bills in a particular tenor on a given business day, Mr Cortis determined the rate to submit to AFMA by using a yield curve. The yield curve extrapolated the price of other tenors by reference to trading data for the 1 month, 2 month and 3 month tenors, and data from the futures market. 251 Mr Weiss recalled that in the period between March and September 2010 he had a computer screen at his desk that displayed Prime Bank Bill trading information provided by ICAP, Tullett and possibly another broker, BGC Partners Australia Pty Ltd. These were live trading screens which recorded the latest trading information supplied by those brokers, being the best bids to purchase and the best offers to sell Prime Bank Bills in each tenor. There was also a live loud speaker phone in the office space in which the Treasury team worked. During the morning of each business day when Mr Weiss was present in the office, he heard, through the loud speaker phone, brokers calling out bids and offers to buy and sell Prime Bank Bills at various yields. He observed that, at any given point in time, the bids and offers announced by various voices through the loud speaker phone for any given tenor were always, or almost always, the same as the bids and offers that appeared on the broker screens for that given tenor. To the best of Mr Weiss' recollection, submissions had to be made to AFMA between 10.00 am and approximately 10.08 am (in fact, it was 10.05 am) through an AFMA website, for which he was given a user name and password. Mr Weiss said there was no formal arrangement as to which Treasury employee would submit information to AFMA on behalf of Société Générale on any given day. Mr Weiss estimated that he was the submitter on less than half of the business days between March and September 2010 and that Mr Cortis was the main submitter during that period. In making submissions to AFMA on behalf of Société Générale, Mr Weiss would log into the AFMA website at approximately 10.00 am, observe the bids and offers on the broker screens, listen to the bids and offers on the loud speaker phone, calculate the mid-point of the bids and offers for each tenor, type those mid-rates into the appropriate typing space on the AFMA website and submit the rates to AFMA. Mr Weiss estimated that this process for all tenors of Prime Bank Bills would take him approximately 10 to 30 seconds in total. Mr Weiss recalled continually updating his mid-rate submissions during the remainder of the Submissions Period by making a fresh submission each time that he observed or heard a change in the mid-rate for any given tenor of Prime Bank Bills. He would do this right up until the end of the Submissions Period, when it was no longer possible to make further submissions to AFMA.

Suncorp-Metway 252 Suncorp-Metway (Suncorp) was a reserve BBSW panellist from around 2006 and a BBSW panellist from 1 May 2012 to the end of the relevant period, a period of around one month. As a reserve BBSW panellist, Suncorp was on a list of banks that could be asked to fill in for any bank that withdrew as a BBSW panellist, but Suncorp did not make BBSW submissions prior to 1 May 2012. Mr Rory O'Connor and Mr Darryn Long gave evidence of the AFMA submissions process on behalf of Suncorp. 253 Mr Long had been the Team Leader of Suncorp's Interest Rate Trading Desk since July 2010. He began working at Suncorp in 2004 and had traded Prime Bank Bills since around July 2006. From around 1 May 2012 to the end of the relevant period, the Interest Rate Trading Desk was responsible for making BBSW submissions to AFMA on behalf of Suncorp. Submissions were generally made by Mr O'Connor under the supervision of Mr Long. From time to time, Mr Long made the submissions to AFMA himself, generally when Mr O'Connor was away or unavailable. Mr Long gave evidence that trading in Prime Bank Bills generally began in earnest at around 10.00 am and lasted until 10.05 am, when BBSW submissions were due to be made to AFMA. Mr Long understood that submissions made to AFMA were meant to reflect the rates at which Prime Bank Bills were trading during the Submissions Period. Mr Long's general practice in making submissions was to watch the ICAP and Tullett screens and listen to the squawk box during the Submissions Period. Based on the bids and offers that he saw and heard, Mr Long made a judgment of where the bulk of trading occurred in each tenor during the Submissions Period, to the nearest basis point. Mr Long's practice was to consider the bulk of the trading in each tenor during the Submissions Period as a whole and to base his BBSW submissions on the rate at which Prime Bank Bills traded most frequently during this period. For example, if the rate moved quickly and steeply after 10.00 am, Mr Long's submission would reflect the higher rate traded after 10.00 am. As he was not able to discern the volume of Prime Bank Bills traded, generally his practice was to make a BBSW submission at the level at which the trading had stayed for the longest time during the Submissions Period. 254 Mr O'Connor has been employed at Suncorp since 2006 and worked there as an Interest Rate Trader between 2011 and 2014, reporting to Mr Long. From around 1 May 2012 to the end of the relevant period, Mr O'Connor was the primary Prime Bank Bill trader at Suncorp and the primary submitter to AFMA on behalf of Suncorp. Mr O'Connor gave evidence that he understood BBSW submissions were required by AFMA to reflect each panellist's view of the mid-rate of the yield at which Prime Bank Bills in each tenor were trading each business day between 10.00 am and around 10.05 am. To the best of his recollection, submissions were due to be made to AFMA by 10.05 am or 10.06 am. Mr O'Connor's general practice in making submissions was the same as that of Mr Long, as described above, except that Mr O'Connor made a judgment of where the bulk of trading occurred in each tenor at about 10.00 am, rather than between 10.00 am and 10.05 am as described by Mr Long. Mr O'Connor considered that the busiest time of the day for trading Prime Bank Bills was from around 10.00 am to a few minutes after. On occasions when the rate for various tenors did not move significantly during this time, it was Mr O'Connor's general practice to base his BBSW submissions on an observable traded rate close to either side of 10.00 am. On occasions when there was a significant movement in the market, it was Mr O'Connor's practice to submit the rate which he considered best reflected the trading as a whole, being the rate at which most of the trading occurred. Mr O'Connor did not quantify a "significant movement", but rather said that it was a movement of a size sufficient to change his view of the rate that accurately reflected the market from around 10.00 am to a few minutes after. 255 Where no trading occurred in a particular tenor, Mr Long and Mr O'Connor gave evidence that they would either base their submission on: (a) the OIS for the corresponding tenor plus a margin; or (b) an interpolation of the rate between two other observable tenors (for example, the rate for the 2 month tenor could be determined based on the rates for the 1 and 3 month tenors).

Royal Bank of Canada 256 The Royal Bank of Canada (RBC) was a reserve BBSW panellist until May 2010 and a BBSW panellist from 28 May 2010. Mr Darren Ryper worked at RBC from May 2000 to November 2014. During the relevant period, he was the head of Treasury Management Services (TMS), a team responsible for the funding and liquidity of the Treasury branch. 257 TMS was responsible for making submissions to AFMA on behalf of RBC. The primary person responsible for this within TMS was Ms Thu Tran, a Money Market Dealer. Mr Ryper himself would only make BBSW submissions to AFMA if Ms Tran was sick or on leave. Mr Ryper estimated that he made BBSW submissions to AFMA on approximately 25 days each year. 258 Mr Ryper did not give Ms Tran instructions on how to make BBSW submissions because he observed that she was familiar with AFMA's guidelines on this subject. Mr Ryper would generally discuss BBSW submissions with Ms Tran only if she had any uncertainty about where to submit the rate in a particular tenor. Mr Ryper was able to observe how Ms Tran was making BBSW submissions to AFMA as they sat close by. Based on these observations and their discussions, Mr Ryper believed that Ms Tran's practice in making BBSW submissions was the same as his. 259 Mr Ryper gave evidence that he would monitor Prime Bank Bill trading from about 9.55 am to 10.05 am and calculate the mid-rate of the bid and offer for each tenor to submit to AFMA based on the tradeable prices he observed during the Submissions Period. Mr Ryper recalled that most of the trading in Prime Bank Bills took place during a five minute period, but could not remember whether this was from 9.58 am to 10.03 am, or from 10.00 am to 10.05 am, or some other five minute window between 9.55 am and 10.05 am. In order to make BBSW submissions, Mr Ryper would log into the AFMA website before 10.00 am using RBC's username and password. He would then look at the ICAP and Tullett broker screens and listen to live trading on two separate voice boxes. Sometimes he would call a broker to clarify whether a bid or offer had traded. At the start of the Submissions Period, Mr Ryper would key in the rates for each tenor based on the most recent tradeable prices available, but would not usually submit those rates straight away. Rather, he would continue to monitor the trading during the Submissions Period on the broker screens and the voice boxes and update his submission to reflect any changes in the rates at which Prime Bank Bills were trading. It was not common for Mr Ryper to make multiple submissions to AFMA because he would usually only submit his rates towards the end of a Submissions Period, that is, close to 10.05 am. He would only change a submission if he had pressed submit and then saw a tenor physically trade for a rate different to what he had submitted, or if he saw a higher volume trade occur. After the end of the Submissions Period, Mr Ryper would log off from the AFMA website and visit the Thomson Reuters BBSW page at approximately 10.15 am to view the BBSW rates as set by AFMA for that day. Mr Ryper's main concern when making a submission to AFMA on behalf of RBC was to ensure that the submission reflected the mid-point during the Submissions Period, based on the most recently traded prices for Prime Bank Bills. In deciding on the mid-point, Mr Ryper would place more weight on the prices of trades that were for higher volumes. Mr Ryper recalled that it was rare for there to be no bids or offers on the broker screens for a particular tenor, but when this happened he would look at trading in other derivatives products and could also use a computer program to do an adjustment from the BBSW for the day before.

General 260 In my view, it would seem that some submitters had regard not only to the bids and offers at 10.00 am, but also to the bids and offers up to the end of the Submissions Period, and would either hold off on submissions or update their submissions accordingly. Messrs Bell, Cortis, Hensler and Weiss updated their submissions up to the end of the Submissions Period, such that their submissions reflected the rates that they observed towards the end of the Submissions Period. Mr Ryper also based his submissions on the most recent bids and offers in the Submissions Period, although he also placed more weight on trades that were for higher volumes. Mr O'Connor based his submissions on the rate at which most of the trading occurred during the Submissions Period. Similarly, Mr Long based his submissions on the rates at which the trading occurred for the longest time during the Submissions Period. 261 It would seem that participants in the Bank Bill Market being other panel banks held the view that submissions were based on where the market was trading at around 10.00 am and up to a few minutes later. 262 Further, the evidence of Mr Colin Roden, an employee of Westpac and whose role I will expand upon in a moment, was that submissions by some submitters might take into account trading after 10.00 am, including trading up to 10.05 am. And Mr Masnick also said that trading in Prime Bank Bills at or shortly after 10.00 am might affect the rate at which BBSW sets. 263 I will return to this question later.

(f) Other matters 264 Before proceeding further, I should say something by way of an introduction to two topics that have relevance to my later discussion.

Accounting for "early" and "late" paper differences in liquidity and yield 265 To promote liquidity in the Prime Bank Bills Market, maturities were concentrated and traded in half month periods, generally referred to as the "early" and "late" pools. Prime Bank Bills that matured on a business day between the 1st to the 15th day of a month were designated early, while instruments which matured on a business day between the 16th to the last day of a month were designated late. 266 Intra-month liquidity was viewed as deepest within the pool that represented the current maturity period, which was also the pool against which BBSW was set. For example, if on 3 December 2010 an investor wanted to buy 3 month Prime Bank Bills, it would normally have been bidding for early March 2011 Prime Bank Bills, i.e. it would have acquired Prime Bank Bills whose maturity could have been on any date between 1 March 2011 and 15 March 2011. The investor could buy late paper as well if it desired to do so, but market liquidity would be concentrated in the early paper and prices shown in platforms such as broker screens would typically be for early paper. However, once trading moved into the new period the stock purchased in the prior period generally became less liquid. 267 Market participants who held Prime Bank Bills for trading or for risk management purposes may have wanted to sell Prime Bank Bills when they were about to become less liquid. For instance, if for trading purposes a bank held Prime Bank Bills that were early Prime Bank Bills, it may have wanted to sell them on or before the 15th of the month. In other words, the bank may have wanted to reduce holdings of Prime Bank Bills over from the early pool when the trading started in the late pool, as those bills would become less liquid. Liquid instruments were preferred in situations where the management of risk had to be dynamic, as it may have required rapid changes in positions. 268 The desire to hold more-liquid assets was a factor that may have informed trading decisions for Prime Bank Bills. For example, if traders felt that it was important to have some amount of more liquid assets in the balance sheet because of concerns over market developments, they may have been more willing to sell existing early positions when transitioning into a late period.

Engaging in arbitrage between Prime Bank Bills trading and BAB Futures trading 269 During the relevant period, there was a very active futures market on Prime Bank Bills, with BAB Futures contract trading. As I have already said, the BAB Futures contract was physically settled, meaning that the seller of the contract, if not closing out its positions, had to deliver approved Prime Bank Bills at the expiration of the contract. Approved Prime Bank Bills had to be accepted by a Prime Bank, have a face value of $1 million, mature 85 to 95 days from the settlement date, and be classified as "early" month paper. 270 Prime Banks such as Westpac tended to have sizable inventories of qualifying Prime Bank Bills or could directly issue Prime Bank Bills to be delivered at the expiration of the BAB Futures contract, and were therefore in a better position to take advantage of any arbitrage opportunities that might have arisen between the different markets. 271 Arbitrage opportunities resulted from the fact that if either the BAB Futures contracts or the Prime Bank Bills were mispriced, it was possible to create a portfolio using the other instrument that would have the same payoff to take advantage of such mispricing. For example, one could borrow to purchase Prime Bank Bills that had a maturity that made them deliverable on the BAB Futures contract and at the same time sell a BAB Futures contract that promised to deliver the Prime Bank Bills at maturity of the contract. If the value of the Prime Bank Bills to be delivered taking into account the cost of borrowing was less than the BAB Futures price, the BAB Futures price was too high (yield too low) relative to the price of Prime Bank Bills and it was preferable to buy the Prime Bank Bills and sell the BAB Futures contract. Conversely, if the price of the BAB Futures was considered too low (its yield too high), a market participant could sell Prime Bank Bills (or issue them if a Prime Bank), invest the proceeds in a risk-free instrument, buy the BAB Futures, and then use those proceeds at the expiration of the BAB Futures contract to receive an exactly offsetting Prime Bank Bill. This strategy had minimal risk. If the futures price traded at a level that was considered too high close to expiration, i.e. at a low implied yield, Westpac could either use its existing inventory or issue Prime Bank Bills and deliver them into the BAB Futures contract, taking advantage of its perceived low yield.

(a) The Board 272 Westpac is, and during the relevant period was, the holder of an Australian financial services licence and an authority to carry on banking business under s 9 of the Banking Act 1959 (Cth). 273 During the relevant period, Westpac's Board of Directors had ten members, of which only one, the CEO, was not considered independent. The Westpac Board formally delegated part of its functions to its Board committees and to its Executive management. The Board retained oversight of these functions through its committee reporting structures, approved policies and Executive reporting structures. Board committees reported directly to the Board. 274 One of the Board committees in the relevant period was the Board Risk Management Committee (BRMC). Its purpose was to oversee Westpac's risk profile, set risk appetite, approve frameworks, policies and processes for managing risk, and accept risks that were beyond the discretion provided by the Board to the Executive. The types of risk considered by the BRMC included, but were not limited to, capital, credit, liquidity, market, operational and reputation risk. It was also a key reporting line between the Board and the Group Treasury division of Westpac.

(b) The Executive 275 The Westpac Executive was made up of individual division heads and officers with responsibility across the entire bank. In particular, two members of the Executive during the relevant period were important reporting lines for relevant divisions of the bank: Mr Phillip Coffey (Chief Financial Officer of Westpac) and Mr Robert Whitfield (Group Executive of the Westpac Institutional Bank). 276 In the relevant period, the Executive operated a number of Executive committees, including the following: (a) The Asset and Liability Committee (ALCO), which oversaw Westpac's funding and liquidity risk profile and liquidity risk management framework (including key policies) and identified emerging funding and liquidity risks and appropriate actions to address those risks. In particular, ALCO was a key reporting line between the Executive and the Group Treasury division. (b) The Group Market Risk Committee (MARCO), which oversaw Westpac's market risk profile and risk management framework (including key policies) and identified emerging market risks and appropriate actions to address those risks. MARCO approved separate "value at risk" sub-limits for the trading activities of Financial Markets and Group Treasury divisions. (c) The Group Credit Risk Committee (CREDCO), which oversaw Westpac's credit risk management profile and risk framework (including key policies) and identified emerging credit risks and appropriate actions to address those risks. 277 Figure 1 outlines the formal delegations of authority by the Westpac Board and the operation of committees by the Executive as described above. Figure 1 - Westpac corporate governance at Board and Executive levels

(c) Relevant divisions 278 When describing Westpac's corporate structure during the relevant period, it is necessary to distinguish between the customer-facing business divisions that operated under multiple brands, and internal corporate divisions. The governance relationships between the two types of divisions seem to have overlapped. For example, policies generated by Westpac Institutional Bank, referred to as WIB, a customer-facing business division to which the Financial Markets division belonged, were applied to Group Treasury, the internal and otherwise separate division that traded Prime Bank Bills. 279 Westpac's operations during the relevant period comprised the following customer-facing business divisions, which operated under multiple brands: (a) The retail, business banking and wealth operations in Australia, including the businesses of Westpac Retail and Business Banking, St George Bank and BT Financial Group; (b) WIB, which delivered a broad range of financial services to commercial, corporate, institutional and government customers. As noted above, Mr Whitfield was its Group Executive; and (c) Westpac New Zealand, which was responsible for sales and services of banking, wealth, and insurance products for consumer and small to medium business customers in New Zealand. 280 In some respects St George Bank was separate from the rest of Westpac. On 1 December 2008, Westpac acquired St George Bank. But from then, Group Treasury's rate exposure formally included St George treasury's rate set exposure, although data about that exposure was not automatically and immediately migrated to Westpac's computer systems. From about August 2010, the St George rate set data (in the "Kondor" system) was migrated across to Westpac's trading data system called "Murex", so that any rate set exposure arising out of transactions entered into by the St George treasury function was automatically captured in the Murex system. Prior to that time Mr Patrick Stokes manually incorporated St George data into Westpac's database. 281 Group Treasury was an internal division of Westpac. It was generally responsible for the aggregate management of Westpac's balance sheet incorporating funding, liquidity and capital management. Because Westpac makes more loans (assets) than it has deposits from customers (liabilities) to fund those loans, Group Treasury's roles were to: (a) raise additional funds necessary to meet the gap between deposits and loans; (b) manage the financial risk associated with Westpac's banking operations including: (i) exposure to movements in relevant interest rates and their effect on the cost of funding and the net value of assets and liabilities; (ii) exposure to movements in the market in the short, medium or long term, which might affect operations or the costs of funding; (iii) exposure to currency movements; (iv) concentrations of risk in relation to significant counterparties; (v) the risk that sources of funding might become constrained or expensive (on either a short or longer term basis); (vi) the positioning of Westpac's operations so that it was an attractive investment opportunity for the key institutions that provide its funding; in part, that involved demonstrating that Westpac was strong and able to withstand potential adverse market developments; and (c) conduct such operations as efficiently as possible with a view to assisting Westpac to make a return on its shareholder capital. Importantly in the present context, in carrying out these roles Group Treasury traded financial products and entered into transactions involving financial products, including BBSW Referenced Products and BAB Futures. 282 Financial Markets was another internal division within WIB and as such reported to Mr Whitfield. It contained sub-divisions including Debt Capital Markets and Global Capital Markets. It had books which from time to time dealt in certain BBSW Referenced Products and BAB Futures. Further, it included a foreign exchange desk which from time to time dealt in FRAs, interest rate swaps, BAB Futures and cross-currency swaps. Financial Markets did not buy or sell Prime Bank Bills in the Bank Bill Market, but it did have exposure to BBSW rate set risk, which it managed by trading in derivatives including BAB Futures and FRAs.

Relationship between Group Treasury and Financial Markets 283 Since at least around 2001, Westpac's balance sheet and associated risk (i.e. the risk in relation to the assets and liabilities held as part of its banking operations and managed by Group Treasury) have been separate from the trading books that capture the transactions entered into on behalf of customers and the risk associated with those positions. The customer positions were managed by Financial Markets, and the associated customer risk and information concerning those matters was kept separate from Group Treasury. 284 There was an information barrier between Financial Markets and Group Treasury, but the effectiveness of this barrier was a topic of dispute between the parties. At this point, I will make the following uncontroversial points. 285 The information barrier was implemented so that Group Treasury could independently manage Westpac's affairs. As such, Group Treasury was not to interact with Westpac's customers and traded only on the Bank's behalf. The information barrier was not defined in any written Westpac policy, but relevant Group Treasury staff were informed about it when they commenced with the division. 286 The information barrier was implemented structurally through reporting lines and management and operationally through the separation of relevant systems. Financial Markets employees could not access trading data of Group Treasury and vice versa. The information barrier policy did not prohibit contact between employees in those two divisions but it did prohibit the sharing of trading information which could give rise to any conflict of interest between Westpac's position and the position of Financial Markets' customers. Now the barrier did not stop discussion regarding general themes in the marketplace, but it did preclude sharing of specific information regarding positions, client information etc. 287 Around the same time as Westpac implemented the structural separation between Group Treasury and Financial Markets, Group Treasury took complete control of Westpac's Prime Bank Bill trading. Since that time, Financial Markets has not been able to buy or sell Prime Bank Bills, although it has from time to time requested that Group Treasury conduct such transactions on behalf of its customers. 288 The movement of Prime Bank Bill trading to Group Treasury was prompted by a range of factors, but primarily by the fact that Group Treasury was a much more significant user of Prime Bank Bills for both funding and liquidity management purposes. Consequently, it was logical for Group Treasury to have a direct interface with the Bank Bill Market. It also made better sense so as to avoid intra-bank pricing issues between the two divisions. 289 Now the information barrier prohibited some exchange of information between the divisions, but not every exchange. ASIC says that contemporaneous documents show that there was discussion between Group Treasury and Financial Markets about trading in the Bank Bill Market, where the BBSW would set or had set, and their respective positions in the market, and that such discussion often involved Mr Adam Parker, a swaps trader in Financial Markets. I will return to this question later, although I would note at this point that Mr Parker was not called as a witness. 290 In summary, Figure 2 shows how these divisions operated within Westpac's corporate structure, including relevant reporting lines and the operation of the information barrier. Figure 2 - Westpac corporate governance at division level

(d) Group Treasury 291 As I have indicated, the core objectives of Group Treasury in the relevant period were to: (a) ensure that Westpac had sufficient funding to meet its obligations and business needs; (b) ensure that Westpac had sufficient holdings of liquid assets that could be used to raise funding quickly in the event that longer term funding options became constrained; (c) manage Westpac's exposure to liquidity risk, interest rate risk and other risk associated with its funding; and (d) conduct such activities in the most efficient and where possible, profitable manner. 292 Figure 3 shows the structure of the Group Treasury division, including its subdivisions and the relevant books. Figure 3 also identifies relevant individuals within Group Treasury. Figure 3 - Structure of Group Treasury 293 Group Treasury contained a number of sub-divisions including Portfolio Risk Management (PRM, also referred to as TRL), Asset Liability Management (ALM), Capital Management, Structured Finance, and Global Funding. In the present case, ASIC's allegations particularly concern the activities of the PRM sub-division. 294 Group Treasury had a number of reporting lines within Westpac. First, Group Treasury submitted monthly reports to ALCO and quarterly reports to the BRMC. The monthly reports to ALCO were in turn sent to APRA. Second, Group Treasury also undertook an annual funding review that outlined the funding strategy for the coming year (trends in global markets, peer analysis, wholesale funding capacity, expected funding requirements and a funding risk analysis). The annual funding strategy was reviewed and supported by ALCO prior to its approval by the BRMC. Third, Group Treasury reported in the relevant period to both Westpac CFO Mr Coffey and to the head of WIB, Mr Whitfield. Neither Mr Whitfield nor Mr Coffey were subject to the information barrier as neither of them engaged in trading on behalf of Group Treasury or on behalf of customers in Financial Markets. Further, whilst Group Treasury was an independent unit of Westpac, it was subject to the risk management and compliance framework, policies, and procedures that applied to WIB. 295 In the relevant period, the head of Group Treasury was Mr Curtis Zuber, Group Treasurer of Westpac. Group Treasury's trading activity represented dealings that included the management of interest rate, foreign exchange and credit spread risk associated with wholesale funding, liquid asset portfolios and foreign exchange repatriation. 296 Group Treasury was comprised of a "Trading Book" and a "Banking Book". The Banking Book is an accounting and regulatory concept that refers to assets and liabilities on Westpac's balance sheet that are expected to be accounted for on an accrual accounting basis. In the relevant period, the main sub-division (or portfolio) that comprised the Banking Book was ALM. ALM was the aggregate of Westpac's transfer priced assets, liabilities and associated hedges, with a duration of typically between one month and five years, primarily variable rate mortgages and customer deposits. The aggregated risk from ALM's assets was transferred to STIRR, which I will explain in a moment, and managed in the Trading Book. 297 The Trading Book is an accounting and regulatory term that refers to transfer pricing of Westpac's assets, liabilities and associated hedges and direct external products (for example, NCDs and US commercial paper) that are marked to market daily for accounting purposes. The "Treasury Eagle" document, which I will also elaborate on later, was prepared each day for this purpose and to assist Westpac to closely monitor and manage its exposure to interest rates. 298 In the relevant period, PRM was responsible for managing Group Treasury's Trading Book risk on a day-to-day basis and comprised books including the following: (a) Short Term Interest Rate Risk (STIRR), which book executed Westpac's short-term wholesale funding in the domestic AUD market, managed credit decisions regarding Westpac's holding of short-dated liquid assets (including Prime Bank Bills), centralised short-term interest rate mismatch and managed associated interest rate risk. STIRR consolidated this short-term interest rate risk by issuing and trading in Prime Bank Bills including, of course, NCDs directly in the short-term funding market, taking on ALM's short-term interest rate risk and trading certain products to manage risk. Further, offshore fundraising that was converted into AUD by the International Money Market (IMM) book was transferred to STIRR. (b) Long Term Interest Rate Risk (LTIRR), which book managed Westpac's long-term capital needs and associated interest rate risk (that is, risk of two years or longer). It was responsible for managing both the BBSW Rate Set Exposure and the outright interest rate risk associated with those holdings. The majority of its positions were long term interest rate risk positions transferred from ALM. The remaining positions arose from issuing long-dated AUD fixed-rate bonds. LTIRR traded derivatives, and if it wanted to manage its BBSW Rate Set Exposure it could enter into a FRA. But it did not have other ways to manage its risk. (c) IMM, which book raised short-term foreign currency funding offshore (predominantly USD) and managed the associated interest rate risk, and managed the underlying Bills/LIBOR book through trading in cross-currency swaps associated with long-term funding programs. Short-term foreign currency funding raised would be converted into AUD and loaned through to STIRR. The role of IMM within PRM included: raising short-term foreign currency (predominantly USD) funding offshore and managing the associated interest rate risk; where necessary, converting USD (or other foreign currencies) into AUD, including by entering into FX swaps; managing the underlying Bills/LIBOR book through trading in cross-currency swaps associated with long-term funding programs; managing Treasury's international branch's risk and liquidity; and managing Westpac's collateral position. It included managing BBSW Rate Set Exposure and trading in derivatives to reduce or offset that risk. IMM did not trade in Prime Bank Bills. (d) Foreign Exchange (FX), which book managed the conversion of foreign currency funding raised offshore into AUD. Risk on foreign currency was then consolidated within STIRR, having been converted into AUD. (e) Liquid Asset Management (Liquids), which book was primarily responsible for managing Westpac's credit decisions with respect to its holding of long dated liquid assets. These assets included long term semi-government bonds, long term government bonds and residential mortgage backed securities.

The STIRR Desk 299 As should be apparent from what I have said, management of short term interest rate risk within the STIRR book was an important part of PRM's activities, and several of its books conducted trading that fed into STIRR for the management of interest rate risk. Employees and officers of STIRR were authorised to deal, and dealt, in financial products, including FRAs, interest rate swaps, BAB Futures, basis swaps, and Prime Bank Bills including NCDs. Mr Roden, whose role I will expand upon in a moment, stated that that he "regularly traded, or supervised other STIRR employees trading, in BAB Futures and interest rate swaps". 300 Westpac's short term interest rate risk was centralised in STIRR. The most significant risk was the mismatch between Westpac's variable rate housing loan portfolio (in relation to which Westpac received interest) and Westpac's wholesale funding (in relation to which Westpac paid interest) and the resulting "basis risk" between its variable rate housing rate and the underlying wholesale funding rate. 301 Short term interest rate risk is the risk that interest rates for one day up to 12 months move in a way that adversely affects Westpac's balance sheet. The STIRR Desk primarily focused on managing that kind of interest rate risk within Westpac's risk appetite, while trying if possible to profit from the risk position at the same time. In addition, the STIRR Desk was tasked with Westpac's short term debt issuance of up to 12 months and its investment in short-dated liquid assets. 302 Those activities were to be conducted as part of managing Westpac's short term interest rate risk and in accordance with Group Treasury's funding and liquidity objectives. In order to carry out the functions of the STIRR Desk, traders on that desk were the only individuals that traded Prime Bank Bills on behalf of Westpac. Its traders could issue or sell Prime Bank Bills in order to raise short term funding. 303 The STIRR Desk assisted in building Westpac's holdings of short dated liquid assets by purchasing and holding Prime Bank Bills (amongst other assets). Prime Bank Bills were short dated liquid assets because: (a) they could be sold in exchange for cash with same day settlement; (b) they were, generally, readily tradeable on the Bank Bill Market, particularly in the one, three or six month tenors and maturing within the prevailing maturity period; (c) they were readily tradeable in bilateral deals with counterparties outside of the Bank Bill Market; (d) regardless of their tenor, Prime Bank Bills could be "repurchased" or "repo'd" with the RBA for immediate cash; and (e) alternatively, their short tenor meant they could be held to maturity at which point Westpac received cash. 304 In the relevant period, STIRR's funding objectives were a sub-set of Group Treasury's objectives to fund Westpac. Ms Sophie Johnston, an employee of Westpac and whose role I will expand upon in a moment, said that she was aware of Westpac's weekly, monthly and longer term funding objectives from the following sources: (a) the weekly Group Treasury funding meetings, at which members of Group Treasury would discuss the overall funding outlook for Westpac, along with updates on the balance sheet forecast and discussions about proposed issuances, performance in various funding markets and liquidity generally; (b) the Weekly Maturity Forecast report; and (c) informal meetings with the Group Treasurer and more senior Group Treasury staff.

The Cash Desk 305 The Cash Desk managed Westpac's intra-day liquidity and daily cash position. It monitored Westpac's daily cash flows, ensured there was sufficient cash to meet outgoing payments throughout the day and was responsible for ensuring that Westpac's AUD cash balance in its exchange settlement account (ESA) with the RBA each day was not short, but also that the position was not overly long. The Cash Desk would try to minimise the surplus cash in the ESA as those funds received interest at a rate 25 basis points under the RBA target cash rate. In practice, Westpac's ESA at the end of each day was generally positive. 306 It was difficult to predict Westpac's intra-day cash flows due to unexpected or unknown transactions. Westpac's officers on the Cash Desk would monitor the cash position and keep track of forecast known movements and other flows as advised by Group Treasury or the wider Bank as information became available. In particular, the Cash Desk would seek to identify the known cash position at the commencement of each day and then during the course of the day, estimate the cash position by updating the original cash position with new cash flows that it became aware of. At the end of the day, the Cash Desk would be able to identify Westpac's exact cash position, which would differ (sometimes significantly) from the running estimate during the day. The next morning, the Cash Desk would reconcile the difference between the estimated and actual cash position from the prior day. At the beginning of each day, the estimated cash position would have moved as a result of movements in global markets overnight, Westpac's activities in overseas jurisdictions, customer transactions and asset maturities. Westpac's estimated cash position was separate to any amount in Westpac's ESA. 307 The Cash Desk was responsible for funding shortages in the daily cash position as they arose, without holding excess amounts of cash. The Cash Desk would generally do this by borrowing cash in the overnight market from other banks at the cash rate, or through overnight FX forwards that relevantly converted the currency of Westpac's cash. 308 The key functions of the Cash Desk included managing Westpac's intra-day liquidity by ensuring cash was ready at hand to be deployed by Westpac, and ensuring the ESA was funded each day. To carry out these functions in the relevant period, the Cash Desk would: (a) enter into intra-day repurchase agreements ("repos") with the RBA as part of the RBA's "standing facilities"; (b) enter into overnight AUD/USD FX forwards to exchange USD cash for AUD cash; (c) enter into bilateral cash loans with other banks; (d) enter into overnight repos with other market participants (although the market did not trade in this way for all of the relevant period); and (e) frequently discuss the Bank's cash position with STIRR and other portfolios of Group Treasury in order to identify the best source of short term funding or the best way to invest cash (as required each day). For example, if the Cash Desk was low on cash and funds needed to be raised: (i) the trader in STIRR could issue or sell Prime Bank Bills to raise funds; (ii) the trader in STIRR could enter into a repo agreement with the RBA; or (iii) the trader on the IMM desk could convert USD funds raised offshore into AUD through short to long term FX forwards or cross-currency swaps in order to add AUD cash to the position. 309 While the Cash Desk worked closely with other portfolios in Group Treasury on short end funding and liquidity management, it was ultimately the Cash Desk's responsibility to ensure that Westpac had adequate funding each day to meet its obligations. The traders in the STIRR portfolio would rely on the Cash Desk to manage intra-day cash flows, and to square the cash position at the end of each day having regard to any trading conducted by STIRR that impacted that position.

(e) Personnel within Portfolio Risk Management 310 I have already mentioned Mr Zuber, the Westpac Group Treasurer. Mr Zuber did not trade Bank Bills in the Bank Bills Market. There are other individuals within Group Treasury who need to be identified in order to properly understand the evidence adduced by ASIC. I will focus on a few major personalities, noting that several officers within Group Treasury represented Westpac on AFMA committees before, during and after the relevant period.

Mr Colin Roden 311 Mr Roden held the position of Executive Director of PRM from at least the start of the relevant period until 31 December 2010. He was then Managing Director of PRM until the end of the relevant period. Mr Roden had oversight of the PRM books and day-to-day responsibility for managing the short term interest rate risk that sat within STIRR. During the relevant period, Mr Roden reported generally to Ms Dawson, Managing Director of PRM. While Ms Dawson was on maternity leave for some of the relevant period, he reported directly to Mr Zuber. 312 In addition to his responsibilities within PRM, Mr Roden represented Group Treasury on a number of internal Westpac committees, including the ALCO. Further, he has represented Westpac on a number of AFMA committees. Mr Roden attended meetings of AFMA's Negotiable/Transferable Instruments Committee (NTI Committee) as a member (10 March 2009, 3 June 2009 and 1 December 2009), and as an alternative (10 May 2011 and 2 February 2012). He attended a meeting of AFMA's BBSW Committee on 13 March 2009 as a member. He attended a meeting of AFMA's MGC on 8 June 2012. 313 During the relevant period, Mr Zuber had a large number of conversations on a regular basis with the STIRR team and, in particular, with Mr Roden. Mr Zuber frequently expressed his directive to Mr Roden to increase Westpac's holding of liquid assets, including short-dated liquid assets. However he gave Mr Roden the authority to decide the timing of when those assets should be bought, the nature of those assets and the strategy for holding them. In essence, Mr Roden's task was to manage the acquisition and management of Westpac's Prime Bank Bill portfolio as efficiently as possible, recognising that the holding of liquid assets invariably came at a cost. Mr Roden had discretion as to what days he sold or issued Prime Bank Bills or purchased Prime Bank Bills

Ms Sophie Johnston 314 Ms Johnston held the position of Associate in PRM from at least the start of the relevant period until 31 December 2010 and was then Senior Associate in PRM until the end of the relevant period. Ms Johnston assisted with Westpac's management of STIRR's book within PRM. 315 Ms Johnston worked on the Cash Desk from around October 2008 to July 2009. From about July 2009, while she was still on the Cash Desk, she began to get more closely involved in the funding activities conducted by STIRR. By August 2009 when she formally moved to the STIRR Desk, she had been transitioning into STIRR by assisting on each desk. She was assigned to the STIRR Desk from around August 2009 to around March 2011. When she joined the desk, she reported to Mr Roden. During that time, she did not trade Prime Bank Bills on all days and was away for periods of time. For example, she was in London in around March and April 2010 for about six weeks to provide cover for another Group Treasury officer, Mr Satruhan (Zac) Sharma. 316 Initially, Ms Johnston's role on the STIRR Desk involved: (a) assisting in the funding requirements conducted by the STIRR Desk communicated from Financial Markets; (b) assisting in the trading conducted by the STIRR Desk in Prime Bank Bills, and in particular, trading in 1 month Prime Bank Bills; (c) assisting in the funding conducted by the STIRR Desk in the RBA's daily open market operations; (d) participating in discussions concerning the management of the Bank's short term liquid asset portfolio and short term funding through the Bank Bill Market; (e) monitoring counterparty credit limits and inventory management; (f) tasks relating to Westpac's position as an AFMA panel bank, such as providing Westpac's BBSW submissions to AFMA; and (g) undertaking the administration associated with the settlement of Prime Bank Bill transactions, including the logistics involved in booking and settling the trades that occurred in the BBSW Rate Set Window. 317 By 2010, her responsibilities expanded to include, from time to time, trading in the other tenors of Prime Bank Bills and making decisions about short end funding with other members of Group Treasury in Mr Roden's absence. She also assisted Mr Roden with hedging and managing STIRR's interest rate risk. 318 She stopped working on the STIRR Desk in around March 2011 and moved to the Liquids desk. She subsequently returned to working on the STIRR desk in around September 2012. 319 Ms Johnston represented Westpac on AFMA's NTI Committee as a member (25 February 2010), as deputy chairperson (26 May 2010), and as chairperson (26 August 2010, 25 November 2010, 8 February 2011, 19 August 2011 and 10 May 2012). She also attended meetings of AFMA's BBSW Committee as a representative of the NTI Committee (26 May 2010) and as a member (30 November 2010, 10 February 2011, 2 September 2011, 15 November 2011, 20 March 2012 and 30 May 2012).

Other personnel 320 Other relevant personnel within PRM included: (a) Ms Joanne Dawson - Managing Director (with the exception of two periods when she was on leave in 2010 from 24 May 2010 to 13 August 2010 and in 2012 from 27 February 2012 to 18 May 2012). Ms Dawson attended a meeting of AFMA's NTI Committee on 8 November 2011. She was also a member of AFMA's MGC and attended its meetings on 11 December 2009, 12 March 2010, 15 December 2010, 4 March 2011, 9 September 2011, 9 December 2011 and 24 February 2012. She did not give evidence for Westpac. (b) Mr Daniel Park - Director from at least the start of the relevant period until 31 December 2010, then Executive Director until the end of the relevant period. Mr Park was involved from time to time in managing the IMM book. In addition, Mr Park attended a meeting of AFMA's MGC on 31 August 2012. (c) Mr Zac Sharma - Associate Director. Mr Sharma was involved from time to time in managing PRM's Foreign Exchange book. He is presently Executive Director, Group Treasury. (d) Mr Patrick Stokes - Associate Director. Mr Stokes was involved from time to time in managing Group Treasury's ALM book. He traded Prime Bank Bills on the STIRR Desk during the period October 2002 to mid-2005. He is presently Director, Group Treasury. (e) Mr Bryan Duignan - Senior Associate from the start of the relevant period until 3 May 2012, then Associate Director until the end of the relevant period. Mr Duignan assisted from time to time with the management of the FX and IMM books. He is presently Executive Director, Markets, Risk and Liquidity, Group Treasury. (f) Mr William Hosie - Associate from around October 2010 until the end of the relevant period. He is presently Director, Markets, Risk and Liquidity, Group Treasury. (g) Mr Richard Conway - an interest swaps trader within Financial Markets from around January 2006 to April 2010. On 19 April 2010 he moved to Group Treasury and worked on the LTIRR desk. He is presently Director, Markets, Risk and Liquidity, Group Treasury. 321 A number of employees and officers in STIRR, including Ms Johnston and Mr Hosie reported from time to time to Mr Roden and other employees and officers in Group Treasury during the relevant period. A number of employees and officers in PRM more generally, including Mr Sharma, Mr Stokes and Mr Duignan, also reported to Mr Roden from time to time during the relevant period.

Performance of divisions and remuneration of personnel 322 Group Treasury had an earnings target and there was a general expectation that Group Treasury would seek to make a profit. PRM was the only division in Group Treasury that had a profit/loss statement in the relevant period, and both PRM and ALM had profit targets. 323 Further, during the relevant period, Group Treasury officers had performance frameworks including financial objectives and non-financial objectives. Remuneration for Group Treasury officers included fixed pay and variable components. Mr Zuber had primary responsibility for allocating performance-based payments within Group Treasury. He considered an individual's contribution to the overall effective operation of the Group Treasury function and its contribution to Westpac's broader financial success. 324 With respect to Mr Roden in particular, Group Treasury's financial performance over the preceding 12 months was a factor taken into account in relation to the assessment of performance and the level of any variable incentive remuneration. The bonus system allowed Westpac employees to receive substantial performance payments. 325 The operation of remuneration policies is relevant because ASIC has submitted that financial incentives payable to bank officers, particularly Mr Roden, were a relevant influencing factor on their trading behaviour. I would agree with that submission in the generality with which it has been put, but at the end of the day I do not consider that it takes the matter far. No doubt he had an incentive to trade profitably, but that is not saying much. I will return to this question later.

Staff training 326 Group Treasury employees undertook training, including training offered by AFMA in the form of the Diploma of Financial Services. In addition, STIRR employees learned about trading in Prime Bank Bills on the job from more experienced employees, including Mr Roden.

(f) Conduct policies 327 Appropriately for an institution of its size, Westpac established and maintained a number of policies and procedures at different levels within the business during the relevant period. These included: (a) Westpac's Code of Conduct, which applied to all Westpac Group employees and contractors and was supported by the Board; (b) Westpac's Risk Governance Framework, which applied equally to Westpac and its subsidiaries; (c) the Dealing Room Policies for Trade Risk: Market Risk Management; (d) the Dealing Room Policies for Risk in Financial Markets and Treasury; (e) the Management Frameworks for Market Risk; (f) the Management Frameworks for Liquidity Risk; (g) the Trading Book Policy Statement; (h) the Interest Rate Risk in the Banking Book - Summary of Key Methodologies; (i) the WIB Chinese Walls and Physical Access Controls; and (j) the Conflicts of Interest Policy. 328 As part of Westpac's Code of Conduct (versions dated 10 December 2009 and 10 August 2011), Westpac required all staff to: (a) abide by and comply with Westpac's conduct policies; (b) act with honesty and integrity; (c) respect and comply with all relevant laws and regulations; (d) notify superiors or compliance representatives as soon as possible of any breach of the law or any Westpac policy by any colleagues; (e) respect confidentiality and not misuse information; (f) only use Westpac property, including information technology resources, for proper purposes; (g) take responsibility and be accountable for the decisions made in performing duties; (h) maintain and improve the skills, knowledge and competencies required for the position; (i) consider the broader impact of decisions on customers and the community; and (j) act fairly and reasonably towards customers and potential customers in a consistent and ethical manner. 329 Professor René M Stulz, an expert called by Westpac, described in some detail the structure of Westpac's governance framework, which evidence was not challenged by ASIC. Professor Stulz is the Everett D. Reese Chair in Money and Banking at The Ohio State University, where he is also Director of the Dice Center for Research in Financial Economics. He completed a PhD in economic at the Massachusetts Institute of Technology in 1980, and has published widely in finance and economic journals. He has taught risk management for a number of years to MBA students and to executives, consulted and advised regulatory bodies on issues of risk management and is responsible for a worldwide certification examination for risk managers. He has written a textbook on the topic of risk management and is a trustee of the Global Association of Risk Professionals. I found his evidence on the topic of risk management and regulation useful and reliable. What follows is a description of the framework and policies, based upon Professor Stulz's evidence and the documents in evidence. The effectiveness and operation of particular aspects of the framework or of the framework in general is something I will address later in these reasons.

General risk management - "three lines of defence" 330 During most of the relevant period, Westpac had a "Risk Governance Framework" in place that established "three lines of defence"; the relevant Risk Governance Framework documents applying were dated 30 April 2010, 28 April 2011 and 5 March 2012. Professor Stulz stated that such an approach was common in large financial institutions. It was introduced at Westpac early in 2010. 331 The first line of defence consisted of having each business unit identify, assess, and manage the risks it was exposed to in light of its pre-existing risk limits and policies. Each division was responsible for ensuring it had sufficient resources to effectively monitor its risk and ensure it complied with firm-wide and business-specific risk limits and policies. 332 The second line of defence was to have established risk management policies and frameworks for monitoring risk at the business level, operating in an independent fashion. In turn, it contained three layers: (a) The first layer contained executive risk committees comprised of both risk and business representatives, whose ultimate goal was to optimise the risk-reward relation for each relevant risk factor. They provided advice on the development of divisional risk appetite statements, risk management frameworks, limits, and policies, and monitored the levels of risk of the businesses to guarantee that they were aligned with existing risk appetite limits and policies. At Westpac these committees included the Operational Risk & Compliance Committee (OPCO), CREDCO, MARCO and ALCO. As already described, ALCO was responsible for overseeing Westpac's funding and liquidity risk. (b) The second layer consisted of a "Group Risk" function, independent of the business side of the bank and reporting directly to Westpac's Chief Risk Officer (CRO). The CRO reported to the CEO and had direct access to the chairs of the Board and of the BRMC. At Westpac, key responsibilities of Group Risk were centred around the development and maintenance of (1) group-wide risk management frameworks, policies, models, and procedures, and (2) group-wide risk estimates and risk capital models. Group Risk was also responsible for monitoring the quality of the risk management information provided to senior executives and Board members. (c) The third layer consisted of the specific risk units of each business division, which were independent of the business and reported directly to the CRO. They were responsible for developing the relevant risk management policies, procedures, monitoring and reporting systems, and controls at the business division level, in line with Westpac's general Risk Appetite Statement (RAS), divisional RASs and the wider risk management framework. 333 The third line of defence contained internal and external auditors and advisors, who provided an independent assessment of Westpac's risk management framework, policies, procedures, and controls.

Operation of the "risk appetite statement" in Group Treasury 334 As noted above, a number of the compliance policies formulated by WIB were applied to the Group Treasury division, despite Group Treasury being an independent division of the Bank. 335 As part of the second line of defence described above, each divisional risk area was responsible for developing specific divisional RASs, policies, controls, procedures and monitoring and reporting capabilities. These were to align to the general RAS issued by the Board and the specific risk management frameworks approved by the BRMC. 336 Over the relevant period, WIB was governed by a RAS that was updated yearly and that also applied to Group Treasury. The design of WIB's RAS incorporated WIB-specific factors. For example, it aimed to account for WIB needing to be an attractive option for Westpac to invest capital and funding. WIB's risk appetite was proportionally higher than Westpac's overall appetite, reflecting the inherently higher volatility of its institutional banking business compared to retail banking. 337 WIB's RASs dated August 2010, August 2011 and April 2012 record in relation to compliance and regulatory risk that Westpac: (a) operated within a culture of compliance based on the proactive management of identified and potential risks; (b) aimed to meet both the letter and spirit of legal regulatory measures; (c) had zero tolerance for intentional regulatory breaches; (d) would notify the regulator where a material regulatory breach was identified; and (e) was required to have in place compliance plans, setting out obligations and controls, for each business area, which were to be regularly monitored. 338 WIB's RAS discussed the key strategic risks facing the institution and the division across different areas: regulatory, business, country, and people risk. It then identified the most important dimensions of risk and the limits associated with each of them. Beyond that, the RAS laid out specific risk appetite parameters across different dimensions: rate of return, core and non-core activities, volatility of results, credit and concentration risk, equity risk, market risk, liquidity risk, operational risk, regulatory risk, reputational risk, sustainability, and capabilities. 339 Certain limits discussed within the RAS are relevant to the present case. The Operational Risk and Regulatory and Compliance Risk sections established zero tolerance for regulatory breaches and compliance plans that were not approved or monitored. WIB's RAS also included liquidity metrics, and the requirement that WIB monitor its liquidity gap position under short-term stress scenarios. The latter required analysis of maturity mismatches between WIB's loans and deposits as well as a detailed understanding of all potential contingent liquidity requirements. WIB's RAS also served as a cornerstone to the "Market Risk Framework" and "Liquidity Risk Framework" documents, which set out Westpac's approach to managing these risks in the context of its overall risk appetite and strategy. 340 During the trial, I was taken to the August 2010 and August 2011 WIB RASs and would make the following additional observations. In relation to the August 2010 WIB RAS: (a) It contained a dimension relating to liquidity risk and established liquidity metrics relating to target deposits to loan ratio, total committed and uncommitted lines, and liquidity gap positions in short-term stress scenarios. (b) It contained a further dimension relating to operational risk, which set out that WIB had "zero tolerance" for breaches of Westpac's Code of Conduct. 341 The August 2011 WIB RAS went into further depth in relation to operational risk, with subsections addressing, inter-alia: (a) operational risk capital; (b) operational risk related loss incidents and non-lending losses; (c) operational risk profiles and risk maps; (d) internal and external fraud; (e) audit and credit risk review issues; and (f) risk relating to the development and use of modelling.

Operation of the "compliance plan" within Group Treasury 342 Westpac's Risk Governance Framework required all staff in the business unit "originating" a risk to: (a) retain primary accountability and responsibility for the risks accepted and their on-going management; (b) establish effective risk controls appropriate to their business that met risk management framework requirements for the relevant risk-stream and also satisfied relevant regulatory and legislative obligations; and (c) identify existing or emerging gaps in, or concerns with, risk management policies or controls. 343 As part of the risk management requirements at the divisional level, Westpac established the WIB Compliance Committee, with jurisdiction over all WIB operations and also Group Treasury. It was comprised primarily of officers from WIB's Executive and its senior management. 344 In line with Westpac's requirement that each business division maintain a compliance plan describing existing obligations and controls, WIB had its own "WIB Compliance Manual", and sub-divisions within WIB had their own compliance plans. The WIB Compliance Committee reviewed and endorsed these compliance plans, as well as monitoring new business approvals, dealing with breaches of compliance policies, reporting to OPCO, adequately resourcing compliance, overseeing training programs, and reviewing compliance effectiveness. 345 The WIB Compliance Manual from 2009 established non-negotiable policies on legal and regulatory compliance. Although WIB Compliance (a "section" of relevant individuals) was the owner of this manual, it worked with WIB's business units to ensure that these policies functioned across the various environments and units. Further, the Manual established clear requirements within WIB to determine the facts of any breach, report it to the WIB Compliance Committee, and advise on any appropriate action. 346 In relation to the individual compliance plans of sub-divisions within WIB, business unit supervisors were selected to take responsibility for compliance in relation to specific products and to meet reporting obligations, and their performance in connection with the compliance plan was regularly assessed. Accordingly, Group Treasury had its own compliance plan, and, within Group Treasury, the various sub-divisions had a compliance plan(s). According to the "ALM and PRM Compliance Plan", specific employees were responsible for developing, maintaining, and implementing their designated sections of the plan, especially the detailed processes to ensure conformity with compliance procedures. This plan was divided into 20 subcategories of functions, each with a distinct set of corresponding obligations and responsible employees. For each of the respective functions, the ALM and PRM Compliance Plan outlined relevant goals, risks associated with these goals, procedures by which to meet these goals, and frequency of monitoring depending on associated risk. 347 The ALM and PRM Compliance Plan also described the compliance duties associated with each of these functions, as well as the procedures and monitoring tasks that were required to meet those obligations. The obligations were ranked according to risk, which was determined based on, among other things, "the seriousness and frequency of any reported breaches, the results of compliance monitoring and internal audit reviews, changes in compliance obligations, and any changes in business." High risks were assessed quarterly; medium risks were assessed bi-annually; and low risks were assessed annually. Westpac required the reporting of potential or actual compliance breaches immediately to the WIB Compliance Committee. 348 Market misconduct was one subcategory of the ALM and PRM Compliance Plan. The plan classified risks as high, medium, or low, requiring self-assessment quarterly, bi-annually, or annually, respectively. Incidents involving market misconduct were high risks and required quarterly reporting to the Compliance Officer. Monitoring for market misconduct involved multiple parties and steps. WIB Compliance checked personal dealing records and conflicts of interest databases to determine non-compliance and to check whether there were any staff trading securities in their personal accounts that PRM also traded. Moreover, there were processes in place to alert for delays in the processing of orders or suspicious incidents that might suggest market misconduct and to ensure that such concerns were reported to WIB Compliance. 349 Now I was taken to a version of the ALM and PRM Compliance Plan dated 10 May 2010 and would note the following matters: (a) The plan contained categories of compliance procedures relating to "Conflicts of interest / Insider trading" as well as "Market misconduct". Both of these categories were classed as "High" risk. (b) The plan also contained categories relating to "Reporting breaches" and "AFMA Code of Ethics/Code of Conduct". The latter referred to "[r]ecording of phone calls and instant messaging" as one of its procedures. 350 Additionally, many employees in ALM and PRM were required to participate in a continuing education program of compliance courses for a set amount of hours. Apparently Westpac also provided some training around insider trading and market manipulation. 351 Westpac's "Dealing Room Policies for Trade Risk: Market Risk Management" provided further guidance on policy and practice for staff in Financial Markets and Group Treasury. The policy applied broadly to all areas of Westpac involved in the management of traded and non-traded risk. This included relevantly PRM and ALM. All staff bound by this policy were required to communicate to either the Head of Market Risk or the Senior Compliance Manager Financial Markets, any communication, conversation or market rumour (whether official or unofficial) with an external party where concern was expressed about Westpac's dealing room activities. It stated: Any communication, conversation, market rumour, etc - official or unofficial - with an external party where concern is expressed about Westpac's dealing behaviour, transactional volumes, exposures, pricing, creditworthiness, etc must be communicated to either the Head of Market Risk or the Senior Compliance Manager, Financial Markets (FM) who will then, after informing the Managing Director, Debt Markets / Managing Director FX, Commodities, Carbon & Energy / Managing Director Equities / Group Treasurer (as appropriate) and Stakeholder Communications, independently investigate and report the matter to the Trading Risk Committee (TRC) or the Banking Book Risk Committee (BBRC) (as appropriate) and communicate any concern(s) / issue(s) to the Chief Risk Officer.

FUNDING AND LIQUIDITY ACTIVITIES 352 I have set out the structure of Westpac and particularly Group Treasury, the relevant personnel, and the reporting processes that were in place. That static picture is useful so far as it goes, but it is necessary to also understand the dynamics of Westpac's funding and liquidity activities and how Group Treasury operated on a day-to-day basis during the relevant period. 353 The key sources of funding for Westpac were (and remain) deposits from customers, and the issuance of debt across the spectrum from short term (overnight to twelve months) to long term (up to 30 years), both in domestic and offshore markets. 354 For every dollar lent by Westpac, approximately 70 cents was funded from deposits and approximately 30 cents had to be raised from wholesale funding markets. As a result, Westpac was heavily reliant on wholesale funding raised from both domestic markets and offshore. The funding team in Group Treasury funded the gap between loans and customer deposits. However, Westpac's funding profile had to be consistent with its funding risk appetite. 355 During the relevant period, short term domestic funding was executed directly by the STIRR Desk, primarily in the Bank Bill Market. For funding longer than twelve months, the funding team (that is the Global Funding and Liquidity Desk) handled those processes. Short term offshore funding was handled by the IMM Desk.

(a) External pressures on funding and liquidity (2007 to 2009) 356 Mr Zuber gave evidence regarding the following matters that influenced his strategic decisions regarding Westpac's funding. From around 2007, he was particularly focused on financial pressures affecting world markets and, in particular, funding issues. He was eager where possible to build Westpac's holding of liquid or liquefiable assets due to external factors affecting global funding markets including the collapses of Bear Stearns in March 2007 and Lehman Brothers in September 2008, the onset of the Global Financial Crisis (GFC) and the extreme volatility in financial markets globally. 357 Additionally, on 1 December 2008 Westpac acquired St George Bank, which was also heavily reliant on raising wholesale funding in both domestic and offshore markets. After Westpac acquired St George, it went from being the fourth largest bank in Australia to the second largest. 358 In response to the contraction in global funding markets and concerns in relation to their stability, a number of countries across Europe and the US announced government guarantees to support debt issuance by their banks. That step caused a structural imbalance between offshore banks with the benefit of a government guarantee and those that did not have such a guarantee. This could conceivably have reduced the attractiveness of Australian banks from an investment perspective. In response, the Australian Government announced a guarantee for Australian deposit-taking institutions in around October 2008, which remained in place until around March 2010 (the Government Guarantee). 359 In 2009, the persisting effects of the GFC on financial markets were compounded by the European sovereign debt crisis. There was widely reported market concern that the fiscal positions and debt levels of a number of European countries were unsustainable and by May 2010, Greece required Eurozone assistance.

(b) Lessons from global financial instability and their effect on Group Treasury activities 360 In 2009, partly in response to the difficulties it along with most other financial institutions had been experiencing in obtaining appropriate funding as a result of the issues outlined above, Westpac remained heavily focused on strengthening its liquidity position and building a robust balance sheet that would assist in carrying it through any future funding crisis or difficulty. To that end, it was a core focus of Mr Zuber as Group Treasurer to build Westpac's liquidity profile so that Westpac could withstand any future funding constraints. The ability to demonstrate a strong liquid asset position was important to ensure that funding could be obtained and at a price that kept Westpac's cost of funding reasonable. Keeping its cost of funding low was particularly important to ensure that it remained competitive. 361 In the period 2007 to 2009, Mr Zuber observed the following general market trends concerning the availability of external funding for Australian trading banks from offshore investors: (a) an aversion to risk and a general reluctance to purchase bank bonds; (b) a concern about exposure to sub-prime mortgages and, in particular, bank exposure to those assets; (c) a view that liquidity was a key indicator of a bank's strength; and (d) given all the challenges in the US and Europe, the difficulty in convincing offshore investors that Australian banks were in a strong or stronger financial position. 362 By the end of 2009, it was Mr Zuber's belief that the Government Guarantee would not be extended or renewed and that Westpac would need to be in a position to satisfy its investors that it was strong and could handle global funding difficulties if they arose without the benefit of the Government Guarantee. To that end, he considered it imperative to ensure that Westpac had a range of surplus assets to liquidate if overseas or domestic markets became distressed or were no longer available so that it could continue to fund its business operations. In those circumstances, he wanted Group Treasury to invest in assets that could be liquified to fund Westpac's cash needs should a short-fall ever arise. 363 In 2007 to 2009, and then up to and including the relevant period, the liquid securities available to Group Treasury were predominantly: (a) securities issued by government and semi-government bodies (Government assets); (b) "repo-eligible" short-dated securities issued by banks, including Prime Bank Bills; or (c) "repo-eligible" long-dated securities issued by banks and residential mortgage backed securities (RMBS). 364 The market in Australia for short-dated Government assets at that time was not very deep, i.e. there was frequently insufficient liquidity, unlike, for example, in the US. In those circumstances, short term securities issued by other Prime Banks were the best option as such assets were liquid and "repo-eligible" with the RBA. 365 To qualify as a liquid asset, a security needed to be controlled by Group Treasury, not be part of any Financial Markets portfolio holding, and be eligible for "repo" with the RBA. Mr Zuber believed that Group Treasury needed to hold a diverse mix of liquid assets, from short term to long term, and from a range of different counterparties, in order to minimise counterparty credit risk and build diversity into the portfolio. Given its substantial business in AUD, the majority of its liquid assets were held in AUD. However, Westpac also held liquid assets in USD and NZD.

(c) Repo-eligible securities generally 366 In order to ensure that the assets it held were the most liquid, Westpac invested in "repo-eligible securities" which could be deposited on a short or long term basis with the RBA in return for cash under a repurchase agreement or "repo". Under a repurchase agreement, Westpac could sell a repo-eligible security to the RBA, and agree to repurchase that security at a future time and at an agreed price. 367 These types of repurchase agreements: (a) would be used from time to time but not on a daily basis. The RBA expected Westpac to manage its funds so as to not be constantly short of cash unless it was a time of crisis; and (b) were distinct from the intra-day standing facility between Westpac and the RBA, through which Westpac could borrow and lend funds to the RBA at the cash rate throughout the day. 368 In the relevant period, "repo-eligible" securities included Government assets, AAA rated RMBS, Prime Bank Bills, and other longer dated securities from Prime Banks (as defined eligible by the RBA). All of these securities could be deposited with the RBA in return for cash during a crisis. 369 Repo-eligible assets permitted Westpac almost immediately to raise funds in the event that funding markets closed or became temporarily constrained. However, it was almost always the case that Westpac would have to pay more than the cash rate for those funds. For that reason, Mr Zuber did not consider that repo arrangements were a viable mechanism to manage daily fluctuations in Westpac's cash position. However, holding a large amount of repo-eligible assets did provide it with a secure buffer that it could use to fund in the event of some need or a funding crisis. 370 I would note that there were several types of repo agreements available: (a) Intra-day agreements where Westpac would sell an eligible security to the RBA and receive the current market value of the security in cash, and later on the same day repurchase the same security and pay the same market value (plus applicable transaction costs set by the RBA). (b) Daily open market operations, where participants submitted blind bids to the RBA for cash that it then lent to successful bidders (i.e. those who had submitted the highest yields). If successful, Westpac would sell a repo-eligible security to the RBA and receive the current market value of the security, and upon maturity, repurchase the same security and pay an interest rate that reflected its successful bid. (c) Overnight facilities for when it was unable to unwind an intra-day repo transaction with the RBA or unable to fund its ESA that day. This was an emergency facility, as any assets repurchased carried an interest rate fixed 25 points above the cash rate.

(d) Costs of holding liquid assets 371 Throughout the relevant period, Westpac's holdings of liquid assets were considered as an insurance policy for any future funding crisis. An important part of that insurance policy was that liquid assets were held across all maturities, from the short term to long term. There was a material cost to holding liquid assets in that assets with a short term that could be liquidated quickly generally had a less advantageous rate of return to longer dated and less liquid assets. Westpac could achieve better rates of return than in Prime Bank Bills in a range of ways. For instance, investing in a three year floating rate note, issued at 120 basis points above BBSW rather than in 1 and 3 month Prime Bank Bills, which had a return that was likely to be close to where BBSW set. Alternatively, the funds used to invest in Prime Bank Bills in order to build and maintain Westpac's portfolio of liquid assets could be deployed in its lending business. If funds were lent to customers, Westpac would generate, on average, a return of at least 200 basis points above BBSW, being the net interest margin on those funds. However, given Westpac's objective to build its buffer of liquid assets (including short dated liquid assets) it was prepared to pay a price for greater security and flexibility in the event of future funding difficulties. 372 While holding liquid assets was costly, those assets could be held and then sold to provide necessary cash at short notice if required. The cost of holding liquid assets was balanced against the key benefits of Westpac being able to manage its funding position flexibly in response to changing market conditions, and it being more likely to project an image of strength to the market. If the market perceived Westpac to be strong (due to its large holdings of liquid assets), it was likely to find it easier to obtain wholesale funding, which in turn made it less likely that it would need to use its liquid assets. 373 By holding a buffer of liquid assets, if another financial crisis occurred, Westpac could look at its funding profile and identify cash that would be returning to Westpac in the next one to three months as a result of upcoming maturities of those assets or cash that Westpac could raise through liquidating its assets, either through commercial counterparties or, if necessary, through a repurchase agreement with the RBA. 374 In the relevant period, following the period from 2007 to 2009, all members of Group Treasury were consistently told by Mr Zuber that funding Westpac and building its holdings of liquid assets were the paramount objectives of trading activity. This message was conveyed in conversations that occurred almost daily with members of Group Treasury and more formal meetings (which were held at least weekly) to discuss funding and risk management. At these funding meetings, Group Treasury officers discussed matters such as upcoming issuances (both long and short term), how the business' balance sheets were performing, and highlighting the forecasted net cash needs of various divisions as loans were typically growing faster than deposits.

(e) The Bank Bill Market as a source of funding 375 Witnesses for Westpac gave evidence that from a funding and liquidity management perspective, the Bank Bill Market had a number of characteristics that made it an attractive source of short term funding. In relation to the relevant period, Ms Johnston gave evidence of the following matters: (a) The domestic Bank Bill Market was generally very liquid and frequently (although not always) provided willing acquirers of Prime Bank Bills at attractive yields for short term issuance. (b) Westpac had a vested interest in ensuring the Bank Bill Market remained liquid both because it was a primary source of funding (often at a relatively low cost) and because it also used the market for part of its portfolio of liquid assets. (c) Raising some of its funds over shorter periods of time was a useful way to ensure that it was not paying excess amounts of interest for money that it did not yet need to employ in the business. (d) Raising short term funds in the Bank Bill Market was a useful way of funding a short cash position in the lead up to a planned long term funding deal. This would often give the Global Funding team, who were responsible for the long term funding of the Bank, flexibility around the timing of their issuance. (e) Raising short term funds was useful generally when looking to fund a short term funding gap, without unnecessarily resorting to long term funding which was more costly. (f) Given the regular large fluctuations in Westpac's balance sheet caused by cash flows unrelated to Group Treasury, such as corporate customers withdrawing or depositing cash, or an increase in mortgages and term deposits, trading in the Bank Bill Market was useful to manage these changes in the cash position. STIRR could issue NCDs relatively quickly if needed to raise cash, and if the cash position reversed for some unforeseen reason, STIRR could potentially buy Prime Bank Bills to avoid holding excess cash which was not required. In this way, the Bank Bill Market could be used to deal with daily known or unknown fluctuations in the cash position, as opposed to issuance in other markets which was often for a longer term, generally more costly and could not be reversed (such as a five year bond that could not be bought back after it had issued if the cash raised was no longer needed). 376 Ms Johnston considered that the Bank Bill Market had advantages over other potential sources of funding including: (a) funding from customer deposits with Westpac, which could not be controlled in a precise or timely manner (as compared to NCD issuance in the Bank Bill Market); (b) long term funding, such as bonds, which did not provide the same degree of short term flexibility as NCDs in the Bank Bill Market and took a longer period of time to plan and execute compared to trading each day in the Bank Bill Market; and (c) US short term funding (which usually had a one year term) which could not be reversed by buying back the securities issued; as such, Westpac could not move in and out of its US funding positions as it could in the Bank Bill Market.

(f) Annual funding plans and formal funding documents 377 Westpac developed and circulated annual funding plans, which were subject to committee oversight, particularly by the ALCO, and endorsement by the Board. As Group Treasurer, Mr Zuber oversaw the preparation of Westpac's annual funding plans, which outlined its annual projected funding mix. The annual funding plan was commonly refined over time, as funding conditions onshore and offshore changed throughout the year. Westpac provided the following funding plans: (a) Westpac's funding plan for 2010, contained in a letter from Mr Zuber to Mr Michael Ryan of APRA dated 17 December 2009 (APRA letter); (b) Westpac's funding plan for 2011, contained in a memorandum to the Westpac Group Asset & Liability Committee dated 27 September 2010 (2011 Funding Plan); and (c) Westpac's funding plan for 2012, contained in a memorandum to the Westpac Group Asset & Liability Committee dated 22 September 2011. 378 These funding documents recorded Mr Zuber's concerns regarding the uncertain global economic conditions, and the priorities for Group Treasury in maintaining access to wholesale funding and building Westpac's liquid asset holdings in the relevant period. 379 For example, page 1 of the APRA letter stated: Executive Summary One of the most important learnings from the recent Global Financial Crisis is the importance of having a strong stable source of funding. This has necessitated a change in strategy where we have shifted our focus from asset growth as the key driver to now: … 3. Increasing the quantum of our repo eligible liquid asset portfolio. 380 Page 3 stated: Adverse credit and capital market conditions If, because of adverse conditions, Westpac is unable to source appropriate funding, our first line of defence would be to liquidate a portion of our liquid asset portfolio and reduce our customer lending. 381 Page 4 stated: A systemic shock in global financial systems In the current uncertain global economic environment, there is a risk that another major systemic shock could occur that causes a further adverse impact on the Australian, New Zealand or global financial systems. Such an event could have a material adverse effect on financial institutions such as Westpac, including the undermining of confidence in the financial systems, reducing liquidity and impairing access to funding. The nature and consequences of any such event are difficult to predict, however, from our experience of the GFC, we expect our diverse sources of funding to provide access to wholesale funds, albeit at a much higher cost. In addition, our repo eligible liquidity buffer which has increased from $15bn to $80bn as insurance should access to wholesale markets become impaired. 382 Page 4 also referred to the impact of regulatory changes on holdings of liquid assets: Further regulatory changes occur that necessitate changes to our funding and liquid asset positions - APS 210 The proposed revisions to APS210 [an APRA prudential standard] are currently suggesting that we will need to significantly increase our holdings of liquid assets. 383 Page 2 of the 2011 Funding Plan stated: The availability of offshore markets is one of the biggest risks we face and represents a critical supply constraint … We rely on our liquid asset holdings to manage this risk. We hold sufficient liquid assets to absorb at least 6 months of offshore debt maturities. 384 The annual funding plans addressed all assets on Westpac's balance sheet. Prime Bank Bills were included in the category of domestic assets that were of less than twelve months duration. In addition to the annual funding plans, Mr Zuber also oversaw the preparation of: (a) monthly balance sheet reports that were sent to ALCO and discussed at meetings of that committee; and (b) the Weekly Maturity Forecast prepared by the Global Funding team in Group Treasury and circulated to the trading desks in Group Treasury. 385 During the relevant period Mr Zuber had conversations with members of Group Treasury responsible for executing Westpac's long and short term funding, as outlined in the various plans, reports, and forecasts. He also spoke with the traders on the STIRR Desk, who traded in the Bank Bill Market to fulfil Westpac's short term funding needs. Its short term funding needs did not need to be forecast as strictly as longer term deals as traders on the STIRR Desk could be flexible about when they raised funds by selling or issuing Prime Bank Bills.

(g) The Cash Position Report 386 In addition to high level plans like the said funding documents, Westpac monitored its cash funding and liquidity on a day-to-day and intra-day basis through a variety of reports. 387 Each morning a member of the Cash Desk prepared the Cash Position Report and circulated it by email to Group Treasury at approximately 9.00 am. This Cash Position Report was a snapshot, as at 9.00 am, of Westpac's expected cash position at the end of the day on the basis that there would be no other unexpected movements in cash. As such, the Cash Position Report gave no indication of how the cash position might change by the end of the day. It was an estimate of the position. 388 The Cash Position Report was split into AUD and USD and included the following information: (a) "Starting position" summary, showing whether the net position for cash in each of AUD and USD was long or short. This was seen as the starting estimate for that day's cash position, on the basis that flows would occur during the day and change this position; (b) a cash forecast table made up of AUD and USD cash forecasts from the date of the report to approximately five weeks in the future, showing the cash forecast positions each weekday during that period; (c) the previous day's cash position forecasts for both AUD and USD; and (d) an upcoming maturities table which showed upcoming AUD-denominated maturities in various products for the following fortnight. 389 The email containing the Cash Position Report often included a summary of new and significant flows which had been identified or had occurred in the period since the previous report. From around September 2010, the Cash Position Report also included a small table recording the current and previous liquids positions which identified Westpac's total liquid asset holdings. 390 The Cash Position Report contained a number of assumptions and there were some items not accounted for in it. Relevant assumptions are set out below where I compare this report with the Weekly Maturity Forecast.

(h) Weekly Maturity Forecast 391 The Weekly Maturity Forecast was circulated by email ahead of the weekly funding meeting and was a summary of estimated and actual cash flows from Group Treasury and the wider balance sheet. It identified forecast asset and deposit growth, the upcoming maturities of Westpac's different funding programs, as well as proposed new funding over the coming month. It showed (in AUD): (a) balance sheet cash flows, actual and forecast, which related to growth (positive or negative) in assets (mortgages/business) and deposits (retail/business); for example, an increase in asset growth from mortgages would cause a cash outflow; (b) cash outflows, which related to long and short term funding maturities; (c) cash inflows, which related to long and short term issuance both domestically and offshore; (d) the net cash flow (being a shortfall or excess), the cumulative shortfall or excess and a cumulative cash position on a monthly basis; and (e) a summary of the outstanding issuances for various short term funding programmes (such as NCDs), and a high level breakdown of the liquid assets position. 392 The Weekly Maturity Forecast was also based on a number of assumptions. 393 The key differences between the Weekly Maturity Forecast and the Cash Position Report were the following: (a) The Cash Position Report was a short term view of the daily cash balance, while the Weekly Maturity Forecast had a longer term focus and formed the basis of many discussions around longer term funding strategies. (b) The Cash Position Report was a very conservative daily estimate that: (i) assumed only NCDs issued by Westpac to a non-interbank customer would roll over on maturity; (ii) assumed none of Westpac's short term USD issuances would roll over on maturity, causing the USD position to become shorter over time; and (iii) did not include potential long term issuances. (c) The Weekly Maturity Forecast encompassed a broader set of cash flows than the Cash Position Report by: (i) identifying and assuming that all (or a large portion of) outstanding short term issuances in AUD and USD would remain on issue, which resulted in more cash being available than the Cash Position Report assumed; (ii) identifying upcoming long term offshore issuances; and (iii) more generally, forecasting wider balance sheet flows.

(i) Liquidity risk management 394 During the relevant period Westpac operated under a "Liquidity Risk Management Framework", which was updated annually. This modelled Westpac's ability to fund under both normal conditions and during a crisis situation. At page 2 of that Framework dated February 2010, liquidity risk was defined as follows: Liquidity risk is the risk that the bank will be unable to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. Two generally accepted types of liquidity risk are (1) funding liquidity risk - the risk of not being able to meet efficiently both expected and unexpected current and future cash flow and collateral needs without affecting either daily operations or the financial condition of the bank and (2) market liquidity risk - the risk that the bank cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption. 395 At pages 3 and 4, Group Treasury's role in managing these risks was described as follows: [Page 3] Group Treasury is responsible for the aggregate management of Westpac's balance sheet incorporating funding, liquidity, and capital management. [Page 4] Group-wide liquidity management is the responsibility of the Group Treasurer under the oversight of the BRMC, ALCO and the Banking Book Risk Committee, with daily oversight from Market Risk Management … Group Treasury is responsible for monitoring the funding base of the Group and ensuring that this base is prudently maintained, adequately diversified and remains at all times within Group limits. 396 At page 6, liquid asset holdings and how Westpac used them to manage liquidity risk were described as follows: Westpac holds a portfolio of liquid assets as a buffer against unforeseen funding requirements. These assets are held either in cash, government, semi-government or highly rated investment grade paper which are eligible for repurchase with Central Banks (repurchase eligibility as defined by the RBA). The large majority of these assets are held domestically in Australia and New Zealand. Determination of holding levels takes account of the liquidity requirements of our balance sheet under "normal" and "stress" conditions. 397 Group Treasury was expected to manage the liquidity risks outlined above by investing in liquid assets. Traders on the STIRR Desk in particular were responsible for Westpac's investments in short dated liquid assets, while traders on other desks invested in longer dated liquid assets.

(j) Interest rate risk 398 It is convenient to deal with this topic comprehensively in a separate section of my reasons.

(k) Profit 399 In carrying out its core objectives, Group Treasury also aimed to be a profitable part of Westpac. As noted above, the performance of the division and of individual officers was a relevant factor in their remuneration. Group Treasury would attempt to manage Westpac's liquidity and interest rate risk in a way that optimised Westpac's financial position. Traders on each desk were expected to conduct their activities to achieve Group Treasury's core objectives of funding and liquidity management, and risk management, in the most profitable manner possible but within Westpac's limits for risk and other parameters. 400 One of the principal ways in which Group Treasury made money was to position Westpac's balance sheet to profit from, or at least reduce any adverse effect of, potential future movements in interest rates. Traders would have views on matters that might affect interest rates and would hedge the interest rate risk in their individual portfolios with derivative products in a way that would seek to maximise the benefit of any potential movements in the cash rate. Some of the most profitable outcomes occurred when traders in Group Treasury took a view against the prevailing market view as to potential interest rate movements. That often occurred in periods of market volatility, when various financial markets were uncertain as to the way in which interest rates would move.

MANAGEMENT OF NON-INTEREST RATE RISKS 401 Group Treasury had in place risk management policies in relation to the following relevant matters: market risk, liquidity risk, credit risk, and operational risk. It also had other risks such as interest rate risk, which it managed and which I will discuss separately.

(a) Market risk 402 The WIB RAS defined market risk as the "risk to earnings from changes in market factors such as foreign exchange rates, interest rates, commodity prices and equity prices". As part of managing market risks, the 2010 WIB RAS specified a Trading Book "Value at Risk" (VaR) limit of $65 million for all of the WIB, including Group Treasury. Additionally, there were two limits for the Banking Book managed by ALM: a VaR limit of $20 million and a Net Interest Income at Risk (NaR) limit of $160 million pre-tax. VaR is a widely used risk management tool for financial firms, and at the time it was accepted as a risk metric by regulators. During the relevant period Westpac also ran stress tests on a daily basis. The internal models used to quantify the VaR of market risk and any subsequent revisions were approved by APRA. 403 By April 2012, Westpac had developed market risk policies and specific risk limits that identified additional components of market risk and detailed "Trading versus Banking Book" position limits as well as distinct colour limits, with the "Red" limit being a "do not cross" limit and the "Amber" limit one that required attention if crossed. The 2012 WIB RAS contained procedures related to stress testing, profit and loss, and structured credit. For instance, the profit and loss provisions set for ALM and PRM detailed reporting procedures to senior management and the Board if single day profit/loss or cumulative 20-day profit or loss passed certain thresholds.

(b) Liquidity risk 404 Management of liquidity and its associated risks was relevant for an institution like Westpac that relied heavily on wholesale funding markets over the relevant period. The WIB RAS set forth the key provisions governing liquidity risk management and Westpac's procedures and controls, including specific limits, to manage liquidity risk. The 2010 RAS stated that WIB's liquidity and funding risks was managed by Group Treasury and overseen by the ALCO. The WIB RAS detailed multiple liquidity risk metrics and noted that additional measures or processes could be instituted based on that testing and related liquidity risk factors, such as maturity mismatches. The liquidity risk section of the RAS was updated over time. 405 More broadly, Westpac had "Liquidity Risk Management Framework" documents that set out the methodology used to measure and control liquidity risk. It specified that Westpac had to hold a portfolio of liquid assets as a buffer against unexpected funding obligations. This buffer included cash, government, semi-government or highly rated investment grade paper that could be used for repo financing with central banks. During the relevant period Westpac was required to hold liquid assets worth at least $20 billion by APRA. The BRMC set a buffer over this limit, and established a global "Red" limit of $25 billion in liquid assets in 2010 and 2011 and $40 billion in 2012. This had to be met at all times. Further, in 2012 ALCO set additional targets for asset holdings, with a goal of holding at a minimum $80 billion in liquid assets, of which at least $15 billion should be "high-quality".

(c) Credit risk 406 Westpac's internal policies considered credit risk a matter to be assessed and managed, being the risk of loss where a customer or counterparty failed to meet their obligations. These policies were outlined in Westpac documents. 407 Westpac actively monitored its credit portfolio to manage risk concentrations and assigned monthly risk limits per counterparty as part of its Issuer Risk Limits documents. In the context of Prime Bank Bills, there were limits to the exposure that Westpac could have to any one issuer. If such limits were reached, no additional Prime Bank Bills issued by that bank could be acquired by Westpac.

(d) Operational risk 408 During the relevant period and as I have indicated, Westpac maintained OPCO that was comprised of both business and risk representatives. OPCO was part of the second line of defence and reported directly to the CEO and to the BRMC. 409 As an executive risk committee, OPCO oversaw and advised on the development of divisional RASs, and on risk management frameworks, policies and controls. OPCO reviewed the "Operational Risk Management Framework" and its effectiveness, the "Reputation Risk Management Framework", the operational risk management policies, profiles and thresholds, and the results from stress testing. Additional responsibilities included approving changes to operational risk policies, analysing emerging operational and compliance risks, as well as regulatory issues, and trends, and overseeing multiple subcommittees which handled risk, for instance divisional OPCOs. These monitored the effectiveness of management's implementation of the operational risk management framework within their division and escalated outstanding matters to Group OPCO. 410 OPCO reviewed various key policies and reports, such as the "Operational Risk & Compliance Report", "Assurance Report", and the "Reputation Risk Report". OPCO also reviewed audit results, the Basel Committee Operational Risk documents, the annual letter of assurance to APRA and processes to ensure compliance with APRA prudential standards. Further, it reviewed Westpac's risk management framework to confirm that it aligned with the "Three Lines of Defence" model that I have previously referred to. It also updated the "Operational Risk Assurance Model" from time to time. 411 I was taken to a report by OPCO, the "Operational Risk Report" for the quarter ending 30 June 2012. It recorded in relation to the June 2012 fine against Barclays Bank of £290 million for manipulating LIBOR and the Euro Inter-bank Offered Rate (EURIBOR) that "The LIBOR event is currently being reviewed for any similarities and potential exposures in Australia in relation to the Bank Bill Swap Rate (BBSW)". Of course, LIBOR and EURIBOR were set differently, a matter to which I will return later. 412 WIB's RAS listed the following five policies to ensure an organised and speedy identification, reporting, and resolution of operational risks: (a) All incidents were to be reported within five business days. (b) All risks had to have a "key indicator" and a corresponding tolerance level. (c) Key indicators for each business line were to be identified, monitored, and reported. (d) Key indicators that were out of tolerance were to be mitigated or managed after one month, escalated after two months, and fully reviewed after three months. (e) Risks were to be monitored quarterly through the "WIB Operational Risk & Compliance Report". 413 WIB's RAS during the relevant period stated that Westpac had a "very low appetite" for operational losses and "zero tolerance" for individuals who committed any intentional breaches of the Code of Conduct. Similarly, Westpac enforced a zero tolerance policy for any intentional regulatory breaches. 414 Moreover, Westpac's RAS confirmed the expectation that staff at all levels had to receive access to ongoing training and development opportunities to ensure that they had the necessary qualifications. Westpac also had a Code of Conduct during the relevant period that applied to all employees and listed the key principles of conduct expected. The Code of Conduct required those who were aware of any breaches of law or internal policies throughout the course of their employment to notify a manager or team leader immediately. 415 Further, Westpac committed to abide by AFMA's Code of Ethics, according to Westpac's "Dealing Room Policies for Risk in Financial Markets and Treasury". The AFMA Code of Ethics required Westpac's employees to, inter-alia, abstain from conducting any type of trading that could affect the normal supply and demand for a financial product, had the potential to "create artificial markets or prices," or did not reflect "genuine trading or commercial intention." The AFMA Code of Ethics also required AFMA members to have policies and procedures regarding potential conflicts of interest with clients. Westpac's policies to address conflicts of interest included four main steps: "identifying the conflict of interest, assessing and evaluating the conflict, implementing an appropriate response, and keeping documentation and records." Any conflicts of interest deemed to be of more than the usual potential importance or significance were to be escalated to the Business Unit Conflicts Committee or the Group Conflicts & Ethics Committee. More broadly, the "Conflicts of Interest Policy" stated that customers were to be "treated fairly, honestly and efficiently," in line with Westpac's policies, procedures, and the law. I will return later in these reasons to discuss the question of conflict of interest in more detail in the context of the s 912A question. 416 At this point, let me also note some additional matters about the "Dealing Room Policies for Risk in Financial Markets and Treasury": (a) In addition to the regulatory requirement to abide by the AFMA Code of Ethics, dealers were also required to be aware of and understand relevant Westpac and WIB compliance documents and policies; (b) Dealers were to ensure that customers understood the products being offered to them by Westpac and whether the product was appropriate and suitable for their needs; and (c) Dealers were to ensure that customers were provided with sufficient information on a transaction to allow them to make an "informed and independent" decision about the deal. 417 Again, I will return later in these reasons to discuss Westpac's policies and procedures when dealing with ASIC's s 912A case.

MANAGEMENT OF INTEREST RATE RISKS 418 During the relevant period, there were two types of interest rate risk that Group Treasury was responsible for managing: (a) outright or general interest rate risk; and (b) rate set risk or rate set exposure.

(a) Outright or general interest rate risk 419 Outright interest rate risk refers to the exposure to movements in interest rates that change the value of Group Treasury's total assets and liabilities on a mark-to-market basis compared to previous valuations. This type of interest rate risk only arises when the interest rate of a debt instrument is fixed for a period of time. 420 Where an interest rate is fixed for a period of time, a change in the relevant market interest rate during that period will affect the mark-to-market value of the debt instrument. This has a profit and loss impact on the relevant trading book which is reflected in the Treasury Eagle report (Treasury Eagle). The sensitivity of those valuations to movements in interest rates constitutes outright or general interest rate risk. 421 By way of example, if Westpac makes a loan at 5% and interest rates increase, that loan is less valuable because the money lent at 5% could now potentially be lent at a higher return. This would result in a mark-to-market loss for Westpac. Similarly, if interest rates decrease, the loan is more valuable, resulting in a mark-to-market gain for Westpac. 422 The same principle may be applied across all transactions which have an exposure to interest rates, so that it is possible to calculate Westpac's overall sensitivity to changes in interest rates. Group Treasury undertook this task on a daily basis in the Treasury Eagle, which was produced around 5.00 pm each day and presented Group Treasury's interest rate risk position. 423 The Treasury Eagle grouped the interest rate risk by desk and according to different tenors or "maturity buckets" (from one day to 40 years). The tenors from 1 day to 3 months were referred to as "cash buckets". The interest rate risk was prepared so as to show the notional gain or loss in dollar value should interest rates increase by one basis point (BpV or PV01, which is the same as "DV01" referred to by Professor Stulz). 424 The Treasury Eagle showed the sensitivity of Westpac's transfer priced assets, liabilities, and other interest rate sensitive instruments, across all tenors to a one basis point increase in interest rates. The interest rate risk derived from Group Treasury's BBSW Rate Set Exposure was generally a component that, once crystallised, fed into the entire interest rate risk profile managed by Group Treasury. It was generated and circulated by a member of Group Treasury at around 5.00 pm each day. The Treasury Eagle captured the risk position from each of the individual portfolios in Group Treasury. 425 On the Treasury Eagle, a positive number in black represented that Westpac was "short", which meant the position was a net payer of interest and its profit would increase if rates increased. And a negative number in red represented that Westpac was "long", which meant the position was a net receiver of interest and its profit would decrease if rates increased. The report showed the notional gain or loss in dollar value per basis point if interest rates increased. 426 The basis point sensitivities were grouped into maturity buckets from one day out to 40 years, with the majority of Group Treasury's interest rate risk sitting in the period up to two years or less. The short term risk position was divided into tenor buckets starting from one day, to one month, two months, three months up to the first future (being the next expiring BAB Futures contract). Those tenors, up to three months, were often described as "cash buckets" being a shorthand way to refer to short dated risk. 427 Ms Johnston gave evidence about her use of and opinions about the Treasury Eagle. When she was assigned to STIRR in the relevant period, she observed that the STIRR book's risk position (as reflected in the Treasury Eagle) was generally always short. That is, the net position of its assets, liabilities and derivative transactions resulted in STIRR being a net payer of interest. 428 The short risk position in STIRR would make money per basis point if interest rates increased above the current level because STIRR would have previously locked in to pay interest at a lower level. This would be reflected in STIRR's mark-to-market revaluation on its net assets, liabilities and derivative transactions. If Mr Roden and Ms Johnston expected the RBA to increase the cash rate, the strategy of STIRR would often be to allow the book to "run with the position" because it might be profitable for the book. That is, it may not have been necessary to actively enter into derivative transactions or take other positions to reduce additional short interest rate risk. If Mr Roden or Ms Johnston thought that the cash rate was going to decrease then STIRR would be more active in seeking to minimise the short interest rate risk. 429 As I have said, outright interest rate risk was Group Treasury's exposure to movement in interest rates that changed the value of Group Treasury's total assets and liabilities compared to previous valuations. It arose due to the mismatch between its obligations to pay interest at differing rates and tenors on its customer deposits and wholesale funding (being liabilities) and its rights to receive interest at differing rates and tenors on its loans and other receivables (being assets). 430 Interest rate risk was centralised within Group Treasury. By centralising interest rate risk management in this way, Mr Zuber could work to manage Westpac's overall balance sheet risk position to ensure that Group Treasury was within risk appetite limits, whilst also minimising Westpac's funding costs. 431 Typically, Group Treasury's net position, as a result of the centralisation of Westpac's interest rate risk, was a short ("paid") position. This was largely due to the interest rate sensitivity generated by the wholesale funding portfolio. 432 Derivative transactions were a mechanism by which Group Treasury sought to manage interest rate risk. The primary derivative products traded by Group Treasury for that purpose were: (a) interest rate swaps; (b) BAB Futures; (c) forward rate agreements; (d) cross-currency swaps; (e) asset swaps; (f) interest rate options; (g) swaptions; and (h) inflation swaps. 433 STIRR was required to manage the interest rate risk in its portfolio within Westpac's overall appetite for interest rate risk, as set out in policies and frameworks that I have already noted, including: (a) the Dealing Room Policies for Traded Risk - Market Risk Management; (b) the Dealing Room Policies for Risk in Financial Markets and Treasury; (c) the Market Risk Management Framework, Liquidity Risk Management Framework and Market and Liquidity Risk Management Framework; and (d) the risk limits as set by Market Risk. 434 In practice, the requirement to comply with Westpac's overall appetite for interest rate risk meant that STIRR would often have to take active steps to reduce and manage the short term interest rate risk that naturally arose in its book, to keep within the mandated parameters. 435 Ms Johnston said that she considered that what the RBA was going to do regarding the cash rate in the next six to twelve months was an important factor in STIRR's management of interest rate risk. Due to the large short term interest rate risk positions in STIRR, the portfolio could generate profit from taking a view on, and positioning the book to take advantage of, potential cash rate movements by the RBA. One of Ms Johnston's roles on the STIRR Desk was assisting Mr Roden to manage its short term interest rate risk. The two discussed expectations of future movements to the RBA cash rate, developments in other markets and financial and economic data that might inform the RBA's views. They would discuss different trading ideas and options to manage STIRR's risk. Mr Roden set the overriding strategy, and Ms Johnston assisted in its execution. 436 Westpac's AUD short term interest rate risk was centralised in STIRR's book. That included short term AUD interest rate risk arising from activities in Westpac's balance sheet, other portfolios in Group Treasury and STIRR's own activities. 437 The other portfolios that primarily contributed to STIRR's interest rate risk position were: (a) ALM - the derivative transactions entered into between ALM and STIRR resulted in STIRR being a net payer of interest; (b) Liquids - it bought and held long term liquid assets using funds lent to that book from STIRR at BBSW. Those loans resulted in STIRR being a net receiver of interest; (c) IMM - the money raised in offshore markets converted into AUD using FX forwards and cross-currency swaps and the AUD proceeds were lent to STIRR, generally at BBSW. This resulted in STIRR being a net payer of interest; and (d) the Global Funding team, which raised long term funding that would be swapped back to a shorter term AUD liability (such as 3 month BBSW) using interest rate swaps. Internal Group Treasury trades were booked between the portfolios which resulted in STIRR being a net payer of interest. 438 Despite STIRR's rights to receive interest arising from its internal lending activities (mainly to the Liquids book), it almost always had a much greater exposure to pay interest, as a result of the significant amount of funding that was executed through IMM and the Global Funding team. In addition, other activities of the STIRR Desk gave rise to short term interest rate risk, such as trading in the Bank Bill Market, issuing NCDs, and entering into derivatives such as forward rate agreements, overnight indexed swaps and other types of swaps. 439 STIRR generally had a significant outright interest rate risk position. That interest rate risk position would be added to each day when the net position of STIRR's assets, liabilities and derivative transactions reset by reference to BBSW. 440 On any given day when STIRR had a BBSW Rate Set Exposure in a particular tenor, after BBSW had set in that tenor the rate STIRR would pay or receive on its exposure was fixed for that period. STIRR would then be exposed to the risk that interest rates in the future would move adversely to the rate at which it had already paid or received interest, which had been set by reference to BBSW that day. Essentially, STIRR obtained outright interest rate risk whenever it was locked in to pay or receive interest at a fixed rate, as the market valuation and re-valuation for that interest rate position could at any point move which altered the relative value of the rights and obligations.

(b) Rate set risk or rate set exposure 441 The second type of interest rate risk managed by STIRR was rate set risk or rate set exposure. This is the risk arising from payment obligations that reset by reference to BBSW on each trading day. This type of interest rate risk also only arose in respect of debt instruments with interest rates which were fixed for a period of time. 442 Transactions entered into by Westpac gave rise to rights to receive or obligations to pay interest. Those rights and obligations were regularly re-priced or reset by reference to a benchmark. In the case of STIRR, the most common benchmark for repricing was BBSW. 443 On any given day, STIRR had either a net short or "paid" position, meaning that its obligations to pay interest resetting on that day exceeded its rights to receive interest resetting on that day, or a net long or "received" position, meaning that its rights to receive interest resetting on that day exceeded its obligations to pay interest re-setting on that day. This was referred to as STIRR's "rate set exposure", "rate set position" or "rate reset position". 444 Let me elaborate further. 445 On each trading day, Westpac on its own account was a party to a number of instruments which had floating leg payment obligations that reset by reference to the BBSW in various tenors. Westpac's net exposure to either pay or receive interest on a given day was referred to as the "rate set exposure". 446 Group Treasury's BBSW Rate Set Exposure varied on a daily basis. Sometimes the result of the sum of its rights and obligations to pay and receive interest was that it would have a net exposure to pay interest (referred to as a "short" exposure or a "paid set"). But on other days Westpac would have a net right to receive interest (referred to as a "long" exposure or a "received set") for a particular tenor. Group Treasury's BBSW Rate Set Exposure reset at or around 10.15 am each day when BBSW in each tenor was published by AFMA. 447 The rate set exposure was divided into one month, two month, three month, four month, five month, and six month buckets, and was managed in the STIRR book. The STIRR desk only managed Group Treasury's BBSW Rate Set Exposure and not Westpac's overall rate set position, which included the BBSW Rate Set Exposure of Westpac's Financial Markets division. Financial Markets had its own separate BBSW Rate Set Exposure that arose out of the trading between Financial Markets and its customers in derivative products. 448 As a result of the structural separation between Financial Markets and Group Treasury, Group Treasury did not manage the BBSW Rate Set Exposure arising out of Financial Market's customer transactions. Further, from 1 December 2008, Group Treasury's BBSW Rate Set Exposure included St George Treasury's BBSW Rate Set Exposure, but it did not include the BBSW Rate Set Exposure of St George's Financial Markets division. As noted above, until August 2010, St George's data was combined with Group Treasury's data manually. 449 STIRR officers had access to the systems through which Group Treasury's BBSW Rate Set Exposure could be obtained. 450 I should also note at this point that the parties before me agreed that exposures under the following instruments were included in Westpac's calculation of its rate set exposure if the product referenced BBSW: (a) interest rate swaps; (b) forward rate agreements; (c) cross-currency swaps where one leg of the swap used AUD; (d) interest rate options; (e) inflation swaps; (f) floating rate notes; (g) commercial loans; (h) deposit-taking facilities in respect of which Westpac had agreed to pay interest by reference to BBSW; and (i) Bank Bills held as part of Westpac's corporate bill lending activities.

(c) Relationship between general interest rate risk and rate set risk 451 Outright or general interest rate risk and rate set risk are separate risks, although those risks are interrelated. The risks are interrelated in that, after a payment obligation is reset, the interest rate exposure arising from that payment obligation then forms part of the outright or general interest rate risk. 452 There is a difference between outright interest rate risk and rate set risk. In the course of giving evidence, Mr Roden described the difference as follows: So in relation to rate set risk, once the set is concluded, we do have that risk. But that's a much easier risk to handle. Once it goes into our outright risk, it, effectively, goes into a washing machine, effectively, and - for want of a better word, where we have multitudes of risks all come in together … Rate set risk is very different … Rate set risk is the - is the point where a whole range of assets and liabilities have a reprice - effectively, they have repricing - there's a repricing event. That's what the rate set risk is. 453 According to Westpac, although STIRR would manage these types of interest rate risk in different ways, trading in Prime Bank Bills was particularly effective because it was a way in which STIRR could manage both outright interest rate risk and rate set risk. I will come back to this issue as it is quite contentious.

(d) Trading in Prime Bank Bills to manage short term interest risk 454 If STIRR or Group Treasury had a "short" outright interest rate position (that is, was a net payer of interest), acquiring Prime Bank Bills had the effect of offsetting and reducing the total face value of the liabilities and other instruments pursuant to which Westpac paid interest. This is because a Prime Bank Bill is an asset pursuant to which Westpac receives interest. Similarly, an overall "long" position could be offset or reduced by selling or issuing Prime Bank Bills. In this way, trading in Prime Bank Bills could reduce Group Treasury's general or outright interest rate risk. ASIC did not challenge this position. 455 ASIC did not challenge any Westpac witnesses on the basis that trading in Prime Bank Bills was not an appropriate, effective or common place means of reducing outright interest rate risk. Rather, ASIC challenged Mr Zuber and Mr Roden on that basis that trading in Prime Bank Bills on any given day was only able to reduce Group Treasury's outright interest rate risk by a small amount. But I agree with Westpac that notwithstanding that a reduction on any given day may only be modest, there was nevertheless a reduction in the relevant exposure and the fact that it may have been a relatively modest impact ignores the magnitude of the outright interest rate risk which could only ever be managed in smaller increments. 456 Westpac also contended that trading in Prime Bank Bills was also a way in which STIRR could manage Group Treasury's rate set risk. Now STIRR was only responsible for managing Group Treasury's BBSW Rate Set Exposure. As I have said, STIRR did not manage Westpac's overall BBSW Rate Set Exposure risk, which included the rate set exposure arising out of trading between Westpac's Financial Markets division and its customers. 457 Westpac gave an example of how BBSW Rate Set Exposure could be managed in this way. If Group Treasury had a short BBSW Rate Set Exposure of $1 billion in the 1 month tenor, after BBSW set that day Group Treasury would be required to pay interest on that $1 billion at the 1 month BBSW rate from that day. If STIRR acquired $500 million worth of 1 month Prime Bank Bills during the BBSW Rate Set Window, those were assets that would receive interest at the yield traded that day (which would be at BBSW or close to it). As a result, Westpac would in effect pay interest at 1 month BBSW on only $500 million rather than $1 billion, thereby reducing its BBSW Rate Set Exposure. A similar reduction in a long rate set exposure would be achieved by selling or issuing Prime Bank Bills during the BBSW Rate Set Window. 458 Westpac contended that trading in Prime Bank Bills was an economically efficient way to hedge or reduce rate set risk for a number of reasons, including the following: (a) First, there is no additional cost for entering into the hedge over and above the cost of buying or selling the Prime Bank Bills. (b) Second, trading in Prime Bank Bills would reduce the BBSW Rate Set Exposure by the amount of the Prime Bank Bills bought or sold. (c) Third, trading in Prime Bank Bills could reduce or offset Group Treasury's rate set risk in circumstances where STIRR would otherwise be participating in the Prime Bank Bill market for funding or liquidity reasons. (d) Fourth, there were very frequently a range of other significant benefits and purposes of buying or selling Prime Bank Bills on a given day. 459 Westpac contended that the STIRR traders were also conscious of the potential (but unpredictable) effect that trading in Prime Bank Bills could have on the level at which BBSW set on a particular day. It is said that for this reason, all other things being equal, STIRR would seek to acquire or sell Prime Bank Bills on days when, if trading did have any effect on the rate at which BBSW set, that trading would not adversely affect Group Treasury's BBSW Rate Set Exposure position. 460 Now ASIC contended that buying or selling Prime Bank Bills at around 10.00 am on a particular business day does not hedge, offset or reduce BBSW rate set risk in the sense of the amount of net assets or liabilities that are resetting on that day. It says that no matter how many bills are bought or sold at around 10.00 am, Group Treasury will still have the same amount of exposure. Buying or selling Prime Bank Bills does not change that in any way. For example, if Group Treasury has a $1 billion short 1 month BBSW Rate Set Exposure on Tuesday, it will have to pay the 1 month BBSW on $1 billion. It says that buying any number of Prime Bank Bills at 10.00 am on that Tuesday only affects the obligation to pay 1 month BBSW on $1 billion by affecting where the 1 month BBSW rate sets. And that is what ASIC contends that Group Treasury was doing during the relevant period. It says that trading in that manner is the antithesis of hedging BBSW rate set risk. ASIC says that such trading proceeds on the footing that the risk is and will remain unhedged and that Westpac will profit from that unhedged risk by influencing BBSW to set favourably to the risk. 461 ASIC contended that BBSW rate set risk can be hedged, offset or reduced only by entering into instruments that directly reference the BBSW. For example, Group Treasury could enter into an interest rate swap or a FRA in an opposite direction to their BBSW rate set risk. 462 Further, ASIC contended that the witnesses who suggested that buying or selling Prime Bank Bills at around 10.00 am on a particular business day hedges BBSW rate set risk explained their use of the term "hedging" in a manner which ASIC says elided BBSW rate set risk with outright interest rate risk. ASIC contended that it was said by various witnesses that buying or selling Prime Bank Bills at around 10.00 am hedges BBSW rate set risk because, (a) going forward or (b) over the life of the Prime Bank Bills or (c) the net position is that, Group Treasury will receive interest (if buying Prime Bank Bills) or pay interest (if selling Prime Bank Bills) opposite to whatever its interest rate position is that is being hedged. But ASIC says that so to explain the concept in that fashion is to explain the hedging effect by reference to outright interest rate risk. 463 ASIC also contended that because buying or selling Prime Bank Bills was an imperfect hedge of outright interest rate risk and not a hedge of BBSW rate set risk at all, it is unsurprising that Financial Markets did not have the ability to buy or sell Prime Bank Bills. Only STIRR could do so. Every other desk and division had to manage its risk profile through derivative products. Such products could be used to manage outright interest rate risk and BBSW rate set risk. Now Mr Masnick accepted that Financial Markets used "proxy instruments" to hedge or reduce BBSW Rate Set Exposures, including BAB Futures, interest rate swaps and FRAs. Mr Sharma said that he traded derivatives, including interest rate swaps, Eurodollar futures, BAB Futures, cross-currency swaps, FX forwards, FX swaps, OIS and other futures to manage outright interest rate risk and BBSW rate set risk. 464 Further, ASIC contended that BAB Futures were particularly useful for hedging BBSW rate set risk and outright interest rate risk, particularly towards expiry and regardless of the tenor of the interest rate risk being managed. ASIC said that BAB Futures had certain advantageous features. It pointed to the following features: (a) BAB Futures were traded in far greater volumes than Prime Bank Bills were traded on the Bank Bill Market. (b) There was generally a lot of liquidity in the BAB Futures market during the relevant period. (c) There was liquidity in BAB Futures trading throughout the day. (d) BAB Futures were not required to be fully funded up front. 465 Moreover, Financial Markets used BAB Futures to hedge its BBSW rate set risk exposure during the relevant period. 466 ASIC also contended that FRAs were also useful hedging tools. FRAs could be used to hedge or reduce BBSW Rate Set Exposure without any basis risk because they reference the BBSW. FRAs were also leveraged, which meant that they were a lower cost means of hedging exposure from a funding point of view than trading in Prime Bank Bills directly. And they were traded throughout the day. 467 ASIC also says that OIS could also be used as hedging instruments. The market for OIS was generally quite liquid and enabled trades in large volumes. They were traded throughout the day. 468 ASIC also says that it is noteworthy that the word "hedging" appears irregularly in the communications which are in evidence. Mr Roden suggested, on at least one occasion, that hedging should be taken to be implied. But ASIC says that Mr Roden referred to hedging when he meant it. In his draft internal memorandum dated 29 August 2013 (after the relevant period) titled "Group Treasury Income Attribution and Analysis", Mr Roden makes no mention of Prime Bank Bills. But in my view Mr Roden was specifically discussing purpose built hedging instruments such as OIS, swaps and futures, rather than addressing all the ways that by conduct (i.e. trading in Bank Bills) one could produce a hedging effect. 469 Now I also accept that there are imponderables concerning Westpac's hedging thesis concerning rate set exposure. For example, if the purpose was to hedge, then it might be said that that should produce indifference to where the rate set. Further, it might be said that one should not be referring to the rate itself as Ms Johnston's 16 May 2011 email does. Further, the thesis does not seem to be expressly referred to in terms in any written or verbal communication. I have weighed such matters with the other evidence. 470 At this point it is also appropriate to refer to various s 19 transcripts that were tendered by ASIC. 471 ASIC says that notwithstanding the "ritual reference" to hedging by Westpac's witnesses at trial, both Ms Johnston and Mr Stokes said in their s 19 examinations that Prime Bank Bills were not or not regularly used to hedge BBSW Rate Set Exposures. 472 In Ms Johnston's s 19 examination, the following exchange took place: Q. And was the practice of the STIRR desk to use bank bills to hedge their rate set risk? A. Bank bill futures? Privilege. Q. No bank bills? A. No, not really. 473 In evidence before me, Ms Johnston sought to qualify what she then said, on the basis that "this was a very long section 19. I think I was quite confused with all the discussion around bank and different terminology". 474 In Mr Stokes' s 19 examination, the following exchange took place: Q. Okay. Would you ever use, when you were on the bills desk, would you ever trade bank bills on the day of your rate set risk to try to reduce that risk as well? A. Privilege. You would always trade - you would always trade bank bills on the day of rate sets because you have a rate set every day and you trade bank bills just every day, so not really. Most of our bank bill trading was done for the two purposes of issuing NCDs to create cash or buying NCDs for liquid assets, yes. Q. Okay. So it wasn't really one of the reasons why, if there was no funding requirement, you wouldn't be trading bank bills to hedge a rate set? A. No, privilege, it's very ineffective because if you had a $5bn rate set, you can't trade $5bn worth of physical securities to hedge that rate set. It's just the rate set that you have is way too big to be nullified by any bill trading. 475 Mr Stokes sought to walk back from what he then said during cross-examination, on the basis that "I was giving an honest answer to what I thought the question was", and that trading Bank Bills was "very ineffective" in the sense that it could not be a total hedge. 476 Now I admitted these s 19 examination transcripts as prior inconsistent statements, but ASIC has also submitted that they should be admitted against Westpac as admissions pursuant to ss 81 and 87 of the Evidence Act. I disagree and have refused to do so. 477 Section 81 provides: (1) The hearsay rule and the opinion rule do not apply to evidence of an admission. (2) The hearsay rule and the opinion rule do not apply to evidence of a previous representation: (a) that was made in relation to an admission at the time the admission was made, or shortly before or after that time; and (b) to which it is reasonably necessary to refer in order to understand the admission. 478 Section 87(1) provides: For the purpose of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that: (a) when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made; or (b) when the representation was made, the person was an employee of the party, or had authority otherwise to act for the party, and the representation related to a matter within the scope of the person's employment or authority; or (c) the representation was made by the person in furtherance of a common purpose (whether lawful or not) that the person had with the party or one or more persons including the party. 479 Section 87(1) is engaged when a finding about one of the matters in paragraphs (a) to (c) is "reasonably open". The paragraphs "do not require a concluded finding of the relevant authority or common purpose. They merely require a conclusion that such a finding be one that 'is reasonably open'" (Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [No 4] [2006] NSWSC 90 at [11] per McDougall J). The relevant time upon which attention must focus is the time when the previous representation was made. 480 For the purpose of s 87(1)(a), it is apparent that the authority to be considered is the authority "to make statements … in relation to the matter with respect to which the representation was made". As McDougall J explained in Ingot v Macquarie [No 4] (at [20]): the legislation is looking at the general authority of the person whose previous representation is sought to be tendered to make statements of the kind embodied in the particular representation, and not at the authority to make the particular representation (including in the circumstances in which it was made and having regard to the means by which it was made). 481 The "authority" referred to in s 87(1)(a) includes express or implied authority. 482 But s 87(1)(b) is a true alternative to s 87(1)(a). For s 87(1)(b) to apply, it is "sufficient … to show that the person was an employee of the party and the representation related to a matter within the scope of the person's employment" (Wright v Optus Administration & Anor (No 5) [2013] NSWSC 1717 at [14] per Campbell J). Indeed, as Campbell J then observed (at [18]): It seems to me the scope of employment limb is much broader. Once one is satisfied that the person making the representation is an employee of the party then the second aspect is only that the representation related to a matter within the scope of the person's employment. It is not necessary to prove that the employee had actual or ostensible authority to make representations on behalf of the party. 483 ASIC says that s 19 examination transcripts have been admitted into evidence as admissions against defendant companies in previous cases, and it is well established that they may be so admitted (see generally Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2004) 141 FCR 183 at [97] and [98] per Merkel J (albeit in the context of a s 155 examination); Australian Securities and Investments Commission v Axis International Management Pty Ltd (No 5) (2011) 81 ACSR 631; [2011] FCA 60 at [60] per Gilmour J). For example in Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201; [2009] FCA 1586 at [122], Gilmour J admitted s 19 examination transcripts of a director and a company executive under s 87. In Australian Securities and Investments Commission v Astra Resources plc (2015) 107 ACSR 232; [2015] FCA 759 at [126], White J admitted s 19 examination transcripts of two directors and an "executive manager" under s 87(1)(b). In Australian Securities and Investments Commission v Sino Australia Oil and Gas Ltd (in liq) (2016) 115 ACSR 437; [2016] FCA 934 at [28], Davies J admitted a s 19 examination transcript of the managing director under s 87. 484 ASIC submits that Ms Johnston's statement in her s 19 examination transcript is an admission because it is adverse to Westpac's interests, it having set up its defence on the basis that Prime Bank Bills were being bought or sold to, among other things, hedge BBSW rate set risk. It says that the statement satisfies both s 87(1)(a) and (b) and points to the following matters. Ms Johnston's s 19 examination took place on 13 October 2015. At the time, she was a Westpac employee (albeit she had recently returned from a career break from June 2014 to August 2015), working either in IMM or the London office overseeing Group Treasury's London and European operations and executing offshore wholesale issuance for Westpac. She was an Associate Director. ASIC says that she had actual or implied authority on behalf of Westpac to make statements in relation to the subject of what she did while working on the STIRR Desk to hedge BBSW rate set risk and that s 87(1)(a) applies. Alternatively, ASIC says that at the time of the examination, Ms Johnston was an employee of Westpac and the statement related to how she carried out her duties while working on the STIRR Desk. It says that that is a subject related to a matter within the scope of her employment and s 87(1)(b) applies. Ms Johnston traded on the STIRR Desk and was one of the central traders in this proceeding. Moreover, Ms Johnston has worked extensively in Group Treasury, and STIRR was ultimately responsible for managing the short end interest rate risk for the whole of the division. She therefore had and has occasion to know how STIRR managed that risk. 485 ASIC says that Mr Stokes' s 19 examination took place in 2015. At the time, he was a Director of Group Treasury. He had been an employee of Group Treasury since 2002. ASIC says that he had authority on behalf of Westpac to make statements about how BBSW rate set risk was managed while he worked on STIRR and indeed afterwards. After leaving STIRR, Mr Stokes worked on the ALM desk. ASIC points out that STIRR was responsible for managing the short end interest rate risk of the ALM desk and the rest of Group Treasury, and so it may readily be inferred that the management of that risk (including BBSW rate set risk) is a subject relevant to Mr Stokes' role. It says that s 87(1)(a) applies and for essentially the same reasons so too does s 87(1)(b). 486 I would reject the statements made by Ms Johnston and Mr Stokes as admissions against Westpac. Let me explain my reasons. 487 As Westpac correctly points out, s 87(1)(a) applies where, at the time the representation was made, the person had authority to make statements on behalf of the party in relation to the relevant matter. Section 87(1)(b) applies where, at the time the representation was made, the person was an employee and the representation related to a matter within the scope of that person's employment or authority. So the relevant time at which to consider the authority is the time at which the representation was made. 488 Now at the time Ms Johnston participated in her s 19 examination and which is not disputed by ASIC, Ms Johnston was employed as an Associate Director either in IMM or in Westpac's London office, had recently completed a one year career break and importantly for present purposes had not worked on the STIRR Desk for over two years. 489 ASIC have not identified any material other than the fact of Ms Johnston's employment and that she had previously traded on the STIRR Desk, from which I can reasonably infer that Ms Johnston had express authority to make statements on behalf of Westpac in respect of the relevant matters at the time she was examined. Further, I agree with Westpac that it is not possible to infer from the nature of Ms Johnston's employment at the later time of making the relevant statement, being an Associate Director working on a different desk, that she had implied authority in respect of the relevant matters. In my view, ASIC cannot rely on s 87(1)(a) of the Evidence Act in respect of Ms Johnston's statements, even at the lower threshold of "reasonably open to find". 490 Further, at the time of her examination, the matters the subject of the statements did not form part of Ms Johnston's then current role. I agree with Westpac that such matters could not be said to fall within the scope of her employment or authority. Accordingly, ASIC cannot rely on s 87(1)(b) of the Evidence Act in respect of Ms Johnston's statements, even at the lower threshold of "reasonably open to find". 491 As for Mr Stokes' s 19 examination statements, at the time they were made he was employed in ALM. Mr Stokes had not worked on the STIRR Desk for more than ten years. I agree with Westpac that there is no basis to find that Mr Stokes had authority to make statements on behalf of Westpac in respect of the relevant matters at the time those statements were made or that the matters the subject of the statements fell within the scope of his employment or authority. 492 Further, I do not consider that the cases cited by ASIC by way of example are particularly helpful. They are relevantly distinguishable for the following reasons. In Ingot v Macquarie [No 4], the relevant admissions were made by a partner of Phillips Fox. McDougall J accepted that the partner was the "unlimited agent" of Phillips Fox, and held that the statements made by the partner were admissible against Phillips Fox. In ASIC v Fortescue Metals Group Ltd (No 5), the relevant admissions were made by a director and a senior member of management. In ASIC v Astra Resources plc, the relevant admissions were made by directors and an "executive manager". And in ASIC v Sino Australia Oil and Gas Ltd (in liq), the relevant admissions were made by the executive chairman and director. None of those cases are of assistance. They concern directors and members of senior management who clearly had actual or apparent authority to make the relevant statements on behalf of the relevant company. Those positions are distinguishable from the position of Ms Johnston and Mr Stokes. Perhaps closer to the mark is Wright v Optus Administration & Anor (No 5), which concerned an employee responsible for training making a contemporaneous statement about the training and supervision of trainees. But again this is not comparable to the position of Ms Johnston and Mr Stokes who had not been responsible for trading on the STIRR Desk for over two years and ten years respectively at the time of their statements. 493 But even if I were to accept these statements by way of admission, they are not of great assistance, and in any event have to be considered with the totality of the evidence. 494 To the extent there is any inconsistency between Ms Johnston's evidence and the statements made in her s 19 examination, I now have more recent statements of Ms Johnston's views in relation to trading in Prime Bank Bills. Ms Johnston has been cross-examined in respect of those matters. Further, her evidence was clear that one of STIRR's reasons for trading in Prime Bank Bills was to hedge or reduce rate set risk. Although the discrepancy with her s 19 examination hardly instilled me with confidence, on balance I am inclined to accept her evidence before me, which is consistent with other Westpac evidence. 495 Further, to the extent there is any inconsistency between Mr Stokes' evidence and the statement in his s 19 examination, again Mr Stokes' more recent statement is of greater probative value. Further, in circumstances in which Mr Stokes' trading on the STIRR desks was historic only, and occurred well before the relevant period, I agree with Westpac that the statements made by Mr Stokes in his s 19 examination are of less assistance in resolving the relevant hedging issue although they do raise cause for doubt. 496 Let me return to the principal question at this point. I would reject ASIC's contention that the buying or selling of Prime Bank Bills could not operate as some form of hedge (albeit imperfect) against BBSW Rate Set Exposure. 497 Westpac's witnesses were challenged on the basis that trading in Prime Bank Bills was not a method to hedge rate set risk at all. The reasons put to Westpac's witnesses variously were that: (a) Prime Bank Bills bought or sold on a particular day would not reference where BBSW set on that day, so would not hedge a BBSW Rate Set Exposure; (b) there was insufficient liquidity in the Bank Bill Market to hedge STIRR's entire rate set exposure; (c) there was no "leverage" when trading in Prime Bank Bills because STIRR was required to fund the purchase of any Prime Bank Bills bought; and (d) trading in Prime Bank Bills to manage rate set risk exposure could only be an effective hedge if the instrument was held for the entire period of the exposure, which did not occur from time to time. 498 Those witnesses were also challenged on the basis that trading in derivative products, in particular FRAs or BAB Futures, was a more effective way to hedge rate set exposure. 499 But each relevant Westpac witness gave evidence to the effect that trading in Prime Bank Bills for purposes which included hedging would likely occur at a level very similar to where BBSW set on that day. Notwithstanding the possibility of some divergence, Westpac's witnesses explained that trading in Prime Bank Bills to hedge a rate set risk exposure was "as close to perfect as we can get", "by far and away, the most perfect hedge that you can acquire", "it's a very perfect hedge, because… you're getting the exact opposite exposure", "a very, very close hedge… effectively, you're getting an asset and a liability at the exact same time and effectively neutralising that exposure and risk", "the closest instrument that would replicate a hedge for the rate set risk" and "the best hedge you could have done". 500 And even if Prime Bank Bills were acquired to hedge a short rate set exposure, and those Prime Bank Bills were acquired at a rate other than BBSW, there would still be an offsetting effect. This is because the short rate set exposure is offset by the opposite exposure generated by the Prime Bank Bills. In the course of responding to a hypothetical example where Prime Bank Bills were acquired at a rate other than BBSW, Mr Zuber explained the position as follows: Well, it's a perfect hedge from a risk perspective. I have eliminated my risk. I may not have done it as profitably or as it's cost me. Hedging sometimes isn't free. In this instance, in your case, which, let's be clear, is quite unusual, it wasn't a clear hedge … I have eliminated my risk. My risk is smaller because my paid rate set and what I have bought … had net … A perfect hedge doesn't have to be at the same rate, a perfect hedge has reduced my risk. 501 Some Westpac witnesses were also challenged on the basis that Prime Bank Bills could not be acquired for genuine hedging purposes if the Prime Bank Bills acquired were sold shortly after the acquisition. But I agree with Westpac that this ignores the obvious fact that trading in Prime Bank Bills is dynamic. Circumstances change day-to-day. 502 Ms Johnston gave evidence regarding the circumstances in which Prime Bank Bills acquired for the purpose of hedging could be sold in the following period: [I]f you buy bank bills at 5.04, around BBSW, and then if the rate that has offset your exposure potentially, if the rate then moves back down to five per cent, it's hedged you. You have made four basis points on that and you can sell them out and lock in that hedge if you would like. 503 Mr Park also gave the following evidence: So with a large rate set exposure, buying the bills obviously reduces that amount of risk that he has got setting at that particular point in time. So it reduces that particular risk. Then you have got 24 hours that goes by after that, and then you have got the opportunity to change a hedge, so things might have happened like, you know, you might have interest rates move significantly, you might have a change in the path of interest rates in terms of what you expect interest rates to do. And so what you can then do is effectively unwind that hedge by selling those bank bills in the market, in the following days, and then you can kind of readjust your position going forward … [I]t offsets during the rate set, and then the following day, the world moves on, you have got 24 hours and then you can work out how you want to adjust your hedges going forward after that. 504 I found such explanations, in context, to be commercially plausible. 505 ASIC challenged the evidence of Westpac's witnesses on the basis that there was only limited liquidity in the Bank Bill Market which meant that on many days it was not possible to offset the entirety of Westpac's rate set risk by trading in Prime Bank Bills. But I agree with Westpac that this contention is based on a misconception that trading in Prime Bank Bills to reduce rate set risk is only worthwhile if it is possible to reduce the exposure entirely. Commercially, reducing part only of a rate set exposure is still a worthwhile strategy. Now Westpac's witnesses accepted that it would not be possible, for example, to fully hedge a $15 billion rate set exposure at reasonable prices by trading in Prime Bank Bills. But none accepted ASIC's case thesis that seeking to reduce part only of that exposure would not be worthwhile. 506 Further, it was put to Westpac's witnesses that a genuine hedging strategy would involve a trader continuing to acquire Prime Bank Bills until the liquidity in the market had been exhausted. But this ignores the other reasons why STIRR would trade in Prime Bank Bills and the costs involved in trading. Further, Mr Roden said: Well, there's a limit to how much I physically may wish to buy for a range of reasons. I could have credit limit issues. I could have cash issues that all I'm prepared to take at this point in time. The nature of this market on some days is extremely fast and the volumes that you buy or sell can be uncertain. 507 In summary, I accept Westpac's position that trading Prime Bank Bills could be for a purpose of hedging BBSW Rate Set Exposure. But whether it was a purpose or a dominant purpose for trading on a particular occasion is a separate question. I reject ASIC's case that Westpac and its employees have concocted and confected such a hedging strategy or purpose. I will return to this topic again in the next main section.

(e) BAB Futures 508 BAB Futures were traded contracts by which parties could take a position on where three month interest rates would be at the date of the BAB Futures expiry. During most of the relevant period, they traded through the ASX24 clearing house; for a time early in the relevant period this was the SFE as I have already explained. There is an issue between the parties as to what was the traded price of BAB Futures. 509 BAB Futures were the most liquid short dated product for participants hedging their risk or speculators taking a view on potential movements in the RBA cash rate. If participants in the BAB Futures market had the view that the RBA would move rates in the next three months, it was expected that the BAB Futures contracts expiring in the next three or six months would be actively traded by participants speculating on interest rate movements. The fact that BAB Futures were actively traded and liquid made them a useful product to hedge short term interest rate risk in STIRR, with the liquidity allowing large volumes to be traded if required. 510 BAB Futures represented where three month interest rates would be on expiry, with contracts expiring on a quarterly basis at midday on the Thursday before the second Friday in each of March, June, September and December. It was possible to trade BAB Futures expiring in any of those months for up to two years in advance. For example, if the upcoming quarter expiry was September 2017, that was called the "first future" and the "eighth future" would be BAB Futures expiring in June 2019. Once the September 2017 expiry has passed, the December 2017 contract would be considered the first BAB Future. Traders would often use the first and second BAB Future to hedge interest rate risk in the STIRR book, but it was also possible to use later BAB Futures to hedge more long dated risk. 511 I have already explained that an important feature of the BAB Futures contract was that any BAB Futures held on expiry were deliverable, that is, physically settled, which meant that a party that was "short" BAB Futures would be obliged to sell eligible 3 month Prime Bank Bills to the contractual counterparties at the closing contract price. Those counterparties would be "long" BAB Futures and obliged to pay the closing contract price for those 3 month Prime Bank Bills that are delivered. Delivery took place on the day following the expiry date. One BAB Futures contract was equivalent to a $1 million parcel of 3 month Prime Bank Bills. In practice, the vast majority of participants in the BAB Futures market did not hold BAB Futures to expiry but would "close out" their positions (that is, reduce the position to zero) by entering into an equivalent BAB Futures contract but taking the opposite side. That is, agreeing to sell rather than buy or vice versa. 512 Ms Johnston said that these BAB Futures trades had the effect of hedging movement in interest rates as follows: (a) a decrease in short term interest rates would result in a reduction in the STIRR book's mark-to-market value of its existing short term liabilities; (b) however, if STIRR was long BAB Futures, a decrease in short term interest rates would likely result in BAB Futures increasing in price and would result in an increase to the STIRR book's mark-to-market value of its BAB Futures position; and (c) in this way, the two exposures to movements in interest rates offset one another. 513 However, BAB Futures were not considered by Ms Johnston to be a "perfect" hedge for movements in current market interest rates because the implied yield of a BAB Future was a view on where three month interest rates would be out of a future date, being the expiry date, rather than where three month interest rates were on the trading date. This introduced basis risk, that is, the risk that three month interest rates on the trading date would not move in the same way as three month interest rates out of a future date. This was particularly the case when the first BAB Future expiry was two to three months away. 514 Whilst BAB Futures in theory reflected where three month BBSW would be on the day of expiry, the contract closing price did not set by reference to BBSW, and in practice the BAB Futures closing price often differed to BBSW at maturity. As BAB Futures were deliverable, a trader like Ms Johnston observed that in the last two weeks of trading before expiry, the price of BAB Futures was partially driven by market participants trying to close out of their open positions which meant that the BAB Futures price could sometimes be volatile and not reflective of the market's view of where 3 month BBSW would be at the expiry date. 515 If STIRR maintained a long position in the first BAB Future at the expiry date, STIRR would have to take delivery of the corresponding amount in Prime Bank Bills the day after the expiry date. Alternatively, if STIRR maintained a short position in the first BAB Future at the expiry date, STIRR would have to deliver the corresponding amount in Prime Bank Bills the day after the expiry date. Ms Johnston said that STIRR's usual practice was to try to reduce the BAB Futures position to zero (or close to zero) in the period leading up to the expiry date. By reducing any long position in the first BAB Future, STIRR would be unwinding its hedge of the short position in the STIRR book. That is, STIRR would have greater exposure to the risk of interest rates decreasing as a BAB Futures expiry date approached. 516 Ms Johnston said that on some occasions, STIRR would not completely close out its position and would take delivery or deliver Prime Bank Bills for one or more of the following reasons: (a) there would be a benefit in receiving Prime Bank Bills if STIRR wanted to build its holdings of those assets; (b) there would be a benefit in delivering Prime Bank Bills if STIRR wanted to raise money to meet its funding needs through the BAB Futures market or if STIRR wanted to get rid of particular Prime Bank Bills that it was holding; (c) there was an arbitrage opportunity between 3 month BBSW and the implied yield in the closing price of BAB Futures, such that the two rates were not the same and it would be possible to profit from the mismatch and either take delivery of, or deliver, Prime Bank Bills at a cheaper price than available in the Bank Bill Market; or (d) it was not possible to completely close out the BAB Futures position before expiry due to a lack of liquidity in the futures market. 517 Any decision to deliver or take delivery was generally discussed more broadly within Group Treasury and potentially at the weekly funding meetings, particularly in relation to the reasons set out at subparagraphs (a) and (b) above. 518 STIRR traded in BAB Futures as a way of managing outright interest rate risk. But the Westpac witnesses generally rejected the proposition that BAB Futures were an appropriate or effective way to manage rate set risk exposure. I must say that I found their evidence to be commercially compelling on this aspect. 519 The reason why BAB Futures were not an effective way to hedge a rate set risk (particularly in comparison to trading in Prime Bank Bills) was that the price for Prime Bank Bills was the market rate on the day the trade was undertaken, whereas the price for BAB Futures generally reflected the market participants' views as to what interest rates would be in the future. Further, even as the BAB Futures closeout approached, the price for BAB Futures would not necessarily align with BBSW. During the course of giving evidence, Ms Johnston explained the positon approaching the BAB Futures close as follows: My understanding is that in the last couple of weeks, the price of bank bill futures is primarily driven by supply and demand because it's a deliverable contract. There might be people who have bought or sold those contracts, either hedge positions, take positions, and as they potentially looked to unwind those positions in anticipation of expiry, sometimes it's those supply and demand forces that can actually drive where the BAB futures trade, so it doesn't necessarily align completely with BBSW or move necessarily in line, and on the last day on expiry it doesn't set a BBSW… and sometimes there was dispersion which could present arbitrage opportunities. 520 During the course of giving evidence, Ms Johnston explained why she did not consider BAB Futures to be an effective way to hedge rate set risk: I didn't think the bank bill futures were a very good hedge. If you have just gone past an expiry, the next BAB future is potentially three months away. It's a very inaccurate hedge to be hedging a movement in BBSW today using an instrument that is estimating where BBSW is in three months' time, and that kind of is the case probably for two of the months, and then… when you get close to expiry, my understanding is that it's driven more by supply and demand of people offloading their positions and unwinding, heading into expiry. So no, I didn't think it was a very good hedge. 521 Mr Sharma gave similar evidence: So the issue with using BAB futures as a - as a way to hedge interest rate risk in general is that there's a significant time variance between the interest rate period on the BAB future, versus the interest rate risk on the rate set, so you expose yourself to significant curve risk in relation to interest rate risk in general. 522 In response to a hypothetical example of acquiring BAB Futures on 9 June, to hedge a rate set risk exposure on 10 June, where the futures close-out is on 11 June, Mr Sharma explained the position as follows: [A]round close-out there can be significant volatility in the bank bill futures market… So when you enter into a bank bill futures contract, all you're doing is moving your point in time for when you enter into interest rate risk exposure forward or backwards. So on - in your example… All you have done is actually entered into more risk on the 9th and you're still exposed to whatever the volatility is on the 11th, and so around futures close-out… there can be anomalies as well. 523 Mr Masnick's evidence that he used BAB Futures as a "proxy instrument" to hedge rate set risk in Financial Markets is of no assistance in assessing the comparative advantages of trading in Prime Bank Bills to hedge BBSW Rate Set Exposure risk in circumstances in which Mr Masnick was not able to trade in Prime Bank Bills. Similarly, Mr Stokes' evidence that he traded derivative products to manage both outright and rate set risk on the ALM desk is of no value in circumstances where he was not asked in respect of which of those two risks he traded BAB Futures and, in any event, the ALM desk was not able to trade in Prime Bank Bills.

(f) OIS 524 OISs were another product that STIRR would often use to hedge interest rate risk. OIS was a type of interest rate swap in which a fixed rate was exchanged for a floating rate. The floating rate reset daily based on the cash rate (rather than BBSW) and was compounded over a specified term (usually the term of the trade). For example, three month OIS was the market's view of where the cash rate would set over the next three months, compounded over three months. In this way, the rate at which three month OIS traded reflects the market's view of potential movements to the cash rate over the next three months. 525 ASIC notes that the market for OIS was generally quite liquid, enabled trade in large volumes, and that they were traded throughout the day. 526 STIRR would usually use OIS in the one to three month tenors to hedge the interest rate risk in STIRR's cash buckets (being the risk that the cash rate decreased and adversely affected STIRR's risk in tenors from one day to three months, as reflected in the Treasury Eagle). If Westpac received OIS, that meant Westpac received the fixed rate and paid the floating rate, which created a long interest rate risk position that would hedge STIRR's short position in its cash buckets. The hedge operated as follows: (a) a decrease in the cash rate would result in a reduction to the STIRR book's marked-to-market value of its existing cash bucket liabilities; (b) however, if Westpac received OIS, that decrease in the cash rate would result in an increase in the mark-to-market value of the OIS trade; and (c) in this way, the two exposures to movements in interest rates above offset one another. 527 The market for OIS was generally very liquid, and Ms Johnston observed that STIRR could often trade in very large volumes which made it useful when hedging was required. However, using OIS brought about basis risk, that is, the risk that STIRR's underlying risk (primarily based on BBSW) moved differently to OIS (based on the cash rate). 528 From time to time, STIRR would trade other contracts with OIS to hedge interest rate risk, such as FRA/OIS or BAB/OIS pairs. Ms Johnston understood that these types of trades to be longer term balance sheet hedges which offset the risk of potential future movements in interest rates adversely affecting Westpac's balance sheet.

(g) FRAs 529 FRAs were agreements to exchange fixed and floating interest payments and could be used to manage interest rate risk or hedge BBSW Rate Set Exposure on a future date. A FRA was for one period and involved one payment by one party, that is the payment obligations of each party to a FRA were netted off so that only a single payment was required. Unlike BAB Futures, FRAs were OTC products that were not traded on any centralised exchange. 530 Ms Johnston said that she did not use FRAs as frequently as BAB Futures to hedge interest rate risk, as FRAs were quite illiquid and it was not a deep market so it was not possible to trade in a similar size as BAB Futures. Given that FRAs were illiquid from time to time, Westpac would often have to pay a premium to enter into one. 531 Contrastingly, ASIC has submitted that FRAs were useful hedging tools, that they could reduce rate set exposure without basis risk because they reference BBSW, and that being leveraged they were a lower cost means of hedging exposure from a funding point than trading Bank Bills directly. I must say that ASIC's submission at the general and theoretical level that it was put is true so far as it goes, but in reality I found Westpac's evidence that using FRAs to reduce rate set risk exposure had its limitations to be more compelling. Let me elaborate. 532 FRAs could manage interest rate risk if a trader held a view on the direction that interest rates would move. For example, if six weeks out from an RBA meeting they held the view that the RBA would increase the cash rate at that meeting, but FRAs were trading at a level that did not factor in any rate rise, they could enter into a three month FRA, resetting in seven weeks' time, in which: (a) Westpac paid the fixed rate and received the floating rate (i.e. BBSW); (b) the counterparty paid the floating rate and received the fixed rate; and (c) if the RBA then increased the cash rate, BBSW in each tenor would likely rise, and money would be made on the FRA when the counterparty paid Westpac the difference between the fixed rate and BBSW. 533 FRAs could also be used to hedge Group Treasury's BBSW Rate Set Exposure. FRAs impacted Group Treasury's rate set exposure, as the Bank would have to either pay or receive BBSW on the reset date. To hedge a rate set exposure, if on a future date STIRR had an obligation to pay based on where BBSW sets, Westpac could enter into a FRA locking in to pay a fixed rate and receive the floating rate BBSW on the same future date. This received BBSW position from the FRA offset the current paid BBSW position and reduced the rate set exposure. 534 Whilst not as common, STIRR would also use interest rate swaps to hedge interest rate risk, although interest rate swaps were generally only used to hedge longer dated risk. Ms Johnston said that she would often prefer to use a BAB Future rather than an interest rate swap, given the greater liquidity and alignment with the short term nature of the interest rate risk she was managing in STIRR. 535 Ms Johnston said that she was not aware of any electronic platform operated by Bloomberg Tradebook Australia Pty Ltd named "BETSY" or an electronic platform operated by BGC Partners (Australia) Pty Ltd named "BGC Trader". She had never traded interest rate swaps, or any other financial product, on those platforms. All interest rate swap transactions she entered into were in the OTC markets, in which trades were negotiated directly between counterparties. 536 A FRA, or forward rate agreement, is an over the counter agreement that involves the counterparties to the agreement exchanging fixed and floating interest payments on a notional amount at a time in the future. 537 A FRA can potentially reduce rate set exposure. For example, if STIRR was likely to have a short rate set exposure on some date in the future, Westpac could enter into a FRA where on that date it paid the fixed rate and received the floating rate (i.e. BBSW), and the counterparty paid the floating rate (i.e. BBSW) and received the fixed rate. Westpac's entitlement to receive BBSW on the future date would offset its short rate set exposure on that date. 538 But a limitation on using a FRA to hedge rate set risk exposure, compared to trading in Prime Bank Bills, was that the fixed leg of the FRA introduced additional outright or general interest rate risk. In the course of giving evidence, Mr Park identified this as a reason why a FRA was often not an appropriate way to hedge rate set risk: [A] FRA is a swap, so it's a fixed for floating. So if you're trying to hedge a floating leg, you're taking on fixed interest rate risk at a forward space, so you're actually adding risk into your portfolio at that point in time… the floating leg will offset the floating leg, but you're taking on risk today by fixing that interest rate. 539 Ms Johnston also identified this shortcoming in the course of giving her evidence: The other thing about when you do a FRA a number of weeks out, you are taking interest rate risk, and if there was an RBA meeting in there somewhere … you are taking then significant risk. 540 In addition to creating additional risk, other shortcomings with using FRAs to hedge rate set risk exposure during the relevant period were that FRAs were expensive and had limited liquidity. 541 Trading in FRAs to reduce rate set risk exposure had the following limitations: (a) the FRA market had limited liquidity; (b) there was a price to be paid for entering into a FRA; (c) the closer to the day of the rate set exposure, the less available liquidity in the FRA market and the more expensive the price; (d) the price for the FRA may be too high for it to be worth hedging exposure; (e) the liquidity in the FRA market may be too limited to meaningfully reduce the risk; and (f) as the price went up and the liquidity went down the closer to the day of the reset risk, using a FRA to hedge rate set risk was best done days in advance of the reset risk, which involved predicting the level of the reset risk which can be uncertain. 542 Further, liquidity and pricing were limitations to using FRAs to hedge rate set risk: (a) Mr Zuber said that "the liquidity during the relevant period was ordinary at best". (b) Mr Roden said that "you can [get a FRA one day in advance] but it tends to be very expensive … It might be a point or two, two basis points", and that "these markets were very illiquid in some of these periods. In fact, extremely illiquid". He also said in his second affidavit that "[o]ften FRAs at an appropriate price and volume are hard to find. Often counterparties in the market will be uncertain about the same possible market moves which can make it hard to find a counterparty willing to take on the risk at a competitive rate. As a result, the shorter the time period before the start date of the FRA, the more illiquid the market becomes and the higher the transaction costs". (c) Ms Johnston said that "pricing and liquidity in the FRA market was often less than ideal, and so there might have been times where we wanted to but you might not be able to get the liquidity that you want, the pricing might not seem very good", and that "there's issues with FRAs around liquidity and price". She also said in her affidavit that "FRAs are quite illiquid and it is not a deep market … Given that FRAs were illiquid from time to time, Westpac would often have to pay a premium to enter into one". (d) Mr Conway said that "[p]ost sort of 2007, 2008, the liquidity in that market [FRAs] sort of dried up". 543 One seeming advantage of using a FRA, rather than trading in Prime Bank Bills, to hedge a rate set exposure is that FRAs could be entered into in advance of the day of the exposure, whereas Prime Bank Bills could only be traded on the day of the exposure. But this advantage was more apparent than real. Mr Roden gave evidence that, given the volatility in Group Treasury's BBSW Rate Set Exposures, projected exposures would often change over time, which meant there were limits to how much exposure could be managed in advance of the day. Closer to the date of the relevant exposure (when the exposure could be predicted with more certainty), the FRA market was less liquid and more expensive. 544 I also agree with Westpac that the evidence of Mr Masnick that he used FRAs to hedge rate set risk in Westpac's Financial Markets division is of no assistance in determining whether FRAs were a better mechanism to hedge rate set risk exposure than trading in in Prime Bank Bills, given that Financial Markets was unable to trade in Prime Bank Bills. Similarly, Mr Rotcer Brizuela's evidence concerning NAB may likewise be disposed of; its Banking Book Risk Management (BBRM) desk used FRAs to hedge rate set risk exposure, but it is important to remember that that desk within NAB was unable to trade in Prime Bank Bills to manage rate set risk exposure.

RATIONALES FOR TRADING PRIME BANK BILLS 545 Mr Zuber, Mr Roden and Ms Johnston each gave evidence regarding what they considered to be possible commercial rationales for Westpac's trading of Prime Bank Bills. Much of this general material was not subjected to challenge by ASIC, notwithstanding their contention that Westpac personnel traded Prime Bank Bills for the purpose of moving the BBSW rate both on specific contravention dates and as a practice. 546 Without expressing any opinion on how likely any rationale might have been on any particular day or generally, what follows is a summary of the possible commercial rationales as they relate to Group Treasury's trading of Prime Bank Bills. 547 I have no reason to doubt any of this evidence in the generality with which it was expressed in terms of setting out for me the possible commercial rationales for trading Prime Bank Bills.

(a) Purposes for buying Prime Bank Bills (non-interest rate risk)

Buying and holding Prime Bank Bills for liquidity management 548 From 2009 to 2012, Mr Zuber oversaw the building of Westpac's liquid asset holdings from around $20 billion to around $110 billion. Prime Bank Bills were part of those holdings. In the relevant period, his desire for Group Treasury to hold a reasonable amount of Prime Bank Bills meant that it usually held around $6 billion to $10 billion of Prime Bank Bills. 549 Because of the importance Mr Zuber gave to the objective of building liquid assets, he was willing (within limits) for Westpac to pay a price premium to hold short-dated liquid assets such as Prime Bank Bills, that is, rather than buying longer-dated securities which afforded a higher yield but would not have been as liquid. He said that Westpac would pay more for the flexibility of holding short-dated Prime Bank Bills which could be liquidated easily. 550 Further, whilst the STIRR Desk held a range of other short-dated securities in addition to Prime Bank Bills, Ms Johnston perceived that those other securities had certain limitations: (a) Government assets which, in her experience were not very liquid, and were very expensive when compared to Prime Bank Bills, often trading five to fifteen basis points below BBSW; (b) Bank Bills issued by non- Prime Banks (Non-Prime NCDs) which: (i) were not liquid at all, as Non-Prime NCDs could not be traded in the BBSW Rate Set Window or the Bank Bill Market more generally; (ii) were only available in relatively small amounts of $50 million to $200 million, as the issuers of those NCDs were quite small; and (iii) while Non-Prime NCDs were cheaper than Prime Bank Bills, that was because they were generally purchased from banks with a lower credit rating than the Prime Banks and as such their paper was priced at a margin above BBSW to reflect the increased credit risk. These securities would always be held to maturity and may have been rolled (that is, re-issued to Westpac) by the issuer at that time. 551 While Mr Zuber had a general idea for the level at which he wanted Westpac to hold Prime Bank Bills, he also desired flexibility so that Prime Bank Bills could be acquired at appropriate prices and when it best suited other aspects of Group Treasury's activities. 552 While Prime Bank Bills formed a key part of Group Treasury's liquid asset position, they also performed other functions. For example, Group Treasury maintained a buffer of short-dated securities, such as Prime Bank Bills, to fill gaps in the cash position as a result of unexpected cash outflows. It was not unusual for the Bank's cash position to change significantly in a very short period of time as a result of unexpected funds flow, such as movements of funds from large corporate customers, and in those instances, Prime Bank Bills could be sold to rebuild the Bank's cash position. 553 Mr Zuber said that he valued having and holding 1 month Prime Bank Bills in particular because they were very short-dated securities, which matured in a very short period of time and, as such, allowed a degree of flexibility that assisted in managing the liquidity and funding profile given the potential swings in the cash flow position. Three month Prime Bank Bills were attractive for similar reasons. 554 The risk of not having a liquid asset buffer is a crisis occurred was that the Bank would not be ready or able to fund itself as a going concern. Building up its short-dated liquid asset buffer outside of a crisis situation gave the Bank the ability to speak to investors from a position of balance sheet strength. Liquid asset holdings made Westpac a safe investment and therefore assisted the Bank to raise funds at a lower cost. 555 Ms Johnston also considered that Prime Bank Bills had additional strengths as a liquidity-related asset. She held the view that 1 month Prime Bank Bills in particular were often offered for sale at what she regarded to be attractive yields given their short term and low credit risk, which made 1 month Prime Bank Bills cheap to buy. In addition, 1 month Prime Bank Bills matured quickly or could be sold or repo'd with the RBA if Westpac's funding position or liquidity needs changed. Buying and holding 1 month Prime Bank Bills was a flexible way of managing short term liquidity and reducing surplus cash that would otherwise be left with the RBA. 556 In relation to this rationale, I note that ASIC submits, relying upon the evidence of Mr Zuber, that generally speaking, there was no pressing need to buy or sell Prime Bank Bills on any given day from a liquidity perspective. 557 Each of Mr Zuber and Mr Roden gave evidence that during the relevant period it was a practice of Group Treasury to hold a certain quantity of Prime Bank Bills as a liquidity buffer. Mr Zuber gave evidence of the average amount of holdings in each year of the relevant period. But I accept that in assessing this alternative explanation for trading, it is important to take into account that Mr Zuber in his first affidavit said: [82] While I had a general feel for the level at which I wanted Westpac to hold Prime Bank Bills, it was also necessary for there to be flexibility so that Prime Bank Bills could be acquired at appropriate prices and when it best suited other aspects of Group Treasury's activities … … [124] While I always wanted Group Treasury to hold a buffer of Prime Bank Bills, I placed no constraints on the STIRR desk around holding any minimum or maximum amounts and did not direct the timing of when Prime Bank Bills should be bought or sold. Those decisions were left to the trader on the STIRR desk who participated in the Bank Bill Market each day, and was therefore were best placed to determine if prices and other market conditions were attractive. … [133] Westpac could choose to hold onto Prime Bank Bills that it wished to sell or wait to issue its own paper until the price was attractive to Westpac. Equally, Westpac could wait to buy Prime Bank Bills until a desirable price was offered. Westpac would not buy or sell Prime Bank Bills at any price. 558 ASIC says that Mr Zuber acknowledged that generally speaking there was no pressing need to buy or sell Prime Bank Bills on any given day from a liquidity perspective. Accordingly, so ASIC says, this consideration was unlikely to rise above a matter that could be seen as consistent with a course of trading rather than the predominant cause of the trading. 559 I agree with ASIC, generally speaking.

Inventory management purposes 560 Because Prime Bank Bills were of relatively short duration, it was necessary to acquire new Prime Bank Bills constantly to replace them as they matured and redeploy the funds that had been returned to Westpac following their maturity. In order to ensure that Group Treasury was maintaining its inventory of Prime Bank Bills as efficiently as possible, it needed to look for opportunities to buy either at a good price or, in any event, where liquidity in the market could be found at a reasonable price. 561 There was a pattern of Westpac's inventory of 1 month and 3 month Prime Bank Bills decreasing over time (due to constant upcoming maturities) and then being built back up again by purchasing new Prime Bank Bills. There was also a general disposition towards buying and holding Prime Bank Bills in the one month tenor compared to other tenors. 562 Over the relevant period, it was usual for STIRR to hold more Prime Bank Bills with a duration of one month or less than Prime Bank Bills in any other tenor, and Westpac held a fairly steady inventory of around $6.3 billion of Prime Bank Bills in the one month or less tenors. 563 Westpac held on average per month: (a) $2.137 billion of 1 month Prime Bank Bills in 2010, and a further $4.158 billion of less than 1 month Prime Bank Bills; and (b) $1.882 billion of 1 month Prime Bank Bills in 2011, and a further $3.742 billion of less than 1 month Prime Bank Bills. 564 In addition, Westpac's daily average purchases of 1 month Prime Bank Bills in the Bank Bill Market during the relevant period were: (a) approximately $370 million in 2010; (b) approximately $344 million in 2011; and (c) approximately $305 million in 2012. 565 It was necessary for Westpac to be in the market almost every day to maintain the level of holdings of Prime Bank Bills in the one month tenor. For that reason, STIRR would try to acquire the asset consistently over time but would not necessarily acquire them every day. Finding liquidity in the Bank Bill Market (that is, volume) was an important part of ensuring that the buying of Prime Bank Bills did not become overly expensive. 566 During the relevant period, Mr Zuber regarded 1 month Prime Bank Bills as being reasonably good value, given their short term liquidity. 567 Ms Johnston also gave evidence regarding how the purpose of inventory management influenced her activities as a trader. She and Mr Roden would regularly discuss STIRR's inventory and how best to manage it. They would also discuss considerations around current market pricing of Prime Bank Bills. That is, what they considered to be fair value and whether Prime Bank Bills were trading at an attractive yield. 568 In order to maintain the level of inventory, she tried to consistently purchase Prime Bank Bills (primarily in the one month tenor) in the Bank Bill Market. There was no minimum or maximum requirement for holding Prime Bank Bills (I understand this to be a reference to Prime Bank Bills generally, excluding any counterparty-specific credit limit that Westpac may have had) and she said that she would not buy Prime Bank Bills at any price solely for the purposes of inventory management. 569 Ms Johnston said that she would capitalise on the opportunity to purchase Prime Bank Bills if the yields were high (and therefore the price was low) and could buy in volume at that price. However, she would not know what level other market participants were willing to sell Prime Bank Bills until trading commenced in the BBSW Rate Set Window.

Managing excess cash 570 Westpac's general approach to its Prime Bank Bill portfolio was to issue Prime Bank Bills in the six or three month tenors and to buy in the one, and to a lesser extent, the three month tenors. That allowed Westpac to obtain funds for a longer duration and deploy them more flexibly as short term investments. One month Prime Bank Bills produced a more favourable return than other short term investments and were highly liquid (both in trading and in their maturity profile). Accordingly, where Group Treasury had excess cash, the acquisition of short dated Prime Bank Bills might be a desirable mechanism to utilise those funds. Mr Zuber said that although theoretically Westpac could have placed its surplus funds in its exchange settlement account with the RBA, practically, this was not considered a feasible option for the approximately $6 billion to $10 billion dollars that was invested in the Prime Bank Bill portfolio. The RBA would have queried Mr Zuber about Westpac leaving such amounts in their accounts overnight. In addition, the RBA offered 25 basis points below the cash rate for amounts left with the RBA overnight, which was much less attractive than BBSW. 571 While managing excess cash was one rationale for purchasing Prime Bank Bills, building and maintaining Westpac's holdings of Prime Bank Bills was not necessarily constrained by its cash position on any given day. If Westpac's opening position for the day was short cash, Mr Zuber would not expect that to limit trading in Prime Bank Bills. 572 If Westpac was short on cash it was still possible to purchase Prime Bank Bills (and other assets). That is because it was possible to obtain cash: (a) at the cash rate in intra-day repo's with the RBA; (b) at the cash rate from other banks in the interbank overnight cash market; (c) pursuant to longer term repo arrangements with the RBA; (d) using FX forwards which convert Westpac's USD issuance to AUD; or (e) at the prevailing levels of BBSW by issuing NCDs to customers or in the Bank Bill Market. 573 In addition, cash could also be added to Westpac's cash position as a result of its general activities or movements in foreign currency, which impacted the amount of collateral posted for foreign currency derivatives. 574 Traders on the STIRR Desk were expected to be aware of Westpac's daily Cash Position Report, which I have previously described. It relevantly comprised customer deposits and upcoming maturities of securities held. All Group Treasury staff sat within close proximity to each other and as a result, communicated with each other throughout the day in relation to the changes in the cash position. 575 Ms Johnston said that purchasing Prime Bank Bills was an effective way for Westpac to invest excess cash at low risk and that holding Prime Bank Bills generated a return for any excess cash at a spread above the cash rate. At the same time, the cash invested remained reasonably accessible if funding conditions deteriorated and the Prime Bank Bills needed to be liquidated or could be held to maturity when the cash would be returned. 576 Now ASIC said that it is improbable that the cash position was a significant consideration for Group Treasury in its trading in Prime Bank Bills during the BBSW Rate Set Window. 577 In cross-examination, Mr Zuber acknowledged that "the cash was important but not necessarily overly critical". But ASIC says that in fact the precise composition of Group Treasury's cash position appears not to have constrained Group Treasury's trading at all or the witnesses' assessment of that trading. ASIC says that Mr Zuber's evidence offers a good example of this. He justified Group Treasury's buying of Prime Bank Bills as consistent with a desire to deploy excess cash on 12 of the 16 pleaded occasions. But of those 12 occasions, ASIC says that Group Treasury was short cash when combining the AUD and USD position on four occasions and Group Treasury was short AUD on three occasions. 578 Moreover, ASIC says that both Mr Zuber and Mr Roden said that being short cash would not prevent Group Treasury buying Prime Bank Bills. Mr Zuber also acknowledged that "it was not unusual for [Westpac's] cash position to change significantly in a very short period of time". And Mr Roden said that "the early morning position was a useful guide" only. 579 I must say that I tend to agree with ASIC that buying Prime Bank Bills may be consistent with the management of excess cash, but it does not appear to be the sole or dominant reason for the purchases on most occasions.

(b) Purposes for selling Prime Bank Bills (non-interest rate risk)

Selling and issuing Prime Bank Bills to raise funds 580 The main business of Westpac was and remains to write loans to and gather deposits from corporate, business and retail customers. The net position of its loans and customer deposits results in a cash shortfall. One of the mechanisms by which Westpac raised the funds necessary to offset the net shortfall was to issue and sell Prime Bank Bills. During the relevant period, it was common for Westpac to sell or issue Prime Bank Bills in the three and six month tenors for funding purposes. Selling Prime Bank Bills would also support Westpac's banking operations in circumstances where there was a current or anticipated short term change in its cash flow. 581 From time to time, Westpac also issued or delivered 3 month Prime Bank Bills into the BAB Futures close as a means of both funding Westpac and seeking to take advantage of any price differential between the BAB Futures market and the Bank Bill Market. If the implied yield in the BAB Futures contract closed at a level that was lower than the 3 month BBSW, Westpac could take advantage of the arbitrage opportunity between the price of the BAB Futures and the price of the physical Prime Bank Bill. By delivering or issuing 3 month Prime Bank Bills into the BAB Futures close at a lower yield, Westpac could raise funds more cheaply than on the Bank Bill Market. 582 Ms Johnston provided some insight regarding fund raising on the Bank Bill Market. She received information regarding Westpac's funding position and strategy from funding meetings and Weekly Maturity Forecast, as well as the daily Cash Position Report and frequent conversations with members of Group Treasury who worked on the Cash Desk, IMM and in offshore offices. If other sources of funding were less attractive or unavailable to Westpac (such as offshore or long term markets), STIRR could sell or issue additional Prime Bank Bills. 583 She said that she would use the Bank Bill Market to sell Prime Bank Bills or issue NCDs of typically three to six months in duration to raise cash. Before selling or issuing she would consider: (a) the yield at which Prime Bank Bills were trading in the BBSW Rate Set Window on the day and on prior days; (b) the levels at which OISs were trading; (c) for funding in the six month tenor, the six month "strip" level, being a synthetic six month rate calculated using BAB Futures; and would seek to issue at the level at which she could fund Westpac most cheaply, that is, to minimise its liability to pay interest on the Prime Bank Bills issued. 584 Westpac might also purchase 3 month Prime Bank Bills in the week leading up to a BAB Futures expiry in the event that an arbitrage opportunity arose between the two products. Even if there was no arbitrage opportunity, Westpac might decide to deliver Prime Bank Bills through the BAB Futures expiry as an alternative source of funding.

Selling Prime Bank Bills when they were no longer suitable 585 If STIRR acquired Prime Bank Bills for a particular purpose (e.g. delivery into the BAB Futures close), and the Prime Bank Bills were not suitable for that purpose, those Prime Bank Bills could be sold. Similarly, STIRR tended to sell early 3 and 6 month Prime Bank Bills before the end of the earlies, and late 3 and 6 month Prime Bank Bills before the end of the lates, to ensure that its inventory remained as liquid as possible.

(c) Buying and selling Prime Bank Bills to manage interest rate risk 586 As I have previously discussed, this particular commercial rationale, its commercial effectiveness and its influence as a factor for trading in the minds of bank officers, was the focus of substantial submissions by ASIC. As I have already said, in my view the trading of Prime Bank Bills could manage both outright interest rate risk and rate set exposure risk. As set out above, one of Group Treasury's key functions was to manage interest rate risk, including the short term interest rate risk of Westpac which was centralised in the STIRR book. Trading Prime Bank Bills was one of the ways in which that short term interest rate risk could be managed. It could be used to manage outright interest risk as well as rate set exposure risk. 587 For example, buying Prime Bank Bills in circumstances where STIRR or Group Treasury was a net payer of interest (having a "short" position) had the effect of offsetting and reducing the total face value of liabilities and other interest rate sensitive instruments pursuant to which Westpac paid interest. That was because a Prime Bank Bill was an asset pursuant to which Westpac received interest, as such, any interest received on the Prime Bank Bill offset and reduced the total face value of the liabilities and other interest rate sensitive instruments pursuant to which Westpac paid interest. Such purchases reduced the "short" position and that effect was captured in the Treasury Eagle. 588 Moreover, as I have already indicated, trading Prime Bank Bills could affect Group Treasury's BBSW Rate Set Exposure, a process described by Westpac witnesses as "hedging". Buying Prime Bank Bills when Group Treasury had a short rate set exposure or selling Prime Bank Bills when Group Treasury had a long exposure, was what was described by Westpac witnesses as an almost "perfect hedge" for that exposure, which would be reduced by the amount of Prime Bank Bills bought or sold. For example, as Westpac contended, if there was a short Group Treasury rate set exposure of $1 billion in the one month tenor, after BBSW set that day Westpac would be paying 1 month BBSW on the face value of the rate set amount (i.e. $1 billion). If, during the BBSW Rate Set Window, Westpac acquired $500 million worth of 1 month Prime Bank Bills, those Prime Bank Bills would be assets receiving interest at the yield traded that day (i.e. BBSW or close to it) and, as a result, Westpac would effectively on a net basis pay 1 month BBSW on $500 million instead. The rate set exposure to pay interest would be reduced and offset by the Prime Bank Bills purchased under which Westpac had a right to receive interest. In this way, buying Prime Bank Bills reduced Westpac's exposure to paying interest by the amount of interest received on the Prime Bank Bills acquired. Similarly, as Westpac contended, if there was a long Group Treasury rate set exposure of $2 billion in the three month tenor, after BBSW set that day Westpac would be receiving 3 month BBSW on the face value of the rate set amount (i.e. $2 billion). If, during the BBSW Rate Set Window, Westpac sold $500 million worth of 3 month Prime Bank Bills, those Prime Bank Bills would be liabilities paying interest at the yield traded that day (i.e. BBSW or close to it) and, as a result Westpac would on a net basis effectively receive 3 month BBSW on $1.5 billion instead. The rate set exposure to receive interest would be reduced and offset by the Prime Bank Bills sold or issued pursuant to which Westpac was obliged to pay interest. In this way, selling Prime Bank Bills reduced Westpac's exposure to receiving interest by the amount of interest paid on the Prime Bank Bills issued or sold. 589 But of course and notably, the economic or arithmetic effectiveness of any "hedge" was affected by any discrepancy between the yield of the Prime Bank Bills that were purchased/sold and the BBSW that was actually set that day. Further, I agree with ASIC that the effectiveness of any hedging purpose was substantially less than Westpac suggests. 590 Let me also deal with another point. 591 The Bank Bill Market was not always highly liquid and Westpac may have sought to deal at a considerable volume in order to find either a willing seller or willing buyer of Prime Bank Bills. In such circumstances, trading may or may not have had a consequential effect on the yield at which Prime Bank Bills trade. 592 Accordingly, all other things being equal, Mr Zuber said that Westpac would seek to acquire or sell Prime Bank Bills on days where, if the level of the Bank's trading affected the yield at which Prime Bank Bills were trading, any effect on that yield would not also adversely affect Group Treasury's rate set exposure. 593 It was considered by Mr Zuber prudent not to take steps which could potentially put upward pressure on rates if Group Treasury had a short exposure or a paid set, as Westpac could ultimately pay more interest on its net liabilities that reset that day. As such, days where Group Treasury had a net short position were more favourable days upon which to acquire Prime Bank Bills and less attractive days on which to sell or issue Prime Bank Bills from a risk management perspective. 594 Similarly, according to Mr Zuber, it was considered prudent not to take any step which could potentially put downward pressure on rates if Group Treasury had a long exposure or a received set, as Westpac could ultimately receive less interest on its net assets that reset that day. As such, days where Group Treasury had a net long position were more favourable days upon which to sell or issue Prime Bank Bills and less attractive days on which to acquire Prime Bank Bills from a risk management perspective. 595 Ms Johnston as a trader made similar comments about her own activities. She was conscious that trading in Prime Bank Bills during the BBSW Rate Set Window could potentially affect the rate at which BBSW set. She would not know what price or volume other market participants were willing to buy or sell Prime Bank Bills and how trading and price action would unfold until trading commenced in the BBSW Rate Set Window. All other things being equal, if she had a degree of flexibility as to when she had to conduct a particular trade (such as knowing that she needed to issue Prime Bank Bills but not necessarily immediately), she might consider not trading on a day where if Westpac's trading did happen to affect the level of BBSW it might have an adverse effect on Group Treasury's BBSW Rate Set Exposure. But this was said to be just one of a number of considerations she would have regard to and it would not have interfered with buying or selling where more urgent needs arose. 596 Now ASIC has sought to leverage off such evidence to support its own case thesis. 597 It submits that it is "illusory and economically irrational" to distinguish between Westpac choosing to buy or sell on a particular day to avoid any detrimental effect on BBSW, and choosing to buy or sell on a particular day to positively seek a beneficial effect on BBSW, i.e. manipulate BBSW, the latter being its case thesis. This point was put by Mr Michael Borsky QC for ASIC. Now I acknowledge the intellectual force and economic rationality of his submission. Nevertheless I do not consider that if one traded for the former purpose, one would also necessarily be prepared to trade for the latter purpose. After all, the former is legal conduct, the latter (depending upon the satisfaction of various statutory elements or conditions) is not.

(d) Trading in Prime Bank Bills to make a profit 598 In addition to the funding and liquidity purposes and risk management rationales outlined above, trading in Prime Bank Bills was a way in which Westpac could optimise its financial position. The traders on the STIRR desk had views of Prime Bank Bill yields and whether those yields represented fair value. If a STIRR trader saw an opportunity in the Bank Bill Market due to mispricing, it was expected that they either buy or sell Prime Bank Bills based on their view of fair value of Prime Bank Bill yields as long as Westpac's funding or liquidity position was not jeopardised. Mr Zuber said that it was not expected that other market participants would act to correct any anomalies in pricing as such participants had significant resources to take advantage of market anomalies and sophisticated views of interest rate movements. 599 That said, Westpac's Prime Bank Bill holdings and activities in the Bank Bill Market were small compared to Westpac's other activities. On average, during the relevant period, Westpac raised funds by issuing amounts approximately five times as much as its Prime Bank Bill holdings. The Prime Bank Bill portfolio was part of Group Treasury's broader approach to funding and liquidity, which was not focused purely on Prime Bank Bills.

(e) Trading in Prime Bank Bills for the purpose of price discovery 600 When Westpac sought to buy or sell Prime Bank Bills, the trader on the STIRR Desk may have had to make an offer to sell or a bid to buy Prime Bank Bills to find out the level at which other participants in the Bank Bill Market were willing to trade. Transactions of that kind would primarily be for the purpose of price discovery in order to determine where other participants were willing to trade at large volumes. 601 For example, if Westpac was willing to accept a yield for Prime Bank Bills on a given day of around 4.63 to 4.64, a trader might initially submit a bid at 4.64. If that bid was the best bid in the market and was hit by a seller for $20 million worth of volume, he might then submit another bid at 4.64. If no further sellers were hitting the bid at 4.64, he or another market participant might submit a bid at 4.63. Being the best bid in the market, that new bid of 4.63 would display on broker screens. If that bid of 4.63 was hit by a seller, the trader might choose to bid again at 4.63 as it would appear that there was liquidity at the yield of 4.63. If that bid was not hit, he (or other market participants) might continue to decrease bids until further liquidity was found. However, if volume was being traded at 4.63, he would usually continue to bid at the same level.

(f) Trading in Prime Bank Bills to support the operation of the Bank Bill Market 602 As a Prime Bank, Westpac had a responsibility under the AFMA Negotiable/Transferable Instruments Conventions (NTI Conventions) to support the operation of the Bank Bill Market. During the relevant period that involved providing consistent price support for all Prime Bank Bills in the Bank Bill Market, and endeavouring to maintain a minimum issuance level of $5 billion. 603 In addition to these AFMA responsibilities, Westpac had a genuine interest in the proper operation of the Bank Bill Market. As I have said, Westpac viewed Prime Bank Bills as important to building its liquid asset buffer and meeting short term funding needs. As such, the availability of investors and issuers or sellers in the Bank Bill Market was important. If market participants lost confidence in the operation of the Bank Bill Market, due to extreme volatility or otherwise, the market would cease to be liquid and Westpac would lose an important means of managing its funding and liquidity. 604 As to what this commitment meant at the level of individual traders, Ms Johnston said that providing price support and liquidity for Prime Bank Bills did not oblige Westpac to engage in two-way pricing (that is, providing both a bid and an offer). While she would show two-way prices if necessary, she would often enter a bid or offer through the brokers in the BBSW Rate Set Window if she could see that there were one-way offers or bids that did not have a counterparty on the other side (that is, a one-sided market). If her bid or offer was taken by another market participant, her trade would be supporting liquidity in the Bank Bill Market. She could then choose to show another bid or offer at the same or a different level.

(g) Opportunistic trading for price 605 Ms Johnston said that she would trade in Prime Bank Bills for funding and liquidity purposes if she could find liquidity during the BBSW Rate Set Window at an attractive price. A trader would purchase Prime Bank Bills if there were sellers willing to offer at a high yield and therefore low price. Alternatively, they would sell or issue Prime Bank Bills if there were buyers willing to bid at a low yield and therefore high price. They would be opportunistic when trading to benefit from low prices (higher yields) if a buyer and high prices (lower yields) if a seller. As Westpac needed to both buy liquid assets and raise funds on a regular basis, it made sense to buy or sell Prime Bank Bills to take advantage of attractive prices on any given day. 606 Ms Johnston said that the view on whether or not Prime Bank Bills in the BBSW Rate Set Window were cheap or expensive on any given day was affected by a range of factors, and in particular, the longer term assessment of the RBA cash rate level, and the timing and direction of any potential moves. This assessment was informed by many factors, including: (a) Australian economic data, such as unemployment figures and the CPI; (b) trends in the trading of other financial products, such as BAB Futures and OISs; (c) events in other economies and financial markets generally; (d) the global outlook for interest rates in the US, UK and Europe; and (e) economic strategy papers and research providing market commentary on future movements in interest rates. 607 By being active and trading in the Bank Bill Market each day, a trader would also gain information regarding funding market sentiment which would help develop an assessment of the fair value for the spread between the cash rate and BBSW, which would influence the assessment of value for Prime Bank Bills. In order to determine if the yield at which Prime Bank Bills were trading was attractive, a trader would also consider where Prime Bank Bills were trading relative to other financial products. 608 If Prime Bank Bills were trading at a price that a trader thought was cheap (because the yield was high) then depending on other factors, they may buy Prime Bank Bills. Conversely, if Prime Bank Bills were trading at a yield that was thought to be low (making the price high), then depending on other factors, they may sell or issue Prime Bank Bills. While a trader would trade opportunistically to take advantage of attractive prices in the BBSW Rate Set Window, Ms Johnston said that she would also consider the needs of Group Treasury on any given day (such as executing short term funding or building short term asset holdings) which would also affect her view on fair value for Prime Bank Bills.

(h) Compliance framework 609 Let me deal with one other matter at this point relevant to trading. 610 During the relevant period, Westpac did not have any policies or procedures that specifically addressed trading in the Bank Bill Market or making submissions to AFMA as to Westpac's view of the mid-rate of the yield for Prime Bank Bills. 611 But from July 2012, Westpac had in place a policy document entitled "Monitoring of WBC Rates Contribution to the AFMA 10am BBSW Rateset", but this policy focused entirely on the submission process as opposed to the underlying trading that informed the submissions. But in December 2013, Westpac, recognising that financial benchmarks played an important role in the financial systems' core functions of pricing and allocation of risk and capital, adopted a "WIB Benchmarks Policy". Further, from February 2014, Westpac had an updated version of the 2012 policy which dealt with additional requirements for monitoring trading during the BBSW Rate Set Window. Let me elaborate. 612 The July 2012 "Monitoring of WBC Rates Contribution to the AFMA 10am BBSW Rateset" policy required that the Dealing Room Risk Manager, Financial Markets & Treasury Risk monitor Westpac's BBSW contribution and ensure that they were consistent with market rates, by checking Westpac's contributed rates against those of other contributors each day. 613 The December 2013 "WIB Benchmarks Policy" had broad application to all rate submissions by WIB. In one sense it was considered a base line policy upon which was to be superimposed the additional best practices or rules/regulations in the relevant jurisdiction of operation. Although primarily concerned with submissions for benchmark rates, I note that the policy stated in relation to conflicts of interest: Conflict of interest situations should be avoided as far as possible to ensure there is adequate separation between the Contributing Officer and the Supervisor, and other persons and/or businesses who actively engage in trading the asset class or any financial instrument that references the Benchmark. 614 The February 2014 "Monitoring of WBC Trading Activity AFMA 10am BBSW Rateset" was an updated version of the 2012 policy and required Treasury traders participating in the Bank Bill Market to complete a daily template setting out their trading activity and providing the rationale behind their actions. Potential rationales included issuance, credit purposes, liquid asset requirements, hedging interest rate risk and market making. These templates were to be reviewed by the risk manager. 615 Finally on this aspect, in terms of risk, I have referred earlier to Westpac's "Dealing Room Policies for Trade Risk: Market Risk Management" and its "Dealing Room Policies for Risk in Financial Markets and Treasury". 616 I will return to a discussion concerning Westpac's policies towards the end of my reasons when I address ASIC's s 912A case.

DYNAMICS OF THE BANK BILL MARKET AND TRADING STRATEGIES 617 Mr Zuber, Mr Roden and Ms Johnston all gave evidence regarding their general experiences with the Bank Bill Market. Most of this evidence was not challenged by ASIC. This material provides a useful understanding of how individuals at different levels of Westpac viewed the Bank Bill Market and how they approached it in their day-to-day activities. 618 In the relevant period, the Bank Bill Market operated very differently to other, more well-known, markets such as the market for listed equities or a commodities market. Mr Zuber cogently explained that this was so for a range of reasons. 619 First, there were a limited number of large participants that held sophisticated views on current and future interest rates, and therefore held views on the fair value of Prime Bank Bills. 620 Second, Prime Bank Bills were short term instruments used to raise funds at short notice and with little administrative burden by the four major Australian retail banks (including Westpac) and other Prime Banks over the relevant period. As such, for the Prime Banks, Prime Bank Bills were funding instruments with few practical constraints as to how much could be issued (within regulatory limits). There were no inherent characteristics that compelled a Prime Bank to sell or issue them. 621 Third and similarly, Prime Bank Bills were short term instruments that could typically be used to invest cash in return for a spread above the cash rate. As such, for the Prime Banks, Prime Bank Bills were investment instruments with no inherent characteristics that compelled a Prime Bank to buy them. 622 Fourth, many participants in the Bank Bill Market, in particular the Prime Banks, did not generally have to trade on any particular day. It was Westpac's practice to trade when factors such as liquidity, volume, and price were aligned. Those factors were not guaranteed every day. 623 Fifth, Prime Bank Bills generally traded in lines of $20 million. A bid or offer for Prime Bank Bills of a particular tenor usually did not indicate the volume of Prime Bank Bills ultimately for sale or being sought, other than the $20 million minimum amount. 624 Sixth, it was not possible to know the counterparty with which any participant was dealing or the issuer/acceptor of the Prime Bank Bills bought until after the trade was complete. 625 Seventh, Prime Bank Bill volumes were extremely elastic and liquidity in the market changed on a daily basis. This was primarily due to new economic and financial information from local and global markets, as well as vicissitudes in the funding and liquidity positions of Bank Bill Market participants. On some days, trading of Prime Bank Bills in a particular tenor would be negligible or such bills would not trade at all. 626 Eighth and as I have previously described, Prime Bank Bills traded according to two maturity periods of "earlies" and "lates". That is, in the first half of the month, Prime Bank Bills that mature from the 1st to the 15th of the month are liquid and trade on the Bank Bill Market. This period as known as "earlies". During this period, Prime Bank Bills which matured in the second half of the month were largely illiquid and were not regularly traded on the Bank Bill Market. In the second half of the month, Prime Bank Bills that matured from the 16th to the last day of the month are liquid and trade on the Bank Bill Market. This period was known as "lates". During this period, Prime Bank Bills which matured in the first half of the month were largely illiquid and are not regularly traded on the Bank Bill Market. The earlies/lates split could cause spikes in trading activity at the beginning and end of each maturity period, as market participants sought to sell Prime Bank Bills before they become illiquid towards the end of each period and to buy Prime Bank Bills at the beginning of each period. 627 Ninth, the vast majority of trading in the Bank Bill Market occurred during a 10 minute window around 10.00 am each day. The high speed of trading and the manual nature of the market (conducted through voice brokering and broker screens that were updated manually) meant that market participants had only a very small window of opportunity in which to trade. 628 Tenth, during the BBSW Rate Set Window a trader had to be prepared to make value decisions and react to information very quickly, in circumstances where there was limited information available in relation to the depth of the market and the market participants that day. As such, participants traded in the BBSW Rate Set Window with imperfect information. 629 Finally, market participants could not be distinctly characterised as either buyers or sellers, as participants could be both in the same or different tenors of Prime Bank Bills (although Mr Zuber said in cross-examination that Westpac was typically a buyer in the relevant period). Market participants, in particular Prime Banks, could trade in order to make a profit from temporary price impacts. That is, Prime Banks could trade to take advantage of arbitrage opportunities that arose, given the factors described above. 630 As I have already indicated, the earlies/lates dynamic was a particularly important feature of the Bank Bill Market. For example, trading on 1 June meant that: (a) 1 month Prime Bank Bills being traded would mature from 1 July to 15 July; (b) 3 month Prime Bank Bills being traded would mature from 1 September to 15 September; and (c) 6 month Prime Bank Bills being traded would mature from 1 December to 15 December. 631 This dynamic also had the effect of reducing liquidity in the BBSW Rate Set Window when stock became "off the run". That is, 3 month Prime Bank Bills maturing on 10 November (which would be liquid and readily traded on 15 August) would become relatively illiquid from 16 August onwards. If those 3 month Prime Bank Bills maturing on 10 November were not sold on or before 15 August, STIRR might need to hold those Prime Bank Bills for a further month and a half until 1 October, when they would become 1 month Prime Bank Bills which could be more easily traded in the BBSW Rate Set Window. 632 For that reason, STIRR would often sell 3 or 6 month Prime Bank Bills at the end of the two week "earlies" or "lates" period in order to avoid holding too many assets that could not be readily traded in the Bank Bill Market in the new maturity period. However, it was Ms Johnston's usual practice to buy and hold 1 month Prime Bank Bills. 633 STIRR would often buy Prime Bank Bills at the beginning of the "earlies" or "lates" period in order to re-build STIRR's holdings of liquid assets. This pattern of buying stock at the beginning of a maturity period and selling towards the end of a maturity period was common among market participants who wanted to ensure the Prime Bank Bills they held were of the utmost liquidity. 634 It was also the case that at the end of each maturity period when most other market participants were selling, those days were highly liquid (from a buyer's perspective) and potentially good days to purchase Prime Bank Bills. Despite being at the end of a maturity band, a trader like Ms Johnston could potentially buy those Prime Bank Bills at an attractive price and keep them for repo with the RBA if necessary. 635 Overall, in the relevant period Westpac viewed the Bank Bill Market as a primary source of short-dated liquid assets and short term funding. As such, Westpac wanted other market participants to continue to trade in the BBSW Rate Set Window as those participants would not invest in Prime Bank Bills (including those issued by Westpac) or sell Prime Bank Bills if yields were highly volatile or there was a lack of liquidity.

(a) Trading strategy - Mr Zuber's evidence 636 Mr Zuber made the following comments concerning his understanding of trading strategy in the Bank Bill Market. Given his position, his understanding and knowledge has some probative force, although the general evidence given on this topic by Mr Roden and Ms Johnston had greater weight. Moreover, the vast majority of such evidence was not seriously challenged by ASIC. 637 First, at the beginning of each day, a trader would start trading with a view of where they thought the reasonable price for Prime Bank Bills would be on that day. That view would usually be informed by matters such as where BBSW set the day before plus any new information that had occurred since then that might affect market sentiment or the supply of, or demand for, Prime Bank Bills. If buying or selling pressure moved the yield at which Prime Bank Bills were trading away from a price that the market regards as reasonable, it was likely that other market participants would trade in a countervailing manner in line with their views of fair value. The nature of the participants in the BBSW Rate Set Window (very large financial institutions with sophisticated and well-researched views on the fair levels of interest rates and the resources necessary to profit from any pricing anomalies in the market) meant that Prime Bank Bill yields in the Bank Bill Market self-corrected and rarely deviated very far from fair levels. 638 Second, Westpac could choose to hold onto Prime Bank Bills that it wished to sell or wait to issue its own paper until the price was attractive to Westpac. Equally, Westpac could wait to buy Prime Bank Bills until a desirable price was offered. 639 Third, each market participant would have a slightly different view of the fair value of Prime Bank Bills, even if participants' underlying views of movements in interest rates were aligned. That is because each participant would have different drivers for trading each day that were to a large degree unknown to other parties. For example, a participant's immediate funding needs might influence their view of what was "fair value" for Prime Bank Bills on that day. This made it more difficult to predict how other participants would behave in the market. 640 During the relevant period, Mr Zuber regularly met with Group Treasury staff on a formal and informal basis to discuss Westpac's balance sheet, the funding position and upcoming deals, liquidity in various funding markets, views on domestic and global interest rates, external market conditions, activities at the other major trading banks and other financial market trends. All of this information fed into Westpac's trading strategy at or around 10.00 am on a particular day.

(b) Mechanics and trading strategy - Mr Roden's evidence 641 Mr Roden provided some insight into his views around the mechanics of trading Prime Bank Bills, most of which was not seriously contested by ASIC. It was Mr Roden's practice, and the practice he instructed other traders on STIRR to adopt, to remain in the market and continue trading after 10.05 am if other participants were still willing to trade.

Mr Roden's views on yields 642 Prime Bank Bills usually trade at a yield of some margin above the cash rate. When forming a view as to what the fair market value of a Prime Bank Bill and whether the yield for a Prime Bank Bill was reasonable (or was too high or too low given market conditions), Mr Roden took into account a number of factors including: (a) the current cash rate; (b) the market's and his expectations of possible cash rate movements; (c) Westpac's cash flows and his sense of other banks' cash flows, for example, expected collateral flows; (d) any premium that should be applied for credit risk; (e) the term to maturity of the Prime Bank Bill; (f) the levels of supply and demand for Prime Bank Bills (for example, at the end of the early or late period demand for Prime Bank Bills would likely be lower); (g) whether alternative funding or investment options presented better value; (h) the possible impact of offshore interest rates on domestic interest rates; (i) credit spreads; and (j) his assessment of risk in the market generally. 643 Other market participants might have different views about the appropriate yield for Prime Bank Bills based on their opinions on current or future market conditions or their individual organisation's cash flows. If this was the case, Westpac might be willing to bid several basis points higher or lower than other market participants in a particular tenor on a given day. 644 A number of different factors affected whether Mr Roden was willing to bid or offer a particular yield for a Prime Bank Bill. For example, on days that Westpac needed to purchase a large volume of 1 month Prime Bank Bills to maintain its liquid asset holdings, he might be willing to accept a slightly less favourable yield in order to find liquidity. Similarly, if the liquidity point appeared to be at a yield which was particularly attractive, he might adjust trading to take advantage of that perceived value and buy more Prime Bank Bills than initially intended on a particular day. Westpac's size and flexibility in terms of how and where it obtained its funding provided scope to take advantage of these opportunities as and when they arose. 645 Moreover, he gave evidence that the face value and trading amounts of Prime Bank Bills could provide a misleading impression of the actual amounts in question. While frequently billions of dollars in Prime Bank Bills could trade on a given day, in reality, the underlying funds flow, while significant, was not in that magnitude. The borrower of a Prime Bank Bill (the "seller" or "issuer") only paid the yield on the Prime Bank Bill and the lender (or purchaser) only received the yield on the Prime Bank Bill. For example, where the yield on a 3 month Prime Bank Bill with a face value of $100 million is 2%, ultimately, the interest component that the borrower pays and the lender receives would only be around $493,150 (using a simple interest calculation). As a result, small changes in the yield of a Prime Bank Bill would not significantly affect the cash flow between the lender and the borrower. If the yield on the Prime Bank Bill of $100 million dropped to 1.95%, this would mean that the borrower would pay and the lender would receive around $487,500, a difference of only around $5,650.

Mr Roden's views on the earlies/lates dynamic 646 To Mr Roden's observation, the earlies/lates convention and the related liquidity issues it caused had an impact on the yields at which Prime Bank Bills traded at particular times in the month. Assuming that market conditions were normal, as the 15th of the month approached, market participants holding "early" Prime Bank Bills would seek to sell those "early" Prime Bank Bills before they became illiquid on the 16th. Similarly, as the end of the month approached, market participants holding "late" Prime Bank Bills would seek to sell those Prime Bank Bills before they became illiquid on the 1st of the following month. All other things being equal, the increased supply available at these times in the month often had the effect of increasing the yields at which Prime Bank Bills were trading, and consequently, increasing the level at which BBSW set. Conversely, at the start of each early or late trading period, market participants would seek to buy Prime Bank Bills to build up their stock of liquid Prime Bank Bills. All other things being equal, this often had the effect of decreasing the yields at which Prime Bank Bills were trading, and consequently, decreasing the level at which BBSW set. 647 In addition, Westpac and other banks had a number of corporate customers with Bank Bill lines. These products were effectively loans made to corporate customers which were supported by an underlying Prime Bank Bill which Westpac (and other banks) might choose to hold or sell in the Bank Bill Market. Because these customers generally preferred 1 month loans, at the maturity date they would request to roll the loan onto another 1 month Bank Bill loan. Although there was no particular convention that applied to this product, if the next 1 month period fell on a non-working day, the new loan's maturity date would roll to the next working day unless that working day was in the subsequent month, in which case it would roll to the previous working day. As a consequence, this meant that customers with Bank Bill lines gradually rolled to the end of the month, leading to a build-up of selling or issuance of Prime Bank Bills around this time. This often added to the selling pressure caused by the conclusion of the late period at the end of the month, and in normal market conditions might have the effect of increasing Prime Bank Bill yields, and consequently increasing the level at which BBSW set. 648 If the market was expecting interest rates to go up, the usual pattern would be distorted. For example, if the market was expecting rates to increase, the drop in yields at the transition of a trading period might be less significant, or possibly, might reverse such that yields actually increased. Conversely, if the market was expecting rates to decrease, the drop in yields from the late to early period might be more significant.

Interacting with brokers 649 Most trading in the BBSW Rate Set Window was completed using a telephone speaker commonly referred to as a "squawk box". I have elaborated on this aspect in an earlier section of my reasons (The Bank Bill Market and BBSW, particularly section (c)). To communicate with the broker, the Westpac trader pressed a button on the speaker and spoke into it. 650 The Westpac trader on a particular day for each tenor would communicate to the broker Westpac's bids and offers for that tenor. Although other words may have been used, this was commonly communicated to the broker by stating the numbers which followed the decimal point in the yield that was being bid or offered for, followed by the month in which the Prime Bank Bills in that tenor matured. Other traders in the Bank Bill Market also traded in this manner. 651 Similarly, the broker would usually communicate the spread between the best bid and the best offer to the traders for each tenor over the squawk box by stating: (a) the numbers following the decimal point in the yield being bid; (b) the numbers following the decimal point in the yield being offered; and (c) the month in which the Prime Bank Bills in that tenor matured. For example, if the best bid on 1 month Prime Bank Bills maturing in May was 4.67, and the best offer was 4.62, the broker might say "67 62 May". The broker might also only communicate the best bid, or only communicate the best offer, depending on the nature of trading on a given day. If this was the case, the broker might say, for example, "67 bid in May" or "62 May offered". In some instances, the broker might also omit the relevant month if, for example, the numbers after the decimal point in different tenors were substantially different. 652 Offers appeared on the broker screens in parcels or "lines" of $20 million worth of Prime Bank Bills (that is, a minimum number of $20 million of Prime Bank Bills could be purchased in a broker transaction). However, it was possible to offer more than $20 million. Mr Roden stated that generally speaking: (a) Brokers would sometimes, but not always, communicate to the relevant Westpac trader when trades occurred in their tenor between other participants or when the Westpac trader completed a trade. Although other words may have been used, this was commonly communicated using the words "done", or to indicate that an offer had been accepted, "taken" or "lifted", or to indicate that a bid had been accepted, "given" or "hit". Brokers also regularly used the word "yours" to indicate that a Westpac trader had taken an offer or been given stock in response to a bid. (b) Sometimes, but not always, the broker would also communicate the volume of stock purchased by the Westpac trader by referring to how many million dollars worth of stock they had purchased. For example, if the Westpac trader had purchased $100 million worth of Prime Bank Bills at a yield of 4.62, the broker might say "100 done at 62".

Finding the liquidity point 653 During the BBSW Rate Set Window, it was common for market participants, including Westpac, to start trading by making offers in relatively small amounts, for example the minimum line of $20 million, in order to find the liquidity point in the market in a process of price discovery. In this way, participants traded in smaller volumes to find the yield at which sellers or buyers on the other side were willing to trade in volume. This was necessary because only the best bid and offer was disclosed on the broker screens, and usually only for the minimum amount of $20 million, so participants did not have visibility of market depth, that is, the volume of available demand and supply away from the current best bid and offer (or even at the best bid and offer beyond volumes quoted in the screens). 654 Because bids and offers were usually, but not always, displayed in $20 million parcels and trading was done anonymously through brokers, participants were not usually aware of the counterparties with whom they were trading. Mr Roden stated that when trading in the BBSW Rate Set Window, a participant could never be sure exactly how much volume might be available at a particular yield, that is, how deep the market was. Although there might be an offer on screen at a yield of 4.63, that could mean that there was $20 million of volume available at that yield, or it could mean that there was $500 million of volume available at that yield. 655 Bids and offers could appear and disappear within seconds as trades were completed and quite often, the broker screens did not immediately show bids and offers. This at times made it difficult to keep track of the flow of trading. Because of the speed at which trading occurred during the BBSW Rate Set Window, it was not uncommon for a trader to have bought or sold more than he/she expected. If that occurred when Mr Roden, or another member of his team, was trading it was his practice to always honour and never cancel trades that were completed during the BBSW Rate Set Window. Similarly, individual banks, including Westpac, had no certainty as to how much trading volume occurred in the whole market on any particular day as not all trades were shown on screens, trading flows were difficult to follow and this information was not provided by brokers.

Issuer/acceptor credit limits and associated credit risk 656 Another feature of the Bank Bill Market that Mr Roden commented upon was that when acquiring Prime Bank Bills during the BBSW Rate Set Window, traders did not know which bank's Prime Bank Bills they were purchasing (i.e. the "issuer" or "acceptor" of the Prime Bank Bill) or usually which market participant they were purchasing the Prime Bank Bills from (i.e. the "counterparty" to the trade). Sometimes, if asked, brokers might communicate the identity of the counterparty to disclosed bids and offers. But more commonly traders did not find out the identity of the counterparty to their trades or which bank's Prime Bank Bills they had purchased until trade confirmations were received from the brokers later in the day. 657 Brokers would provide the details of trades completed during the BBSW Rate Set Window (i.e. volume, identity of issuer or acceptor of Prime Bank Bills traded and counterparties to trades) by around 12.00 pm each day. Brokers would usually do this by sending a confirmation email containing trade details, but sometimes Westpac traders might have telephone calls with brokers shortly after the BBSW Rate Set Window to get a summary of that morning's trading. 658 As Westpac could never be sure of the identity of the issuer or acceptor of purchased Prime Bank Bills in the Bank Bill Market, credit limits on the issuers/acceptors of Prime Bank Bills was an important consideration when trading in the BBSW Rate Set Window. Because a credit limit breach was viewed by Westpac's management to be very serious, it was Mr Roden's usual practice, and the practice he instructed other traders in STIRR to adopt, to keep a reasonable buffer on issuer/acceptor credit limits to ensure that any acquisition of Prime Bank Bills issued or accepted by a particular bank did not result in Group Treasury exceeding the credit limit for that bank. 659 If, for example, Westpac was close to its credit limit on CBA prior to the BBSW Rate Set Window, he might choose not to acquire Prime Bank Bills in the BBSW Rate Set Window on the chance that he might unknowingly purchase CBA Prime Bank Bills and breach the credit limit on CBA. Alternatively, if Prime Bank Bills purchased in the BBSW Rate Set Window turned out to be CBA Prime Bank Bills and Westpac was close to its CBA credit limit, he might then try to sell the CBA Prime Bank Bills the next day so as to reduce Westpac's credit exposure to CBA and bring the CBA credit limit back to a more acceptable level.

Potential effect of trading on the rate 660 Mr Roden's experience of the Bank Bill Market was that it was very difficult to predict with any confidence precisely what would occur. One of the complicating factors was that many of the participants would often trade in very large volumes that could, depending upon the countervailing appetite in the market, have an impact on the price. However, it was also frequently the case that very significant volumes of Prime Bank Bills would change hands with little or no apparent impact on the price because there was a corresponding appetite. Further, predicting when there would be genuine liquidity was very difficult. 661 Another feature of the market that he noted was that most of the participants seemed to have a very good understanding of the interest rate environment which meant that deviations from a reasonable level rarely lasted for very long. Where his team saw prices that were considered to be outside a sensible range they would regularly seek to take advantage of that bid or offer and their balance sheet and resources allowed them to buy and sell for value where prices looked wrong. Mr Roden assumed that other market participants operated in a similar way. 662 That said, Mr Roden was also aware that there would be instances where someone trading in large volumes (or even small volumes) could affect the rate. He was also aware that given the level of trading Westpac needed to do from time to time (either to fund itself or to maintain its Prime Bank Bill inventory), the trading could have an impact on the market. However, given the very regular occurrence that other participants in the market might have a corresponding or greater opposite desire to STIRR, Mr Roden considered that most of the time he could trade in the Bank Bill Market with little impact on price. Indeed, the rate could move contrary to the direction of his trading, that is, the rate could move up despite Westpac's buying or down despite Westpac's selling. 663 Those matters meant that Mr Roden was usually reluctant to speculate on the likely direction of BBSW and very rarely took anything for granted about the possible impact of Westpac's trading. His view was that it was preferable, where possible, not to trade in a way which, if trading did happen to have an effect on the level of BBSW, would adversely affect the rate reset position. He would generally seek to avoid large selling activity on days where Westpac had a paid rate set and generally seek to avoid buying significant volumes of bills on the day when he had a received rate set. He stated that this was not a fixed position and there would have been many days in which he would have ignored that position if Westpac's funding or liquidity management needs required trading on the given day. I have discussed earlier how ASIC has sought to leverage off such evidence in order to support its case thesis. 664 That particular consideration did not arise that frequently because in the overwhelming majority of cases, the team had short rate set positions and needed to buy Prime Bank Bills, and on days when they had larger rate set positions or where there was likely to be particular market volatility, they would often be seeking (as Mr Roden explained it) to hedge that position which also would mean that they were either buying on days when they had a paid rate set or vice versa. I have already discussed ASIC's challenge to that hedging rationale in relation to rate set risk as distinct from outright interest rate risk.

Direct trades 665 On most days during the relevant period, Westpac would also buy and sell Prime Bank Bills with institutional customers and other banks outside of the broker market. These trades were often, although not always, conducted at BBSW flat, that is, the parties would agree in advance that the trade would be at the rate that BBSW set that day.

How Mr Roden traded 666 Mr Roden made the following comments regarding his trading behaviour. First, during the relevant period he often, but not always, conducted Westpac's trading in Prime Bank Bills during the BBSW Rate Set Window for some or all tenors. Other STIRR traders also conducted Prime Bank Bill trading in the BBSW Rate Set Window during that period and it was very common (and was the practice on most days) for different STIRR traders to take responsibility for trading in different Prime Bank Bill tenors. For example, he might trade in the three and six month tenors and another trader might trade in the one month tenor. In circumstances where he was away or where he was for some reason unavailable, other traders within Group Treasury would conduct the trading. Sometimes that would be the more junior STIRR trader and sometimes that would be just another Group Treasury trader. In circumstances where he was on leave, a range of people could have operated the desk. 667 Second, it was his typical practice when managing STIRR's Prime Bank Bill trading to purchase Prime Bank Bills in the one month tenor to hold as liquid assets and to raise funds for Westpac by selling or issuing Prime Bank Bills in the three and six month tenors. Mr Roden considered that Westpac was generally a market maker in the three month tenor and would provide liquidity on both sides of the market, consistent with its obligations as a Prime Bank. Group Treasury also regularly used the three month tenor to raise funds by selling or issuing Prime Bank Bills and would purchase three month Prime Bank Bills to support a BAB Futures delivery, or from time to time to hold as part of its liquid assets portfolio. 668 Third, ensuring that Westpac had sufficient funds to meet its obligations was a priority during the relevant period. Mr Roden therefore favoured obtaining funding through the slightly longer tenors of three and six months as this enabled Westpac to lock in funding for a longer period of time which he and Westpac considered prudent. He could then invest the cash received from that funding by purchasing Prime Bank Bills in the shorter one month tenor where the cash would earn a return but would also be readily accessible should Westpac require it, either because the Prime Bank Bill would mature within 30 days or because he could sell the Prime Bank Bill or "repo" it with the RBA. 669 Fourth, another reason Mr Roden often purchased one month Prime Bank Bills was that during the relevant period he was of the view that one month Prime Bank Bills represented a good value proposition as a result of the shape of the yield curve at that time. The further out on the yield curve (i.e. the further away in time the relevant product matures), the greater the credit, market and liquidity risks to which the lender is exposed. For example, he stated that if the market expected the cash rate to be 2% for the next five years, on the yield curve the one year rate would be something like 2.25%, the two year rate 2.5%, the three year rate 2.75% and the four year rate 3% because there was more uncertainty and risk in lending funds over a longer period of time. Similarly, in the front-end of the yield curve, that is, for maturities of less than one year, there would be a steepness to the curve because there was more risk in lending for three months than there was lending for one month. However, for a time during the relevant period, the front end of the yield curve was flatter than Mr Roden would have expected, meaning that the three month rate was not materially higher than the one month rate. It was his view that the 1 month BBSW rate was higher than it should have been for much of the relevant period based on market conditions, thus representing value for the purchaser of the Prime Bank Bill. As a result, Westpac was usually a buyer most days in the one month tenor. 670 Mr Roden stated that although generally his approach was to purchase in the one month tenor and to raise funds in the six month and sometimes three month tenors, this was a general approach only and Westpac regularly participated on both sides of the market for each tenor where, for example, there was value in doing so or to satisfy its obligations as a Prime Bank to provide liquidity to the market. 671 In summary, throughout the relevant period there were a range of factors that influenced Mr Roden's approach to trading Prime Bank Bills on a given day including: (a) Westpac's funding and liquidity requirements on the day including potentially: (i) its cash position; (ii) the need to maintain Group Treasury's liquid asset holdings; and (iii) managing Group Treasury's exposure within applicable credit limits to holdings of Prime Bank Bills from particular issuers/acceptors. (b) The size and nature of Westpac's interest rate risk exposure in a particular tenor and the desirability of hedging this exposure (a proposition, as I have said, challenged by ASIC concerning rate set exposure risk but not outright interest rate risk). (c) His view on the likely or potential trading strategies of other participants in the Bank Bill Market and the manner in which their trading may impact the price of, or the demand and supply for, Prime Bank Bills. (d) His view on whether there was particular value in the price of Prime Bank Bills. (e) Whether there appeared to be liquidity in the market, and the extent of that liquidity. (f) The date on which the Prime Bank Bills in Westpac's inventory were issued and matured and, in particular, whether they would mature in the early or late part of any given month. For example, if Westpac was holding significant "earlies" in 3 month Prime Bank Bills, he might seek to sell them on or before the 15th of the month at which point they become illiquid. (g) His view and expectation of funding market conditions including: (i) Westpac's ability to raise funding offshore; and (ii) unexpected cash flows which might affect domestic funding conditions including Westpac's and other banks' collateral flows. (h) His view and expectation of general market conditions including: (i) likely movements in official interest rates; (ii) likely movements in future BBSW and other interest rates, including in response to events in domestic and global markets. (i) The availability and economic value of alternative trading options. (j) Westpac's obligations as a Prime Bank to make a market and provide liquidity in the Bank Bill Market. (k) Other limitations imposed by Westpac, including credit limits, short-term offshore limits, liquidity limits and/or market risk limits.

Relevant information sources used by Mr Roden 672 When developing a trading strategy, Mr Roden made use of the Treasury Holdings Report (described in more detail below as the TS Holdings Report), the Treasury Eagle and Cash Position Reports. 673 In addition, during the relevant period STIRR had access to a report which showed Westpac's daily rate set risk position for approximately the next month. This report was accessible electronically on Westpac's system, but it was not Mr Roden's practice to access it. More often, another member of the STIRR team would print a copy which he could review. He gave evidence that he looked at the report fairly regularly but not daily. The rate set risk report showed whether Treasury had a long or short exposure to BBSW for each tenor. 674 But Mr Roden was aware that the report was often not accurate as it did not include up to date information regarding retail and institutional assets and liabilities including corporate bill lending transferred from ALM. Westpac's corporate bill lending exposure was made up of its exposure from Bank Bill loans with customers which were managed by WIB and other corporate loans. Although the report did not include up to date information on this figure, he was usually aware of large corporate bill lending positions, particularly around the end of the month as customers with Bank Bill lines gradually rolled to those dates and he would take potentially large corporate bill lending positions into account when considering the rate set risk report. 675 Mr Roden also took into account external views regarding market conditions. In his experience, domestic and global market conditions affect the market for trading Prime Bank Bills. In particular, the market's views on whether the RBA was likely to move or hold the cash rate would usually be priced into the yield at which Prime Bank Bills traded. Similarly, his own views of domestic and global market conditions and possible movements in the cash rate affected his trading in Prime Bank Bills. In particular, he would consider the conditions in markets which Westpac accessed for alternative funding and possible adverse movements in the cash rate. 676 When considering whether the RBA was likely to move the cash rate, he had regard to a number of different data sources, market circulars and publications from the preceding weeks related to: (a) domestic market conditions which could affect the RBA's cash rate decision, including, for example, unemployment data or CPI information released by the Australian Bureau of Statistics; (b) global market conditions which could affect the RBA's cash rate decision, including, for example, the instability in Europe and the economic downturn experienced by the United States during the relevant period; (c) market expectations as to what the RBA's cash rate decision was likely to be, including, for example: (i) OIS rates; (ii) Westpac's economics team's expectations as reflected in its publications; (iii) Group Treasury's economics team's expectations as reflected in its publications; (iv) other banks' expectations published in market updates and circulars; (v) the views of influential finance journalists whose prognostications were often adopted (so Mr Roden believed) by large parts of the market and therefore sometimes created opportunities for Westpac to bet against the market by taking an opposite view; and (vi) public statements made by senior officials at the RBA including speeches, quarterly statements and minutes from RBA meetings. He also had a general sense of the market view of what the RBA was likely to do from speaking to market analysts or other traders within Group Treasury. 677 Mr Roden stated that it was not unusual for him to form a different view to the market on the RBA's cash rate decision or market conditions generally.

(c) Trading strategy - Ms Johnston's evidence 678 Ms Johnston also gave evidence that provided a detailed view of her trading strategy during the relevant period. Again, most of this evidence about her general practices and strategies was not challenged by ASIC, save for the question of hedging rate set risk exposure and, of course, specific communications dealing with contravention dates that I will discuss later in these reasons. 679 On a typical day Ms Johnston would prepare for trading in the BBSW Rate Set Window by: (a) reviewing overnight market activity and considering current market trends; (b) reviewing and considering Westpac's cash position, funding and liquidity requirements that day and more broadly; and (c) reviewing internal reports and data relevant to STIRR and Group Treasury.

Overnight market activity and current market trends 680 Each morning, she would check what happened in global markets overnight, obtaining this information through: (a) emails circulated internally within Westpac; (b) summaries on market activity (including funding markets) provided by other banks; and (c) scanning trading screens which tracked market pricing information (such as trends in interest rates, FX, and equities). 681 She would look for potential insights from market commentary, particularly as her role on the STIRR Desk was more than just trading in the BBSW Rate Set Window but rather was to assist in managing the interest rate risk in STIRR. Market commentary would often indicate expectations about whether the RBA would increase or decrease interest rates. 682 In addition, she would have a more general sense of market activity from informal conversations with other members of Group Treasury about what trends were occurring in the markets in which they traded (for example, FX and offshore funding markets), whether Westpac had issued in the US market overnight and the rates at which that issuance occurred, and how that compared to BBSW. She would consider and compare the relative pricing of raising short term funds domestically and offshore to form a view on the kind of prices that might represent good value in the BBSW Rate Set Window.

BBSW/OIS spread 683 Ms Johnston would also consider the spread between BBSW and OIS, which was a reflection of funding market conditions in the Bank Bill Market and even more broadly, including general market perceptions of credit risk of Prime Banks. She would consider trends in the spread between BBSW and OIS over time rather than daily fluctuations. For instance, an increasing spread between BBSW and OIS could imply that the supply of funding was increasing because more banks were issuing in the Bank Bill Market and as a result the BBSW level may have increased. This would mean that the cost of issuance for each of the Prime Banks was also increasing. By contrast, if Prime Banks significantly reduced their issuance in the BBSW Rate Set Window, she would expect the spread between BBSW and OIS to contract. Ms Johnston closely followed movements in the spread between BBSW and OIS in Australia (and Euro and USD LIBOR/OIS offshore) which provided information on contemporaneous market dynamics. When she was in STIRR, her regular trading activity in the Bank Bill Market provided a sense of the usual BBSW/OIS spread and the dynamics of the market, which helped to determine good value in buying or selling Prime Bank Bills.

Foreign currency and interest rate data 684 Ms Johnston would be aware of movements in the exchange rate for the Australian dollar from computer screens and other monitors which provided real-time information on the exchange rate through the course of the day. These screens and monitors would also show different global and domestic interest rates, pricing for a variety of swaps, as well as currency movements for major currencies and other information. She also considered market commentary in relation to foreign exchange movements. 685 Westpac also had large bilateral collateral cash flows in connection with FX derivatives that were largely driven by movements in the AUD/USD exchange rate. If Ms Johnston saw a large movement in the exchange rate on a given day, she would expect a large cash flow impacting Westpac's cash position in about two days time. 686 She would also consider where BBSW had set in all tenors the previous day, as well as the general trend in movements in BBSW in the preceding week.

Cash Position Report 687 Ms Johnston would receive the Cash Position Report for the day shortly after 9.00 am and would consider it prior to trading in the BBSW Rate Set Window. She usually treated the Cash Position Report with some caution due to what she considered were the conservative assumptions it contained. She would have regard to the daily position and consider the Cash Forecast Table but would not rely heavily on the forecast beyond more than two weeks as it was likely to change significantly. 688 She interpreted the Cash Position Report with other contextual information, including: (a) information discussed in Group Treasury's weekly funding meeting; (b) the Weekly Maturity Forecast; (c) informal conversations with the Cash Desk as to expected flows for that day; and (d) informal conversations with other members of Group Treasury, including the IMM team responsible for short term offshore issuance. 689 Now the Cash Position Report did not constrain the amounts that a trader like Ms Johnston could spend in buying Prime Bank Bills in the BBSW Rate Set Window. It was not a formal or informal limit on trading activity, as the Cash Desk had resources available to manage Westpac's daily cash position. She was not required to ensure or responsible for ensuring that Westpac's cash position was positive every day.

Weekly Maturity Forecast 690 Ms Johnston would also consider the Weekly Maturity Forecast and Westpac's upcoming funding needs and planned issuance prior to trading in the BBSW Rate Set Window. This report also detailed how many Westpac NCDs were on issue.

Treasury Eagle 691 The risk in the Treasury Eagle identified the risk in STIRR at the end of each business day. That STIRR risk position was then updated throughout the course of the day in the STIRR blotter, a spreadsheet that Ms Johnston maintained with Mr Roden. The risk position for STIRR as captured in the Treasury Eagle was considered by Ms Johnston to be a fair substitute for the STIRR blotter. She would look at STIRR's risk position prior to trading in the BBSW Rate Set Window.

TS Holdings Report 692 Ms Johnston also had regard to a document called the TS Holdings Report which showed: (a) the inventory of short dated assets held by Group Treasury, both as total holdings and divided into: (i) assets that were maturing in one day, two days, three days, and less than one month; (ii) assets that were maturing in one month, two months, three months, four months, five months, six months and greater than six months; and (iii) within each of those tenors (except for maturities of one to three days), assets that were maturing from the first to the fifteenth day of the month and assets that were maturing from the sixteenth to the last day of the month. The TS Holdings Report indicated which assets were liquid and therefore could be readily traded in the Bank Bill Market being, of course, Prime Bank Bills; (b) available credit limits under "Credient SMT Limits" for all of Group Treasury; and (c) Government assets held by Group Treasury and if any assets had been "repurchased" to the RBA in exchange for cash. 693 But the TS Holdings Report did not include: (a) any reference to short term assets which were maturing on that day (although this figure could be obtained by looking at the previous day's TS Holdings Report); (b) any Westpac issued Prime Bank Bills; and (c) any reference to the yield or price at which Prime Bank Bills had been purchased. 694 Ms Johnston was responsible for producing the TS Holdings Report for each day during her time on the STIRR Desk. It was usually prepared around 9.00 am. A new TS Holdings Report was generated by running macros which linked the TS Holdings Report spreadsheet to data regarding Group Treasury's holdings of Prime Bank Bills and other short-dated assets, and Westpac's "Credient" credit limit monitoring. 695 The Credient system limits set out in the TS Holdings Report identified Westpac's available headroom against credit limits for various counterparties, which were not just applicable to Prime Bank Bills and other assets contained in the TS Holdings Report but also long term assets purchased by Group Treasury globally, for example, long-dated securities held in the Liquids book or short-dated assets purchased by New Zealand Treasury. These credit limits referred to the acceptor or issuer of the assets purchased (often referred to as the name of the paper). That is, Westpac might purchase Prime Bank Bills from a counterparty but the Prime Bank Bills might be accepted or issued, in the case of NCDs, by a range of Prime Banks including Westpac. 696 Prior to trading in the BBSW Rate Set Window, Ms Johnston would look at the TS Holdings Report to: (a) identify assets that were maturing in the next few days; (b) make sure it reconciled with the assets bought and sold the previous day; (c) check whether the limits looked correct against the previous day's trading and consider if the level of available limits would require the sale of assets such as Prime Bank Bills; (d) check what assets were available in the liquid tenors of the spreadsheet, being the tenors that could be readily traded if they were "earlies" in the first half of the month or "lates" in the second half of the month; (e) if they were coming to the end of an "earlies" period or a "lates" period (that is, towards the fifteenth of the month or the last day of the month), consider in conjunction with the available limits, if any, assets needed to be sold; (f) alternatively, decide whether any assets should be held, which would depend on current interest rates, any potential future changes to interest rates, credit limits and Westpac's cash position; and (g) identify any Government paper held by STIRR and which securities had been repo'd with the RBA. 697 Ms Johnston had regard to the credit limits reported in the TS Holdings Reports when deciding whether or not to sell any of Westpac's available inventory of Prime Bank Bills or buy Prime Bank Bills. Those decisions were also informed by her knowledge of what other Prime Bank Bills might be trading in the market, based upon her daily experience in trading in the BBSW Rate Set Window. 698 If the TS Holdings Report indicated that Group Treasury did not have large amounts of available limits for certain Prime Banks, Ms Johnston would consider: (a) selling the Prime Bank Bills accepted or issued by those banks to reduce Westpac's holdings and increase headroom against limits; or (b) buying Prime Bank Bills of an amount less than the available credit limit, so that any limit would not be breached. 699 Unsurprisingly, Westpac had very large credit limits for Australian Prime Banks, and relatively smaller limits for the foreign Prime Banks (being BNP Paribas (BNP) and JP Morgan). Despite the smaller limits for those foreign Prime Banks, Ms Johnston was usually not concerned by the size of those limits as JP Morgan and BNP were very small issuers in the BBSW Rate Set Window. The foreign Prime Banks did not have a great need for AUDs to fund their operations in contrast to the four major Australian retail banks. And if she did receive Prime Bank Bills from JP Morgan or BNP in the BBSW Rate Set Window, it was easy to sell those assets very quickly if necessary. 700 It was STIRR's usual practice to aim to keep a reasonable amount of headroom available against the credit limits for other Prime Banks, to ensure that even on days when STIRR wanted to buy a significant amount of assets, STIRR would still be within credit limits. 701 On one or two occasions when Westpac received more Prime Bank Bills than expected that were accepted or issued by a particular bank, Westpac could sell those Prime Bank Bills that day generally through a broker but outside of the BBSW Rate Set Window, or on a subsequent day. But it may have been necessary to offer a higher yield than the yield at which Westpac had purchased the Prime Bank Bills in order to sell them. 702 I will return to this question in a moment.

Run sheet 703 A run sheet was used by traders. The run sheet was printed with information detailing Westpac-issued paper that was maturing that day. Mr Roden and Ms Johnston would keep track of what trades were entered into over the course of the morning by writing them down by hand. This included customer trades dealt through Financial Markets and interbank trades generally dealt through brokers. From the run sheet, STIRR could summarise the cash impact of the day's trading. 704 In the course of the morning between 8.30 am and 10.30 am, members of the Financial Markets division's sales team would relay customer requests to buy or sell Westpac issued NCDs. STIRR would confirm if Westpac was willing to issue or buy back those NCDs and, if necessary, at what rate (that is, if the NCDs were not dealt at BBSW). It was common for customers to roll over their Westpac NCDs. From experience, Ms Johnston expected most customers to roll over their Westpac NCDs which would usually occur at the relevant rate of BBSW that day. She would update the run sheet by hand with this information, as any customer roll overs increased the cash position on the same day. Conversely, if the NCD was not rolled over by the customer, that paper would mature and Westpac would have to pay the face value to the customer, resulting in a decrease to the cash position. 705 Following the BBSW Rate Set Window, Ms Johnston would fill in the run sheet with the broker trades that had occurred. It was her usual practice to speak to the relevant broker who would verbally confirm the trades that had occurred in the BBSW Rate Set Window. She would record those trades by hand on the run sheet. 706 Around 10.30 am, after the run sheet had been updated with: (a) customer bill rolls and other transactions executed through Financial Markets; (b) trades through the brokers, primarily in the BBSW Rate Set Window; and (c) direct trades with smaller bank counterparties, Mr Roden or Ms Johnston would provide the net cash flow to the Cash Desk to update the cash position for the day.

Group Treasury's BBSW Rate Set Exposure 707 Prior to trading in the BBSW Rate Set Window, Ms Johnston was aware of Group Treasury's BBSW Rate Set Exposure each day in the one, three and six month tenors. Those exposures were expressed as the face value dollar amounts of the net assets, liabilities and derivative transactions resetting by reference to BBSW. She had regard to Group Treasury's BBSW Rate Set Exposure in order to understand the total interest rate risk arising from that exposure as Group Treasury would need to be aware if this risk would cause Group Treasury to breach its risk limits. 708 Apparently Ms Johnston applied the following rules of thumb: (a) every $1 billion of rate set exposure in the one month tenor gave rise to approximately $8,000 of basis point risk; (b) every $1 billion of rate set exposure in the three month tenor gave rise to approximately $24,000 of basis point risk; and (c) every $1 billion of rate set exposure in the six month tenor gave rise to approximately $48,000 of basis point risk. 709 That is, if Group Treasury's rate set exposure was not hedged and crystallised after BBSW was published in a particular tenor, those basis point values would be added to the risk positions in the Treasury Eagle for the corresponding tenor.

Positions in other instruments 710 Ms Johnston would also consider STIRR's position in BAB Futures if it was a week or less from the BAB Futures expiry. It was possible to fund Westpac or take delivery of 3 month Prime Bank Bills through the BAB Futures close out rather than through trading in the Bank Bill Market. For this reason, she would consider the size and direction of the BAB Futures position and the price at which BAB Futures had traded, prior to trading in the BBSW Rate Set Window. 711 Further, Ms Johnston would consider the rates offered in Bills/LIBOR (being the rate at which a party can convert USD into AUD, expressed as BBSW plus a spread) and FX forwards. She would consider whether that rate indicated that it was more or less attractive to fund Westpac in offshore markets, or to lend excess cash via these products (in exchange for USD), rather than investing in assets or issuing in the Bank Bill Market.

(d) Credit limits 712 As I have already discussed above, as part of their trading strategy the traders on the STIRR Desk were required to consider the credit risk associated with buying Prime Bank Bills. Westpac managed credit risk by setting various limits on the types of securities that it could hold that were issued by third parties. Secondary market trading limits (SMT limits) were a type of credit limit that applied to investments in liquid debt securities and credit derivatives held in Westpac's trading book portfolios, for both Group Treasury and Financial Markets. Prime Bank Bills fell within the SMT limits regime. As such, SMT limits placed a limit on the amount of Prime Bank Bills Group Treasury could purchase from any single bank, and different credit limits applied for different banks. 713 During the relevant period, traders in Group Treasury did not have accurate real-time data in relation to credit limits but were able to approximate numbers from Westpac's traded credit limit monitoring system. On average, Westpac had available headroom for the three other major Australian banks as follows: (a) in 2010: $2.077 billion for ANZ, $2 billion for CBA, and $2.301 billion for NAB; (b) in 2011: $1.596 billion for ANZ, $1.5 billion for CBA, and $2.33 billion for NAB; and (c) in 2012 up to 6 June 2012: $2.974 billion for ANZ, $2.252 billion for CBA, and $2.225 billion for NAB. Given the average size of these available headroom amounts, Westpac's trading in the Bank Bill Market during the relevant period would very rarely, if ever, have been constrained by a concern that SMT limits would be breached. 714 In relation to the two foreign Prime Banks during the relevant period, JP Morgan and BNP, these banks were not large issuers in the Bank Bill Market as they had very small operations in Australia and did not require a large amount of AUDs to fund their local activities. For this reason, the JP Morgan and BNP SMT limits which applied during the relevant period would not have significantly restricted Westpac's trading in Prime Bank Bills. In any event as I have already said, if Westpac bought Prime Bank Bills from a foreign bank during the BBSW Rate Set Window, that paper could be sold again very quickly to avoid any issue with SMT limits, or could be included in a stock switch of repo-eligible assets with another bank. 715 Generally speaking, SMT limits may have been a reason for selling Prime Bank Bills, to stay within Westpac's credit limits.

OPPORTUNITY AND INCENTIVES TO MANIPULATE 716 ASIC contends that Westpac's structure provided incentives to manipulate. 717 Now as I have said, only Group Treasury traded in Prime Bank Bills and Group Treasury was separate from Financial Markets. But ASIC says that having the trading function in Group Treasury did nothing to quell the incentive for Westpac to seek to influence BBSW to its advantage. And it did not preclude the flexibility of the relevant Westpac STIRR trader attending to funding or other responsibilities on a day which also enabled exploitation of the opportunity to influence the rate set. 718 Further, ASIC says that various financial incentives motivated Westpac's STIRR traders to trade to influence BBSW. I will elaborate in detail on this in a moment. 719 Further, ASIC also says that Westpac's consolidated book gave Group Treasury a particular interest in keeping the 1 month BBSW low to benefit its very large short 1 month exposures. As ASIC points out, Group Treasury had a financial interest when the exposure was short or paying in keeping the BBSW down as its liabilities were set off it. In an email to Mr Murray Regan of AFMA, Mr Roden stated that Westpac's exposures "to the 10am rate setting process" were: extremely broad, diverse and significant. They include in excess of $50 Billion in liquid assets, $50 Bill in Corp loans, $120 Billion in wholesale funding and , $310 Billion in mortgage loans and deposits of $300 Billion. All of these are impacted by the rate setting mechanism [Email, Mr Roden to Mr Murray Regan (AFMA), 3 August 2012]. 720 Further, ASIC correctly points out that Mr Zuber and other witnesses conceded that the rate set exposure would be taken into account by Westpac, as a rational market participant and all else being equal, to the extent that Westpac would avoid trading to adversely affect Group Treasury's rate set exposure. I have previously discussed ASIC's argument concerning the economic rationale of the flipside. 721 Let me elaborate on some of these themes.

(a) Opportunity 722 ASIC says that Westpac had the opportunity to carry out the Rate Set Trading Practice at the bank or divisional level, and also at the STIRR level. 723 In relation to the bank or divisional level, and as Mr Conway said, Westpac had: the second biggest balance sheet in Australia, so you know, when those two balance sheets enter the market to trade [that is, CBA and Westpac], to hedge, their activities are quite likely to be the ones that are moving around the rate when they're hedging. As Mr Conway also acknowledged, "depending on what else is on the other side, trading in the market, could move the rate". 724 Further, STIRR was the only division of Westpac to trade Prime Bank Bills. No other division of Westpac traded Prime Bank Bills on the Bank Bill Market. 725 Further, Westpac's traders had wide discretion as to the days on which they chose to sell or buy Prime Bank Bills. Mr Roden agreed that he had the discretion to time the days on which he sold or issued bills in particular tenors "to days when market conditions were favourable or when, if my trading were to have any impact on the level at which BBSW set, this would not increase Westpac's risk position". And as Mr Zuber explained: Westpac could choose to hold onto Prime Bank Bills that it wished to sell or wait to issue its own paper until the price was attractive to Westpac. Equally, Westpac could wait to buy Prime Bank Bills until a desirable price was offered. Westpac would not buy or sell Prime Bank Bills at any price. Further, Mr Zuber placed no constraints on the STIRR Desk around holding any minimum or maximum amounts and did not direct the timing of when Prime Bank Bills should be bought or sold. Those decisions were left to the trader on the STIRR Desk who participated in the Bank Bill Market each day, and was therefore best placed to determine if prices and other market conditions were attractive. 726 Further, during the relevant period Westpac's trading was unconstrained by any policy dealing specifically with trading in the Bank Bill Market or the setting of BBSW. 727 I accept that because of inter-alia these objective structural elements, Westpac had the opportunity by its trading to influence where BBSW set on certain occasions. The question of opportunity and capacity are contestable propositions given how the Bank Bill Market operated, the conduct and reactions of other participants, and also how BBSW was set. I will elaborate on this later.

(b) Westpac's traders acknowledge that they had regard to the BBSW Rate Set Exposure when trading 728 It is not in doubt that STIRR employees monitored Group Treasury's BBSW Rate Set Exposure on each trading day prior to trading Prime Bank Bills in the BBSW Rate Set Window. 729 Further, Mr Zuber gave evidence that "on many occasions we traded bank bills with the knowledge of what our rate set position was, with the knowledge that potentially that could have an impact on the rate". 730 Moreover, Mr Roden deposed that: I was of the view that it was preferable, where possible, not to trade in a way which, if our trading did happen to have an effect on the level of BBSW, would adversely affect our rate reset position. That meant, in essence, I would generally seek to avoid large selling activity on days where we had a paid rate set and generally seek to avoid buying significant volumes of bills on the day when I had a received rate set. … [T]here was discretion available to me to time the days on which I sold or issued Bank Bills in particular tenors to days when market conditions were favourable or when, if my trading were to have any impact on the level at which BBSW set, this would not increase Westpac's risk position. 731 And in cross-examination, he agreed that he had discretion to time the days on which he sold or issued Prime Bank Bills or purchased Prime Bank Bills, subject to limits. 732 Further, Ms Johnston deposed that: [I]f I had a degree of flexibility as to when I had to conduct a particular trade (such as knowing I needed to issue Prime Bank Bills but not necessarily immediately), I might consider not trading on a day where if Westpac's trading did happen to affect the level of BBSW it might have an adverse effect on Group Treasury's Rate Set Exposure; … [I]t sometimes made sense to time any purchasing activity on days when Group Treasury's Rate Set Exposure was paid … [as it was, for example, on 20 May 2010, 20 September 2010, 22 September 2010] … in order to avoid potentially adversely affecting the Bank's position in the event that Westpac's trading affected the rate at which BBSW set. 733 Further, Mr Hosie understood that Westpac's trading could affect the yield at which Prime Bank Bills traded and therefore the submissions that were made by panellists and where BBSW set. From time to time this understanding impacted upon his decisions about when to trade in the Bank Bill Market. The prospect that his trading could have this effect impacted his decisions about when to trade. Mr Hosie said that "we would certainly be conscious of what our rate sets were" and "a larger rate set would, you know, introduce more risk, so we were conscious of those". Mr Hosie agreed that if he wanted to buy Prime Bank Bills he might pick a paid set, but there were other factors to consider. He agreed that the larger the paid set, the more of a consideration it would have been. 734 Further, Westpac admitted in its further amended defence that its trading in the BBSW Rate Set Window was typically influenced by considerations which included an assessment of the likely or potential trading strategies of other Bank Bill Market participants and the manner in which their trading may impact the price and availability of Prime Bank Bills or the Bank Bill Market's appetite to acquire Prime Bank Bills. 735 Further, when trading Prime Bank Bills in the Bank Bill Market, Mr Roden took into account his view of the likely or potential strategies of other participants. Further, Westpac's traders believed or suspected that the trading strategies adopted by other banks included trading to influence BBSW. Mr Roden suspected that UBS was engaging in manipulation of the Bank Bill Market by trading to move the rate at which BBSW set. He also suspected and complained to AFMA about other banks who he suspected were doing the same thing. Ms Johnston was also aware that people in the industry occasionally speculated that participants in the BBSW Rate Set Window were trading to affect the rate at which BBSW set and may have thought other banks' trading was suspicious. 736 Further, Mr Conway speculated that CBA used a cover to achieve its objective of trading with the purpose of trying to move the rate. Mr Park was also aware of the possibility that UBS was trying to influence the rate. Mr Sharma had heard rumours about Prime Banks trading Prime Bank Bills to manipulate the rate set. And Mr Duignan was aware of speculation in the market that Prime Banks were trading in the BBSW Rate Set Window for the purpose of moving the rate to suit their rate set exposures.

(c) Westpac's BBSW Rate Set Exposure 737 Westpac's traders were conscious during the relevant period of the importance of the rate at which BBSW set. Ms Johnston told Mr Greg Ryan, another employee of Westpac, that BBSW was "an international benchmark which a lot of different products get set off" (and that her team "manage BBSW and the rate set … actually … kind of manage and monitor where BBSW gets set") [Phone call transcript, Ms Johnston to Mr Greg Ryan, 24 May 2010]. 738 Further, on 3 August 2012, Mr Roden told AFMA that Westpac's exposures "in excess of $50 Billion in liquid assets, $50 Bill in Corp loans, $120 Billion in wholesale funding and , $310 Billion in mortgage loans and deposits of $300 Billion" were all "impacted by the rate setting mechanism" [Email, Mr Roden to Mr Regan (AFMA), 3 August 2012]. 739 Further, as I have already indicated, employees and officers of STIRR, including Mr Roden and Ms Johnston, were able to access Group Treasury's exposure to the BBSW rate set each day. On each day during the relevant period: (a) the Group Treasury BBSW Rate Set Exposure was identifiable through Westpac's internal systems; (b) the Group Treasury BBSW Rate Set Exposure on any given day included the exposure as at that point in time for each day into the future; and (c) employees and officers of STIRR had access to the systems through which the Group Treasury BBSW Rate Set Exposure could be obtained. 740 Let me say something at this point about the quantification and direction of the BBSW Rate Set Exposure relevant to Group Treasury on the specific contravention dates, although I will return to this later. ASIC submits that I should use column F (and not column J) of schedules 1 and 2 to the Statement of Agreed Facts (SOAF) tendered before me (s 191 of the Evidence Act) when determining the direction and quantity of the Group Treasury BBSW Rate Set Exposure to which Westpac had regard when trading Prime Bank Bills in the Bank Bill Market for each contravention date. 741 ASIC contends that column F (and not J) accords with the BBSW Rate Set Exposure to which Westpac's traders had regard when trading on behalf of Westpac on each of these dates. 742 Now Westpac traders had regard to a daily rate set email circulated prior to trading in the BBSW Rate Set Window. The daily rate set email set out the ALM and PRM rate set exposure data on Westpac's Murex system, which is the BBSW Rate Set Exposure in column F (and not column J) of schedules 1 and 2 to the SOAF. 743 ASIC's contention that Westpac's traders had regard to the BBSW Rate Set Exposure recorded in the daily rate set email (and therefore the BBSW Rate Set Exposure in column F, and not column J, of schedules 1 and 2 to the SOAF) is said to be supported by the following evidence: (a) Mr Roden's statement to Ms Johnston that he had "14 billion of one month" on 6 April 2010, which is best represented by column F (and not column J) of schedule 2 to the SOAF [Phone call transcript, Mr Roden to Ms Johnston, 6 April 2010]. (b) Mr Roden's stated belief that he was a "receiver" on 10 June 2010 (as he told others) [Phone call transcript, Mr Roden to Mr Sharma, 8 June 2010] and therefore his belief that he had a net long rate set exposure to the 3 month BBSW. Column F of Schedule 1 to the SOAF for 10 June 2010 contains a net long rate set exposure position, whereas column J does not. (c) Ms Johnston's statement to Mr Sharma on 21 September 2010 that she was a "$2 billion payer tomorrow", which is best represented by column F (and not column J) of schedule 2 to the SOAF [Phone call transcript, Ms Johnston to Mr Sharma, 21 September 2010]. (d) The BBSW Rate Set Exposures referred to in Ms Johnston's email of 16 May 2011 for the contravention dates 1 December 2010, 6 December 2010, 1 March 2011, 4 March 2011, 1 June 2011 and 6 June 2011, which are each best represented by column F (and not column J) of schedule 2 to the SOAF. 744 Now column J of schedules 1 and 2 to the SOAF represents a calculation of Group Treasury exposures which also incorporates exposure data from St George, Corporate Bill Lending exposure data and Transfer Priced Balance Sheet rate set risk exposure for St George and Westpac. But the daily rate set emails circulated to Westpac's traders prior to trading in the BBSW Rate Set Window did not include: (a) Corporate bill lending exposure (represented in column H of schedules 1 and 2 to the SOAF); or (b) Transfer Priced Balance Sheet rate set risk exposure (represented in column I of schedules 1 and 2 to the SOAF). 745 Corporate bill lending rate risk was not substantially recorded on Westpac's Murex system. Westpac corporate bill lending rate risk was recorded on Westpac's AS400 system, and St George corporate bill lending rate risk was stored on the St George Citadel system. Ms Johnston's evidence was that this type of risk was estimated or based on an assumption of how many bills would roll over on a particular day, and the details of which bills had in fact rolled over would not be known until potentially the next day. Ms Johnston and Mr Stokes received access to the corporate bill lending rate risk system (the commercial bills report) on 7 May 2010. Mr Johnston agreed in cross-examination that it appeared that she received access to this system in May 2010 and she could not recall requesting access to it before then but she went on to say that she may still have seen the relevant data in other sources, even before she received access to such a report. 746 As for the ALM (Transfer Priced Balance Sheet) risk, this was recorded in a spreadsheet prepared by another team in Group Treasury. On 20 May 2010, Ms Johnston reported that such a spreadsheet had not been received for some time. Ms Johnston discussed the spreadsheet with Mr Greg Ryan on 24 May 2010, and her evidence was that he did not consider it to be complete (or "all inclusive"), and she wanted to investigate this [Email, Mr Greg Ryan to Ms Johnston, 24 May 2010]. 747 This spreadsheet estimated ALM (Transfer Priced Balance Sheet) risk as at a particular date, and for a number of days following (including non-business days). 748 Now it was the general practice at the time under both the Following Business Day Convention and the Modified Following Business Day Convention in the ISDA definitions for risk falling on a non-business day to roll forward to the next business day. Ms Johnston explained in cross-examination that the usual convention used by Group Treasury was the Modified Following Business Day Convention, which is consistent with what is set out in the BBSW Procedures that I described earlier in these reasons. Under the Following Business Day Convention, the risk would roll forward from a non-business day to the next business day in every case. Under the Modified Following Business Day Convention, the risk would be rolled back if rolling forward would mean crossing into a new month. Under both Conventions, the risk for example for Saturday 1 May 2010 and Sunday 2 May 2010 would have rolled forward to Monday 3 May 2010, as this would not require rolling a date forward to a different month. A trader who had access to the spreadsheet could see the estimated risk for each day separately, and would not roll back risk from the weekend of 1 and 2 May 2010 to Friday 30 April 2010. So if a trader had seen the spreadsheet prior to trading on 30 April 2010, they would have seen the ALM (Transfer Priced Balance Sheet) risk for that day of $2.139 billion in the 1 month (and not $3.492 billion as shown in column I, and included in column J, of schedule 2 to the SOAF). 749 ASIC submitted that the consolidated data represented in column I of schedule 2 to the SOAF was prepared on the basis that rate set risk for weekend days were rolled back to the previous business day, which is contrary to both Conventions. This is relevant for the contravention date on 30 April 2010, where column F shows a short exposure and column J shows a long exposure, and I will address the matter further later in these reasons. But I would note now that even if I accept ASIC's submission above that ALM (Transfer Priced Balance Sheet) risk for that day of $2.139 billion (and not $3.492 billion), I would still be left a column F showing a short exposure and column J showing a long exposure. 750 Prior to August 2010, the rate set risk recorded on Westpac's Murex system and included in the daily rate set emails (and represented in column F to the schedules to the SOAF) did not include BBSW rate set risk from St George's Citadel and Kondor systems, which were not at that time stored on Westpac's Murex system. Mr Stokes' evidence was that prior to the migration of St George data onto the Murex system in August 2010, he manually added St George risk exposure to a report that he saved on Westpac's hard drive. He does not recall having a practice of printing out hard copies of this report. Further, he did not know whether other Treasury employees looked at the report on Westpac's hard drive on any given day during the relevant period. 751 I will return to the question of the recording and quantification of the exposures (and those to which the traders had access) in the "Contravention Dates and Alleged Practice" section of my reasons. But let me say now that I am not able to say that traders only ever had access to and relied upon the column F figures (as ASIC contends) or conversely at all times had access to and relied upon the column J figures (as Westpac contends). Each contravention date needs to be considered separately. But I would note that the issue only becomes significant on dates where say column F shows a short exposure and column J shows a long exposure or vice versa, or where the columns show the exposure in the same direction but the quantum of the exposure in one column as compared with the other column is significantly less, say by one or more orders of magnitude. Accordingly, when I discuss the contraventions dates I will only elaborate on this issue when it is necessary to do so for a particular date as having significance to the relevant trader's knowledge which then may inform the question of purpose.

(d) Financial incentives 752 Westpac not unreasonably expected Group Treasury to make a profit. Indeed, Group Treasury had profit targets. And it may be accepted that during the relevant period Group Treasury had a financial interest in where BBSW set. 753 Group Treasury had an interest in keeping the 1 month BBSW low to benefit its usually very large short 1 month BBSW exposures, which Mr Zuber explained resulted from or were at least exacerbated by basis swaps that it entered into to convert its 3 month interest rate exposure to 1 month interest rate exposure, with rate sets every 90 days. Further, on a significant number of trading days during the relevant period, Westpac purchased 100% of the 1 month Prime Bank Bills sold during the BBSW Rate Set Window. Mr Zuber agreed that Group Treasury generally was a significant buyer in 1 month Prime Bank Bills. 754 Mr Steven Carritt was an expert witness called by Westpac, who had been employed by CBA's Treasury for 20 years and had been responsible for its Asset and Liability Management desk. He was retained by Westpac to provide expert evidence on topics relating to the management of a bank's treasury function and the uses of Prime Bank Bills to assist the Treasury function. His evidence was that he would see it as rational for a market participant who has the appetite and discretion to execute transactions, to do so on days when there may be "offsetting positions", the offsetting position being any movement in the BBSW in the direction of the participant's BBSW Rate Set Exposure that day, all other things being equal. The ceteris paribus assumption is of course of central importance given the other influences, factors and reasons which might motivate a trader's strategy or course of dealing on a particular day. At a more general level I would note at this point that in some of ASIC's case presentation and cross-examination of Westpac's witnesses, ASIC tended to downplay or even ignore that significant assumption. 755 Let me deal with another aspect of financial incentives. 756 Traders such as Mr Roden were awarded not insubstantial bonuses during this period, and Group Treasury's profit and loss was at least a factor in the awarding of those bonuses. Mr Zuber agreed that the traders had a financial incentive to trade in a way that was profitable for Westpac. But Mr Zuber said that "doing this type of activity, I just didn't see it as significant enough that it would be a motivation for someone to do that", that is, engage in the relevant manipulation. 757 For example, in his 2011/2012 performance review, Mr Roden was given an "Outstanding" rating in relation to the "Financial" heading. The measurement for this heading was "STIRR P&L" and the target and stretch target was "STIRR above $200m". This heading was given a 70 weighting. The performance review noted: Treasury's total revenue for 2012 was $1.1billion. Colin's direct management of the short-end domestic risk generated $350 million of revenue. Colin has led the day to day risk business during one of the most challenging environments to a truly outstanding result. His management of the macro risk profile has resulted in Treasury generating superior returns both in absolute and on a relative basis. 758 In his previous 2010/2011 performance review, it was noted that: This year Colin Roden has contributed and estimated $500m to Treasury p&l which is more than his prior year (09/10) contribution. Colin is the primary shortend book runner across all bank positions and chief trader of the Treasury desk Colin has made $500m this year through managing the short end through periods of significant interest rate volatility, where the curve has priced rate hikes as well as substantial emergency easings into the curve. 759 And in the 2009/2010 performance review, it was noted that "Colin has produced a robust well above plan 1st half financial performance, he has capitalised on opportunities which the market has presented in the shortend of the Australian market". 760 Generally, Westpac's bonus structure allowed for Group Treasury staff to earn many multiples of their base salary as a result of their financial performance. Mr Roden was well remunerated for his financial performance. 761 Mr Masnick confirmed that Financial Markets employees, including Mr Parker (who entered into BBSW Referenced Products with Westpac's customers), were also remunerated based on financial performance. Mr Masnick confirmed that Mr Parker was very well compensated during the relevant period as a result of his financial performance for Westpac. 762 Now I accept that these incentives, at the divisional level and at the employee level, created incentives for Group Treasury to manipulate where BBSW set. 763 ASIC has relied on the following communications to suggest that Mr Roden considered it important to the profitability of the division to be able to influence the BBSW. I should note two matters at this point. First, I have not corrected typographical errors in the contemporaneous documents. Second, I will say something later about communications involving Mr Garfield Lee of CBA. 764 In one communication with Mr Lee of the CBA, Mr Roden said that by having the sole ability to buy and sell Prime Bank Bills for Westpac, Group Treasury was able to make "a couple of 100 million dollars … very esasily" [Chat log, Mr Roden to Mr Lee, 12 March 2010], though the statement seems jocular in context. 765 In another communication with Mr Lee, Mr Roden referred to the need to "have control over BBSW … to protect yourself" [Chat log, Mr Roden to Mr Lee, 10 February 2011]. Mr Roden here was responding to the concerns of Mr Lee, who it was proposed would run a "single currency basis book" of "cash v 1m v 3m v 6m curves". Mr Roden said that such a book would be loaded with illiquid risk and one would not want such a book unless one had control over BBSW. Mr Roden explained this as a reference to access to Prime Bank Bill trading to mitigate risk. I accept this. Moreover, I do not agree with ASIC that this is only plausible if one understands his reference to mitigating risk as trading to affect the rate at which BBSW sets. 766 ASIC says that Mr Roden's statement "i wouldnt go near an aussie basis book without bbsw control" should similarly be understood as a reference to seeking to control the rate at which BBSW set [Chat log, Mr Roden to Mr Lee, 10 February 2011]. Mr Roden said that an Aussie basis book is "going to give you floating rate exposures in Aussie dollars, pay and receive sets". Group Treasury used basis swaps to switch its risk from 3 month to 1 month, which increased the size of its 1 month BBSW Rate Set Exposures. Mr Roden said that his reference to "BBSW control" was to "some methodology to mitigate some of my risk, because bank bills is really the only efficient mechanism for doing that". But ASIC says that the suggestion that it was most efficient to fully fund the purchase of Prime Bank Bills to offset the risk that Group Treasury had created by entering into basis swaps, particularly when it could reduce or offset its risk with other derivative transactions that would not affect its profit and loss, is implausible. ASIC says that at the very least, Mr Roden was referring to having "control" over all of the bank's BBSW transactions so as to have sufficient market power, funding and ability to trade in a way that could affect the rate at which BBSW set. I disagree with ASIC's analysis which significantly over-states what can be gleaned from this informal chat. 767 Further, ASIC made reference to the fact that Mr Roden explained to Mr Lee in another communication that Group Treasury had "control" of BBSW, it bought "all teh bank bills … and we fund as we choose" [Chat log, Mr Roden to Mr Lee, 25 March 2010]. But Mr Roden said that this was a reference to "within Westpac, Westpac Treasury bought all the client bank bills from Institutional Bank … and hold them within Treasury and fund how Treasury needs to fund". Now ASIC says that this is implausible and submits that Mr Roden was referring to Westpac's participation in the Bank Bill Market. But I am not prepared to reject Mr Roden's interpretation. 768 Generally speaking, it is one thing to say that incentives existed. But it is another thing to say that the traders engaged in manipulative trading, let alone that there was the Rate Set Trading Practice of the type contended for. 769 But I do agree that the financial incentives (albeit indirect as they are not directly referable to specific trading activities) are supportive of ASIC's case.

(e) The structures of other banks 770 Westpac has contended that structural differences between Westpac on the one hand and NAB and CBA on the other hand gave rise to different incentives and motivations when trading in the Bank Bill Market. On this aspect, I do not consider that the contended for structural differences takes Westpac far. I propose to be circumspect about my discussion of the other banks as the evidence was necessarily incomplete and they were not parties before me. 771 Westpac says that NAB's and CBA's Prime Bank Bill traders, who sat within their respective Markets divisions, were incentivised to trade in a way to maximise the profit for their own book without regard to the interests of Group Treasury more generally. But contrastingly Westpac says that the performance of Westpac's traders, who sat within Group Treasury, was measured on the basis of overall group performance rather than individual portfolio performance. It also says that matters such as ensuring that Westpac had the funding it needed and was protected from interest rate risk, market risk and credit risk as much as possible were the primary considerations. 772 Westpac says that that by reason of these suggested primary considerations, Group Treasury's relatively minor gains from manipulating BBSW to benefit rate set exposure would have been irrelevant and difficult to discern. It also says that the conflicts between the interests of Financial Markets and Group Treasury (or their equivalents) found at NAB and CBA were not present at Westpac. But ASIC says that Westpac's submission is not supported by the evidence. It says that the conflicts which arose at the other banks did not derive from manipulation by STIRR (or STIRR equivalent) traders, but from the opposing rate set exposures of the Markets book and the Treasury book on particular days, a circumstance which was avoided under Westpac's structure. 773 ASIC says that in the case of NAB, the structural differences between NAB and Westpac were relatively insignificant. 774 Further, ASIC says that in the case of CBA, the structural differences between CBA and Westpac were initially relatively insignificant and later minimised by CBA to increase returns on profits from managing rate set risks. It also says that CBA's Treasury desks traded to influence BBSW from time to time to suit their own rate set exposure, again inconsistently with the thrust of Westpac's argument. 775 In elaboration ASIC says that the organisational structure of NAB and CBA meant that the rate set exposure within the equivalent STIRR desks on a particular day could be the opposite of the rate set exposure of a Treasury desk. It says that occasional complaints from Treasury about manipulation by the equivalent STIRR desks were attributable to a lack of alignment of the rate set exposures. But it says that that conflict was avoided under the Westpac model which placed the STIRR function within Group Treasury. 776 In relation to CBA, ASIC has also pointed to the White Paper authored by Mr Carritt in February 2011 which stated: One basis point reduction in wholesale funding costs, as a result of contrary defensive rate set management by Markets Funding Desk/swap book compared to a focus on defensive activity on the funding rate set by Treasury under an integrated domestic funding model - NPAT ↑$13m pa, NIM ↑1bp. This benefit will be hard to track owing to the fact that Treasury's activity will be aligned to managing the benchmark BBSW rate set. 777 ASIC says that the White Paper envisaged that if CBA Treasury took charge of trading in the Bank Bill Market then contrary defensive rate set management, that is, trading by Markets to influence the rate set adversely to the interests of CBA Treasury, would be avoided and replaced by the same activity by CBA Treasury, but "aligned to managing the benchmark BBSW rate set" to Treasury's advantage. And Mr Carritt conceded that "managing the benchmark BBSW rate set" meant "moving the rate to your advantage in the Window". Thus, so ASIC says, the White Paper recommended moving CBA to a Westpac style structure (control by Treasury of trading in the Bank Bill Market) with an attendant advantage that trading to move the rate set could bring about a profitable reduction in wholesale funding costs. 778 Let me deal with these questions in more detail.

NAB structure 779 Westpac has contended that its structure during the relevant period may be contrasted with the structure of the NAB. It says that in particular, NAB's BBRM desk, within NAB Group Treasury was responsible for managing NAB's short term interest rate risk. In that respect, BBRM at NAB was the structural equivalent of STIRR at Westpac, save that BBRM was not responsible for NAB's short term funding and liquidity. But it says that an important difference was that BBRM was not able to trade in Prime Bank Bills. 780 It says that at the NAB, the short term interest rate trading desk (STIRT) was responsible for trading in short-term interest rate products, including Prime Bank Bills. STIRT was part of NAB's Products and Markets division, which was responsible for trading financial products with NAB's customers. NAB's Products and Markets division was the structural equivalent of Financial Markets at Westpac. 781 Westpac says that the consequence of NAB's structure was that STIRT was incentivised to trade in a way to maximise the profit made by its book, without regard to the interests of BBRM or NAB Group Treasury more generally. 782 It says that Mr David Page, a former employee of NAB, gave evidence that it was in the interests of NAB Group Treasury that the Bank Bill Market be free of manipulation given its importance to NAB as a source of short-term funding and liquid assets. But it says that STIRT did not have the same appreciation for the importance of the Bank Bill Market, and treated it as a market to be manipulated for the benefit of its own book. Mr Page identified this as at least a partial explanation for the way in which STIRT traded in the Bank Bill Market. 783 Westpac says that the consequence of those differences is that NAB's STIRT desk had different incentives and motivations when trading in the Bank Bill Market compared to the incentives and motivations for Westpac's traders in Group Treasury, who were not managing a swap book but managing the funding, liquidity and interest rate risk of the whole Westpac balance sheet. Westpac's Group Treasury traders' performance was measured on the basis of the overall group performance rather than individual portfolio performance, and matters such as ensuring that Westpac had the funding it needed and was protected from interest rate risk, market risk and credit risk as much as possible were the primary considerations. Relatively minor gains from interest rate exposure it is said would have been irrelevant and difficult to discern. 784 Now I accept that during the relevant period, NAB's organisational structure consisted relevantly of two separate divisions: Group Treasury and Products & Markets (formerly known as Global Markets). Group Treasury comprised Global Liquidity, the Short Term Funding Desk and BBRM. Group Treasury's BBSW rate set exposures were concentrated in the books of BBRM, which managed the net interest rate exposure of the bank. Within Products and Markets, STIRR relevantly also had BBSW rate set exposures. 785 But I agree with ASIC that Westpac's submission, that NAB's STIRT desk was incentivised to maximise the profits of its own book without regard to the interests of BBRM or Group Treasury, overstates the evidence. STIRT traded to ensure NAB was adequately funded and liquid and was the conduit for issuing NCDs into the interbank market for the Short Term Funding Desk. NAB's STIRT desk was incentivised to engage in trading for the purpose of influencing the yields of Prime Bank Bills and BBSW, because that produced profits for its book. 786 Further, both NAB and Westpac had "one face" to the Bank Bill Market. In both instances it was STIRT (or STIRR). And STIRT did not trade solely in respect of its own exposure without regard to Group Treasury. NAB's STIRT desk traded on instructions and in coordination with other desks and traded to create liquidity and ensure NAB was adequately funded. 787 Further, as ASIC points out, NAB's Liquidity and BBRM desks also directed trading to influence BBSW, which is inconsistent with Westpac's submission that a Treasury function will lack an incentive to engage in that kind of activity. The evidence of Mr Rotcer Brizuela, an employee of NAB, was that both Liquidity and BBRM, in coordination with Mr Page (Short Term Funding), directed NAB's Prime Bank Bill traders to influence BBSW for the benefit of their respective books.

CBA structure 788 Westpac also contends that its structure may be contrasted with the structure of the CBA. 789 Westpac says that like Westpac (and NAB), CBA had a structural separation between its Treasury and its Global Markets divisions. Unlike Westpac, however, for at least part of the relevant period, traders within CBA's Global Markets division were responsible for trading in Prime Bank Bills. As a consequence, from time to time conflicts arose between the interests of CBA Global Markets and CBA Treasury. 790 Westpac says that during the relevant period, Mr Carritt was involved in a process which sought to transfer responsibility for trading in Prime Bank Bills from CBA Global Markets to CBA Treasury. The purpose of that transfer was to avoid those conflicts and improve the ability of CBA to engage in Prime Bank Bill trading for liquidity, funding and risk management purposes, without the effect of that trading being neutralised by Global Markets' own trading. This can be seen on the part of CBA as a recognition of the advantages of Westpac's structure which involved Treasury undertaking Prime Bank Bill trading. Westpac says that that structure avoided conflicts of the types to which Mr Carritt referred in his evidence, and permitted trading in Prime Bank Bills to focus on funding, liquidity and management of interest rate risk. 791 Now in relation to CBA, I will keep my observations to a minimum given that ASIC has brought separate proceedings against it making similar allegations to those made against Westpac, and in respect of which I am the docket judge with those proceedings not finally disposed of as at the date of the publication of these reasons. 792 For a time, trading occurred in the Global Markets division, before a restructure transferred Prime Bank Bills trading to the CBA Treasury. CBA sought to have one face to the market, that being Mr Mark Hulme, to avoid competing desks trading against each other in the BBSW Rate Set Window. 793 Now Westpac submits that the earlier structure gave rise to conflicts between the interests of Global Markets and Treasury, and the revised structure permitted trading in Prime Bank Bills to focus on funding, liquidity and management of interest rate risk. But ASIC says that submission ignores the following matters. First, at CBA, trading to influence the rate was not confined to Global Markets. Traders within CBA Treasury also traded to influence the rate, although I accept that reliance was placed for such a proposition mostly on rumours that came to Mr Carritt's attention about Treasury traders acting to influence the rate. Second, conflicts were apparently resolved at CBA by the separate divisions co-ordinating with each other to resolve opposing positions on terms which enabled trading to the advantage of the division with a remaining exposure. For these and other matters I am inclined to agree with ASIC that there is little in the different structure of CBA whether before or after the restructure to assist Westpac.

SUSCEPTIBILITY OF THE BANK BILL MARKET AND BBSW TO MANIPULATION 794 Considerable evidence was led before me concerning whether and to what extent the Bank Bill Market was susceptible to manipulation, and accordingly whether and to what extent BBSW was susceptible to manipulation. It is convenient to deal with some relevant matters going to these questions at this point in my reasons. I would note though that in the parties' submissions from time to time the concepts were blended. But this is understandable given that the vast majority of trading of Prime Bank Bills occurred in the BBSW Rate Set Window. But where it is necessary to distinguish the two concepts I have done so, particularly where the question arises as to the effect or likely effect of Westpac's actual trading behaviour on BBSW itself. 795 Now it is relevant to note at the outset that Westpac has accepted that trading in the BBSW Rate Set Window could affect the BBSW.

(a) The views of participants 796 As ASIC points out, the contemporaneous communications show that Westpac's traders thought that their trading may have affected BBSW. They included: (a) "yeah it's been really low. Thanks - thanks to um Col" (this is part of a conversation that does not relate to a contravention date, but as the parties made broader submissions about it, I have addressed the conversation further later in these reasons) [Phone call transcript, Ms Johnston to Mr Sharma, 8 March 2010]. (b) "your fingerprints all over it" [Chat log, Mr Conway to Mr Hosie, 1 July 2011]. (c) "we got it back down" [Phone call transcript, Mr Hosie to Mr Roden, 1 July 2011]. (d) "thanks to yours truly" (this is part of a conversation that does not relate to a contravention date, but as the parties made broader submissions about it, I have addressed the conversation further later in these reasons) [Phone call transcript, Ms Johnston to Mr Sharma, 10 August 2010]. (e) "I pushed the one month down …" [Phone call transcript, Mr Roden to Ms Johnston, 6 April 2010]. (f) "we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set" [Phone call transcript, Mr Duignan to Ms Johnston, 7 April 2010]. (g) "looks like you're keeping the one month down" and "you're a force to be reckoned with" [Phone call transcript, Ms Johnston to Mr Roden, 8 April 2010]. (h) "I believe it could have got to the figure if we hadn't been on the bid" [Email, Ms Johnston to PRM traders, 4 March 2011]. 797 ASIC has contended that where it is believed a market cannot in fact be manipulated, that market is less susceptible to manipulation by reason of that fact. But ASIC says that if participants in the industry believed Prime Banks could trade in the BBSW Rate Set Window to influence BBSW, it made such trading more likely and thus the market more susceptible to such manipulation. Generally speaking I would agree with ASIC's submission at the high level at which that submission is expressed. 798 It is apparent that Westpac's employees from Group Treasury and Financial Markets were of the opinion that trading during the BBSW Rate Set Window could affect the rate at which the BBSW set, that trading by Group Treasury during the BBSW Rate Set Window might have affected the rate at which the BBSW set and that the BBSW was susceptible to manipulation. 799 Mr Roden said that he was aware that there would be instances where someone trading in large volumes (or even small volumes) could affect the rate. He knew that Westpac's trading could have an impact on the market. He was conscious that STIRR's trading could have an impact on the level of BBSW. He traded Prime Bank Bills on Westpac's behalf with the knowledge that his trading could affect the BBSW. Indeed, he sought to trade and timed his trading so as to trade in a way that would not be to the disadvantage of Westpac. 800 Ms Johnston was aware that trading in Prime Bank Bills during the BBSW Rate Set Window could potentially affect the rate at which BBSW set. In cross-examination, Ms Johnston's evidence was that by her remark in a phone call with Mr Roden on 8 April 2010 to the effect that it looked like he had been keeping the 1 month [BBSW] down, she was probably observing the level at which 1 month bills were trading and, knowing that Westpac was generally a buyer in that tenor, enquiring whether Mr Roden had been buying. 801 Mr Hosie understood that it was possible that his trading during the BBSW Rate Set Window might impact the price at which Prime Bank Bills traded at 10.00 am, and therefore the submissions made by BBSW panellists and ultimately where BBSW set. 802 Mr Park acknowledged that he knew that buying a large volume of Prime Bank Bills in the Bank Bill Market could have a price impact, and that trading which had a price impact could affect that rate set position or rate set risk of Westpac. 803 Further, as ASIC has correctly pointed out, the documentary evidence reveals the following examples consistent with industry (and Westpac) participant perceptions that trading in the BBSW Rate Set Window could affect where BBSW set: (a) Mr Roden told Mr Parker (as I have said, then a Senior Dealer on the Short AUD Swaps Desk in Financial Markets, who did not give evidence for Westpac) on 5 June 2008 that "IF WE WERE NOT THERE IT [the BBSW] WOULD BE FFLAT TO PL US 20". (b) On 23 November 2009, Mr Joshua Masters (then a credit trader in Financial Markets) directed Mr Stokes to engage in "no funny business" because he had "a big rateset todasy". (c) On 8 March 2010, Ms Johnston said to Mr Sharma in a phone call that "- yeah it's been really low. Thanks - thanks to um Col". (d) On 6 April 2010, Mr Roden said to Ms Johnston: "I pushed the 1 month down. It was gonna set at 30, right, and then I got it down to 23". (e) On 7 April 2010, Mr Duignan said in a phone call with Ms Johnston: "yesterday was really good 'cause we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set". (f) On 8 April 2010, Mr Roden said in a phone call with Ms Johnston: "Yeah that's it, that was a cracking result for the 32 today I can't believe it" and "I could have got it to 30 but that's completely pointless doing that cause I would have had to spend money and what's the point of spending money right it's just ridiculous so … that's the story Johnston". (g) On 20 May 2010, Ms Johnston left Mr Roden a voice mail recording that "…and 1 month ticked up a point, um I tried to keep that down because we had a pretty decent rate set but there was quite a bit of resistance, ummm ok." (h) On 24 May 2010, Ms Johnston had the following telephone conversation with Mr Greg Ryan: Ms Johnston: Well, we just have to man… we um, so have you… do you k now about BBSW? Greg: Yeah, yeah Ms Johnston: So that's obviously an international benchmark which a lot of different products get reset off so, um, so for example in the St George swaps tab um you can see like today St George has 13.8 billion resetting off the 1 month rate today… Greg: Yep Ms Johnston: … so, um, in our team here we manage BBSW and the rate set, so we actually, um, [pause] we kind of manage and monitor where BBSW gets set Greg: Yep Ms Johnston: and if we've got a large rate set and it's interest, in the bank's interests to, umm, try and decrease that rate or something, Greg: Oh OK, yeah Ms Johnston: we kind of just oversee how that gets set … Greg: Yeah Ms Johnston: … as well as a number of other banks. (i) Ms Johnston took credit for the 1 month rate being "really low" by responding to Mr Sharma in a phone call on 10 August 2010: "thanks to yours truly". (j) On 1 July 2011, Mr Roden told Mr Hosie that Mr Michael Dodds (a trader from ANZ) that "Doddy got run over which is a good thing." (k) On 1 July 2011, in reference to how low the 1 month was, Mr Hosie said to Mr Roden in a phone call that, "Yeah mate, we got it back down". (l) On 30 January 2012, Mr Roden provided Mr Whitfield with a "market update" by email stating that they were "[s]pending money trying to get the BBSW rate set as low as possible in an attempt to reduce our cash bucket negative carry." 804 Mr Zuber agreed that the BBSW was susceptible to manipulation. He gave evidence that someone could set out to trade Prime Bank Bills in the Bank Bill Market during the BBSW Rate Set Window to manipulate the BBSW and could potentially be successful in doing so. 805 Further, Mr Roden suspected UBS of possibly trading with the purpose to move the rate, and complained to AFMA about its conduct and other banks who were "doing the same thing", although in his cross-examination he sought to attribute his comment to a different context concerning short-selling although I am not sure that this diminishes the force of ASIC's point in this context. Mr Roden explained: And those complaints you made to AFMA [regarding UBS] were in relation to buying and selling for the sole or the dominant purpose of moving the rate; that's right, isn't it? - No. It was about the process of short-selling. You mean UBS short-selling, for example; buying at the end of one day and then selling into the set the next day? - Yes. But the purpose of that selling being to move the rate? - Possibly, but again, I don't know their - it struck me as an unusual - it was - it is difficult to find a proper commercial rationale for someone doing that. 806 Further, as I have said, Ms Johnston was aware that people in the industry occasionally speculated that participants in the BBSW Rate Set Window were trading to affect the rate at which BBSW set and from time to time she may have thought other banks' trading was suspicious. 807 Further, Mr Conway speculated that CBA used a "cover" to achieve its objective of moving the rate up. 808 Further, as ASIC pointed out, other communications show that Westpac knew that the BBSW was capable of being manipulated: (a) Mr Roden told Mr Zuber in an email on 16 February 2009 that "having a derivative contract linked to BBSW" was "likely to exacerbate" the problem of "blatant manipulation". (b) Mr Conway in an email to other Westpac employees on 21 September 2009 said "BBSW rate set was jammed lower today". (c) Mr James Land of Financial Markets told Mr Bill Evans (WIB) that the "BBSW function is broken and has been for sometime. This view is strengthened by the random volatility that occurs each day as players try and jam the rateset" [Email, Mr Land to Mr Evans, 17 November 2009]. (d) Mr Park referred to the market for betting on the State of Origin as "so small, it's even smaller than the bloody bill market... everyone knew what was going on", to which Mr Sharma responded: "it was like a 3 month BBSW rate set" [Phone call transcript, Mr Duignan, Mr Park and Mr Sharma, 29 September 2010]. (e) Mr Parker observed that "fears of a ramp into bbsw today" had been "confirmed" [Chat log, Mr Parker and other Westpac officers, 8/9 December 2010]. (f) Mr Parker wrote on another occasion in an email on 7 July 2011 sent to Mr Masnick (and Mr Greg Burke): "3mth bills set high yesterday @4.98% - someone ramping the set … sellers in 10.03am pusshing though 4.96 …". (g) Mr Conway, when asked in a conversation with Mr Lee on 24 November 2011 if he had "even done col/sophie's gig" said: "nope … it is open for ramping". Mr Zuber agreed in cross-examination that "ramping" was language which Westpac employees should not use. 809 Further, as ASIC also correctly points out, the evidence of other experienced industry participants was also to the effect that the Bank Bill Market and BBSW were susceptible to manipulation. 810 The evidence of NAB former and current employees, Mr Page, NAB's Head of Cash Desk, Mr Brizuela of NAB's BBRM and Mr Brock Johnson, former Bank Bill Market trader, was that NAB's Bank Bill Market traders sometimes traded for the purpose of influencing the level at which the BBSW was set in a way that was favourable to their BBSW rate set exposure. NAB's business records similarly record that NAB's Bank Bill Market traders sometimes traded for that purpose and with success. 811 Mr Page commenced employment with NAB in 1994 on NAB's STIRT desk. In 1999 he moved to the Short Term Funding Desk as its Senior Dealer and was the Head of the Short Term Funding Desk. Based on his market experience of over 20 years, his evidence was that it was possible for the BBSW to be deliberately manipulated by market participants. He believed that NAB traders attempted to deliberately manipulate the BBSW and that traders from the STIRT desk at NAB viewed the BBSW rate set as a "game" of who had the biggest "bullets", by which he meant stock to buy or sell to get the BBSW rate set to where they wanted it to be. To Mr Page's knowledge, the rate setting practice persisted after 2008 and he continued to facilitate it. 812 Mr Brizuela joined NAB in 1998. During the relevant period he was a Manager in BBRM, had received a dealer's accreditation from AFMA. He knew that STIRT at NAB sometimes sought to manage its rate set exposure by trading to influence the BBSW, based on his observations of its trading and on his conversations with its traders and Mr McVicar. 813 Mr Johnson started at NAB in 2004 as an analyst in Market Risk and moved to STIRT where he worked as a trader. In 2009 he moved to the Cross Currency desk. In 2013 he left the bank to join a corporate debt consultancy firm. Whilst with STIRT, he observed the practice of STIRT traders seeking to move the BBSW by either selling or buying significant volumes of Prime Bank Bills in the BBSW Rate Set Window. 814 Further, the evidence of Mr Carritt concerning CBA's practices including the documents put to him in cross-examination, tended to suggest that there were perceptions among some traders and employees at CBA that trading with a purpose of affecting BBSW might be achieved. Reference was made to opinions contained inter-alia in the following CBA's business records. Mr Roman Groblicki expressed the opinion that "buying and selling bills/CD's by them [CBA's Swap's desk] is purely to affect BBSW rate settings" [Email, Mr Groblicki to Mr John Pilkington (both CBA), 11 May 2012]. The White Paper (p 17) referred to CBA's Markets division having the ability to influence the BBSW higher to suit their position. It was stated that: "Markets is able to influence a higher BBSW rate set to suit their position while this is often contrary to the Group's balance sheet exposure". 815 Further, in cross-examination Mr Carritt also appeared to accept the following: (a) People more senior than Mr Carritt within CBA told him that traders in the Markets division of CBA traded Prime Bank Bills with the purpose of moving the rate. (b) Mr Carritt's statement in an email to Ms Lyn Cobley (CBA Treasurer) that "[a]ll you can say is that GM will influence to the extent it suits GM" was his description of the behaviour of Global Markets, from time to time, to influence the rate sets and was a statement of purpose [Email, Mr Carritt to Ms Cobley, 24 February 2011]. (c) Mr Groblicki in his email of 11 May 2012 to Mr Pilkington of CBA in which Mr Groblicki expresses the opinion that "buying and selling bills/CD's by them [CBA's Swap's desk] is purely to affect BBSW rate settings" appears to have assumed that CBA's swaps desk had an interest in trading to affect the BBSW rate. (d) He thought potentially that the swaps team could move the rate. (e) In his view, jamming, ramming or ramping is a reference to perceived conduct of trading for the purpose of moving the rate set up or down. (f) It was possible that traders were seeking to affect BBSW. 816 Further, on the question of industry perceptions, the RBA published a report in September 2011 which recognised that to manipulate the BBSW as the LIBOR had potentially been manipulated, this would have to be achieved by "manipulat[ing] the traded market directly" [RBA Bulletin paper, September Quarter 2011].

(b) Features of the Bank Bill Market rendering it susceptible to manipulation 817 I agree with ASIC that there were a number of objective characteristics of the Bank Bill Market which made it susceptible to manipulation and potentially BBSW being susceptible to manipulation. On this aspect I accept the evidence of Professor Talis Putnins, an expert for ASIC (I will address his background later), who identified the following five principal features that caused the Bank Bill Market to be susceptible to manipulation: (a) incentives by derivative exposures based on BBSW; (b) BBSW being determined from a single non-random point in time; (c) concentration of participants in the Bank Bill Market; (d) barriers to entry; and (e) position limits.

Incentives from exposure to BBSW Referenced Products 818 Professor Putnins observed that the phenomenon of a considerable volume of products and contracts that derive their value from the BBSW (or the yields of Prime Bank Bills) constituted a significant incentive to market participants to manipulate the Bank Bill Market and the BBSW. The evidence led before me confirmed that the BBSW Rate Set Exposure of the traders' book was significant to the traders' management of their portfolio of assets and liabilities. 819 Further, Mr Simon Bishop, an expert for Westpac (I will address his background later), did not contest that profit might be gained from trading which had the effect of improving the BBSW set. Now he sought to demonstrate that costs would outweigh the gains, but he accepted that the gains may be greater than his calculation if the effect of the trading was to move the BBSW by more than 3 basis points. Moreover, after being subjected to a close and effective cross-examination on this aspect by Mr Peter Collinson QC for ASIC, it was well apparent that each of the costs (other than the more expensive trading in the BBSW Rate Set Window) Mr Bishop referred to was unsubstantiated or insupportable. 820 Further, Mr Zuber accepted that, all else being equal (a critical assumption), Westpac as a rational market participant would seek to acquire or sell Prime Bank Bills on days where, if the level of Westpac's trading affected the yield at which the Prime Bank Bills were trading, any effect on that yield would not also adversely affect Group Treasury's BBSW Rate Set Exposure. Accordingly, as a matter of (as he described it) "prudent interest rate risk management", if Group Treasury had a short exposure or a paid set, Westpac would not take a step which could potentially put upward pressure on rates. Now Mr Bishop accepted that an economically rational actor with a short rate set exposure would not merely undertake the passive activity of avoiding issuing or selling Prime Bank Bills, but would go further and trade to move the rate set downwards assuming capacity to do so and an available profit from such activity. But this of course assumes that all else is equal and further that it was lawful to do so. 821 Further, Westpac accepted that it would benefit from any movement in the BBSW in the direction that suited its BBSW Rate Set Exposure on that day. That is, it would benefit from the BBSW setting lower when it had a short exposure or payset, and would benefit from a higher BBSW when it had a long exposure or receive set. 822 Further, AFMA also recognised that "BBSW panellists must manage a conflict of interest in situations where they … have a derivatives position that may be dependent on BBSW" [AFMA Board briefing paper, 24 April 2012]. This may provide a motivation that might induce a person to attempt to manipulate the price at which securities trade. Manipulation of the physical market can facilitate profiting in the futures market. Ashley Black, "Regulating Market Manipulation: sections 997-999 of the Corporations Law" (1996) 70 Australian Law Journal 987 cites the decision of US v Regan, 937 F 2d 823 (2d Cir, 1991) where underwriters to the issue of convertible bonds (convertible to common stock at a fixed price) arranged for the sale of shares for the purpose of reducing the market price of those shares, which in turn required bonds to be issued with a higher interest yield in order to place them with investors. 823 Further, Westpac took its BBSW Rate Set Exposure into account when trading in the Bank Bill Market. 824 Now I accept that all of these matters are probative of the ability of trading in the Bank Bill Market to affect BBSW and its susceptibility to manipulation.

Fixed time for trading to determine reference rate 825 Professor Putnins identified that a specific non-random time for specifying the trading which is used as the basis for determining a key reference rate is a feature rendering a market susceptible to manipulation. He compared the use of trading at 10.00 am in the Bank Bill Market to stock exchange prices at the close of trading, and the notoriety of such circumstances creating a likelihood of manipulation. I tend to agree. 826 Now it was suggested by Mr Bishop, and put to Professor Putnins in cross-examination, that the force of the general point was diminished due to uncertainties in the effect of trading at the critical time, but that was rejected by Professor Putnins. Moreover, Mr Bishop accepted that he did not have sufficient knowledge on the point. 827 Now I agree that there were uncertainties in the effect of trading at the critical time, although I do not consider that such uncertainties diminish the general force of Professor Putnins' point that to fix a time for trading to determine the BBSW made the BBSW more susceptible to manipulation. 828 I, of course, am not here commenting on the effect or likely effect of specific bids, offers or trades.

Concentration of market participants, barriers to entry and liquidity 829 The Bank Bill Market had a small number of participants, of which only Prime Banks had the capacity to issue NCDs, which also in my view made the Bank Bill Market more susceptible to manipulation. 830 AFMA recognised the "lack of diversity in the Prime market," [NTI Committee meeting of 24 May 2010, draft minutes] the post-GFC reduction of the amount of "Prime Bank Paper on Issue" and the reduced "level of trading activity" in 2010-2011 [AFMA Board briefing paper, 24 April 2012]. 831 Further, from early 2010, the Bank Bill Market suffered from reduced liquidity. Other traders in the market observed that in about 2010, there was reduced liquidity in the market and that this made it easier as Mr Brizuela said for "banks to push the rate". 832 Further, Westpac's witnesses also recognised that the Bank Bill Market had limited liquidity, particularly outside of the BBSW Rate Set Window. In mid-2010, Ms Johnston knew that the Bank Bill Market barely started trading before 9.58 am. Even within the few minutes around 10.00 am, Westpac's traders recognised that there was no certainty as to what volumes would be traded on a particular day. Outside of the BBSW Rate Set Window, there was only some very limited liquidity at around 4.20 pm to 4.30 pm. 833 Further, Professor Putnins identified a key feature of the Bank Bill Market as its far greater concentration of participants. I agree with ASIC that the participant concentration where only a few buyers and sellers dominate the trading of Prime Bank Bills meant that those few traders may have an outsized influence over BBSW. 834 Now I accept that other market participants had an ability to engage in competitive responses which would temper a participant's efforts to affect prices. But as Professor Putnins explained, notwithstanding the resources or sophistication of other participants, they may potentially encounter problems with identifying and reacting to trading behaviours in the limited window before the determination of BBSW. The nature of the marketplace may not have enabled or may not have been conducive to self-correcting behaviour in time to avoid a participant trading to influence BBSW. 835 Further, Mr Conway's evidence was that "CBA is the biggest balance sheet in Australia, Westpac's the second biggest balance sheet in Australia" and that "when those two balance sheets enter the market to trade … their activities are quite likely to be the ones that are moving around the rate". 836 Further, as Ms Johnston confirmed in a telephone conversation with a representative of the RBA on 9 June 2010, the Bank Bill Market was "much smaller … than the US", and that "BBSW here, it gets affected very much … here if the banks go and do, you know, a couple of billion dollars of issuance into these short term markets it just clogs up straight away". 837 Further, Mr Paul Howarth, a NAB trader, referred to other participants being "suffocated by Westpac stock" [Email, Mr Howarth to NAB officers, 9 March 2012]. Mr Rob Collins of NAB observed that, in respect of 1 month bills, "Westpac bal[ance] sheet take[s] it all" [Chat log, Mr Collins to Mr Corbett (Credit Suisse), 18 July 2011]. 838 Further, traders in the market also knew that the Prime Banks had sufficiently large balance sheets to influence BBSW should they wish to do so. 839 Generally I accept that the Bank Bill Market is a highly concentrated market by financial market standards, and that such concentration is itself a form of illiquidity. The lack of breadth and depth in the market may have resulted in the trading decisions of each participant being more likely to affect prices than in a less concentrated market. But I do not consider this observation to be anything other than self-evident.

Position limits 840 Professor Putnins identified certain position limits (such as credit and interest rate risk limits) which could, if a participant was unprepared, inhibit the ability of market participants to react to manipulative conduct and temporary price impacts. 841 Mr Bishop accepted the proposition in principle, but considered (for the purpose of ascertaining the circumstances on respective contravention dates) that it would be necessary to ascertain empirically whether in fact other market participants were constrained by their limit positions from acting. I tend to agree.

General 842 Let me deal with some other matters. 843 First, as Professor Putnins also explained, the mechanism by which BBSW was set during the relevant period was a relatively crude manual system, which made the Bank Bill Market more susceptible to manipulation. An electronic market would have allowed participants to respond immediately. 844 Second, there is the reputational question. A bank's reputation for trading in a particular way could affect the way in which other participants in the market traded, making it more likely that trading could influence or manipulate. 845 Indeed, ASIC has submitted that there is relevant evidence of Westpac's reputation for trading in the Bank Bill Market. Some examples from the evidence include the following: (a) Prior to the relevant period, Mr Stephen Reid of NAB wrote "in a chat with David Herriot from Citibank ages ago, he has showed he has had rate setting to the tune of 2 bio, that went against him when WBC pushed the rate down & he couldnt issue to offset it" [Email Mr Reid to Mr Mike Krohn (NAB), 9 March 2005]. (b) Mr Greg Betts (ABN AMRO) told Mr Roden: "okay BBSW …let you go do some ramping …" [Chat log, Mr Betts to Mr Roden, 23 September 2008]. (c) Mr Webster of Bank of Scotland saying "if he [Mr Roden] wants them lower all i can do is try to stop [the] wave [of] buying …. [I] cannot push it up as hes there for 10 y[ards] if needed then after 10 goes to acceptors and seells stock based on over limits" [Chat log, Mr Webster to Mr Paul Woodward (ANZ), 29 October 2009]. (d) Mr Howarth of NAB wrote: "Bills/OIS is out quite significantly in the 3 month. At Mondays set it was in to 12 (!) on WBC ramping" [Email, Mr Howarth to NAB bank officers, 30 October 2009]. (e) Mr Harper of Credit Suisse in a chat said "[I] have an axe to stop seeing bbsw getting manipulated" and "pass it on [to] the WBC" [Chat log, Credit Suisse and NAB officers, 4 March 2010]. (f) Mr Hermeet Najjhur of NAB said, in a chat "someone has driven [d]own the rateset but think we will end up ghigher over next couple of days … west[p]ac being buying" [Chat Log, Mr Najjhur to Mr Imran Ismail (JP Morgan), 18 March 2010]. (g) Mr Collins of NAB said, in response to a comment from Mr Sam Ellis of ANZ about "col": "its nasty when he has big ones against you", "he is the biggest by miles" and "so no one to keep him honest" [Chat log, Mr Collins to Mr Ellis, 25 June 2010]. (h) On 4 August 2010, Mr Howarth in a chat said "there seems to be a fair bit of interest in the set tomorrow … interesting", to which Mr Corbett of Credit Suisse said "col still the main manipulator" [Chat log, Mr Howarth and Mr Corbett, 4 August 2010]. (i) Mr Michael Tsakiris of NAB telling Mr McVicar (also of NAB) that "the biggest thing's Westpac, right. If they want to get involved then they can move it the most" and "There's a lot of stock out there but it's all about Westpac, if they want to step up … and do something" [Phone call transcript, Mr Tsakiris to Mr McVicar, 12 July 2011]. (j) Mr McBride of NAB saying "looked like nab pushing it higher" and "[W]estpac and a few other cronies trying to downset it" [Chat log, NAB bank officers, 9 September 2011]. (k) Mr Najjhur of NAB wrote on another chat "he reckons west pac going to drive 1 month lower … so to confirm we have 2 yards of one month", "sold 240 at 39 to Westpac 1 month through tullets" and "220 1 month to Westpac through icap" [Chat log, Mr Najjhur to Mr Tsakiris, 19 December 2011]. (l) Mr Hall of NAB: "wbc selling today. Puck it makes me laugh" to which Mr Page responded "yup they have a lot of ammo" [Chat log, Mr Hall and Mr Page, 7 June 2012]. 846 Mr Lee of CBA said in a chat after trading on 9 December 2010: "the rateset today was amazing…. Roden just played that beautifully" [Chat log, Mr Lee with NAB bank officers, 9 December 2010]. 847 Further, when other banks believed that Westpac "can move it the most" [Phone call transcript, Mr Tsakiris and Mr McVicar (both NAB), 12 July 2011], and that there was little they could do if Mr Roden "wants them [the 1m] lower" [Chat log, Mr Webster and Mr Woodward, 29 October 2009], the consequence may have been that they got out of Westpac's way. 848 I accept that reputation could facilitate trading that could influence or manipulate. 849 Third, ASIC has submitted that Westpac, as an AFMA panellist, made submissions on each trading day which, together with the submissions of other panellists, determined the rate at which BBSW set on that day. In this way, so ASIC submits, Westpac had the ability to "deliberately contribute (or omit) data to the sample, gaining strategic influence over the result" by making or omitting to make "additional trades of whatever sort the benchmark tabulates" (Verstein A, "Benchmark Manipulation" (2015) 56 Boston College Law Review 215 at 231 and 232). 850 Further, ASIC says that the potential for manipulation of the BBSW in respect of the submissions process was recognised and recorded by AFMA as a concern as to whether the submissions accurately reflected the rate at which Prime Bank Bills were trading at 10.00 am on any given day ("the potential for panellists to be able to influence rate-sets to their advantage") [NTI Committee meeting of 26 May 2010, draft minutes]. AFMA also recognised "a separate question about the reliability of those traded rates as a fair reflection of underlying market conditions, such that they are not impacted by attempts by any trader to influence rate outcomes" [AFMA Board briefing paper, 24 April 2012]. 851 Further, ASIC says that on the pleaded contravention dates Westpac generally made the most favourable submissions to AFMA based on its BBSW Rate Set Exposure for that day. It has submitted the following (a) For each of the sale contravention dates: (i) Westpac submitted the highest rate within the range submitted on that day in that tenor; and (ii) Westpac's submission was higher than the rate at which BBSW set on each day. (b) For eight of the purchase contravention dates (6 April 2010 (in the case of the 1 month), 20 May 2010, 6 December 2010, 1 March 2011, 4 March 2011, 1 June 2011, 6 June 2011 and 6 June 2012) Westpac submitted the lowest rate in the range submitted on that day in that tenor; (c) For seven of the purchase contravention dates (30 April 2010, 20 May 2010, 6 December 2010, 1 March 2011, 4 March 2011, 1 June 2011 and 6 June 2012) Westpac's submission was lower than the rate at which BBSW set on each day; and (d) For only one purchase contravention date did Westpac submit the higher of the two submitted rates (22 September 2010). 852 I must say at this point that even accepting these statistics, ASIC never ran or pleaded a case questioning Westpac's behaviour concerning its submissions to AFMA as a panellist or any suggestion that such submissions were distorted or were not relevantly Westpac's genuine best estimates as required. Accordingly I have put to one side ASIC's "most favourable submissions" thesis. But of course Westpac's conduct in the BBSW Rate Set Window could affect the pool of potential inputs used to form the estimates upon which BBSW was then calculated. 853 Finally, I would note the following. The minutes of AFMA's BBSW Committee meeting on 26 May 2010 attended by Ms Johnston for Westpac notes the following: NTI Committee consensus was that there are many inter-related and contributing factors, including: • The Early/Late periods in which Bills are traded plays a large part in the volatility, ie: early purchased stock becomes illiquid after mid-month, prompting selling prior to mid and end-month to avoid holding illiquid stock; • A lack of diversity in the Prime market, which has five participants, down from eight in prior years; • The contraction in issuance of Australian denominated short term securities by the financial services industry relative to issuance levels pre-GFC, as evidenced by RBA statistics; • The decrease in credit limits and increased restrictions on balance sheets since the GFC - this has offset the impact of the decrease in issuance; • The materially larger size of the derivatives markets dependent on BBSW rate-sets within their portfolios as compared to the size of the physical Bills market; • The strong appetite for stock from the funds/investment industry, historical predisposition of the Australian government/semi government and corporate entities to use mid and end-month dates relative to their funding and market / interest rate sensitivity profiles; • The potential for panellists to be able to influence rate-sets to their advantage. 854 But it may be queried whether the last point relates to the making of submissions or the anterior conduct in the BBSW Rate Set Window or both. 855 Further, the minutes of AFMA's NTI Committee meeting on 8 February 2011 (at which Ms Johnston was chairperson) records the following under the heading "Market liquidity and conditions - Market Integrity": Members noted that Bank Bills liquidity remains less than ideal, with only a couple of prime banks regularly issuing stock into the 10:00am rate-set. Members agreed that this is a reality of the diversified funding profile of the majors, and their reduced reliance on the Australian short term debt markets. Members noted there are still the occasional instances of delays in broker screen price updates around the 10:00am rate-set, recognising that the concentrated activity is still overwhelming manual screen input and impacting the flow of information. Members noted that overselling into the 10:00am rate-set has diminished, however has not been fully eliminated. The committee will continue to monitor these issues.

(c) Conclusion 856 In summary, and based upon the foregoing, in my view the Bank Bill Market and the BBSW were susceptible to manipulation from conduct during the BBSW Rate Set Window. But the degree of susceptibility depended upon the conditions and activity of the participants trading on a particular day, including the volume of Prime Bank Bills being traded in each tenor, the number of participants and their interest. It is not feasible to engage in generalisations concerning the degree of susceptibility save to say that I would reject the suggestion that the Bank Bill Market and BBSW were very susceptible to manipulation. I would also note that the variability of the degree of susceptibility was not only trading day dependent, but also a matter that may not have been able to be predicted by participants in advance of the BBSW Rate Set Window on many if not most of the trading days.

RELIABILITY OF WESTPAC'S WITNESSES 857 Before turning to the specific contravention dates, it is appropriate to say something concerning the reliability of Westpac's witnesses and ASIC's submissions in that regard. ASIC exemplified its points by reference to specific communications and excerpts of cross-examination from which I was encouraged to draw more general conclusions on reliability. But I have refrained at this point from reaching any conclusions about the evidence of a witness on a specific communication relating to a contravention date. I have instead at this point restricted myself to assessing the reliability of a witness in more general terms, although informed by the totality of the evidence including that led in relation to the contravention dates.

(a) Mr Zuber 858 I found Mr Zuber to be a very experienced and talented banker, whose evidence was helpful and reliable. Nevertheless, ASIC has made a number of criticisms of his evidence that it is necessary to address. 859 First, it says that his analysis of each alleged contravention date was carefully constructed and amounted to nothing more than a reconstruction of possible reasons for trading on those days. But Mr Zuber did not suggest otherwise. Indeed, he accepted that looking at trading on a particular day after the event, you could only "back-solve legitimate commercial reasons" as to why the trader traded as he did. Mr Zuber described his task in the following terms: I came up with what I thought to be some reasons of what he was doing and how he conducted himself and I saw nothing in any of those trades that gave me any implications that there was even an instance where his activity was to manipulate the rate. It was all commercial. 860 Second and relatedly, ASIC says that Mr Zuber's evidence was also formulaic so far as the contravention dates were concerned. But Mr Zuber explained that approach in the following justifiable terms: "in a number of the cases, we were buying bank bills, so it's not unusual that as I constructed my position together, I'm going to the same five or six things that we would be doing on various days in how we operated". Now ASIC says that the formulaic language which has been deployed tends to make the point that on any occasion of buying or selling Prime Bank Bills it could invariably be characterised as consistent with one or more Group Treasury functions, but that what motivated trading on a particular day as opposed to any other day is what was important. Now so much is true, but that is hardly a criticism of the reliability of Mr Zuber's evidence. 861 Third, ASIC says that Mr Zuber's evidence is of little assistance in considering the contravention dates because he did not refer to the communications upon which ASIC relies. ASIC says that his failure to do so suggests that he never properly investigated the purposes for trading of the traders. ASIC says that he proceeded on the assumption that STIRR was not manipulating the BBSW. 862 Fourth, ASIC says that Mr Zuber had limited experience in trading Prime Bank Bills. He only traded Prime Bank Bills in the late 1990s into the early 2000s through the then markets desk. He left day-to-day decision-making about trading to the individual traders. 863 But generally speaking, ASIC had to accept that save in one respect, Mr Zuber otherwise gave straightforward evidence doing the best that he could with the task he had taken upon himself. ASIC also accepted that Mr Zuber made appropriate concessions. But it says that the one exception was his evidence about Group Treasury's practice of trading on days when any impact of its trading on yields and the BBSW would not be disadvantageous having regard to its BBSW Rate Set Exposure. ASIC says that Mr Zuber revealed a reluctance to accept the corollary, namely, that Group Treasury traded on days when any impact of its trading on yields and the BBSW would be advantageous having regard to its BBSW Rate Set Exposure. ASIC says that he begrudgingly accepted this, albeit in qualified terms. ASIC says that this demonstrated a consciousness on his part to protect the interests of Westpac. 864 Now as to these criticisms I would observe the following. 865 First, it is too simplistic to suggest that Mr Zuber's evidence concerning the contravention dates should be discounted because it is no more than reconstruction. Mr Zuber is and was throughout the relevant period the Group Treasurer of Westpac with overall responsibility and oversight for Group Treasury's operations. He personally was the manager of the STIRR desk prior to Mr Roden. He gave cogent evidence of the objectives of Group Treasury, how buying and selling Prime Bank Bills furthered those objectives and, applying that framework to the particular contravention dates, identified commercial reasons for which Group Treasury bought or sold Prime Bank Bills which were consistent with the trading on each contravention date. I agree with Westpac that such evidence is not pure speculation. It is evidence of corporate practices which probatively informed one of the principal issues for determination. 866 Second, as to the complaint made that Mr Zuber's evidence was formulaic because for many contravention dates he gave the same potential explanations for the trading, as Westpac correctly submits, that Westpac's trading on the majority of contravention dates may be largely for the same reasons for which Group Treasury usually trades Prime Bank Bills is hardly surprising or a basis for criticism in terms of Mr Zuber's reliability. It merely indicates that the trading may be consistent with the pursuit of legitimate trading strategies. 867 Third, as to the suggestion that Mr Zuber's evidence is of little assistance because he did not refer to the contemporaneous communications on which ASIC relies, I agree with ASIC that this lessens the force of Mr Zuber's evidence. But in fairness, it was not Mr Zuber's role to opine on the actual subjective purposes of Mr Roden and Ms Johnston. It would have been inappropriate for Mr Zuber to express opinions on subjective purpose based upon his interpretation of communications to which he was not a party. His evidence was properly limited to identifying the reasons for which Group Treasury normally traded Prime Bank Bills and whether the objective circumstances of the impugned trading were consistent with such reasons. Such evidence is relevant to my task of determining whether Westpac traded on the contravention dates for legitimate commercial reasons or for the purpose of manipulating the rate or a combination of both. 868 Fourth, as to the suggestion that Mr Zuber had limited experience in trading Prime Bank Bills, Mr Zuber did have a prior role as Manager of the STIRR desk. But in any event the criticism could not detract from the strength of the evidence he gave in relation to the way in which buying and selling Prime Bank Bills furthers the principal or significant objectives of Group Treasury. 869 Fifth, as to the suggestion that Mr Zuber only begrudgingly accepted in qualified terms that Westpac traded on days when any price impact of its trading would have a positive effect on its rate set position, the transcript references referred to by ASIC do not fully support such a characterisation, although there is some force in ASIC's point.

(b) Mr Roden 870 ASIC has challenged the reliability of Mr Roden's evidence. But I must say that for the most part I found his evidence to be reliable. He is a highly skilled individual who for the most part gave helpful and informative evidence. But there were aspects of his evidence that I found to be problematic in relation to some of the contravention dates which I will discuss in more detail later. But the fact that I have not accepted some aspects of his evidence is no basis for a wholesale rejection of his evidence. 871 Let me now deal with ASIC's criticisms. 872 First, it is said that aspects of his first affidavit dealing with the contravention dates were detailed, but formulaic. It says that he accepted in his first affidavit that he could not remember the trading on each date, or the communications upon which ASIC relies, and accordingly his opinions were expressed "at no higher a level than supposed consistency of the trading with particular objectives". 873 Second, ASIC says that it is significant that he omitted to note that buying or selling Prime Bank Bills on a particular day when Group Treasury had a short or long BBSW Rate Set Exposure respectively would have a potentially beneficial effect on the movement of the BBSW, which movement would be consistent with one of Group Treasury's core objectives, namely profit-making. 874 Third, ASIC says that under sustained cross-examination by Mr Philip Crutchfield QC over a number of days, the quality of his evidence fluctuated. It is said that he was at times unresponsive and evasive. For example, ASIC says that Mr Roden became much more firm about his reasons for trading (in particular on 6 April 2010) during cross-examination and as it progressed, compared to the uncertainty expressed in his first affidavit. ASIC says that the true position must be that he could not remember and therefore did not know why it is that he traded on the relevant contravention dates, including 6 April 2010. ASIC says that the fact that his evidence became increasingly firmer was a tell-tale sign of Mr Roden taking up a combative position in defence of his and his employer's interests. 875 Fourth, ASIC says that Mr Roden often sought to inappropriately downplay contemporaneous communications which were harmful to his and Westpac's position by fobbing them off as mere banter, humour or colour. 876 Fifth, ASIC says that Mr Roden also sought to downplay other communications by referring to people that he was communicating with as more junior or as a mere irritant. It says that the course of communications between Mr Roden and Mr Lee do not bear out Mr Roden's attempt to distance himself from Mr Lee. And as for Mr Roden's regard for Ms Johnston, ASIC says that the calls between them do not support his downplaying of her status. 877 Sixth, ASIC says that Mr Roden could not offer credible explanations for communications harmful to his and his employer's interests. It is said that his refusal to accept the natural and ordinary meaning of some of the communications is revealing and damaging to his reliability. Further, ASIC says that Mr Roden had to resort, at times, to the notion that an apparently benign explanation such as hedging was implied or that it went without saying because it was understood by those involved in the communication. It says that this stance was not credible. 878 Now some of ASIC's criticisms have force but others do not. 879 As to the weight of Mr Roden's evidence being reduced for being no more than reconstruction that rose no higher than consistency with Group Treasury's objectives because he could not recall the trading on particular contravention dates, there is some force to ASIC's point. But as the head trader on the STIRR desk he gave detailed and probative evidence of the reasons for which STIRR generally traded in Prime Bank Bills and then analysed the available data of the objective circumstances of STIRR's trading on each contravention date by reference to those reasons. His evidence directly bears upon the primary issue, but of course it has its limitations in relation to his reconstruction of the purposes for trading on the contravention dates. 880 Further, as to the suggestion that Mr Roden became firmer about his reasons for trading, particularly on 6 April 2010, as his cross-examination progressed, Mr Roden did not claim to have a specific recollection of the trading on each day, but he did say that he had a general recollection of market conditions from around the time and the way in which the market was operating. That position did not change during the course of his evidence and he did not claim in cross-examination for the first time to recall particular trading. I would also note that if Mr Roden did become firmer in terms of his answers or demeanour, it was more a reflexive stance to the length and combative nature of the cross-examination; sustained and occasionally repetitive cross-examination is not unknown to produce such a reaction from a witness. 881 Further, as to Mr Roden being criticised for downplaying some communications as banter, humour or colour, I agree with Westpac that various of the communications on which ASIC has relied are of that character. Westpac says that ASIC's criticism in truth is that Mr Roden did not accept that what made them humorous was the existence of the Rate Set Trading Practice. But it says that it can hardly be a valid criticism of Mr Roden's evidence, which denied the existence of the Rate Set Trading Practice, that he sought to downplay communications as humorous without accepting that they were joking about the existence of such a practice. I agree with Westpac that the criticism proceeds from the assumption that Westpac was manipulating BBSW when that is the matter in issue to which Mr Roden's evidence was directed. 882 Further, as to the suggestion that Mr Roden sought to downplay his communications with Ms Johnston because of her more junior status, and with Mr Lee of the CBA because he was simply a "serial pest", several points can be made. To the extent that Mr Roden made reference to Ms Johnston as a junior employee, it was in response to being asked to speculate about her state of mind or knowledge. As for Mr Roden's characterisation of the nature of his relationship with Mr Lee, I agree with Westpac that to some extent it was borne out by the content of the communications themselves. 883 Further, as to Mr Roden being criticised for refusing to accept the natural and ordinary meaning of the communications on which ASIC has relied and that his explanations "beggar belief", as Westpac says, this amounts to a criticism that Mr Roden disagreed with ASIC's interpretation of the communications and his rejection of ASIC's case theory that he was trading to manipulate BBSW. Now I have not accepted some aspects of Mr Roden's evidence as I will later explain. But in my opinion, for the most part Mr Roden gave credible and responsive answers. He also made concessions where called for, including that he probably should not have said what he said to Mr Parker in certain chats having regard to the information barrier between Group Treasury and Financial Markets; see for example his telephone conversation with Mr Parker on 24 May 2010.

(c) Ms Johnston 884 ASIC has also challenged the reliability of Ms Johnston's evidence, but again I found her for the most part to be a reliable witness. She is a very proficient and intelligent individual. However, like Mr Roden, there were aspects of her evidence that I found to be problematic in relation to some of the contravention dates which I will discuss in more detail later. 885 ASIC made the following submissions. 886 First, ASIC makes the point, which I accept, that Ms Johnston did not recall any of the events or communications the subject of these proceedings. She did not recall trading on any of the relevant contravention dates or her purpose for trading on any of those dates. 887 Second, ASIC says that the evidence bears out that Ms Johnston followed the directions of Mr Roden. And it is said that accordingly Mr Roden must accept the responsibility for the way he trained and directed "young and impressionable" people. But that description frankly underplays Ms Johnston's considerable skill. In any event, none of that goes to the question of reliability 888 Third, ASIC says that it is unsurprising that Ms Johnston's trading style was not generally as aggressive as Mr Roden's. She was more often focused on trying to keep BBSW from moving against Westpac's interests rather than "dominating" the market. That may be so, but for the moment I am still dealing with the reliability of her evidence. 889 Fourth, ASIC says that Ms Johnston was seeking to give the most helpful evidence for both herself and Mr Roden that she could. It is said that she was well prepared to give her evidence. I might interpolate here that one would hope so. The fact that she was well prepared in giving her evidence should be a reason to compliment rather than to condemn. ASIC also says that it was apparent from her answers that she was at times trying to anticipate where a line of questioning might be heading. For example, when she was asked if she had received a black eye because she had spent too much on Prime Bank Bills without succeeding in keeping BBSW down, her answer was "I think the communication you're referring to I haven't seen in a very long time given I'm not a party to it". And when it was put to her that Financial Markets and Group Treasury should not have been sharing details of their expectations about trading in the Bank Bill Market, her response was "I'm not sure if you're going to take me to a specific communication." 890 Fifth, ASIC says that Ms Johnston was cautious in agreeing to propositions put to her which ought to have been accepted without qualification. It says that she qualified more than 100 of her answers with the word "potentially" or the expression "not necessarily". 891 Sixth, ASIC says that Ms Johnston failed to make appropriate concessions when, for example, inappropriate communications between her and Mr Parker were put to her. 892 Seventh, ASIC says that Ms Johnston also sought to distance herself from a more candid prior statement about Westpac's practices in relation to hedging, which was also made under affirmation and which was inconsistent with the evidence given in this proceeding. ASIC has referred to part of her s 19 examination where Ms Johnston said that she did not use Prime Bank Bills to hedge BBSW Rate Set Exposure risk, but did use them to hedge outright interest rate risk. 893 Generally, ASIC says that Ms Johnston's evidence must be considered in circumstances where she had no recollection of the facts in issue in these proceedings. It says that her evidence adds little to the contemporaneous records which are "clear on their face". Further, ASIC says that what was "most telling" about her evidence was that she could not proffer any reading, other than the natural reading contended for by ASIC, of some of the clearest statements describing her purpose for trading Prime Bank Bills. 894 Let me make the following points. 895 As to Ms Johnston being criticised for being unduly cautious and careful in her evidence, and for being well prepared to give her evidence, I agree with Westpac that this is not a balanced criticism. ASIC's allegations called into question her integrity and probity. She was entitled to be considered, careful and prepared in giving her evidence. Moreover, in some respects her reticence in cross-examination to agree in unqualified terms with propositions put to her reflected more the general terms in which such propositions were framed or, from her perspective, the implicit assumptions embedded in those propositions which she was not prepared to accept. 896 Further, as to the criticism that Ms Johnston failed to make appropriate concessions about the inappropriateness of her communications with Mr Parker, I agree with Westpac that this assumes those communications were inappropriate. But the communications for the most part between Ms Johnston and Mr Parker did not involve Ms Johnston disclosing specific Group Treasury positions or trading strategies. 897 As I have said, I found her evidence for the most part to be reliable, but there are some aspects that I have not accepted that I will elaborate on later. But I would say at this point that her evidence given as part of an earlier s 19 examination hardly instilled me with confidence as to her evidence before me concerning the question of using Prime Bank Bills to hedge BBSW Rate Set Exposure risk (in addition to their use in hedging outright interest rate risk).

(d) Mr Sharma 898 ASIC has submitted that Mr Sharma did not give balanced evidence and that his evidence should be treated with caution. It is said that he would not accept the plain meaning of the communications put to him. And that more tellingly, he strove to give answers to questions that "toed the company line". Thus, ASIC points to the following examples: (a) He gave evidence that Ms Johnston's nickname was the "perfumed steamroller" only because she was a woman, but this did not explain the "steamroller" portion of the nickname. (b) He gave evidence of his discussion with Mr Roden on 8 June 2010 about f***ing the rate set on 10 June 2010, but said that it was a discussion about volatility and about different rate sets. (c) He gave evidence about a discussion on 17 November 2010 about avoiding opposite positions to Mr Roden in December 2010, which he said was a discussion about volatility only. 899 But as Westpac points out, the criticisms of Mr Sharma's evidence, which is said not to have been balanced and should be treated with caution, were simply based upon his unwillingness to accept ASIC's case as to the meaning of certain communications, namely, that the "steamroller" in Ms Johnston's nickname referred to her trading for an improper purpose, that Mr Roden was referring in their telephone call on 8 June 2010 to manipulating BBSW, and that the warning from Mr Park on 17 November 2010 to avoid the market on days in early December was because Mr Roden would be manipulating the rate. I agree with Westpac that the fact that Mr Sharma did not agree with ASIC's characterisation of these communications and the necessary consequences flowing from ASIC's interpretation, being that Mr Roden and Ms Johnston were manipulating BBSW, is no basis of itself to discount his evidence. 900 Generally I found Mr Sharma to be a reliable witness save for some aspects of communications dealing with specific contravention dates that I will discuss later, including in relation to the 17 November 2010 phone call.

(e) Mr Park 901 ASIC has made various criticisms of Mr Park's evidence. 902 First, it is said that in cross-examination Mr Park was careful to disclaim any ability to venture a view on the reasons for UBS trading on a particular day, yet he had no such qualms venturing a firm view that Mr Roden was hedging rate set exposure by his trading. It is said that there was a stark contrast in his evidence in this respect. In relation to the call which took place on 7 April 2010, Mr Park initially offered firm evidence that Mr Roden was trading to hedge his exposure. He claimed to be confident of that, even though he admitted he did not remember the conversation. But he ultimately conceded that he had no better knowledge of Mr Roden's planned trading than to speculate on what might be possible or, as Mr Park ultimately accepted, probable. ASIC says that what Mr Park was avoiding accepting was that Mr Roden and STIRR had concrete plans on how to trade based on their BBSW Rate Set Exposures. It is said that so much had to be drawn out of him under cross-examination. Further, ASIC says that the 17 November 2010 call also provides an example. It is said that to begin with, he explained what he said on the call as "what I thought might happen". This then became what "was likely" to happen. This then became what was "possible that he was going to" do. Mr Park then landed on "[a] probability. Okay". 903 Second, ASIC says that Mr Park suggested that ramping meant something anodyne. ASIC says that what Mr Park was evidently trying to avoid accepting but without persuasive force was that ramping meant deliberately trading to influence the BBSW. 904 Third, ASIC also says that some of Mr Park's answers diverged from the weight of the other evidence of Westpac's witnesses in a manner which undermined his reliability. It is said that he would not accept that FRAs, BAB Futures and interest rate swaps could hedge BBSW Rate Set Exposure, when Westpac's other evidence was to the contrary (or so ASIC asserted). 905 In my view, Mr Park was for the most part a reliable witness, but there were some problematic aspects that I will discuss later rather than now when dealing with the contravention dates. Let me make some other observations at this point. 906 In part, ASIC has criticised Mr Park's evidence because he did not accept ASIC's case theory. And so his refusal to accept that ramping necessarily meant deliberately trading to influence the rate. But his evidence as an experienced market participant is relevant to the meaning of that term. And I agree with Westpac that such evidence is not in and of itself to be dismissed or discounted by assuming that the meaning must be something different. 907 Further, as to ASIC's submission that the reliability of his evidence is undermined because he did not accept that BAB Futures and FRAs can hedge BBSW Rate Set Exposure, the evidence does support the proposition that on one view BAB Futures are not an effective hedge of rate set risk. This is due to the fact that they reflect the value of 3 month Prime Bank Bills at the expiry date rather than the day on which the rate set risk arises. In other words the party with the rate set risk is still exposed to changes in BBSW between those two dates. And so Mr Park's evidence that BAB Futures are not a direct hedge of rate set risk. Further, Mr Park's explanation about the downside to using FRAs (or any interest rate swap) to hedge rate set risk was persuasive.

(f) Mr Duignan 908 ASIC has also criticised Mr Duignan's evidence. It says that he did not give balanced evidence and that his evidence should be treated with caution. It says that on the one hand he was eager to distance himself from STIRR's trading when it suited: "Well, Mr Roden wouldn't discuss with me what his strategies were at any time" and "I think I was stating that Mr Roden bought paper and I don't really know what the reason was for". But on the other hand, it is said that he was eager to point to RBA cash decisions, even when doing so was not relevant to the question being put, and even when it led Mr Duignan to give evidence as if he did know what Mr Roden's purposes for trading were. Further, ASIC says that Mr Duignan also offered an implausible explanation of the call with Mr Park and Mr Sharma on 17 November 2010. 909 Now as to ASIC's primary complaint that Mr Duignan was eager to distance himself from Mr Roden's reasons for trading when it suited him but happy to speculate about those reasons when he thought it would assist Westpac's case, I agree with Westpac that this is an unfair criticism having regard to the questions that were put to him. 910 He was asked about his conversation with Ms Johnston on 7 April 2010 and it was put to him that in that conversation he and Ms Johnston were not discussing Mr Roden's purpose for hedging interest rate risk on 6 April 2010. His answer was that Mr Roden did not discuss trading strategies with him. It was then put to him that he would not know the reasons for which Mr Roden and Ms Johnston traded on any given day, to which he answered that he would not be told the reasons for trading although he may sometimes know what they were doing if there were credit issues etc. There is nothing inconsistent between that evidence and the evidence he gave in relation to the conversation with Mr Park and Mr Sharma on 17 November 2010. He did not venture reasons for Mr Roden's trading. It was put to him that Mr Park was telling him in the call to avoid the days discussed because Mr Roden would be buying and selling, to which he said he thought Mr Park was telling him to avoid those days because it was going to be volatile, with an RBA day and futures delivery also in the mix. He was then asked if Mr Park was assuming in the call that Mr Roden would be buying on 6 December 2010. Mr Duignan's answer that the day before an RBA interest rate decision Mr Roden would be managing his risk as he saw fit was not purporting to give evidence of Mr Roden's reasons for trading but was an answer to a question which asked him what he understood Mr Park to be assuming as to whether Mr Roden would be buying on 6 December 2010. I think that there is nothing in ASIC's point at least in relation to its inconsistency criticism about commenting about Mr Roden's reasons for trading. 911 As to the other complaint about Mr Duignan's evidence, that his evidence in relation to the 17 November 2010 call with Mr Park and Mr Sharma was implausible, Westpac says that this assumes the correctness of ASIC's interpretation of the conversation. I agree that it so assumes. I will deal with this call later. 912 Generally speaking I found Mr Duignan's evidence to be reliable save as to some problematic aspects dealing with some contravention dates that I will discuss later, including in relation to the 17 November 2010 phone call.

(g) Mr Hosie 913 ASIC says that Mr Hosie's evidence in cross-examination was very guarded. ASIC accepts that whilst that is understandable when new documents were shown to him, it is a trait that manifested throughout his cross-examination. ASIC says that it appeared that Mr Hosie strove to give honest answers, but they were answers "skewed by confirmation bias to toe the company line". In my view, the criticism is no more than that he did not accept ASIC's case theory. I agree with Westpac that that is not a justification in and of itself for discounting his evidence.

(h) Mr Conway 914 ASIC has also criticised Mr Conway's evidence. 915 It submits that Mr Conway was not always candid in giving evidence about what he understood certain communications to mean. It is said that he showed a reluctance to acknowledge any potential meaning unfavourable to Westpac's forensic interests, and at times gave almost flippant answers. Thus, so ASIC submits, he initially purported to be unsure about the meaning of the "first rule of [F]ight [C]lub". And he noted that the word "tasty" had to do with eating. Further, on the one hand he would disclaim any knowledge of STIRR's reasons for trading, whilst on the other hand readily proffering that what STIRR was doing was hedging. 916 Now the claim that he initially purported to be unsure about the meaning of the "first rule of [F]ight [C]lub" is incorrect. Further, the dismissal of his evidence of what he understood Mr Hosie meant by "tasty" in their 1 July 2011 chat is also unjustified. He denied that he understood Mr Hosie to be saying that he traded to move the rate lower, which was the meaning put to him, and said that he thought potentially Mr Hosie was just saying that he was buying, as in devouring the available supply. Given the obscurity of Mr Hosie's comment, Mr Conway's evidence was not flippant. Generally speaking, Mr Conway was a reliable witness who gave responsive answers.

(i) Mr Stokes 917 Generally, ASIC accepts that Mr Stokes' evidence was candid and responsive. But it says that the one exception was that in giving his evidence, it was apparent that Mr Stokes was "singing from the same hymn [book]" as other Westpac witnesses when it came to trading Prime Bank Bills to hedge, and trading only so as to avoid detrimentally affecting the BBSW but not so as to affect it beneficially. ASIC says that he pressed this evidence even in the face of his admission in his s 19 examination that he did not trade Prime Bank Bills to hedge BBSW rate set risk. ASIC says that given that he otherwise gave straightforward evidence, his willingness to change position is revealing of his disposition to favour Westpac's forensic interests. I found Mr Stokes to be generally reliable, save that the s 19 examination transcript did throw doubt on one aspect of his evidence.

(j) Mr Masnick 918 In my view Mr Masnick was a reliable witness. 919 ASIC correctly accepted that Mr Masnick's evidence about derivative products and trading platforms appeared to reflect the views of a market participant which were honestly held, although ASIC said that those views are not determinative. 920 Further, ASIC accepted that Mr Masnick gave candid and probative evidence about the ways in which Financial Markets could and did hedge both BBSW Rate Set Exposure and outright interest rate risk, without trading in Prime Bank Bills. 921 But ASIC says that when Mr Masnick was asked about the confidentiality barrier between Group Treasury and Financial Markets, he was unwilling to make any concession that a conversation which took place was improper. ASIC says that his reluctance to do so revealed a concern on his part not to harm the forensic interests of Westpac. I must say that given that he was not a party to the relevant communication, which itself was general, this is hardly a substantial criticism.

(k) General 922 Although I have made some general observations as to reliability at this point, I should say that in doing so I have considered all of the written and oral evidence led. But it has been convenient at this point to set out in general terms my perspective of some of the witnesses in order to facilitate the discussion in the next section. But the fact that my reasons are expressed in the linear order that I identified at the outset of my reasons does not indicate that a later section has not informed an earlier section (and of course vice versa). Further, my views on the reliability of any one witness concerning their evidence of subjective purpose(s) for trading is necessarily informed by, inter-alia: (a) objective features of the Bank Bill Market and BBSW and their actual and perceived susceptibility to manipulation; (b) the structure of Westpac, its trading strategies, risks, relevant incentives, and perceived gains and losses of trading; (c) all contemporaneous documentation; and (d) evidence of other witnesses and their reliability. 923 Further, as will become apparent from the next section I have concluded that some of Westpac's witnesses gave problematic evidence concerning the purpose for trading on 6 April 2010, 20 May 2010, and 1 and 6 December 2010. But I would say now that I do not consider that such a finding warrants any wholesale rejection of their other evidence, whether concerning other contravention dates or more generally. 924 Further, I should also note that in analysing Westpac's strategies for trading Prime Bank Bills I have accepted that a potential purpose for the trading may have been to hedge BBSW Rate Set Exposure. I have rejected ASIC's case that such a purpose generally was a confected afterthought by Westpac's witnesses. But whether it was in fact a purpose or the sole or predominant purpose for trading on a particular contravention date is, of course, another matter. Let me now turn to the contravention dates.

CONTRAVENTION DATES AND ALLEGED PRACTICE 925 Before discussing the specific contravention dates and ASIC's more general case concerning the Rate Set Trading Practice, it is necessary to make some preliminary observations concerning the evidence of key conversations relied upon by ASIC, their mode of proof and other evidentiary themes both as to the quality of the evidence and its subject matter.

(a) Preliminary matters 926 First, a substantial number of audio files recording telephone conversations were tendered in evidence. Accompanying those audio files were competing transcripts submitted by each of the parties purporting to more faithfully record each conversation. In some cases, over the course of the trial the parties agreed on the transcripts of a number of audio files. In such a case, a third version was tendered. But in other cases, the parties not only failed to agree on a transcript, but instead tendered updated versions of their own transcripts. Further, different witnesses often had different transcripts put to them of the same conversation. Moreover, a single witness may have been shown one transcript in preparing their affidavit evidence but had other different transcripts put to them during the course of their oral evidence. Such a state of affairs has not been that desirable from a forensic perspective, but it has been understandable in a trial of this complexity. In order to make these reasons both consistent and comprehensible, I have taken the following steps: (a) First, where an agreed transcript was tendered, I have based my decision on that transcript and where necessary reproduced relevant aspects. And even where a witness has had a different version put to them in cross-examination, I have used the agreed transcript in these reasons except where there has been a material difference between the transcript that the witness was commenting upon and the agreed transcript, in which case I have taken into account the difference. (b) Second, where there has been no agreed transcript, I have considered and reproduced the competing versions but relied upon the most "advanced" version of each party's transcript. And even where the witness has had a different version put to them in cross-examination I have used the latest version in these reasons except where there has been a material difference between the transcript that they were commenting upon and the latest version, in which case I have taken into account the difference. 927 By taking these steps, I have balanced the interests of consistency in these reasons with the necessary degree of forensic discrimination that needs to be given in some cases to different versions of the transcripts for the same conversation. 928 Second, as to form, several other points should be made. Any spelling or other errors in those parts of the transcripts which I have reproduced appear in the versions tendered by the parties without further correction by me unless I indicate otherwise; that comment also applies to extracts from other contemporaneous documents that I have reproduced here or elsewhere in these reasons. Further, in some cases I have given electronic code references to some of the transcripts so that it is clear what I have referred to. I should note that for some of the transcripts I have given a composite reference. For example, if I have used, say, WBC.0003.0005.0070 (_WBC), that is a shorthand reference to the ASIC version (WBC.0003.0005.0070) and the Westpac version (WBC.0003.0005.0070_WBC). If the reference is to, say, WBC.0003.0005.0062_AGR, then that is a reference to an agreed transcript; but not all agreed transcripts carry such a tag as in some cases one party will have agreed with the other's version without any new composite being prepared. I should also say, perhaps counter-intuitively, that the letters "WBC" at the start of a document reference indicate that it was originally produced by ASIC; but if such letters are reproduced at the end of a document reference then this indicates a Westpac modification. And if a document reference commences with "WIB" then this indicates that it was originally produced by Westpac. Further, if the letters "ASIC" appear at the end of a document, then this indicates an ASIC modification. Further, occasionally a party may have amended its own version, in which case it may be marked as, say, WIB.705.001.0021_WBC, i.e. a Westpac produced transcript updated by Westpac. Finally in terms of form, the times for conversations discussed in these reasons have, where necessary, been converted from GMT to AEST even though the primary source may have used GMT. 929 Third, I have listened to many of the relevant audio files particularly those relating to the key communications. I have listened to these audio files for a number of reasons. Where transcripts have not been agreed, I have listened to the particular audio files in an endeavour to resolve any difference in the competing transcripts. But sometimes that has been a fruitless exercise. Further, whether transcripts have been agreed or not, I have listened to the audio files in order to assess from tone and tempo the mood of the conversation. Was what was communicated said in jest? Were conspiratorial tones used? Was there optimism, confidence or just matter of factness? Was there big-noting by the speaker or admiration by the recipient? One could go on with identifying the possibilities. I do not propose to do so. But what is well apparent is that an analysis of the face value of the words used has its limitations. Context is all important. So too is an appreciation of human nature. A confident statement may be inversely proportional to the speaker's knowledge. A statement made by a person of a benefit or result achieved may overstate their casual role, whether through ignorance or ego. A statement made by a person may involve game playing. Perhaps it may involve the new millennium vice of virtue signalling, although it seems that this affliction is less prevalent in the finance industry than elsewhere. There are all of these possibilities and more. I would also note that on many occasions during the trial, Mr Crutchfield QC for ASIC took every available opportunity to play various of the audio tapes for my benefit and that of the witnesses. Accordingly, for most of the key conversations I have heard their audio tapes on more than one occasion. 930 Fourth, all of the trading relevant to this proceeding and the communications relating thereto took place more than five years ago. Unsurprisingly, none of Westpac's witnesses remembered the communications or the trading which took place. Various Westpac witnesses proffered their reconstruction of the communications and trading. But ASIC says that very little weight should be given to such evidence. 931 Now I accept that where trading was sought to be analysed and legitimised, the witnesses based their analysis on limited information provided to them to undertake the exercise, and sometimes without regard to all of the contemporaneous communications. Further, some witnesses did not examine trading, or a failure to trade, on days close to the alleged contravention dates. For example, Mr Zuber said that on 1 and 6 December 2010, Mr Roden may have been buying Prime Bank Bills for the purposes of potentially being able to deliver into the futures close-out, and he did not think it was the case that Mr Roden was buying on 1 and 6 December 2010 to sell out on 9 December 2010 to benefit Group Treasury's BBSW Rate Set Exposure. But Mr Zuber did not consider Westpac's trading information or activities on 9 December 2010 and he could not say why Mr Roden would sell all of the relevant Prime Bank Bills on 9 December 2010. Further, I accept that even where witnesses dealt with both contemporaneous communications and the trading that occurred on a relevant contravention date, some of those witnesses may have assessed the potential commercial rationales for the trading without factoring in the communications. 932 Further, I also accept that I should be cautious in the value and weight that I give to direct evidence of purpose. It is trite to observe that such evidence is given ex post facto and is usually self-serving. 933 Further, I also accept that in any contest between contemporaneous documents and the recollections of persons with an interest in the outcome of the litigation, greater weight is usually accorded to such documents. Generally, they provide a "safer repository of reliable fact, particularly when it is clear that they have been prepared by a person with no reason to misstate those facts in the documents and where there is no suggestion that the documents are other than genuine" (Evans v Braddock [2015] NSWSC 249 at [74] per Hallen J). 934 Further, receding memories are usually attendant with a tendency to give formulaic evidence reflecting an attempt to reconstruct that which the witness does not recall, which formulaic evidence is to be received with caution (see e.g. Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 at [1248] per Jagot J). More generally, undoubtedly human memory is fallible and a witness at the time of giving evidence may not be giving reliable evidence that reflects the content or context of a previous communication or the reason for an act, particularly where the act was repetitive and there was no particular reason why it should have been noteworthy then or remembered now. 935 Further, where a witness shows a mystifying reluctance to accept the plain meaning of language used in a contemporaneous document, their evidence should be given less weight, but not necessarily because the witness is untruthful (The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 70 ACSR 1; [2008] WASC 239 at [1051] and [1052] per Owen J). 936 Further, where the clear meaning of a contemporaneous communication diverges from the evidence now given by a witness, it may be sufficient for me to find that the witness was doing his or her best to reconstruct a possible explanation for doing or saying what they did on a particular occasion, but that having regard to all of the evidence, the purpose that the witness held on the particular day was the purpose disclosed by the plain words of the relevant communication. I would adopt that approach concerning some aspects of Mr Roden's and Ms Johnston's evidence concerning the trading on 6 April 2010, 20 May 2010 and 1 and 6 December 2010. 937 Fifth, let me now say something concerning the vernacular of the traders. And it concerns the use of the "f***" word and its various derivatives. There is little doubt that linguistic Darwinism has favoured the English language. And part of its natural advantage springs not only from its capacity to either create vocabulary or unashamedly appropriate it from elsewhere, but its subsequent diverse and rich deployment. The "f***" word and its use by the traders in the present context is a classic example. It has been used as both a transitive and intransitive verb. It has been used in an active sense and a passive sense. It has been used in the past tense and the future tense. It has been used as an adjective. It has been used as a noun including as a verbal noun. Someone even tried to use it as an adverb. Occasionally it has been deployed not in any context that a formal grammarian would encourage, but simply to reflect an emotional response. Sometimes disappointment or exasperation, sometimes pleasant surprise or even admiration. Sometimes criticism, sometimes positive reinforcement. Even more occasionally, it has been used to indelicately communicate the thought that caution was being thrown to the wind. Clearly, the "f***" word and its derivatives are not terms of art in the finance industry. Nevertheless, their use in otherwise polite conversation appears to have been well understood by the colourful interlocutors. 938 More generally, the language games used by the participants, albeit not quite as attractive as the philosophical description given by Ludwig Wittgenstein, should be seen for what they are. They are frank discussions. They are designed to communicate information quickly and without the usual social niceties. They proceed on an unstated foundation of concepts and strategies well understood. To state the obvious is to be avoided. Robustness and directness are prized. That is the context in which the participants' communications must be analysed. 939 Sixth, during the trial much reference was made to the catchy nicknames of the traders and other participants. This was entertaining stuff in the theatre of trial. But as a trial judge mining facts from the coal face of forensic inquiry, such distractions must be put to one side. Nevertheless, there is one nickname that resonates with anyone who lived through the golden age of television journalism that I will say something further about later. 940 Seventh, ASIC has relied on communications that contain language such as "jamming" or "jam", "ramp" or "ramping", "bullets", "ammo" or "ammunition", or "shenanigans". ASIC has also relied on communications that contain observations from other participants in the Bank Bill Market. To the extent that those communications contain speculation about the behaviour of market participants, they have little probative value in assessing whether Westpac engaged in the Rate Set Trading Practice, although they may be relevant to the question of the susceptibility of the Bank Bill Market or the BBSW to being manipulated. Let me say something further on terminology. 941 ASIC has sought to attach a particular trade meaning to such terms. But there is a difficulty. The way in which such terms were used by some participants does not necessarily inform the way in which they were used by other participants. Moreover ASIC has not established that the expressions or particular words were terms of art with an industry-wide meaning. Accordingly, the context of the particular communication in which the particular term has been used is all important. The evidence establishes the following: (a) The term "ramp" or "ramping" could just be referring to trading or the effect of trading in large volumes. But sometimes the term was used to refer to trading in a way which might influence yield or which may involve BBSW setting at an unexpected level. (b) The term "jam" or "jamming" could refer to a range of things, including being a reference to trading or volatility as a result of active trading including manipulative trading. (c) The term "shenanigans" was often used as a reference to large amounts of volume being available in the Bank Bill Market or the market being volatile. But sometimes it could refer to inexplicable or improper trading. (d) The terms "ammo", "bullets" and other similar terms are in most contexts properly understood as a reference to a portfolio of securities or stock that a trader may wish to sell. But the use of such terms may say little about the purpose for which those securities were held or traded, although in some contexts such use may resonate with perceived weaponisation, including potentially for a manipulative purpose. 942 Eighth, I raised with ASIC's counsel whether the actual movement in BBSW on the day of trading for a particular contravention date as compared with the preceding day or the following day is probative evidence of a manipulative purpose. In other words, take a day where Group Treasury's BBSW Rate Set Exposure was short and it was said that Westpac was buying Prime Bank Bills to drive down BBSW. How should I treat evidence that BBSW moved down on that day as compared with the previous day? Does this confirm manipulative purpose? What if BBSW stayed the same? Should I treat this as neutral on the question? And what if BBSW moved up? Should I treat this as negating evidence of a manipulative purpose or positive evidence of a non-manipulative purpose because BBSW moved in the opposite direction to what ASIC's case theory would suggest? 943 To most of these possibilities, ASIC said that such movement was equivocal evidence in confirming or demonstrating a manipulative purpose. If BBSW stayed the same, then ASIC said that this just established that BBSW had been maintained by the manipulative trading. If BBSW went in the opposite direction to ASIC's case thesis, then it said that it would have moved even further in the opposite direction but for the manipulative trading. But where BBSW moved in the same direction down (i.e. on the buying scenario conjoined with a short BBSW Rate Set Exposure), then it was happy to bank such a result as confirming its thesis. In other words ASIC was seeking to have the best of all possible worlds. 944 This all demonstrated to me that to use changes in BBSW on a particular contravention date to confirm or falsify manipulative purpose was largely an arid forensic exercise. Accordingly, although for each of the contravention dates I have set out the changes in BBSW, drawing conclusions therefrom has not been of assistance. 945 Ninth, if one looks at the trading on each of the contravention dates, to my mind there is no evidence to show that: (a) each of the trades was not genuine in terms of the objectively ascertainable indicia; or (b) Westpac did not obtain the best value that it could either on the buy side or the sell side. 946 In other words, from what I could tell the trades were genuine and at market value if one considers the objectively ascertainable indicia, putting to one side questions of subjective purpose for the moment. 947 Now intuitively one might think that to make such an observation was against ASIC's case thesis. But ASIC disagreed. Its point was that a manipulative trade, the only "hidden" indicia of which was Westpac's alleged manipulative purpose, could for all relevant purposes look like and masquerade as a genuine trade. So again, it was seeking to have the best of all worlds. If a particular trade looked dodgy or non-genuine, then it sought to bank this as support for its case thesis. But if the trade looked and tasted like a genuine trade, then in any event ASIC said that it could still be masquerading as a manipulative trade and therefore was not inconsistent with its case thesis. 948 As I have said, to my mind when looking at the trading on each of the contravention dates, each of the trades was genuine when considering objectively ascertained indicia. Moreover, Westpac obtained or appears to have obtained the best value that it could either on the buy side or the sell side. I will return to these questions at a conceptual level much later in my reasons when discussing ss 1041A and 1041B in terms of their construction and application. 949 Tenth, for each of the contravention dates I have set out some estimates made by Mr Zuber concerning the financial consequences of one basis point changes in BBSW. Westpac sought to make much of the very modest sums that could potentially be earned from manipulation, seeking to suggest that there was little incentive, with ASIC suggesting the opposite particularly if there were three basis point changes or more. On this aspect, in my view ASIC's case on financial incentives to manipulate, if the circumstances were right, is the more compelling one. 950 Eleventh, the discussion that follows concerns trading in the Bank Bill Market and the purpose for such trading on the contravention dates. But there is no discussion of the trading in or pricing of interest rate swaps, cross-currency swaps and BAB Futures on those dates, except in a secondary sense insofar as it may be relevant as to why Prime Bank Bills may have been traded. ASIC does not contend that there was direct manipulation of the trading in the markets for such derivative products or their pricing. Rather, ASIC contends that the effect or likely effect in those markets or on their pricing was indirectly caused by and through the manipulation of BBSW through trading in the Bank Bill Market. 951 Let me now descend into the detail concerning the contravention dates. I will discuss later the question of the existence of the Rate Set Trading Practice. I will also say something later concerning alternative hypotheses and their interaction with the onus of proof when dealing with questions of dominant purpose relating to the purpose(s) for trading on the contravention dates. I will also analyse later what is meant by dominant purpose, but would say at this point that I have taken dominant purpose to be the prevailing or principal purpose. Now Westpac has said that I should adopt a "but for" test for determining dominant purpose. But that is a test for causation, not a test for dominant purpose. Nevertheless, such a test is a useful forensic tool to assist in determining the question of dominant purpose, to the extent that it throws light at least on whether a purpose is a necessary purpose as distinct from a sufficient purpose. Let me say now that in terms of my findings of dominant manipulative purpose on 6 April 2010, 20 May 2010, 1 and 6 December 2010, that if such a manipulative purpose had not existed for the trading on those dates, Westpac would in all likelihood have not traded to the extent that it did. 952 One final preliminary note. My findings concerning each specific contravention date are also informed by the following matters. First, and generally, the totality of the evidence. Second, for a particular contravention date, what I have analysed and said about all other contravention dates. Third, the setting of more general evidence concerning the alleged Rate Set Trading Practice even though I have discussed this later in my reasons. In that respect the linear sequence of my reasons cannot fully reflect all of the iterative analysis that I have had to undertake. Fourth, the incentives to manipulate and the susceptibility to manipulation of the Bank Bill Market and BBSW that I have already discussed, and the effect or likely effect of trading for such a dominant purpose that I discuss later. Finally, to the extent that any part of ASIC's case is circumstantial, I have considered all evidentiary facts to the extent that they might afford proof or an indication that was prospectant, concomitant or retrospectant, adopting Wigmore's conceptual categorisation, and have assessed the probative force of their combined weight.

(b) 6 April 2010 953 ASIC's case is that Westpac bought 1 month and 3 month Prime Bank Bills on 6 April 2010 for the sole or dominant purpose of lowering or maintaining the level at which BBSW set in both the 1 month and 3 month tenors. In summary, I have accepted ASIC's case concerning this contravention date in terms of the existence of the relevant dominant purpose.

1 month tenor - BBSW and Westpac rate set exposure 954 On 6 April 2010, Westpac bought $1.622 billion of 1 month Prime Bank Bills, which was 100% of the trading volume in the Bank Bill Market on the day. The purchases were made at yields of between 4.23 and 4.28, although approximately 93% of that volume was acquired at yields between 4.23 and 4.25 being the liquidity point in the Bank Bill Market at which there was substantial volume on offer. 955 On 6 April 2010, the 1 month BBSW set at 4.2300. AFMA received submissions for the 1 month BBSW of between 4.23 and 4.25. Westpac's submission was 4.23. 956 The 1 month BBSW in the days before and after 6 April 2010 was as follows: 30 March 2010 4.1750 31 March 2010 4.2067 1 April 2010 4.2433 6 April 2010 4.2300 7 April 2010 4.3500 8 April 2010 4.3200 9 April 2010 4.3100

On the following day, 7 April 2010, the 1 month BBSW increased to 4.3500, apparently due to the RBA announcement on the afternoon of 6 April 2010 of a 25 basis point increase in the cash rate. 957 On Tuesday 6 April 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 1 month tenor: (a) a short exposure in PRM of $13,196,390,749.19; (b) a short exposure in ALM of $1,466,000,000.00; (c) a short exposure in St George of $1,840,000,000.00; (d) a long exposure in Corporate Bill Lending of $1,132,984,211.21; and (e) a short exposure in ALM (transfer priced balance sheet) of $14,729,865.83. 958 ASIC contends that Group Treasury had a short BBSW Rate Set Exposure in the 1 month tenor of $14,662,390,749.19. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 1 month tenor was a short exposure of $15,384,136,403.81. This discrepancy is due to the position taken by ASIC at trial that the BBSW Rate Set Exposure of a given day is to be obtained by netting out the component exposures in the PRM and ALM books. As I have previously explained, the table annexed to the parties' SOAF shows this "PRM+ALM" figure in column F for each contravention date. The table shows in additional columns component exposures in St George (column G), Corporate Bill Lending (column H) and ALM (transfer priced balance sheet) (column I) and then in column J the "Aggregate Group Treasury", which is the aggregate figure of the five component exposures. On most contravention dates, the discrepancy between PRM+ALM and aggregate Group Treasury does not affect my analysis. But on several contravention dates, the discrepancy is large enough to change the direction of the exposure. In other words, on some of the contravention dates ASIC submits that Westpac had a short exposure when the aggregate Group Treasury exposure was long and vice versa. That discrepancy gave rise to an argument on the part of Westpac for some contravention dates that ASIC's purpose case theory was inconsistent with the exposure that Westpac actually had. ASIC's response was to say that the traders may not have known the aggregate Group Treasury position (including St George), but may only have known of the PRM and ALM components. I will deal with this issue when I need to. 959 Now apparently, 6 April 2010 was Group Treasury's largest BBSW Rate Set Exposure of the year in the one month tenor.

3 month tenor - BBSW and Westpac rate set exposure 960 Further, on 6 April 2010, Westpac bought $1.02 billion of 3 month Prime Bank Bills, which was 72.86% of the market volume on the day. The purchases were made at yields of 4.47 and 4.48. 961 On 6 April 2010, 3 month BBSW set at 4.4683. AFMA received submissions for the 3 month BBSW of between 4.46 and 4.48. Westpac's submission was 4.47. 962 In the days before and after 6 April 2010 the 3 month BBSW was as follows: 30 March 2010 4.5250 31 March 2010 4.4933 1 April 2010 4.4183 6 April 2010 4.4683 7 April 2010 4.5400 8 April 2010 4.5217 9 April 2010 4.5367

963 The 3 month BBSW on the following day, 7 April 2010, increased to 4.5400, again apparently due to the RBA announcement on the afternoon of 6 April 2010 of a 25 basis point increase in the cash rate. 964 On Tuesday 6 April 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $6,432,138,813.00; (b) a long exposure ALM of $3,432,000,000.02; (c) a short exposure in St George of $200,000,000.00; (d) a long exposure in Corporate Bill Lending of $364,851,195.04; and (e) a long exposure in ALM (transfer priced balance sheet) of $707,664,150.06. 965 ASIC contends that Group Treasury had a short BBSW Rate Set Exposure in the 3 month tenor of $3,000,138,812.98. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $2,127,623,467.88.

Knowledge of Westpac Group Treasury BBSW Rate Set Exposures on 6 April 2010 966 Now I accept that Westpac and in particular Mr Roden knew the BBSW Rate Set Exposure for 6 April 2010 prior to trading on 6 April 2010. Employees and officers of STIRR (including Mr Roden) had access to this information. Mr Roden conducted Westpac's trading on 6 April 2010, in both the 1 month and 3 month tenors. Prior to trading in the BBSW Rate Set Window on 6 April 2010, Mr Roden knew Group Treasury's BBSW Rate Set Exposure in the 1 month tenor at least exceeded $14 billion (short) and that Group Treasury's BBSW Rate Set Exposure in the 3 month tenor at least exceeded $2 billion (short). 967 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 6 April 2010. Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited by about $118,000 and $46,000 from a single basis point move in the 1 month and 3 month BBSW rate set on that day respectively, but those figures are based on the aggregate Group Treasury exposure.

Mr Roden's trading on 6 April 2010 968 On 6 April 2010 Westpac purchased 100% of the 1 month Prime Bank Bills traded through ICAP and Tullett in the Bank Bill Market, with a face value of $1.622 billion. It purchased about 73% of the 3 month Prime Bank Bills traded through ICAP and Tullett in the Bank Bill Market, with a face value of $1.02 billion. 969 In my view, the relevant trader in both the 1 month tenor and the 3 month tenor was Mr Roden. Now although Mr Roden did "not have any specific recollection of Westpac's trading on 6 April 2010 or events on that day" and did "not recall … trading on that day", he gave evidence that he had listened to audio recordings of trading that day "which appear to be of a broker communicating with me". 970 In my view the natural and ordinary meaning of the contemporaneous communications support ASIC's case that Mr Roden traded with the sole or dominant purpose of influencing the BBSW to set lower. Let me go through each of these in turn.

Telephone call between Mr Roden and Ms Johnston on 6 April 2010 (shortly prior to RBA announcement) [Agreed transcript - WIB.705.002.0054_AGR] 971 Let me begin with a communication between Mr Roden and Ms Johnston on 6 April 2010 before the RBA announcement. The time of this call is not known, but both parties accept in their submissions that it was prior to the RBA announcement at 2.30 pm that day. There is an agreed transcript of the conversation, and a version of the transcript was put to Mr Roden. The audio of the conversation was also played to Mr Roden. I have also listened to it. 972 It would appear that this conversation is a reference to the risk position which Group Treasury was taking on the RBA cash rate decision later that afternoon. Mr Roden said "we'll find out very shortly whether or not we win the Lottery because … I've got no f***in idea what they're gonna do", Ms Johnston noted that it "[s]hould be very interesting" and Mr Roden responded "I got no idea what they are going to do so we will find out shortly". It is readily apparent that they were discussing the imminent RBA announcement on the cash rate. It is also apparent that Mr Roden genuinely at this time had little idea of what the RBA was going to do. 973 In my view this conversation demonstrates that Mr Roden was uncertain on 6 April 2010 as to whether the RBA was likely to raise the cash rate or hold it steady, contrary to ASIC's suggestion that his view was that the RBA would raise the cash rate. I say this notwithstanding that Mr Roden was the author or source of the view in the Treasury Update dated 31 March 2010 that the RBA was likely to increase the cash rate. Further, I reject ASIC's suggestion, based on an analogy with a professional punter and a short priced favourite, that it was very unlikely that Mr Roden had a last minute change of view about the RBA decision and decided to hedge his bet by reducing his exposure to the RBA decision on the day. 974 In my view, on 6 April 2010 Mr Roden was uncertain whether the RBA would raise the cash rate. I accept Westpac's submission that his trading that day was influenced by that uncertainty.

Telephone call between Mr Roden and Ms Johnston at 5.21 pm on 6 April 2010 [Agreed transcript - WBC.0003.0005.0055_ASIC] 975 Let me deal with the second communication between Mr Roden and Ms Johnston on that day. 976 At about 5:21:49 pm AEST on 6 April 2010, Mr Roden spoke on the phone with Ms Johnston, who was in London. This transcript is now agreed, although earlier versions of the transcript were put to Mr Roden and Ms Johnston, as well as Mr Bishop and Professor Putnins. The audio of this conversation was played to Mr Roden. I have also listened to it. 977 The first relevant exchange is as follows: Ms Johnston: You've been looking OK today Mr Roden: Yeah, no, we made about 12 million bucks today, right, so that's not - that's what you call a good day, right? 978 In my view the reference to a profit of $12 million made on 6 April 2010 was a reference to the estimated profit made by Group Treasury due to revaluations on the whole of its book which was exposed to domestic interest rates due to the increase in the official RBA cash rate announced at around 2.30 pm on 6 April 2010 as well as other positions and trading outcomes across the ambit of Group Treasury's activities that day. In my view it was not a reference to the calculation of profit arising from the movement in the BBSW Rate Set Window that day. In Mr Roden's first affidavit he said "I believe I am likely referring to the profit that was made due to the revaluation across the whole of the STIRR book as a result of the RBA rate rise". 979 As to the calculation of this figure, Mr Roden gave evidence that Westpac looked at the difference between the closing interest rates from the previous day and the closing interest rate from the current day in each tenor (taking into account new positions that were entered into during the day). Although other factors may also have contributed to the end of day profit/loss, the difference between the two closing rates would be multiplied by the end of day risk position in each portfolio for that tenor and that result would form a substantial part of Treasury's end of day profit/loss result. In this instance, the Treasury Eagles for 1 April 2010 and 6 April 2010 record that at closing on 6 April 2010, the STIRR portfolio: (a) was short approximately $913,623 per basis point in the three month tenor. The closing rate in the three month tenor was 4.42 on 1 April 2010 and 4.54 on 6 April 2010, as recorded in the Treasury Eagle for each tenor, being an increase of approximately 12 basis points between the two days. As STIRR was short, for each basis point increase in the three month rate, it gained $913,623, meaning that on 6 April 2010, the STIRR portfolio revalued and gained approximately $10,963,476 in the three month tenor; and (b) was short approximately $170,126 per basis point in the one month tenor. The closing rate in the one month tenor was 4.24 on 1 April 2010 and 4.33 on 6 April 2010, as recorded in the Treasury Eagle for each tenor, being an increase of approximately 9 basis points between the two days. As STIRR was short, for each basis point increase in the one month rate, it gained $170,126, meaning that on 6 April 2010, the STIRR portfolio revalued and gained approximately $1,531,134 in the one month tenor. 980 Accordingly, the upward movements in interest rates between 1 April 2010 and the close of business on 6 April 2010 meant that in the one and three month tenors Group Treasury's mark to market position and therefore profit/loss result improved by around $12,494,610. 981 Mr Roden then goes on to refer to Group Treasury's 1 month and 3 month BBSW Rate Set Exposure: Mr Roden: …we had a massive rate set today, like we had like … Ms Johnston: Oh really Mr Roden: fin 14 billion of one month. Ms Johnston: Gee Mr Roden: I had to buy like I bought like fu… I had 14 billion 1 month, 'cause it's a long - you know, you got the 5 day run - Ms Johnston: Yeah [inaudible] Mr Roden: … and 3 yards of 3 month, probably about 4 yards of 3 months, so I ended up buying like 2½ billion dollars of [inaudible] Ms Johnston: Shivers… 982 This part of the discussion concerned Mr Roden's trading that morning in the Bank Bill Market, from where he says "I had to buy". He also accepted that when he said "we had a massive rate set today, like we had like … fin 14 billion of one month" that he was referring to Group Treasury's 1 month BBSW Rate Set Exposure. His focus in this part of the conversation with Ms Johnston was his rate set exposure. 983 Now I would note that he stressed the word "massive" and his tone suggests that he was a reluctant buyer, at least of those volumes. Further, Ms Johnston's word "Shivers" more suggests a sympathetic ear rather than one of admiration. 984 Ms Johnston's evidence was that she understood Mr Roden's statement "14 billion 1 month" to be a reference to Group Treasury's BBSW Rate Set Exposure in the 1 month tenor, and "3 yards of 3 month, probably about 4 yards of 3 months" to be a reference to Group Treasury's BBSW Rate Set Exposure in the 3 month tenor. She says that her reactions to Mr Roden's statements reflected her view that these exposures were "relatively large exposures". 985 Mr Roden explained to Ms Johnston: "I had to buy like … so I ended up buying like 2 ½ billion dollars". 986 Now ASIC contends that the natural meaning of this statement is that Mr Roden had to spend a lot of money to buy Prime Bank Bills in the BBSW Rate Set Window to get the BBSW down. I am inclined to agree. But Mr Roden's evidence is that: I believe I was likely expressing a view that it was necessary to buy Prime Bank Bills that day to reduce Treasury's one month BBSW rate set exposure, which was $14 billion, and also to reduce Treasury's net short interest rate risk position. As expressed in my call with Ms Johnston on 6 April 2010 … it appears that I was very uncertain as to whether the RBA would change the Cash Rate and my usual practice would have been to reduce the amount that Treasury stood to lose if the RBA held the Cash Rate by reducing Treasury's net short interest rate risk position if that was possible. 987 Mr Roden repeated this explanation in cross-examination: the reason why I bought on this day, I believe, is because I had formed the view that the rate - the probability of a rate hike was probably closer to fifty-fifty and I was trying to reduce my risk. 988 In my view, ASIC's interpretation should be preferred for the following reasons. 989 First, this part of the conversation extracted above follows after a reference to the profit made by Group Treasury. It suggests that this part of the conversation is likewise directed at profit-making, not the hedging of risk. 990 Second, it is improbable that Mr Roden and Ms Johnston would have a conversation of this kind, with the tone of voice which they used, about a standard risk management technique of hedging as opposed to profit-making from the rate set. 991 Third, the reference to "buying like 2 ½ billion dollars" without providing the allocation of the actual amount and tenor suggests the actual purpose of the acquisitions. The BBSW exposures were disproportionate between the 2 tenors. Accordingly, the communication of "2 ½ billion" to Ms Johnston at that time would have provided her with little useful information that would have allowed her to understand that Mr Roden's views had altered and that he had chosen to hedge. Indeed, Ms Johnston's responses suggest that she immediately identifies what has been communicated to her as confirmation of Mr Roden's purpose to influence where BBSW set. So the actual volume per tenor was unimportant information for her to understand what had occurred. Moreover, the volume of Prime Bank Bills acquired by Mr Roden was merely a reflection of the unwelcome opposition that Mr Roden had encountered, but that he had acquired the volume of Prime Bank Bills sufficient to achieve the ambition of lowering and/or maintaining the rate that BBSW was going to set for the 1 month and 3 month tenors. 992 Fourth, I agree with ASIC that the statement ("I had to buy like … so I ended up buying like 2 ½ billion dollars") must be read in the context of the direction of the conversation as a whole. Mr Roden later tells Ms Johnston that "I got it [the 1 month BBSW] down to 23" and that "we just had to do it, right. Just had to be done … Some things in life have to be done" because "[w]e've got so much money on it". 993 Fifth, Mr Roden cannot remember what he precisely meant. Accordingly, his evidence is necessarily unreliable for that reason alone and involves an element of hindsight reconstruction. 994 Mr Roden goes on to explain that he was successful: Mr Roden: … like, today I got, you know, 1 month from everyone, 'cause I pushed the 1 month down right, it was gonna set at 30, right, and I got it down to 23 … Ms Johnston: Yeah Mr Roden: …but I got it from, fin Goldman Sachs gave me 300 million, I hate those fers as well. Goldman Sachs [inaudible] is 250. JP Morgan gave me 350, all their own CDs 995 Now Mr Roden's evidence was that "I was discussing the effect my trading had on the one month Prime Bank Bill price. I was not saying that my purpose for trading was to push the price down". He repeated this explanation in cross-examination. Ms Johnston proffered an identical explanation. But in my view, when one listens to the tape it seems to me that it is more suggestive of purpose rather than effect. In other words his purpose was to push the rate down (i.e. buying) which, in its effect, meant that he was getting it from everyone (i.e. everyone was selling). 996 ASIC's interpretation, with which I agree, is further fortified by how Mr Roden concluded the conversation: Mr Roden: Oh I know we have got limit, I just wanna - I'm gonna trash them on Friday Ms Johnston: It's so low considering you know they just went to 25 today [laughing] Mr Roden: [Talking together] Oh I know it was completely wrong, like Ms Johnston: [Talking together] But that's such a big rate set, though Mr Roden: [Talking together] I knew it was completely wrong but I thought f*** it, I may as well f*** it. We've got so much money on it, we just had to do it, right. Just had to be done Ms Johnston: Oh yeah Mr Roden: Some things in life have to be done, right. Ms Johnston: Indeed. Oh, good work … [inaudible] 997 On listening to this audio tape carefully, in my view it is more suggestive of the purpose for which ASIC contends. Mr Roden was referring to his conduct in buying Prime Bank Bills to affect where the BBSW set in both the 1 month and the 3 month tenors. But contrastingly, Mr Roden gave a number of explanations during his evidence, all of which denied that the "it" referred to was his own conduct. In his affidavit, he said I am confident that I was referring to the rate. … I believe I am referring to the fact that, with the benefit of hindsight, either the closing end of day bill rate at 4.30 pm or the yield at which I purchased one month Prime Bank Bills and the yield at which one month BBSW set at 10.15 am looks too low relative to the Cash Rate after it had been raised by the RBA at 2.30 pm. In other words, I was saying that the final one month Prime Bank Bill price was inconsistent with where I would have expected it to be having regard to the rate change. In cross-examination, Mr Roden said "I'm not sure whether it's the closing rate or the rate this morning with the benefit of hindsight". 998 Now ASIC quite correctly emphasises that Mr Roden had no memory of these events, but in any event says that either interpretation is consistent with its case. If ASIC's interpretation is correct, then that directly supports the finding of purpose for which ASIC contends. Alternatively, if the preferable account is that proffered by Mr Roden, namely, that he was referring to the yields at which he was trading Prime Bank Bills, then that is consistent with the context of the conversation, as he was talking to Ms Johnston about his trading in the Bank Bill Market that morning and what he knew at that time. That is also more consistent with the explanation he gave about when he would use a term like "wrong" in conversation. But accepting this to be so, the yields at which Prime Bank Bills were trading on 6 April 2010 were only "wrong" if, in fact, Mr Roden continued to believe at 10.00 am that morning that the RBA would increase the cash rate to 4.25% that afternoon, contrary to Mr Roden's present stated uncertainty. 999 Now as to this conversation, Westpac says the following. 1000 First, Westpac emphasises the context. This conversation takes place after the end of the trading day in Sydney, by which time the RBA has announced its decision to increase the cash rate to 4.25%. Ms Johnston was in London at the time. Mr Roden described the conversation as a "general end of day social conversation". I can agree with all of this, but it does not take Westpac far. 1001 Second, Westpac says that Mr Roden's comment to Ms Johnston that "we made about 12 million bucks today" was a reference to the profit/loss impact of the revaluation of the whole of the STIRR book as a result of the RBA's decision at 2.30 pm to raise the cash rate by 25 basis points. Westpac submits that Mr Roden was not referring to any benefit specifically referable to BBSW referenced products setting off 1 month BBSW that day. I am also prepared to accept this. But this does not negate Mr Roden's dominant purpose that may be gleaned from the transcripts. 1002 Third, Westpac says that Mr Roden's comment to Ms Johnston that "I had to buy" and "I ended up buying like 2½ billion dollars" was a reference to the desirability of hedging Group Treasury's rate set exposure and overall net short interest rate risk position, consistent with Mr Roden's usual practice (so Westpac contended) of reducing the amount Group Treasury stood to lose on a net short interest rate risk position from an RBA decision to hold the cash rate steady. I am afraid that I do not accept this explanation for the trading on 6 April 2010. Mr Roden sounded concerned and that he had to buy. It is not consistent with a hedging purpose. But even if it was, that was not Mr Roden's dominant purpose for the trades. 1003 Fourth, Westpac says that Mr Roden's comment "it was good in a way, 'cause we got all our own paper back" was not inconsistent with a genuine attempt to build a stock of liquid assets. Perhaps that is so, but that does not seem to me to have been Mr Roden's dominant purpose. Further, another way to look at this is that Mr Roden was identifying that he had a problem of having to buy so much, which was partially ameliorated by getting back some of their own paper. 1004 Fifth, Westpac says that Mr Roden's comment that "today I got, you know, 1 month from everyone, 'cause I pushed the 1 month down right, it was gonna set at 30, right, and I got it down to 23" was a statement of the effect of his trading in the Bank Bill Market for 1 month Prime Bank Bills. Westpac points out that at the start of trading the spread was 4.32/4.28, which was higher than the point at which there was actual liquidity in the Bank Bill Market, which was at 4.23-4.24. It says that Mr Roden's comment was not a comment about his purpose for acquiring Prime Bank Bills. I disagree, as I have stated above. No doubt his trading produced this effect, but it had this purpose. And the "it" was BBSW. 1005 Westpac says that I should find that notwithstanding the terms in which Mr Roden expressed himself in the conversation, his reference to "30" (or 4.30) should more accurately have been a reference to where the Bank Bill Market was at the start of trading rather than a prediction on his part of where BBSW would have set in the absence of his trading. It says that 1 month Prime Bank Bills never traded at 4.30. There was only $80 million traded on the day at yields above 4.25 (at 4.26 and 4.28). And the 1 month BBSW had set at 4.2433 the day before. I disagree. In my view, the reference to "30" is more appropriately construed as a counterfactual prediction. 1006 Further, Westpac says that it was extremely unlikely that the 1 month Bank Bill Market would not have traded at all on 6 April 2010, leaving the bid/offer spread at the commencement of trading in place. Further, it says that even then with trading, it was unlikely that the bid/offer spread of 4.32/4.28 would have remained unaltered through to 10.00 am, it having moved twice in the minutes beforehand. Westpac says that I could not conclude that the 1 month BBSW would have set at 4.30 in the absence of Mr Roden's trading. Westpac says that a rate of 4.30 at 10.00 am would almost fully have priced in the possibility of a rate hike by the RBA in the afternoon. Given the uncertainty of that prospect, if the rate had increased to levels which mispriced the uncertainty of the RBA's decision, Westpac says that buyers would likely have come into the Bank Bill Market and bought at such levels. Now some of what is said by Westpac may have some force, but in my view it does not directly answer ASIC's point that the communication supports its case of a dominant manipulative purpose. 1007 Sixth, Westpac says that Mr Roden's comment "I know it was completely wrong" was a reference to the rate (i.e. most likely the 1 month BBSW set at 10.00 am) relative to the prevailing cash rate at the time of the conversation, after the RBA increased the cash rate by 25 basis points at 2.30 pm. That is, the BBSW of 4.23 was lower than the increased cash rate of 4.25%, when it should ordinarily be a margin over the cash rate. Now this is a clever explanation with the benefit of hindsight. But I am more inclined to the view that he was acknowledging that he was doing something wrong. But even if I accept Westpac's point, the totality of the communication still suggests to me a dominant manipulative purpose. 1008 Westpac says that his subsequent comment "I knew it was completely wrong" was also a reference to the rate, although rather than the BBSW it could have been a reference to the opening quoted rate of 4.30 during the BBSW Rate Set Window, which was some 6 basis points above the previous day's BBSW and appeared out of market. But even assuming the reference was to BBSW, Westpac says that ASIC is not assisted by Mr Roden's use of the past tense ("knew"). The comment was still no more than a reaction to his trading with the benefit of hindsight. As I have said, I do not accept this "effect rather than purpose" hindsight analysis. 1009 Seventh, Westpac says that Mr Roden's comment "I thought f*** it, I may as well f*** it. We've got so much money on it, we just had to do it" was a reference to the size of Group Treasury's risk exposure to the RBA cash rate decision (in particular an approximately $30 million loss if the RBA left rates unchanged and Group Treasury did not hedge the exposure) and that prudent risk management of that exposure required hedging Group Treasury's overall interest rate risk position exposure to the RBA decision. 1010 It is contended that his use in this sentence, twice, of "f*** it" was not as an active verb but rather as a statement that he had "no option" but to hedge his exposure to the RBA decision by reducing his risk position. That is, he was saying that he thought he may as well hedge the risk position given its size and the uncertainty of the RBA decision and the words "f*** it" were exclamations reflecting his thought process - as in "to hell with it" or "I may as well take the chance". Now Westpac accepts that there is no discernible pause between "I may as well" and the second "f*** it", but it says that grammatically a pause is not necessarily required and, in any event, both Mr Roden and Ms Johnston were speaking so rapidly and informally and so much over the top of each other that the absence of one is unremarkable. 1011 Westpac says that any suggestion that when Mr Roden used the words "f*** it" he was accustomed to use them to describe the impact of his trading on BBSW (where "it" is BBSW or the rate set) is falsified by the frequency with which he used the term in social conversation and the very many different contexts in which the word littered his conversations and infected his vernacular. The word has a chameleon character and Mr Roden was capable of using the term in almost every conceivable context. 1012 I disagree with Westpac's analysis. True it is that Mr Roden's use of the "f***" word and its derivatives was rich and diverse. He had a sense for every occasion. But it seems to me that on balance the f*** word was being used here with its classic active transitivity.

Telephone call between Ms Johnston and Mr Duignan on 7 April 2010 [Agreed transcript - WBC.0003.0005.0062_AGR] 1013 On 7 April 2010 at about 3:53:05 pm, Ms Johnston spoke with Mr Duignan (and Ms Goodenough) by telephone. The transcript for this conversation is agreed, and versions of the transcript were put to Mr Roden, Ms Johnston and Mr Duignan. The audio of the conversation was played to Mr Roden. I should say that I have also listened to it. The following exchange took place: Ms Johnston: How's BBSW going today? Mr Duignan: Um it was actually good today, we actually sold about, oh, a yard and a half of stock into it - Ms Johnston: Oh, that's good… Mr Duignan: which is all the stuff we've picked up in the last day or two. Like yesterday was really good 'cause we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set. Ms Johnston: Mm yeah, Col said. Mr Duignan: And so…heh… we had, we had to take about 2, 2 and half yards of stock to get that done so today we managed to clean up a lot of the credit positions that we'd taken in the last two days. Ms Johnston: Oh okay, awesome. 1014 In my view this conversation is consistent with ASIC's thesis and shows that Mr Duignan and Ms Johnston both understood Mr Roden to have actively "got the one month down" (i.e. the one month BBSW) because Group Treasury had a large rate set exposure, and that he had to buy a couple of yards of stock to achieve this goal or "get that done", and that having achieved it Group Treasury sold lots of the stock the next day on 7 April 2010. This conversation is probative of Mr Roden's purpose as Ms Johnston said that this is what Mr Roden told her. 1015 Now Mr Duignan gave evidence in relation to the statement "it was actually good today, we actually sold about, oh, a yard and a half of stock into it". He said in his affidavit that "I believe I was referring to Westpac's trading activity in the BBSW Rate Set Window that day". In relation to the statement "yesterday was really good 'cause we got the one month down to 4.23 'cause we had … a 13 or 14 yard rate set", he said that "I think it's likely that I was pleased that the one month rate had come down because we had a large one month rate set". But in cross-examination he said "I think I was saying yesterday was really good because the day before there was an interest rate hike by the Reserve Bank which was not fully priced. And so that we had managed to avoid a large loss that day and make some good money". He elaborated that "getting a rate set at that level and getting a pay set on a day where you have an unexpected - not unexpected, but not a fully priced hike is a good outcome". Further, he said that "I think it was a good day because the one-month had set down, which was the outcome". Mr Duignan then referred back to the RBA cash rate: "So Mr Roden would have had to buy 2 to 2.5 yards of bank bills to achieve what he wanted to on the day, so whether that was - so manage interest rate risk. It was an RBA day with a live decision". In my view, Mr Duignan has given reconstructed evidence. Given his shifting explanations and unwillingness to accept the plain meaning of the words used, I do not consider his evidence to be that reliable on this aspect. 1016 Ms Johnston gave evidence in cross-examination that she did not recall the day. But she said in relation to Mr Duignan's statement "we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set" that she was not sure if he was making an indication of purpose, although she said that she wouldn't have assumed this to be the case. She also suggested that Mr Duignan "likely didn't have much insight into what Mr Roden's full range of considerations might have been". ASIC also points out that she did not address the statement "[l]ike yesterday was really good 'cause we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set" in either of her affidavits. 1017 In relation to this conversation, Westpac has submitted the following. 1018 First, Mr Duignan had only been a full time employee of Group Treasury for two weeks at the time of this call, worked on the IMM desk and not in STIRR, and had no involvement in Bank Bill Market trading. Westpac says that he would not have known why Westpac bought Prime Bank Bills on 6 April 2010, but would have known of the impact of the trading on the Bank's cash position due to his role in IMM. But Mr Roden did not inform him of his trading strategy or reason for doing things. 1019 Second, Westpac says that the communication is incapable of shedding any light on Mr Roden's purposes for trading on 6 April 2010 unless Mr Roden informed Mr Duignan of his purpose for trading on 6 April 2010. That suggestion was not put to Mr Roden and it was positively put to Mr Duignan that he was only speculating as to Mr Roden's purpose. I must say on this point that I am inclined to agree. 1020 Third, Westpac says that Mr Duignan's comment "Like yesterday was really good 'cause we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set" was an observation on his part that 6 April 2010 had been a good day because the outcome of the trading on that day had been that the 1 month BBSW set down. A further reason for 6 April 2010 being a good day was that an interest rate hike by the RBA had not been fully priced into the BBSW rate, and Group Treasury had managed to avoid a large loss that day and make some good money. There is some force to this, but these comments are also quite consistent with ASIC's purpose case. 1021 Fourth, Westpac says that Mr Duignan's comment "we had to take about 2, 2 and a half yards of stock to get that done" was a reference to Mr Roden having to buy 2 to 2 ½ yards of stock to achieve what he wanted on the day, whether that was managing Group Treasury's interest rate exposure on an RBA decision day (which carried the prospect of a large loss if the RBA did not increase the cash rate) or otherwise. It is contended that his comment cannot have been a reference to pushing the 1 month BBSW down to 4.23 because the 2 to 2 ½ yards of stock was the total bought by Group Treasury across both the 1 and 3 month tenors, and Mr Duignan would likely not have known the breakdown between the two. 1022 Fifth, Westpac says that Mr Duignan's reference to managing to "clean up a lot of the credit positions that we'd taken in the last two days" was a reference to the sale of JP Morgan Prime Bank Bills received on 6 April 2010 which needed to be sold to provide headroom on the credit limit for JP Morgan. Further, it contends that Ms Johnston's reply "Oh okay, awesome" was in response to Mr Duignan's comment about cleaning up the JP Morgan credit positions. I agree with Westpac's position in this respect. 1023 Generally, there is some force to Westpac's points, but when one analyses in context what was said, it seems to me that the conversation is more confirmatory of ASIC's purpose case in relation to Mr Roden's dominant purpose on 6 April 2010.

Telephone call between Ms Johnston, Mr Park and Mr Kau on 7 April 2010 [Agreed transcript - WBC.0003.0005.0181_AGR] 1024 Ms Johnston had a subsequent telephone discussion on 7 April 2010 with Mr Park and Mr Mostyn Kau, an employee in the long term funding team within Group Treasury. Mr Park has no specific recollection of this conversation. The transcript for this conversation is agreed, and versions of the transcript were put to Mr Roden, Ms Johnston and Mr Park. The audio of the conversation was played to Mr Roden and Ms Johnston; again I have listened to this. 1025 During that discussion, Mr Park said that Mr Roden ("Col") had "spent a crap load of money yesterday and then he sold quite a bit today". This was a reference to Mr Roden's trading activity having purchased Prime Bank Bills in volume the previous day and having sold Prime Bank Bills that day. Mr Park said in cross-examination that "I would have been made aware of it [Mr Roden's trading] either through the cash desk or perhaps Mr Roden". 1026 Mr Park then explained to Mr Kau what had transpired on 6 April: Mr Park: Umm so like the day before he ended up…he bought, he bought like $2.5 billion worth of stock [laughing] for rate set, so...umm he sold I think today, probably woulda… Mr Kau: [Inaudible] Ms Johnston: Big rate set. Mr Park: No, no he had like a… Ms Johnston: 14 billion I think Mr Park: 20 billion … yeah 14 billion rate set and a 5 billion dollar 3 month rate set Mr Kau: Ohh ok Mr Park: So… All: [Laughing] 1027 ASIC says that Ms Johnston did not attempt in her affidavits to explain Mr Park's reference to "he bought like $2.5 billion worth of stock [laughing] for rate set". However, Mr Park stated in his affidavit that he believed his statement was "speculation on my part that Mr Roden had purchased $2.5 billion of Prime Bank Bills to reduce or 'hedge' Group Treasury's relatively large rate set exposure". ASIC nonetheless says that that is because the only plausible explanation is that it was a reference to Mr Roden's acquisition of Prime Bank Bills for the purpose of influencing the BBSW rate to set lower. I agree with ASIC's interpretation on this aspect. 1028 Mr Park's concluding remarks puts this beyond doubt: Mr Park: … so umm spend 2 for 20's not bad. Umm, so he'll be selling stuff over the next couple of days because he's got no rate sets for like another week or whatever. So that shouldn't be too much of an outflow of cash but yeah I think we should still keep on our merry way and try and get… the other thing is there's good levels in one year basis at the moment which I'd love to do but I'm not doing because we don't have the cash around us, so I think if we can get more cash at the moment that'd be great 'cause I'd like to try and lock some of this basis in at like 4 and 3. 1029 ASIC says that in cross-examination, Mr Park offered an implausible interpretation of this conversation; he said that he was talking about Mr Roden hedging his rate set exposure by spending $2 billion on Prime Bank Bills. But ASIC says that the tone of the call is more consistent with trading to make a profit from where the BBSW set, rather than trading to hedge against an exposure. ASIC also says that if hedging was what Mr Park was talking about, it is not apparent why spending "2 for 20's not bad"; ASIC says that an $18 billion difference between the hedging device and the exposure is a sizeable difference. I am inclined to agree with ASIC. Moreover, Mr Park's insistence on adopting an implausible interpretation favourable to Westpac's case in the face of his lack of memory undermines the reliability of his evidence. 1030 Now Ms Johnston was also cross-examined about this conversation and ASIC was prepared to accept that her evidence about this conversation was more measured and less obviously reconstructed than Mr Park's. She acknowledged that she could not remember the conversation. In relation to the "spend 2 for 20's not bad" comment, she said that "I don't entirely know what Dan meant". When asked if Mr Park was talking about hedging, she was unsure: "Potentially, but I'm not entirely sure". When asked why that would have been a cause for laughter, Ms Johnston's evidence was that she thought "[w]e were a little bit astounded at how much was purchased", and then repeated that she could not recall the conversation. 1031 Now in relation to this conversation, Westpac has contended as follows. 1032 First, it says that Mr Park was not one of the traders in STIRR, and it was not Mr Roden's usual practice to discuss with Mr Park his strategy or purpose for trading in Prime Bank Bills during the rate set window. It says that Mr Park would have been made aware of the amount Mr Roden had spent on 6 April 2010 because it would have had a reasonable impact on the cash position and he would have been made aware of it by the cash desk, or potentially by Mr Roden. But it says that Mr Park would not have known the split between how much cash was spent on 1 month and 3 month Prime Bank Bills, only the total cash outflow. Accordingly, Westpac says that nothing said by Mr Park in this conversation could be evidence of Mr Roden's purpose for trading on 6 April 2010 unless Mr Roden informed Mr Park of his reasons for trading. And that suggestion was not put to Mr Roden. Moreover, when the suggestion was put to Mr Park, he denied it. 1033 Second, Westpac says that Mr Park explained his comment that "he bought, he bought like $2.5 billion worth of stock [laughing] for rate set" as a reference to his speculation that Mr Roden had purchased Prime Bank Bills to hedge Group Treasury's relatively large rate set exposure, but he denied that his comment was a reference to Mr Roden having bought stock for the purpose of moving BBSW to set lower. 1034 Third, Westpac says that there is nothing sinister in the parties to the conversation laughing at the size of Mr Roden's trading. Both Ms Johnston and Mr Park said that they were laughing at the size of the buying on the day, which was a very large volume, and not because they believed Mr Roden had traded to manipulate BBSW. 1035 Fourth, Westpac says that Mr Park's comment "spend 2 for 20's not bad" was a comment by him that $2 billion was a large amount of liquidity to get out of the Bank Bill Market on that particular day, which was not bad in terms of what one could do to try to offset a very large $20 billion rate set exposure. So, it was a comment about the size of Mr Roden's trading on the day. Westpac pointed out that Mr Park repeatedly denied that he was saying that Mr Roden had spent $2 billion on Prime Bank Bills for the purpose of lowering BBSW to benefit his $20 billion rate set exposure. 1036 Fifth, Westpac refers to what was put to Mr Park that he could not have thought Mr Roden was buying Prime Bank Bills on 6 April 2010 to hedge his risk position if Mr Roden was likely to sell Prime Bank Bills over the following days. Westpac says that that suggestion involved a misunderstanding of the nature of Group Treasury's interest rate risk from day to day and the means by which buying and selling Prime Bank Bills can reduce rate set exposure and outright interest rate risk from day to day. 1037 Westpac points out that Mr Park explained that his reference to Mr Roden "selling stuff over the next couple of days because he's got no rate sets for like another week or whatever" was an assumption on his part, based on Mr Roden having sold on 7 April 2010, that he would probably continue to sell over the next few days if unwinding his hedge. And given that he had no rate sets over the next few days, it seemed like a time he could unwind that risk without an adverse impact on any rate set exposure. Westpac also points out that as Mr Park also noted, there could be other reasons why Mr Roden might be selling other than unwinding his hedge of the RBA cash rate decision, including reducing credit exposure from positions acquired on 6 April 2010 (i.e. cleaning up the credit positions referred to Mr Duignan in his call with Ms Johnston) and looking to raise funding at the end of the month. Westpac says that what is very clear is that the comment was directed to the cash impact of any trading over the next few days and that Mr Park was only speculating on how Mr Roden might trade over the coming days. 1038 Now whilst I accept that there is some force in Westpac's submissions that Mr Park could not have known of Mr Roden's purpose, I do consider that the terms of this conversation are more confirmatory of the existence of the impugned purpose than not.

Telephone call between Mr Roden and Ms Johnston on 8 April 2010 [Agreed transcript - WBC.0003.0005.0192_AGR] 1039 On 8 April 2010 at about 3:16:49 pm, Mr Roden and Ms Johnston spoke on the phone. The transcript of this conversation is agreed, and versions of the transcript were put to Mr Roden and Ms Johnston. The audio of the conversation was played to Mr Roden, but not Ms Johnston. 1040 In the call, Ms Johnston observed that "it looks like you're keeping the one month down". Ms Johnston agreed in cross-examination that it looked to her like she had said that "Mr Roden was keeping the 30-day or one-month BBSW rate down". She went on to explain that "I think I have probably just observed where it's trading, and I do know that we are generally a buyer in the one-month. So I'm probably just inquiring, have you been buying lately, just in a shorthand, different way of saying it". In my view this was an acknowledgment by Ms Johnston that she believed at the time that Westpac's trading in the 1 month tenor was likely to have had the effect of lowering the 1 month BBSW. 1041 ASIC points out that Mr Roden again referred to the "massive day one day this week". I take this to be a reference to Tuesday 6 April 2010 (Monday 5 April 2010 was a public holiday (Easter Monday)). Indeed, Ms Johnston confirmed that their discussion concerned 6 April by referring to Group Treasury's BBSW Rate Set Exposure in the 1 month tenor on that day: "Yeah the 14" and Mr Roden did so by reference to the acquisition of Prime Bank Bills with a face value of $2 billion that day: "We bought two [inaudible] on that day". 1042 During this conversation, Mr Roden expressed a view that there had been little trading in 1 month Prime Bank Bills on 8 April 2010 which he said to Ms Johnston was because other traders were "a little bit scared". Ms Johnston responded: "[y]ou're a force to be reckoned with these days". Ms Johnston's evidence is that this comment "was clearly intended to be taken in a light-hearted manner". But even if light-hearted, it seems to be a reference to Mr Roden's ability to influence the rate at which the BBSW set. Ms Johnston did not disagree with the proposition that she was congratulating Mr Roden for what he was telling her, to which she responded "[y]ou're a force to be reckoned with these days". 1043 The following exchange also occurred: Ms Johnston: Nothing around. You turned a lot of it out though didn't you? Mr Roden: Yeah, oh, not the one month. Ms Johnston: [Talking together] That was 3s. Mr Roden: But I was stuck with it 3 month stuff, I just chucked it out yesterday oh yeah but there's not even much 3 month stuff around today, right. To be honest, today there wasn't much 3 month around. 1044 I agree with ASIC that this exchange suggests that Mr Roden purchased Prime Bank Bills on 6 April 2010 for the purpose of affecting where the BBSW set and that having achieved his purpose Mr Roden was content that (at least the 3 month Prime Bank Bills) be "chucked … out". 1045 Further, Mr Roden also referred to the BBSW on that day in the 1 month tenor, at 4.32. He said "I could have got it to 30 but that's just completely pointless doing that cause I would have had to spend money and what's the point of spending money, right, it's just ridiculous so… that's the story Johnston". I agree with ASIC that the statement confirms Mr Roden's belief that he could move the BBSW down by buying Prime Bank Bills. 1046 Further, ASIC points out that Ms Johnston was cross-examined about this call but acknowledged that "I don't recall this day", and that "I don't entirely know what Mr Roden means, given that I don't recall the day. So I suppose I'm really just speculating". I agree that Ms Johnston could not give a cogent explanation for what Mr Roden could have meant by the above passages if the words are not to be given their ordinary and natural meaning. 1047 In relation to this communication, Westpac has contended the following. 1048 First, it is said that Ms Johnston's question "looks like you're keeping the one month down - well?" was a shorthand reference to the fact that she had observed from London that 1 month BBSW was generally holding quite low. It is said that as she was in London at the time, she did not have any insight into Mr Roden's trading during this period. I accept such submissions so far as they go. 1049 Second, it is said that Mr Roden denied that his comment "we bought two [inaudible] on that day [6 April 2010] it was a shocker" was in reference to having to spend $2 billion to push the rate down. Westpac points out that his denial was not further challenged. I am not sure where this point takes Westpac. In the totality of the evidence and the cross-examination of Mr Roden, there was a sufficient challenge to his evidence on purpose. 1050 Third, Westpac says that Mr Roden explained his statement "that was a cracking result 32 today I can't believe it like 7 over cash. Can you believe it" as his observation that the 1 month rate to the cash rate seemed low, as it had been at the start of the previous month. It is said by Westpac that it appeared there were no sellers around, which was likely because banks didn't have a desire for cash, which was consistent with Ms Johnston's earlier comment that CBA were not issuing in the Bank Bill Market because they had done a Sterling deal. 1051 Fourth, Westpac says that ASIC's suggestion to Ms Johnston that Mr Roden's comment "They're a little bit scared you know like I think they're a bit scared, you know" was an expression by Mr Roden of his view that other participants in the Bank Bill Market were scared Mr Roden could move the market and BBSW around to where he wanted it to be, was a characterisation denied by Ms Johnston. Further, the suggestion was not put to Mr Roden. Now all of that may be, but I agree with ASIC's interpretation. 1052 Fifth, Westpac says that Ms Johnston's query "You turned a lot of it out though didn't you?" was likely a question for Mr Roden about having sold Prime Bank Bills following 6 April 2010 (potentially to manage credit limit headroom), following her conversation with Mr Duignan the day before when this matter was raised. Westpac points out that she was not challenged on that evidence. Now it was put to Mr Roden that this comment reflected his selling of Prime Bank Bills after 6 April 2010 because "the ammunition was spent", but he denied the proposition. But I agree with ASIC's interpretation that this is more confirmatory of the impugned purpose. 1053 Sixth, Westpac says that Mr Roden denied that his comment "it's a cracker … it's just way too low but in fact, I could have got it to 30 but that's just completely pointless doing that 'cause I would have had to spend money and what's the point of spending money" was a reference to sacrificial trades becoming too expensive for the purpose of pushing BBSW down. He explained that, at 4.30, he thought 1 month BBSW was too low and he was probably a seller at that level but that there did not appear to be any other sellers in the Bank Bill Market. A similar interpretation was put to Ms Johnston, who also denied ASIC's interpretation. Now those denials were made, but I agree with ASIC that such denials are not reliable in the context of all of the evidence. 1054 Generally speaking I prefer ASIC's interpretation of this communication for the reasons that I have said.

Mr Roden's trading during the BBSW Rate Set Window [Transcript WIB.705.001.0021 and updated transcript WIB.705.001.0021_WBC with no relevant differences] 1055 ASIC says that the course of Mr Roden's actual trading during the BBSW Rate Set Window is consistent with him trading for the sole or dominant purpose of lowering the BBSW. There is an agreed transcript of the trading that day, and a version of that transcript was put to Mr Roden. ASIC contends that Mr Roden's trading in the 1 month and 3 month Prime Bank Bills is a textbook example of trading to put downward pressure on rates so as to influence the BBSW to set lower. ASIC points out that in relation to the 1 month Prime Bank Bills: (a) At lines 1-3 of page 2 of the transcript, Mr Roden goes from a bid of 32 to a bid of 28, crossing the spread to buy at 28. (b) At line 4 of page 2 of the transcript, Mr Roden lowers his bid to 27 and crosses the spread. (c) At lines 5-7 of page 2 of the transcript, Mr Roden crosses the spread and trades at 25. (d) At lines 12-14 of page 2 of the transcript, Mr Roden crosses the spread, trades at 23 and bids on at 23, holding the market at 23 for the remainder of the buying. 1056 ASIC submits that I can infer that the above trading occurred during the BBSW Rate Set Window, because it is only after the window that the broker would say something like "Just doing all your totals for you now mate". 1057 ASIC points out that in relation to the 3 month Prime Bank Bills: (a) At lines 3-11 of page 1 of the transcript, the market goes from 50/43 to 50/44 to 48/44 to 48/45. This signals that the market is more certain that the RBA will hike the cash rate, and therefore rates are already being indicated higher than the previous day. (b) At lines 16-17 of page 1 of the transcript, there is a trade at 4.48 by another participant. (c) At line 19 of page 1 of the transcript, Mr Roden bids at 4.48. (d) At lines 19-20 of page 1 of the transcript, the quote is 48/47. (e) At line 12 of page 2, Mr Roden crosses the spread and buys at 47 for all available volume. Mr Roden has bid on at 47. (f) At lines 14-15 of page 2, the market quote is 47/46 with Mr Roden the first buyer in the queue. (g) At lines 16-17, 19, 23 and 25 of page 2, Mr Roden continues to bid on at 47 for more volume than the seller has to sell. This ensures that the mid-rate did not increase from 4.465. 1058 ASIC says that I can infer that the above trading occurred during the BBSW Rate Set Window, because it is only after the window that the broker would say something like "Just doing all your totals for you now mate". 1059 ASIC says that this trading is consistent with its case, because it reveals that Mr Roden aggressively traded in a way that lowered the yields (and increased the price) of the Prime Bank Bills he was buying. 1060 Now I do not accept that the course of trading is as supportive of ASIC's case as it contends. 1061 The course of trading during the BBSW Rate Set Window is recorded in taped telephone calls between Mr Roden and an ICAP broker, Mr Howell; but only Mr Howell's side of the conversation is recorded. The course of trading may also be observed in part from the recordings of the telephone lines between Messrs Tsakiris and Hall of NAB and Mr Graham of ICAP and Messrs Donlan and Bruce of Tullett. 1062 A number of observations can be made about the course of trading in the 1 month tenor: (a) The opening bid/offer spread in the 1 month appears to have been 31/25 (midrate of 4.28), which then changes to 32/26 (mid-rate of 4.29), then to 32/27 (mid-rate of 4.295) and then to 32/28 (mid-rate of 4.30). All of these changes appear to be without any trading, indicating that one or more sellers increased their offer in a desire to sell while Mr Roden maintained his bid at 4.32. (b) Mr Roden did not trade immediately with the offered volume but allowed the offers to increase and commenced his buying by accepting all the volume offered at 4.28 (only $40 million), a yield which was very attractive given 1 month BBSW set the day before at 4.2433. (c) Mr Roden then reduced his bid to 4.27 but there were no sellers willing to sell at that yield. (d) Mr Roden then reduced his bid to 4.25 to find liquidity, his bid was hit and he bid on at 4.25 and acquired more 1 month Prime Bank Bills at 4.25. (e) The best offer then reduced to 4.22, which Mr Roden did not accept. (f) Mr Roden bid at 4.23 and found significant liquidity at 4.23. 1063 Similarly, there was nothing unusual about the course of trading in the 3 month tenor: (a) Mr Howell said "bid on at 48 July, [pause] major buying [pause]. Join … your … bid. Join your bid at 48, sell at 47 against you, 48, 47" meaning that there was volume in the market, Mr Roden had bid at 4.48 together with another major bank and there was an offer at 4.47. (b) Mr Roden acquired volume at 4.47 and bid on. Another major bank was also bidding at 4.47. The best offer was 4.46. (c) Mr Roden continued to acquire more volume at 4.47 and did not cross the spread to take the 4.46 offer. 1064 I do not consider that of itself the pattern of this trading demonstrates ASIC's purpose case, but it is not inconsistent therewith. As ASIC correctly contends, what may objectively appear to be a genuine course of trading can still be for a manipulative purpose.

Westpac's alternative explanations for trading 1065 Westpac has pointed to the following matters as alternative possible explanations for its trading. 1066 First, Group Treasury had an inventory of only $175 million of eligible 1 month Prime Bank Bills eligible for trading in the BBSW Rate Set Window, a very low level which would have required rebuilding. Due to the Easter long weekend, the only prior day on which Westpac could have bought "early" May Prime Bank Bills in the Bank Bill Market was 1 April 2010. Group Treasury's total holding of Prime Bank Bills included a large maturing position of $4.72 billion of Prime Bank Bills which would mature in the next 24 days, a matter about which Mr Roden would have been concerned. 1067 Second, Group Treasury had a short or paid rate set position of $15.384 billion in the 1 month tenor and a short rate set position of $2.128 billion in the 3 month tenor. I would interpolate at this point that these figures match aggregate Group Treasury exposure, not the PRM+ALM figure that ASIC contends. The size of the positions was unusually large because of the 4 day Easter long weekend which had the effect of rolling rate set exposures on 2, 3, 4 and 5 April to the next business day, 6 April 2010. 1068 Third, the most important trading consideration on 6 April 2010 was the impending RBA cash rate decision at 2.30 pm that day. Trading in the morning would involve market participants positioning themselves in relation to their own assessment of the likely RBA decision that afternoon as well as how other participants were likely to behave in relation to the impending decision. So Westpac makes reference to the following: (a) On 6 April 2010, STIRR had an overall net short interest rate risk position of $1,652,653 per basis point (meaning that STIRR would make a mark-to-market profit of that amount for every 1 basis point increase in rates). That is, Group Treasury had positioned itself on an expectation of a generally rising interest rate environment and would profit from a rise in the underlying cash interest rate at 2.30 pm; (b) In advance of an RBA cash rate announcement, the market would begin to move in response to the market's sentiment of the likely position to be adopted by the RBA - i.e. the market would begin to "price in" the prospect of change in the cash rate; (c) Mr Roden would look for occasions when he thought the market was wrong or over-confident about a particular cash rate outcome and would take opportunities to "bet against the market" if he thought the market had not correctly priced in the prospect of a change in the cash rate; (d) In the days leading up to 6 April 2010, market and monetary commentary was mixed as to the prospect of an increase in the cash rate. Based on the level at which 1 month BBSW set on 1 April 2010 (the last trading day before 6 April 2010), the market had factored in around a 65% chance that the rate would increase; (e) 6 April 2010 was looming as a material risk day for Group Treasury: if the RBA raised the cash rate, the end of day Bank Bill rate would also rise to the extent not already factored in by the market and Group Treasury would make a profit/loss gain. Conversely, if the RBA left rates unchanged Group Treasury would suffer material losses on a mark-to-market basis. Because the market was already pricing in around a 65% probability of a rate increase, Group Treasury stood to lose more money from an unchanged cash rate than it would make if the rate increased; (f) There were various options available to Group Treasury to reduce its exposure to this volatility by hedging some of the exposure to the RBA's decision making process that day. Purchasing Prime Bank Bills in volume was the most obvious mechanism to reduce some of the exposure. Acquiring Prime Bank Bills would reduce Group Treasury's loss on its end of day revaluation if the RBA held rates steady, albeit that it would reduce the end of day profit Group Treasury would make if the RBA raised rates in the afternoon. Buying Prime Bank Bills in advance of an RBA cash rate announcement was a standard risk management technique to hedge a net short interest rate risk position; (g) Mr Roden would usually consider buying Prime Bank Bills on days on which Group Treasury had a paid rate set and on which he expected market volatility. Material liquidity in the Bank Bill Market would be expected given the lack of trading for the previous 4 days and the uncertainty around the RBA's cash rate decision that afternoon; and (h) Importantly, Mr Roden made purchases in the 2 month tenor during the rate set window and also acquired $122 million of Prime Bank Bills from CBA in an uncontested off-market trade, both of which were consistent with a desire to obtain Prime Bank Bills to hedge the exposure to the RBA cash rate decision that afternoon and to build Group Treasury's inventory of 1 month Prime Bank Bills, but inconsistent with a desire to influence the level of 1 or 3 month BBSW. 1069 Accordingly, so Westpac contends, the objective evidence supports a finding that the dominant purpose for Group Treasury's acquisition of Prime Bank Bills on 6 April 2010 was one or more of the following purposes: (a) hedging the profit/loss exposure to the RBA's decision that afternoon whether to raise or keep on hold the official cash rate; (b) replenishing and maintaining Group Treasury's holding of eligible Prime Bank Bills (which was very low); and (c) also hedging or reducing Group Treasury's large paid rate set exposures due to the Easter long weekend. 1070 Further, Westpac says that it cannot be said that such purposes were fanciful or lacking a proper foundation as a matter of commercial rationale. It is said that the commercial sense of acquiring Prime Bank Bills on 6 April 2010 to hedge Group Treasury's risk exposure is supported not only by Westpac's Group Treasurer, Mr Zuber, but also by the opinions of two experts (Professor Stulz, and Mr Carritt). It is said that it was not put to any of them that it would have been illogical or unreasonable for Mr Roden to have bought Prime Bank Bills on 6 April 2010 for the purpose of reducing Group Treasury's interest rate risk exposure to the RBA cash rate decision. 1071 Now various witnesses who were not Westpac employees, and some of whom were called to give their expert opinion, expressed views about the possible reasons why Westpac may have traded in Prime Bank Bills on various of the contravention dates. Such witnesses included Professor Stulz, Mr Bishop and Mr Carritt. I mean no disrespect to those witnesses in saying that I did not find their evidence on that aspect to be of assistance. For the most part it was at too high a level and did not take into account the particular communications that ASIC has relied upon. Of course the same might be said of the evidence of Mr Zuber, but he had more immediate experience and knowledge of the potential and realistic strategies that Westpac's traders may have considered or implemented on the contravention dates given his position. 1072 Now in response to Westpac's alternative explanations, I would say the following. 1073 Westpac's principal explanation for Mr Roden's trading is that he was buying Prime Bank Bills against the possibility that the RBA would not increase its cash rate to 4.25% at around 2.30 pm on 6 April 2010. So Westpac refers to the call between Mr Roden and Ms Johnston shortly before 2.30 pm, the transcript of which is agreed [Agreed transcript - WIB.705.002.0054_AGR], in which the following exchange takes place: Ms Johnston: How … How's things going there? Mr Roden: Not bad look we'll find out very shortly whether or not we win the Lottery because … Ms Johnston: [Talking together] Yeah Mr Roden: [Talking together] … I've got no f***in idea what they're gonna do. Ms Johnston: Mmm… Mr Roden: [Talking together] I've got no idea Ms Johnston: [Talking together] Should be very interesting Mr Roden: Yeah I got no idea what they are going to do so we will find out shortly if it ah…I'll speak to you shortly after that okay. Ms Johnston: Awesome. See ya. Mr Roden: Okay see ya. Bye bye. 1074 Now Mr Roden did not remember this call. In his first affidavit, he said that he was saying he had no idea what the RBA was going to decide in relation to the cash rate, and that the reference to "the Lottery" was "the potential P&L gain or loss that would be made on the STIRR book in the event that the RBA decided to raise the Cash Rate or leave it unchanged, as a result of the revaluation that would have taken place". Ms Johnston gave the same explanation in her first affidavit. Elsewhere in his affidavit, Mr Roden said that "it appears that I was very uncertain as to whether the RBA would change the Cash Rate". During cross-examination, Mr Roden said that this call should be interpreted as meaning that the RBA's decision was a 50-50 proposition. He also suggested that the reference to the "Lottery" meant "the RBA's decision today is a lottery". ASIC says that he was unwilling to accept that the reference to the lottery was to the profit/loss gain or loss on the book, until taken again to his affidavit. Mr Roden then said that "[i]t's quite clear when I read this that I didn't know what was going to happen so why would I not be honest and truthful with her". 1075 Now I do not accept that Mr Roden was buying Prime Bank Bills for the sole, dominant or even the incidental purpose of hedging against the possibility of the RBA not moving the cash rate up to 4.25%, even if he was uncertain about what the RBA was going to do. 1076 It is plain that Group Treasury's books had been positioned in advance on the footing that the RBA would increase the cash rate. As Mr Roden said in his first affidavit: Treasury had positioned itself at a general level such that the mark to market value of its net assets and liabilities would increase from a rise in the underlying cash interest rate. This positioning would have been the product of careful planning and trading over a period of time before the RBA decision. 1077 I agree with ASIC that it is implausible that an experienced and skilled trader like Mr Roden would position the book over a number of days on the basis of a rate increase, only to get cold feet at the last minute, without reference to any new relevant information, so as to prompt a negligible hedge. 1078 Further, in my view the objective circumstances are inconsistent with a dominant purpose of hedging against a decision by the RBA not to move the cash rate. In that regard the following may be noted. 1079 First, there is no evidence that Mr Roden bought Prime Bank Bills after the BBSW Rate Set Window. The only Prime Bank Bills he bought were during that window. It may be said that if he suddenly thought that the RBA was a 50-50 proposition, he ought to have attempted to buy all the Prime Bank Bills on offer. He did not do so. 1080 Second, Mr Roden was only 72.86% of the buy-side in respect of 3 month Prime Bank Bills. 1081 Third, in his first affidavit, Mr Roden refers to his purchase of $20 million two-month Prime Bank Bills as "consistent with a strategy to acquire Prime Bank Bills of relatively short maturity for the purposes of reducing Treasury's net short risk position and, therefore, the amount that Treasury stood to lose if the RBA held the Cash Rate steady". Yet the transcript of the rate set trading call shows that there was $100 million of two-month stock on offer. Had Mr Roden thought that the RBA decision was a 50-50 proposition, I agree with ASIC that it is likely he would have purchased them all. 1082 ASIC also contended that Mr Roden could have purchased BAB Futures to have hedged his outright interest rate risk on 6 April 2010, but that he did not trade in any that day. I accept Westpac's submission, made in their written submissions and in their oral closing submissions, that BAB Futures would not have been an effective hedge due to the obvious and significant risk that yields would move between 6 April and close outs in June or September. But this does not diminish my other general conclusion regarding Westpac's dominant purpose on 6 April 2010. 1083 Fourth, the size of the hedge of outright interest rate risk is small, as Mr Zuber and Mr Roden accepted in cross-examination. Despite what counsel for Westpac put to me in its oral closing submissions that the small size of the hedges did not preclude them from being rational commercial courses of action, I am not satisfied that that explanation dislodges my conclusions regarding Westpac's dominant purpose on that day. Let me now deal with some other matters. 1084 I agree with ASIC that the explanation advanced by Westpac that Mr Roden's purchase of $122 million of Prime Bank Bills from CBA off-market is inconsistent with ASIC's case because "it would not affect trading in the BBSW Rate Set Window" is dubious. Buying off-market is likely to result in fewer sellers or less supply of Prime Bank Bills during the BBSW Rate Set Window. 1085 Further, as to the thesis that the buying on 6 April 2010 was consistent with inventory management and building or maintaining holdings of liquid assets, that thesis is not easily reconcilable with the fact that Group Treasury went on to sell about $700 million of the 3 month Prime Bank Bills and $20 million of the 1 month Prime Bank Bills the next day. 1086 Further, as to Mr Zuber and Mr Roden also suggesting that buying Prime Bank Bills reflected a prudent use of incoming cash, this is in tension with the fact that Group Treasury was short cash on 6 April 2010, and forecast to be short through April 2010. But I accept that the cash position is unlikely to have been a material consideration given that both Mr Zuber and Mr Roden said that being short cash was not a disabling consideration for trading on a particular day. 1087 In summary, I am comfortably satisfied that on 6 April 2010 Mr Roden traded with a dominant manipulative purpose. As I have explained later, I have attributed his state of mind to Westpac. I have considered Westpac's alternative explanations for trading but in all the circumstances they are not sufficiently persuasive such as to undermine my primary conclusion.

Other matters - effect or likely effect 1088 In relation to this contravention date, I will deal with the question of effect or likely effect later in my reasons.

(c) 30 April 2010 1089 ASIC alleges that Westpac bought 1 month Prime Bank Bills on 30 April 2010 for the sole or dominant purpose of lowering or maintaining the level at which BBSW set in the 1 month tenor. In summary, given that the relevant conversations are equivocal and the course of trading is more consistent with Westpac's position, in my view ASIC has not discharged its onus of showing such a purpose. My conclusion is based on such matters considered with the totality of the evidence. Let me elaborate. 1090 Ms Johnston conducted Westpac's trading on 30 April 2010 in the 1 month tenor, but she has no recollection of trading Prime Bank Bills on that day. She had been working in Westpac's London office and had anticipated returning to work in Sydney on 27 April 2010.

BBSW and Westpac rate set exposure 1091 On 30 April 2010, Westpac bought $980 million of 1 month Prime Bank Bills, which was 71.01% of the trading volume in the Bank Bill Market on the day. The purchases were made at yields of between 4.43 and 4.48, although $900 million (approximately 92%) of that volume was acquired at yields of 4.43 and 4.44 being the liquidity point in the Bank Bill Market at which there was substantial volume on offer. 1092 On 30 April 2010, 1 month BBSW set on 30 April 2010 at 4.4450. AFMA received submissions for the 1 month BBSW of between 4.42 and 4.48. Westpac's submission was 4.44 and then, apparently, 4.45 (according to the spreadsheet in evidence [ANZ.1021.0002.0008]). 1093 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 27 April 2010 4.3483 28 April 2010 4.3567 29 April 2010 4.3700 30 April 2010 4.4450 3 May 2010 4.5233 4 May 2010 4.5500 5 May 2010 4.5700

1094 The RBA made a cash rate announcement on the afternoon of 4 May 2010 (which was a further increase in the cash rate another 25 basis points). 1095 Now on 30 April 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 1 month tenor: (a) a short exposure in PRM of $2,685,000,000.00; (b) a short exposure in ALM of $165,000,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $2,967,981,451.33; and (e) a long exposure in ALM (transfer priced balance sheet) of $3,492,229,769.18. 1096 ASIC contends that on 30 April 2010 Group Treasury's ALM and PRM rate set risk exposure recorded on its Murex system was a short exposure of $2,850,000,000.00 in the 1 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 1 month tenor was a long exposure of $3,610,211,220.51. 1097 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 30 April 2010. However, on the basis that there was a long exposure that day, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have suffered a net detriment (unquantified) from a single basis point decrease in the 1 month BBSW rate set on that day.

Dispute regarding knowledge of rate set exposure 1098 ASIC says that a short rate set of $2.85 billion exposure was set out in the daily Rate Set Exposure email that Ms Johnston would have received prior to trading on that day and that when Ms Johnston purchased Prime Bank Bills in the 1 month tenor on 30 April 2010, she did so having regard to the short rate set exposure of $2.85 billion recorded on the daily Rate Set Exposure email. 1099 But Group Treasury had a long rate set exposure of $3.61 billion in the 1 month tenor on 30 April 2010. That is, its rate set position would benefit from an increase in BBSW not a decrease. Yet ASIC alleges Westpac bought 1 month Prime Bank Bills on 30 April 2010 for the sole or dominant purpose of lowering or maintaining 1 month BBSW. 1100 Now in recognition of the difficulty, ASIC put to Westpac's witnesses that when trading in the Bank Bill Market they did not have access to Group Treasury's true rate set position. The question then is whether Westpac traders had access each day to Group Treasury's actual rate set position, including exposures from St George Treasury, ALM balance sheet and corporate bill lending. 1101 Now although on 30 April 2010, there was a significant ($2.97 billion) long 1 month rate set exposure from corporate bill lending (column H of Sch 2 to the SOAF), ASIC asserts that Ms Johnston was not aware of this exposure when she traded on 30 April 2010 and therefore thought Group Treasury had a short rate set exposure. 1102 Ms Johnston gave evidence that STIRR traders had the corporate bill lending rate set exposure each day during the Relevant Period. But ASIC put to her that she did not have access to corporate bill lending exposures before May 2010. The basis for this cross-examination was an email dated 7 May 2010 which indicated that Ms Johnston had been only then set up with access to a "Corporate Bill Report". I might add that the nature and content of that report was never identified. Ms Johnston did not agree with that suggestion. Her evidence was that the "STIRR blotter", which captured risk exposures each day and which the traders had in front of them, had a tab which brought in the corporate bill lending data each day and her understanding was that this information was brought in during the whole of the relevant period. I am inclined to accept her evidence. 1103 Now Group Treasury also had a significant ($3.49 billion) long ALM (transfer priced balance sheet) rate set exposure on 30 April 2010 (column I of Sch 2 to the SOAF), although again ASIC put to Ms Johnston that she was not aware of this exposure when she traded on 30 April 2010. It was put to her that either the report containing this information was "still just a work in progress in May 2010" or that she was not getting the report on a daily basis in April and May 2010. 1104 But Ms Johnston said that the St George/ALM rate set report was sent on a daily basis. Now ASIC relied on an email exchange between Ms Johnston and Mr Ryan of 24 May 2010 to contend that the St George/ALM rate set report either was not sent before that date or was not sent on a regular basis. But Ms Johnston explained that Mr Ryan was filling in for someone who was away and he had not been sending through the report as regularly as it should have been over the prior 2 weeks. Her evidence was to the effect that the report was received on a daily basis particularly when sent by the usual person. 1105 ASIC also sought to suggest that Ms Johnston would not have known the correct ALM (transfer priced balance sheet) exposure for 30 April 2010 because that exposure was calculated on a basis different from the modified following convention (i.e. where an exposure arises on a non-business day it rolls to the next business day until that day is in the following month in which case it rolls back to the prior business day) and required netting out the effect of swaps. But Ms Johnston did not need to and did not calculate any figures from the St George/ALM report. The report was simply saved down and a macro run in Excel which pulled the relevant rate set information out of the report. Ms Johnston gave the following evidence in cross-examination: For the purpose of creating the ALM transfer price balance sheet, BBSW risk exposure data. One had to take these figures at cell C3 and C3 to C5 and then net out from them the effect of the swaps, both the Westpac swaps and the St. George swaps; 35 do you recall that? - I'm not entirely - I don't - as I have said, this is a very long time ago that I was running this report. Okay? - And, to be honest, it was something - from what I recall, something that we would save down just run a macro and the macro would pick up what it needed to. Okay? - It wasn't my recollection necessarily that it would pick up the other days, like add the weekend days. 1106 In summary, I accept Ms Johnston's evidence which was to the effect that she would have known of the long exposure. This of course creates a difficulty for ASIC.

Course of trading on 30 April 2010 [Agreed transcript - WBC.0003.0005.0203_AGR] 1107 The course of trading during the BBSW Rate Set Window is recorded in taped telephone calls between Ms Johnston and Mr Howell of ICAP. The course of trading may also be observed in part from the recordings of the telephone lines between various NAB traders and Mr Blades of ICAP and Messrs Bruce and Donlan of Tullett. The transcript for trading is agreed by the parties, and a version of the transcript was put to Ms Johnston. 1108 ASIC says that before trading commenced, Ms Johnston was informed by Mr Howell of ICAP that the early quotes were 42/40 (that is, the current bid was [4.]42 and the current offer was [4.]40), which was already higher than where BBSW had set the previous day (at [4.]37) by about 4 basis points. ASIC says that the higher rate was the result of expectations of a possible May RBA rate increase being priced in by the market. 1109 ASIC says that prior to trading, Mr Howell referred to CBA having offered to sell $200 million of Prime Bank Bills. This was an offer made to Westpac to purchase Prime Bank Bills off-market, prior to trading in the BBSW Rate Set Window. ASIC submits that if Ms Johnston had in fact been seeking to purchase to build or maintain the liquidity buffer, to deploy surplus cash or to offset (any) risk, in circumstances where she did not know what the level of liquidity would be during the BBSW Rate Set Window, and where CBA was offering as ASIC described it "BBSW flat", that is, the rate would be wherever the BBSW set that day, she would have accepted CBA's offer. ASIC submits that Ms Johnston declined the offer from CBA because she wanted to save her limited reserves for on-market trading to effect her purpose of influencing the rate at which BBSW set. 1110 Before Ms Johnston made her first bid, she was also told by Mr Howell that there was a "third shooter May", which she understood to be a reference to there being three sellers of 1 month Prime Bank Bills. 1111 ASIC contends the following. 1112 Once trading commenced, Ms Johnston agreed that her bids got hit quite a lot. Her evidence was that she thought there was an indication that there was "quite a bit of selling". Ms Johnston agreed that she was offered large quantities of Prime Bank Bills at 43 which she did not take when she was bidding at 42 or when she raised her bid to 44. Her evidence was to effect that she would have been able to "sense that there [was] a lot of selling pressure". 1113 During the course of trading, when Ms Johnston had bid 44, she said to Mr Howell: "I don't want to see 50". ASIC submits that Ms Johnston was telling her broker, in plain language, that she did not want to see the rate go up to 50; she wanted the rate to remain at about the level that she was bidding (at 44). 1114 Ms Johnston does not recall her trading on this day and so her evidence about this statement is hypothetical, post-fact speculation. What she speculates is that she may have seen a "50" posted on one of the brokers' screens. There is no contemporaneous evidence that supports this contention. Ms Johnston did not refer to a screen, or that there might have been anything wrong with a figure on a screen. Her broker did not refer to any "50" on a screen, or a bid for that amount or an offer for that amount. At this point in the trading, no bid or offer had been recorded on the trading call at "50". 1115 Mr Howell understood Ms Johnston's statement (that she did not want to see 50) and confirmed that he was bidding her on at 44. 1116 A significant feature of Ms Johnston's trading on 30 April 2010 is that she was offered at 48, and she took that offer (and completed the trade) and then, without pausing, immediately bid 44. This can be heard very clearly on the recording of the trading call. There is no doubt (and Ms Johnston could have had no doubt) that the offer was "real" (as ASIC described it). She accepted it and completed the trade. And then immediately offered to pay a higher price; without waiting to see if the seller would offer another parcel of Prime Bank Bills (as it might in the ordinary course); and without bidding at a rate that she knew had attracted at least one seller (48), or even raising her bid by a point (which would logically and on her own evidence would have been a better, cheaper purchase for her to make). If the purpose had been, as Ms Johnston sought to suggest, to buy Prime Bank Bills at cheap prices, then she would have tried to ascertain whether she could make further purchases at or above the level which she had traded (48). 1117 ASIC submits that it is clear that Ms Johnston was seeking to ensure that the rate did not set as high as 48 (and certainly not as high as 50), which was why she immediately bid at 44: she was buying sacrificially - paying more than she had to - in an endeavour to stop the rate going up. 1118 ASIC refers to Ms Johnston's evidence, with no recollection of her trading on the day, unsupported by any contemporaneous evidence, that she thought the offer of 48 was "out of the market" and if she bid at that level she would lose out on trading , and she was anxious to keep buying. ASIC says that there are a number of responses to this speculation. First, if in fact (as she now speculates) there was a 50 bid on the screen which prompted her to say that she did not want to see 50, then an offer at 48 could hardly have been out of the market. Second, had Ms Johnston been so anxious to obtain Prime Bank Bills that day, she would not have declined CBA's offer. Third, the subsequent events on 30 April 2010 readily demonstrate that Westpac was not at all anxious to buy Prime Bank Bills. As ASIC described the context, it was "cash strapped", "choking" on ANZ paper and, as Ms Johnston candidly recorded in her cash flows email later that morning, she had spent too much. 1119 ASIC contends that there was no rational reason at all to undertake the minimum parcel trade at 48 and then immediately bid to pay a higher price, and Ms Johnston could offer no rational reason in cross-examination. She had no knowledge at all about what volume there was at 48 when she accepted the offer: she had no basis to "highly doubt that there would have been much volume". 1120 But I agree with Westpac that the course of trading as disclosed in the rate set calls is simply inconsistent with the allegation that Ms Johnston's buying on 30 April 2010 was for the sole or dominant purpose of lowering or maintaining 1 month BBSW [Agreed transcript - WBC.0003.0005.0203_AGR]. In this regard: (a) Ms Johnston's opening bid was 4.42, which was 5 basis points above where 1 month BBSW set the day before (4.37). This is not a level at which someone seeking to lower or maintain BBSW would place their opening bid. (b) The bid/offer for 1 month was then 4.42/4.40, with 2 sellers at 4.40 (including $100 million from CBA, which had tried to deal with Westpac in advance of the BBSW Rate Set Window). Ms Johnston did not cross the spread to accept 4.40 but maintained her bid at 4.42. (c) The market then moved to 4.42/4.41, with a third seller joining the best offer. That is, the sellers had increased their offer of 4.41. Again, Ms Johnston did not cross the spread but maintained her bid at 4.42. (d) CBA then hit Ms Johnston's bid at 4.42. Mr Howell indicated that CBA were willing to offer $200 million at 4.42, but Ms Johnston did not accept the offer and instead took her bid back to 4.43; (e) Sellers then hit Ms Johnston's bid at 4.43. She subsequently moved her bid back again to 4.44. (f) Mr Howell offered $200 million from CBA at 4.43. Ms Johnston did not accept it, maintaining her bid at 4.44; (g) At this point the market was 4.44/4.43. However, a seller (subsequently determined to be NAB) then posted an offer of 4.48, which was well above the best bid of 4.44. That is, the 4.48 offer created an inverted market where the best offer was at a higher yield than the best bid. I agree with Westpac that there is no rational reason why a seller would post an offer of 4.48 when a buyer was in the market offering to buy at 4.44. Ms Johnston immediately snapped up the 4.48 offer, which was very cheap and inexplicably out of market. (h) Ms Johnston maintained her bid at 4.44 and continued to buy at that level. Whilst maintaining her bid at 4.44, she saw the best bid on the broker screen at 4.50 which prompted her to say "44 bid, I don't want to see 50". Her bid of 4.44 was better than 4.50 so her bid should have been showing on the screen, not 4.50. She then bought more volume at 4.44. 1121 In summary, at no point did Ms Johnston cross the spread to accept a lower offer. She waited for sellers to accept her bid and, when there appeared to be selling volume, she pulled her bid back several times to buy that volume at more favourable (higher) yields. I agree with Westpac that her trading was inconsistent with a strategy to lower or maintain the level at which 1 month BBSW set on the day. 1122 Now ASIC has made the point that Ms Johnston, after accepting the 4.48 offer, which was well out of the market and higher than the prevailing best bid, did not see whether there was any further selling volume at 4.48 but maintained her bid at 4.44. But that was a reasonable response given that the 4.48 offer was out of the market, created an inverse market, and was inexplicable given that the seller could have sold at 4.44. As Ms Johnston gave evidence, it was very unlikely, in those circumstances, that there was any further selling volume at 4.48. Moreover, if there was genuine selling volume at 4.48, that seller would have hit Ms Johnston's 4.44 bid immediately, yet there was a substantial pause before Ms Johnston's bid was hit again after maintaining her 4.44 bid. 1123 ASIC has also contended that Ms Johnston's comment to Mr Howell "44 bid, I don't want to see 50" is evidence of a manipulative purpose. But Ms Johnston had bid on at 4.44 (where volume was trading), but for some reason her bid was not showing in the screen. A bid of 4.50 was showing as the best bid instead. As Westpac contended, the likelihood is that when Ms Johnston's bid of 4.44 was hit, it dropped out (even though Ms Johnston bid on) and the 4.50 showed on the screen by mistake. It is likely that Ms Johnston was telling Mr Howell that she wanted her bid on the screen so she could buy stock at 4.44.

Communications following trading on 30 April 2010 [Transcript not agreed - WBC.0003.0005.0070 (_WBC)] 1124 On 30 April 2010 and after Ms Johnston had completed trading during the BBSW Rate Set Window, she spoke again by telephone with Mr Howell. A transcript for this conversation has not been agreed, and a version of the transcript was put to Ms Johnston. The audio of this conversation was also played to Ms Johnston. Again, I have listened to this audio tape. 1125 She expressed, very clearly, her displeasure at the quantity of Prime Bank Bills she had purchased: "Oh no… Oh no" [phrase agreed] and "oh God" ["Ah god" in Westpac's version]; I must say that I think she said "oh God". And she did so before being told the exact volumes and rates traded for the Prime Bank Bills. ASIC says that she stated clearly her purpose for trading: "I just wanted … to keep it from going to ridiculous levels" ["I just wanted to keep it from going ridiculous" in Westpac's version]. Again, I consider ASIC's version to be correct. 1126 ASIC contends that Ms Johnston's evidence that she expects she would have been satisfied with her trading on this day is not credible. In cross-examination, she accepted that it was possible that she bought more than she was anticipating on this day. ASIC submits that Ms Johnston can be heard on the recording of this call telling Mr Howell that she "didn't even have much on it" [although ASIC's transcript now proposes "Show me [indistinct] have much … on it"; Westpac's version is "[inaudible] … Show me how much on it"] (I agree with Westpac's version) before she states that she "just wanted to keep it from going to ridiculous levels" [phrase contested as above]. ASIC submits that Ms Johnston's displeasure was at having bought so much trying to keep the rate down when she didn't think she had much on it (that is, when she didn't think she had a massive BBSW Rate Set Exposure). 1127 Ms Johnston then received a summary of her trades from the Tullett representative. Again ASIC says that she expressed displeasure when she was told of the quantity that she had bought and before she was told how much she had paid for the Prime Bank Bills, that is, how expensive the Prime Bank Bills were. 1128 I am not convinced that this conversation takes ASIC as far as it would wish. 1129 ASIC places much reliance on Ms Johnston's comment, "I just wanted to keep it from going ridiculous" [i.e. ASIC's version] or "I just wanted … to keep it from going to ridiculous levels" [i.e. Westpac's version] (there is a dispute as to what was said as recorded in the audio). Ms Johnston thinks (and I am prepared to accept) that it may have been a reference to the offer made during trading that morning at 4.48, away from where the market was trading. As already noted, there should not have been inverse markets and the offer of 4.48 was strange to say the least. 1130 ASIC also seeks to suggest that Ms Johnston said to Mr Howell "I didn't even have much on it" [phrase contested as above], which is said to be a reference to the size of Group Treasury's rate set exposure. But neither the ASIC nor Westpac transcript records Ms Johnston as saying those words, and no such words are discernible from the audio. 1131 ASIC has also sought to characterise this call as serious in tone and that the call suggests that Ms Johnston was unhappy with the volume of 1 month Prime Bank Bills she had acquired, a proposition which she rejected. Upon that foundation ASIC put to Ms Johnston that what she was trying to do was keep 1 month BBSW from going to ridiculous levels and was unhappy because she had spent more than she had wanted to stop BBSW increasing, which she also denied. 1132 Now ASIC has equated this result, that is, having to spend more than desired to manipulate BBSW, with being "run over" or getting a "black eye". But I agree with Westpac that "run over" means buying at levels which in hindsight appear unattractive because the market has subsequently moved to a more attractive level. I also agree with Westpac that getting a "black eye" is to the same effect. It refers to buying or selling at a level less favourable than where the market has subsequently moved. Now Ms Johnston agreed that to some extent she had been "run over" on 30 April 2010. But that does not establish or unequivocally confirm a manipulative purpose. Similarly, when Mr Roden said that Ms Johnston had got a "black eye" he was likely to have been intending the same thing, namely, that she had bought stock at yields lower than the levels to where the market then moved. 1133 Let me refer to another communication on the same day. 1134 Mr Roden spoke with Mr Howell. The transcript of this conversation is agreed, and versions were put to Mr Roden and Ms Johnston. The audio of the conversation was also played to Mr Roden, but not Ms Johnston. I have also listened to the audio tape. Clearly Mr Roden was expressing frustration. The following exchange took place [Agreed transcript - WBC.0003.0005.0075_AGR]: Mr Roden: Johnston's got a fing black eye today Mr Howell: You reckon? Mr Roden: Oh mate, definitely Mr Howell You reckon Mr Roden: Definitely got a black eye … that's why I just fin ripped into her 1135 ASIC submits that Mr Roden was telling Mr Howell that Ms Johnston had spent too much buying Prime Bank Bills sacrificially to try to keep the rate down. 1136 Now ASIC says that Mr Roden's evidence was that he was commenting that Ms Johnston purchased large volumes of Prime Bank Bills at yields lower than where BBSW set that day, and therefore, the Prime Bank Bills were expensive. But it says that Ms Johnston purchased Prime Bank Bills at between 42 and 48 and it set at 44. Moreover, the weighted average rate of her purchases (4.4353) was less than a basis point below where BBSW ended up setting (4.445). ASIC also says that Mr Roden gave evidence that it is common on the last day of the month for the rate to move higher due to people selling stock before it became illiquid. ASIC then says that the fact that Mr Roden expected rates to rise makes his evidence that Ms Johnston was getting a black eye because the rate went higher even more unlikely. ASIC submits rather that the displeasure expressed by Mr Roden clearly concerned the amount that Ms Johnston had spent trying to keep the 1 month BBSW from going up. 1137 Further, ASIC says that Ms Johnston agreed in cross-examination that at least "potentially to some degree" she got "run over" on the morning of the 30 April 2010. And that is what she recorded in the heading of her email "Cash flows ….. run over". She sent this email to Mr Roden and the cash team to record the cash flows on that day. ASIC says that the email (and its heading) had nothing to do with how expensive the Prime Bank Bills were or whether the rate set at a higher level than where she bought the Prime Bank Bills. 1138 On balance, I am not inclined to accept ASIC's interpretation of the events. 1139 First, to ASIC's suggestion that Mr Roden did not want to buy the volume of Prime Bank Bills he bought that day, based on a call between Ms Johnston and Mr Howell on 30 April 2010 where Mr Howell said "They tried to slam us for a lot more but I don't think, don't think Col really wanted to buy much did he?" [Agreed transcript: WBC.0003.0005.0259_AGR], it is apparent from the prices in this call and the references to Mr Roden (rather than Ms Johnston) buying that it relates to 3 month Prime Bank Bills about which no allegation is made in relation to the 30 April 2010 contravention date. 1140 Second, as to ASIC's suggestion that Mr Roden did not want Ms Johnston to buy the volume of 1 month Prime Bank Bills that she bought on 30 April 2010, based on a call between Mr Roden and Mr Howell and on 30 April 2010 where Mr Howell said "because I'm getting the feeling that you didn't want that much stock" [Agreed transcript: WBC.0003.0005.0080_AGR], Mr Roden did not accept this contention. As he explained, what he was saying to Mr Howell was that if the broker gave Westpac more stock than he thought he had, as a matter of principle Westpac would always take those trades. In any event, even if Ms Johnston did buy more 1 month Prime Bank Bills than Mr Roden was happy for her to buy, that does not establish that she did so for the sole or dominant purpose of manipulating where BBSW set. It seems to me that Occam's razor is more usefully applied in the present context. Given the pace of trading in the Bank Bill Market, Ms Johnston was simply unable to keep accurate track of what she had bought. 1141 Third, I accept that the broker communications evidence that Ms Johnston bought more 1 month Prime Bank Bills on 30 April 2010 than she wanted, based on her call with a Tullett's broker after the trading window in which she responded to the broker's notified volume of $440 million with the words "A bit steep?". I accept ASIC's contention that she was unhappy with the volume she purchased on the day. The transcript of that conversation has been agreed, and a version of the transcript was put to Ms Johnston [Agreed transcript: WBC.0003.0005.0077_AGR]. Ms Johnston accepted that she may have purchased more than she anticipated, although she denied that she was unhappy. But in her earlier call with Mr Howell [Transcript not agreed - WBC.0003.0005.0070 (_WBC)] she responded to his advice that she had purchased approximately $480 million with a "Hmmm" ["Arrgh" in the Westpac version]. Listening to the audio tape, it seems to be a not very contented "Hmmm". 1142 In my view, in summary, these broker communications do not prove manipulative intent and afford little basis to discount the objective evidence of purpose, the evidence of the course of trading, the evidence that Group Treasury's BBSW Rate Set Exposure on 30 April 2010 was a long exposure and Ms Johnston's denials that she traded for the sole or dominant purpose of lowering or maintaining BBSW.

Westpac's alternative explanations for trading 1143 Westpac has contended that Ms Johnston's buying of 1 month Prime Bank Bills on 30 April 2010 was consistent with a number of Group Treasury's normal commercial reasons for buying Prime Bank Bills. It is said that I should find that her buying on the day was for the dominant purpose of one or more of the following: (a) First, a purpose of deploying cash in circumstances where Westpac's upcoming domestic and offshore issuance in May 2010 was forecast to raise $19.269 billion and, over the following 2 weeks, Westpac expected to receive $2.06 billion in cash from maturities in Prime Bank Bills and other 1 month assets and an additional $4.649 billion in cash from maturities in Prime Bank Bills and other 1 month assets by 31 May 2010. (b) Second, a purpose of building and maintaining Westpac's holdings of short dated liquid assets, which required STIRR to take advantage of volume in the Bank Bill Market when it arises. Buying on 30 April 2010 was consistent with taking advantage of additional liquidity in the Bank Bill Market at the end of the "lates" period as sellers try to offload their stock. (c) Third, a purpose of reducing STIRR's interest rate risk position in the 1 month cash bucket (which was short $294,434 per basis point). (d) Fourth, a purpose of opportunistic trading. It is said that given the value in the elevated yields of 1 month Prime Bank Bills, buying on 30 April 2010 would have been at attractive yields compared to the previous day's yields (and, if the RBA did not increase rates on 4 May 2010, would have been at very attractive yields). (e) Fifth, a purpose of providing liquidity support to the Bank Bill Market. 1144 It is said that the objective evidence not only fails to support ASIC's claim in relation to 30 April 2010, it is directly inconsistent with the allegation of manipulative trading. It is also said that the commercial sense of acquiring Prime Bank Bills on 30 April 2010 to maintain Westpac's liquid asset portfolio, to manage Group Treasury's interest rate risk exposure, to deploy excess cash and to capitalise on opportunities to buy at perceived value is supported by the opinions of other witnesses including Mr Zuber. Now as I have said, apart from Mr Zuber, I did not find the evidence of expert witnesses opining on the purpose(s) of trading on specific contravention dates to be all that useful. 1145 As to Westpac's contentions, ASIC has responded as follows. 1146 First, ASIC says that each of Westpac's witnesses speculated as to the possible reasons for trading on 30 April 2010 on the basis that Ms Johnston traded having regard to a long rate set risk exposure. But ASIC submits that this was not the case. 1147 ASIC says that it is telling that none of the witnesses altered their list of possible reasons for trading on 30 April 2010 when asked to assume that Ms Johnston was trading with regard to a short rate set exposure on that day. This was despite Ms Johnston's evidence that it made sense to her to purchase Prime Bank Bills when she had a paid rate set exposure. It must also confirm that none of the suggested explanations for Ms Johnston buying Prime Bank Bills on 30 April 2010 was to hedge or reduce BBSW rate set exposure: that would not have been its effect if, as Ms Johnston now asserts (without any recollection of the events of the day) she thought she had a long rate set risk exposure that day. 1148 ASIC says that the only contemporaneous records of Ms Johnston's trading on that day demonstrate that she had regard to the relevant BBSW Rate Set Exposure and had a concern about the level at which BBSW set. They demonstrate that Ms Johnston was concerned not to see the rate go higher. Since an increase in the rate would have benefited a long rate set exposure, it is implausible that Ms Johnston thought that the exposure was long on 30 April 2010. 1149 Second, ASIC says that Mr Roden and Mr Zuber speculate that Westpac might have been buying Prime Bank Bills to take a position against the prevailing market expectation of the RBA raising interest rates the following week. But Westpac expected rates to rise, which would have caused the yield / BBSW to rise and would have made Ms Johnston's purchases look expensive. Mr Zuber agreed that if the RBA put up rates as Westpac expected, the Prime Bank Bills bought by Ms Johnston on 30 April would be relatively expensive. 1150 Third, ASIC says that Ms Johnston speculates that deploying surplus cash was a likely reason for the purchases but Westpac was short cash $1.2 billion on 30 April and had large short positions the next 3 days. As Ms Johnston recorded in her email that day entitled "Cash flows ….. run over": she had spent more than she had wanted. That Westpac was not seeking to deploy cash on 30 April was confirmed in the discussion between Mr Roden and Mr Howell [Agreed transcript - WBC.0003.0005.0080_AGR]: "what I'm trying to do given the fact that you told me you were cash strapped and I've got multiple hit, I'm trying to reduce that for you". The transcript of that conversation is agreed, and a version of the transcript was put to Mr Roden. The audio of the conversation was also played to Mr Roden. Mr Roden did not disagree with what Mr Howell said about Westpac's cash position. 1151 Fourth, ASIC submits that Ms Johnston speculated that she may have been seeking to build Westpac's holdings of short dated liquid assets, as well as opportunistic trading by purchasing at "what may have been regarded as an attractive price compared to the previous day's prices". But Prime Bank Bills bought on 30 April (the last day of the lates) did not have good liquidity, and Westpac expected the price of Prime Bank Bills to fall (the yield to rise) in anticipation of the rate rise which occurred on 4 May 2010 which would have made the purchases expensive, as Mr Zuber explained to me. 1152 Fifth, ASIC refers to Ms Johnston's evidence that Westpac's acquisition of 1 month Prime Bank Bills on 30 April 2010 would have decreased STIRR's outright interest rate risk in the 1 month bucket of $294,434 per basis point by around $8,000 per basis point. The reduction is approximately 2.5% of STIRR's outright interest rate risk in the 1 month bucket, and approximately 0.5% of STIRR's total outright interest rate risk of $1,414,772. It is said that the suggestion that this was Westpac's purpose for buying Prime Bank Bills is not credible, and is in any event inconsistent with Westpac's contention that it traded having regard to a long rate set risk exposure on this day. 1153 In summary, ASIC submits that I should accept the plain meaning of what Ms Johnston said in every contemporaneous record of her trading on this day. None of the attempts to explain away the plain meaning of her statements and none of the speculation as to other possible reasons for trading on that day detracts from the natural meaning of the contemporaneous communications and the conclusions to which this evidence inexorably leads: Westpac traded on 30 April 2010 with the sole or dominant purpose of lowering or maintaining the rate at which the 1 month BBSW set on that day. 1154 Some of ASIC's points have some force, but I do not consider that its educated speculation rises to the level of comfortably satisfying me that Ms Johnston and therefore Westpac had the impugned dominant purpose. 1155 In my view the contemporaneous communications are equivocal at best. Moreover, an analysis of the course of trading does not assist ASIC's case. Finally, even if I were not to accept any assertion of trading for the purpose of hedging rate set exposure risk, that does not entail accepting ASIC's case on manipulative purpose.

Other matters - effect or likely effect 1156 In relation to this contravention date, I will deal with the question of effect or likely effect later in my reasons.

(d) 20 May 2010 1157 ASIC alleges that Westpac bought 1 month Prime Bank Bills on 20 May 2010 for the sole or dominant purpose of lowering or maintaining 1 month BBSW. But Westpac says that far from being the product of a manipulative attempt to keep the rate low, the 1 month BBSW was in relative terms higher than both the 3 month BBSW, which decreased from 4.8050 on 19 May 2010 to 4.7083 on 20 May 2010, and the 6 month BBSW, which decreased from 4.8933 on 19 May 2010 to 4.8667 on 20 May 2010. Westpac contends that this is inconsistent with a manipulative attempt to keep the 1 month BBSW low. 1158 In summary, in my view ASIC has established its case of showing the relevant dominant manipulative purpose. Let me elaborate.

BBSW and Westpac's rate set exposure 1159 On 20 May 2010, Westpac bought $710 million of 1 month Prime Bank Bills, which was 100% of the market volume on the day. The purchases were made at yields between 4.63 and 4.64. The transactions were undertaken by Ms Johnston. 1160 On 20 May 2010, 1 month BBSW set at 4.6300. AFMA received submissions of 4.62 and 4.63. 1161 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 17 May 2010 4.7000 18 May 2010 4.6200 19 May 2010 4.6217 20 May 2010 4.6300 21 May 2010 4.6200 24 May 2010 4.6100 25 May 2010 4.6750

1162 On Thursday 20 May 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 1 month tenor: (a) a short exposure in PRM of $5,013,676,085.46; (b) a short exposure in ALM of $1,240,000,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $237,542,703.42; and (e) a short exposure in ALM (transfer priced balance sheet) of $179,257,852.35. 1163 ASIC says that on Thursday 20 May 2010, Group Treasury had a short BBSW Rate Set Exposure recorded on its Murex system of $6,253,676,085.46 in the 1 month tenor. Westpac admits that on 20 May 2010 it knew Group Treasury's BBSW Rate Set Exposure to the 1 month BBSW rate set on that day. But Group Treasury's aggregate Rate Set Exposure was a short exposure of $6,195,391,234.39. 1164 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 20 May 2010. Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $53,000 from a single basis point decrease in the 1 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure. Mr Roden's evidence was that the effect of Treasury's paid rate set exposure position in the 1 month BBSW on 20 May 2010 was that Westpac "would have a higher cost of funds on the liabilities repricing those days if the BBSW moved up".

Course of trading on 20 May 2010 1165 Prior to trading during the BBSW Rate Set Window, Ms Johnston spoke to Mr Blades of ICAP. The parties do not agree as to the transcript, and a version was put to Ms Johnston; [but the following phrases are not contested: WBC.0003.0005.0702 (_WBC)]. He told her there was a seller with the "potential to issue", which she understood to be a Prime Bank. Ms Johnston agreed that she knew that with a seller in the 1 month tenor, the BBSW in that tenor could have gone against her that day, and that she ("potentially") knew this prior to trading on the day. ASIC contends that as a result of this discussion prior to trading on 20 May 2010, Ms Johnston knew that there was likely to be selling pressure pushing the 1 month rate upwards (or resistance to her attempts to keep the rate down). 1166 During the BBSW Rate Set Window, Ms Johnston opened the bidding at 4.66 ("66"). She lowered her initial bid to 65 and then to 64. She was hit with multiple offers at 64. She crossed the spread to accept offers at 63. She was told there were three sellers at 63. She was told (after she asked Mr Howell who was selling Prime Bank Bills) NAB and Bank of Scotland were sellers. She maintained her bid at 63 and continued to get hit. 1167 Ms Johnston asserted that her trading was inconsistent with a strategy to decrease the rate at which BBSW set in the 1 month tenor. But ASIC says that her strategy, as she told Mr Roden, was to keep the rate down. When asked how her trading pattern would have differed if she had been trading to keep the rate down, she said that she might have started a little lower, but thought that buying at 64 and 63 was quite a good outcome. ASIC says that in other words, she identified no feature of her trading which was inconsistent with the strategy and the purpose that she communicated to Mr Roden. 1168 The course of trading during the BBSW Rate Set Window is recorded in taped telephone calls between Ms Johnston and Mr Howell and another ICAP broker. There is substantial agreement as to the transcript of the trading, and a version was put to Ms Johnston [ASIC used WIB.705.001.0007 in their submissions, Westpac updated this: WIB.705.001.0007_WBC, which has no relevant differences]. The course of trading may also be observed in part from the recording of the telephone line between the NAB traders and brokers at ICAP and Tullett. Westpac contends that the course of trading demonstrates that Ms Johnston adopted a number of strategies to buy at the lowest possible price (i.e. highest yield) and is inconsistent with a conclusion that Ms Johnston traded for the dominant purpose of reducing or maintaining BBSW. In this regard, it pointed to the following: (a) Her opening bid (4.66) was 4 basis points higher than where BBSW set the previous day and other traders had already bid at that level. (b) She could have crossed the opening spread to accept an offer of 4.61 and then 4.63, but did not do so. (c) She reduced her bid to 4.65 and 4.64 in an attempt to find liquidity. Having purchased some volume at 4.64, she kept her bid at that level and only after her bid at 4.64 remained unaccepted for some time did she reduce her bid by one point to 4.63, at which level there was significant liquidity. (d) She maintained her bid at 4.63 and did not cross the spread to accept an offer 4.61. At no point did she reduce her bid to 4.62. 1169 It was put to Ms Johnston that by dropping her bid to cross the spread from 4.64 to 4.63 her trading was perfectly consistent with the strategy of trying to decrease the rate at which BBSW set, which she denied. As she explained, she dropped her bid from 4.64 to 4.63 because it had not traded at 4.64 for a while and she reduced her bid to find liquidity at 4.63. 1170 I agree with Westpac that the course of trading does not manifest trading for a manipulative purpose. Nevertheless it is not necessarily inconsistent therewith.

Voicemail message left by Ms Johnston for Mr Roden on 20 May 2010 [Agreed transcript - WBC.0003.0005.0091_AGR] 1171 Later that day, on 20 May 2010, Ms Johnston left a voicemail message for Mr Roden. The transcript of is agreed, and versions of the transcript were put to Mr Zuber, Mr Roden and Ms Johnston. The audio of the conversation was also played to Mr Zuber and Mr Roden, but not Ms Johnston. 1172 Ms Johnston said in the voicemail: 3 month today set 10 points below at 71, so it's definitely come down substantially, umm … and 1 month ticked up a point, um I tried to keep that down because we had a pretty decent rate set but there was quite a bit of resistance, umm ok. 1173 ASIC says that its interpretation of this voicemail is straightforward and consistent with the natural and ordinary meaning of the words used and the way in which the traders in this market sought to manipulate BBSW. Ms Johnston traded to try to keep the 1 month BBSW rate down because of Group Treasury's 1 month BBSW Rate Set Exposure. I would say at this point that I agree with ASIC's interpretation. I would also note that listening to the audio tape, Ms Johnston seemed to me to speak matter of factly or nonchalantly. 1174 Ms Johnston does not recall leaving the voicemail and Mr Roden does not recall receiving it. Neither has any recollection of the trading on the day. 1175 ASIC points out that in her first affidavit, Ms Johnston said that she does "not now know" why she said "I tried to keep that down". She did not attempt to provide any explanation as to what she meant by those words. Mr Roden also had no explanation for the comment. In his affidavit, Mr Roden said he did not know what Ms Johnston was referring to when she said she "tried to keep that down", but in cross-examination he admitted that he understood it to be a reference to where BBSW set on the day. He accepted that Ms Johnston's comment could be understood as her trying to buy Prime Bank Bills to keep BBSW down. 1176 ASIC points out that Ms Johnston said in her first affidavit that the comment does not make sense to her because she did not view one basis point movement in the 1 month BBSW "to be at all significant". But she was not telling Mr Roden that the move in 1 month BBSW had been significant. She was telling him that she had tried to keep it down but despite her buying pressure the selling pressure against her had moved the rate up a point. Her comment made perfect sense: she had traded with the explicit purpose of trying to keep the 1 month BBSW down. 1177 ASIC says that when cross-examined, Ms Johnston first seemed to deny that she was telling Mr Roden the truth when she left the voicemail. 1178 She then said that she could see how her voicemail could be interpreted in accordance with the ordinary meaning of the words that she used, that is, that she was trading with the purpose of keeping down the 1 month BBSW. 1179 She then said that she did not think her voicemail should be interpreted as expressing an intention to keep the 1 month BBSW down because: "generally, that's not how I traded". ASIC says that her qualification is telling. The effect of this evidence is that on occasion she did trade (or at least may have traded) with such a purpose. 1180 ASIC says that given that Ms Johnston cannot now recall her purpose for trading, the best evidence of her purpose for trading is the contemporaneous voicemail message identifying that purpose: to try to get the 1 month BBSW down. Her actual trading during the BBSW Rate Set Window was not inconsistent with that purpose. And given she had (or at least may have) traded with such a purpose on occasion, ASIC says that I can confidently conclude that Westpac's purpose for trading on 20 May 2010 was to affect the rate at which the 1 month BBSW set by keeping it down. 1181 ASIC says that Ms Johnston was appropriately careful not to deny in her affidavit that her 20 May 2010 trading was conducted for ASIC's alleged purpose. Indeed, she included as a likely reason for 20 May 2010 trading, the timing of her purchases with regard to Group Treasury's BBSW Rate Set Exposure because of the potential for her trading to affect BBSW. 1182 Westpac has contended the following. 1183 Ms Johnston concedes she does not now know what she was trying to communicate by her comment "I tried to keep that down" and that it does not make sense to her since a 1 basis point movement in 1 month BBSW was not material and, having listened to her trading on 20 May 2010, none of it is consistent with an attempt to keep 1 month BBSW down. 1184 She accepted that one might construe her voicemail in the way ASIC does but maintains that it was not her practice to trade for the purpose of affecting BBSW and that she does not believe that was her purpose. She said that, reviewing the trading, it did not appear to her like that is what she tried to do, and that she just knew that was not how she traded. 1185 Ms Johnston also explained that, had her purpose been to lower or maintain 1 month BBSW, her trading would have been different. A trader with such a purpose would have placed an opening bid at, say, 4.62 or even taken the opening offer at 4.61, whereas she had sought to obtain stock at 4.66 and only come down when there were no offers at that level to find liquidity at 4.64 and 4.63. 1186 Westpac says that that evidence should be accepted. Even if Ms Johnston had wanted merely to maintain BBSW at a certain level, rather than to lower it, she would hardly have started with a bid substantially above where BBSW had closed the preceding day and then repeatedly failed to cross the spread to accept lower offers. 1187 Mr Roden's evidence was that he probably did not hear the message Ms Johnston left for him at the time. Moreover, he does not understand what Ms Johnston meant by the words she used because trading to affect the rate was inconsistent with Westpac's practice and appeared inconsistent with the course of trading on the day. 1188 Westpac says that quite what Ms Johnston intended to convey by the message she left on 20 May 2010 has probably been lost in the passage of time. However, given the objective evidence of the prevailing circumstances and in particular the course of trading, whatever it was, it cannot have been the sole or dominant purpose of her trading in 1 month Prime Bank Bills on that day. It is submitted that I should accept Ms Johnston as a witness of truth and accept her evidence that she did not mean to convey that she bought 1 month Prime Bank Bills for the sole or dominant purpose of lowering or maintain 1 month BBSW because that was not how she traded. 1189 The submissions of Westpac have been cleverly framed, but frankly I cannot accept them. Ms Johnston's words best reflect her state of mind and purpose at the time. Whether the words now make sense to her or not, no plausible explanation has been advanced for these words other than one consistent with ASIC's case thesis on manipulative purpose. I do not accept Westpac's or Ms Johnston's reconstruction. But I would say at this point that I have not taken the true meaning of her words to reflect more adversely on her reliability generally.

Westpac's alternative explanations for trading 1190 Westpac says that Ms Johnston's buying of 1 month Prime Bank Bills on 20 May 2010 was consistent with a number of Group Treasury's normal commercial reasons for buying Prime Bank Bills and that her buying on the day was for the dominant purpose of one or more of the following: (a) First, the acquisition of Prime Bank Bills on 20 May 2010 was a prudent deployment of excess cash in circumstances where Westpac had a considerably long forecast AUD cash position of $2.309 billion and significant forecast inflows from domestic and offshore issuance and maturing assets. (b) Second, the acquisition of Prime Bank Bills on 20 May 2010 took advantage of an opportunity to replenish Westpac's portfolio of short dated liquid assets in circumstances where approximately $5 billion of Group Treasury's portfolio would mature by 15 June 2010 and Westpac had not acquired any 1 month Prime Bank Bills on 18 or 19 May 2010. (c) Third, the acquisition of Prime Bank Bills on 20 May 2010 was a prudent means of hedging Group Treasury's short BBSW Rate Set Exposure in the 1 month tenor and short outright interest rate risk position generally. (d) Fourth, Ms Johnston' buying represented opportunistic trading, acquiring assets at attractive yields compared to the prevailing yield over the previous 2 days. 1191 Westpac says that the objective evidence is consistent with Ms Johnston buying 1 month Prime Bank Bills on 20 May 2010 for these legitimate, commercial purposes and not for the sole or dominant purpose of lowering or maintaining BBSW. It is said that the commercial sense of buying Prime Bank Bills on 20 May 2010 for these purposes is supported by the evidence of Mr Zuber; as I say, I have not considered the evidence of other experts to be particularly helpful on this topic. 1192 Now Westpac also says that there was a faint challenge to Ms Johnston's evidence of commercial purposes for trading on 20 May 2010, but there was no real substance to the attack. It has pointed to the following matters. 1193 It was suggested by ASIC that, contrary to her affidavit evidence, Group Treasury would be short cash over the following weeks, but that challenge was based on a misreading of the 20 May 2010 cash position email (the correct column was the "WBC + Dragon" column which showed a considerable long position for the next 2 weeks). 1194 It was further suggested by ASIC that, again contrary to Ms Johnston's affidavit evidence, Group Treasury did not have excess cash to deploy on 20 May 2010 because it was a net raiser of cash on 18, 19 and 21 May 2010. Ms Johnston denied that the net receipt of cash of those days made it very unlikely a reason for buying 1 month Prime Bank Bills on 20 May 2010 was to deploy excess cash. What those cash flow emails show is a consistent pattern of Group Treasury both issuing and selling securities to raise cash and buying securities to deploy cash, in particular Prime Bank Bills. This is consistent with Mr Roden's evidence that Westpac generally speaking purchased in the 1 month tenor to hold as liquid assets and raised funds by selling or issuing in the 6 and sometimes 3 month tenors (and would also purchase in the 3 month tenor). There is therefore nothing inconsistent with issuing or selling in longer dated tenors and using the cash raised to buy in the 1 month tenor. 1195 It was put by ASIC that, contrary to Ms Johnston's affidavit evidence, her buying on 20 May 2010 was not for the purpose of hedging or reducing Group Treasury's outright interest rate risk position because the effect of the Prime Bank Bills purchased was to offset approximately only 1% of Group Treasury's outright interest rate risk in the relevant cash bucket. But as Ms Johnston explained, it would not be possible to hedge the entirety of the outright interest rate risk by buying physical Prime Bank Bills but that does not mean it was not a reason for purchasing Prime Bank Bills and, among multiple reasons for acquiring Prime Bank Bills, managing interest rate risk would be one of them. 1196 I would reject Westpac's assertions of various hypotheses consistent with innocence. 1197 First, Mr Zuber speculated that buying 1 month Prime Bank Bills on 20 May 2010 was consistent with the multiple considerations which Westpac had regard to when trading Prime Bank Bills, but he had no knowledge of the trading or the events on the relevant day and he did not attempt to take Ms Johnston's voicemail into consideration. 1198 Second, Mr Zuber said that if he were seeking to build up inventory and deploy excess cash he would spread out his buying, but Westpac did not buy Prime Bank Bills in the Bank Bill Market during the BBSW Rate Set Window in the 1 month tenor on 18 May 2010 or 19 May 2010 or 21 May 2010. 1199 Third, Ms Johnston speculated that she was buying Prime Bank Bills to deploy excess cash, but she agreed in cross-examination that Westpac had net cash inflows on each of 18, 19 and 21 May 2010 and had in fact sold Prime Bank Bills on each of those days (and had raised more than $730 million selling Prime Bank Bills into the rate set on 21 May 2010). Generally, there was nothing to suggest that Westpac needed to buy Prime Bank Bills to deploy cash on 20 May 2010. Moreover, Westpac was forecast to have a short AUD cash position from 25 May for a number of weeks. 1200 Fourth, Ms Johnston also speculated that she might have been buying Prime Bank Bills to hedge or offset interest rate risk. She accepted in cross-examination that her purchases on 20 May 2010 would have hedged or reduced less than one per cent of STIRR's outright interest rate risk by spending $710 million on 1 month Prime Bank Bills on the day. Ms Johnston accepted that she would have been, at least "potentially", indifferent to where BBSW set had she been trying to hedge outright interest rate risk. But I agree with ASIC that her concessions make it improbable that her dominant purpose was hedging. 1201 In my view, ASIC has made out its case of the requisite dominant manipulative purpose in relation to 20 May 2010. I do not accept Westpac's alternative hypotheses for trading.

Other matters - effect or likely effect 1202 On 20 May 2010, AFMA received submissions for the 1 month BBSW of between 4.62 and 4.63. Westpac's submission for the 1 month BBSW was 4.62. The 1 month BBSW set on that day at 4.63. 1203 Ms Johnston accepted that her trading could have an impact on where the bid / offer spread was at the time of her trading. Ms Johnston's evidence was that because she was conscious that buying Prime Bank Bills during the BBSW Rate Set Window could decrease the rate at which BBSW set, it made sense to her to purchase Prime Bank Bills on 20 May 2010 "in order to avoid potentially adversely affecting the Bank's position in the event that Westpac's trading affected the rate at which BBSW set". She agreed in cross-examination that if BBSW had set lower on 20 May it would have benefited Group Treasury because of its large short or paid rate set exposure. She also accepted that she knew that a Prime Bank was a seller in the 1 month tenor on the day and that she therefore may have known that the 1 month BBSW could have set higher on the day and, had it done so, the movement in BBSW would have been adverse to her interests. 1204 ASIC says that Ms Johnston subsequently suggested that if she had finished her trades prior to the time at which submitters had regard to the bid offer spread, there could have been a bid and offer in the Bank Bill Market which did not trade which could potentially form the basis of the panellist's estimates. However, Westpac's final trade and bid were at 63, there is no evidence of any subsequent trade or bid, and BBSW set at 63. ASIC says that there cannot be any doubt that Westpac's trading had at least a likely effect on BBSW on 20 May 2010. 1205 ASIC says that as Professor Putnins explained, Westpac's trading on 20 May 2010 resulted in buying pressure in the Bank Bill Market and if Westpac had not engaged in trading on that day, the BBSW would have set higher than it did. The reason why BBSW went up a tick was because there was even greater selling pressure on that day. But ASIC says that of course does not mean that Westpac's trading had no effect on BBSW. If Westpac had not bought Prime Bank Bills on that day it was at least likely that BBSW would have set higher than it did. 1206 ASIC says that it is also unsurprising that selling pressure continued to push the 1 month BBSW up on 20 May 2010 while the 3 and 6 month BBSW fell relatively sharply and it is therefore not likely that the price of 1 month Prime Bank Bills would have appeared relatively attractive to Ms Johnston. In the afternoon of 18 May 2010, the RBA released its minutes from its meeting earlier that month. The market interpreted the minutes as signalling a pause in rate hikes over the coming months. Market expectations of rate rises in the coming months had been priced into the 3 month and 6 month BBSW, and the anticipated pause in future rate rises led to a repricing of the longer tenors such that 3 and 6 month BBSW set lower. Ms Johnston confirmed in cross-examination that this is what she would have expected to be the consequence of the release of the RBA minutes. 1207 I do not accept all of ASIC's likely effect analysis. I have dealt later with Professor Putnins' theories. I am only prepared to find that Ms Johnston's trading had a likely effect if "likely" means a real and not remote chance.

(e) 10 June 2010 1208 ASIC alleges that Westpac sold 3 month Prime Bank Bills on 10 June 2010 for the sole or dominant purpose of raising or maintaining 3 month BBSW. In summary, I do not consider that ASIC has made out its case in respect of this date. 1209 Mr Roden conducted Westpac's trading in the 3 month tenor on 10 June 2010.

BBSW and Westpac rate set exposure 1210 On 10 June 2010, Westpac sold $360 million of 3 month Prime Bank Bills, which was 22.64% of the market volume on the day. The sales were made at yields of 4.91 and 4.92. 1211 3 month BBSW set on 10 June 2010 at 4.9267. AFMA received submissions between 4.91 and 4.93. 1212 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 7 June 2010 4.8567 8 June 2010 4.8817 9 June 2010 4.9000 10 June 2010 4.9267 11 June 2010 4.9483 15 June 2010 4.9083 16 June 2010 4.8800

1213 Now on Thursday 10 June 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a long exposure in PRM of $33,560,551,912.57; (b) a short exposure in ALM of $22,649,999,999.92; (c) a short exposure in St George of $11,533,000,000.00; (d) a long exposure in Corporate Bill Lending of $137,020,596.63; and (e) a long exposure in ALM (transfer priced balance sheet) of $219,084,976.82. 1214 In the case of this date, the difference noted between the rate set exposure of just the PRM and ALM books (a long exposure of $10,910,551,912.65) is substantially different from the aggregate Group Treasury BBSW Rate Set Exposure (a short exposure of $266,342,513.90). It is a difference of more than $10 billion and consequently one exposure is short and the other is long. 1215 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 10 June 2010. However, on the basis that there was a long exposure that day, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have suffered an "immaterial detriment" from a single basis point increase in the 3 month BBSW rate set on that day. 1216 Because of this discrepancy, Westpac says that there are three fundamental difficulties with ASIC's claim that Westpac's trading on 10 June 2010 was for the dominant purpose of raising or maintaining BBSW. First, it is inconsistent with the premise of ASIC's case because Group Treasury actually had a short or paid rate set exposure of $266.3 million in the 3 month tenor, which means that an increase in 3 month BBSW would increase its net payment obligations under BBSW Referenced Products setting that day. Second, Mr Roden has given an explanation for the trading from which the purpose for the trading is "abundantly clear" (as Westpac described it). Third, the course of trading on the day is inconsistent with a purpose of raising or maintaining BBSW. 1217 But ASIC says that although St George Group Treasury also had a short 3 month BBSW Rate Set Exposure (of $11,533,000,000), the contemporaneous evidence shows that Mr Roden did not take this into account when trading in the Bank Bill Market on 10 June 2010. Rather, Mr Roden believed that he was a "receiver" [being a reference from the 8 June 2010 phone call discussed below] on 10 June 2010 (as he told others); that is, he believed he had a "received rate set position" and therefore a long rate set exposure to the 3 month BBSW. ASIC submits that I should find that Mr Roden traded on 10 June 2010 having regard to the BBSW Rate Set Exposure identified in column F of Schedule 1 to the SOAF. 1218 But I agree with Westpac that ASIC's suggestion that Mr Roden was not aware of the true rate set exposure when he traded on 10 June 2010 because he did not know the St George exposure at the time should be rejected. 1219 The evidence that the St George Treasury rate set exposure was included and available to the STIRR desk by 2010 is clear. Prior to the migration of St George's rate set data from the Kondor system to Westpac's Murex system in about August 2010, one of Mr Stokes' responsibilities was to add the St George rate set exposure to the Group Treasury BBSW Rate Set Exposure by running a report to extract an export of St George's rate set data from Kondor and saving the extract in the Group Treasury share drive so that it was captured by an automatic macro that pulled data from various Westpac systems to calculate Group Treasury's aggregate BBSW Rate Set Exposure. Mr Stokes was not challenged on that evidence, other than to be asked whether he prepared hard copy reports of the total rate set exposure. He explained that he saved the extract to a share drive from which information was then picked up by the person preparing the master rate set report. 1220 Mr Roden's evidence was that, from the time of implementation of the St George merger, the St George Group Treasury rate sets flowed through to Westpac's Group Treasury and the STIRR desk managed the St George interest rate exposure. 1221 Likewise, Mr Zuber rejected the suggestion that St George Group Treasury's interest rate risk exposure was not in Westpac's system as part of Westpac's Group Treasury's interest rate risk exposure until well after 2008. As he pointed out, Westpac's Group Treasury managed St George's rate set risk by getting the information out of Kondor because "we obviously had to have it" (as he said in cross-examination) to manage the St George rate set exposure. 1222 ASIC's suggestion that Mr Roden did not have access to the St George rate set exposure on 10 June 2010 is based on his comment to Mr Sharma in their telephone call on 8 June 2010 (see later). But whatever Mr Roden may have thought on 8 June 2010, he denied that he believed Group Treasury had a long BBSW Rate Set Exposure on 10 June 2010 contrary to the true position. It is likely either that the position changed between 8 and 10 June 2010 or that Mr Roden was simply mistaken in his call on 8 June 2010. Mr Roden's evidence was that he would have been aware of the correct rate set position by the time 10 June 2010 came around. 1223 Indeed, Westpac says that it is unclear on what basis ASIC contends Mr Roden was not aware of the St George rate set exposure on 10 June 2010. A suggestion was put to Ms Johnston that she did not have access to the St George/ALM (transfer priced balance sheet) rate set report until sometime in May 2010, based on ASIC's interpretation of an email exchange between Ms Johnston and Mr Ryan of 24 May 2010. But even if that were correct, that does not establish that Mr Roden would not have known the St George rate set exposure on 10 June 2010. 1224 I accept Mr Roden's evidence that he was likely to have known of the St George rate set exposure on 10 June 2010. And if that finding be correct, that presents difficulties for ASIC's manipulative purpose thesis. Mr Roden was selling 3 month Prime Bank Bills when the relevant rate set exposure was short, i.e. a paid rate set exposure, the antithesis of ASIC's case theory. 1225 Before turning to the relevant communications, it is first convenient to address the course of trading.

Mr Roden's trading on 10 June 2010 1226 It was Mr Roden who traded 3 month Prime Bank Bills in the Bank Bill Market on 10 June 2010. It is his voice on the rate set trading call audio recordings. And Mr Roden acknowledged in his first affidavit that "I have been played several audio recordings which appear to be of a broker communicating with me regarding trading in the three month tenor during the BBSW Rate Set Window on 10 June 2010". 1227 Mr Roden had no specific recollection of trading on 10 June 2010 or the events of that day. But his evidence was that, whenever he had a received rate set exposure, his approach to trading was to sell Prime Bank Bills "when market conditions were favourable or when, if my trading were to have any impact on the level at which BBSW set, this would not increase Westpac's risk position". 1228 ASIC says that in the contemporaneous communications that I discuss later, Mr Roden refers to being a "big receiver" on 10 June 2010. ASIC says that this is consistent only with a belief that Group Treasury had a big long rate set exposure on that day. The only plausible explanation for Mr Roden's statements during this conversation in relation to 10 June 2010 was that he believed Group Treasury had a long exposure on 10 June and that he intended to trade in a way that influenced the BBSW favourably to that exposure (that is, by increasing or maintaining the level at which BBSW set). But as I have said above, I do not consider that that was his mindset on 10 June 2010, although he may have held an erroneous view on 8 June 2010. 1229 Further, ASIC says that the course of Mr Roden's actual trading during the BBSW Rate Set Window is consistent with his having traded for the purpose of raising the BBSW. It is convenient to examine this in some detail. There is an agreed transcript of the trading (part of a recording of the telephone call with Mr Howell of ICAP) and a version of the transcript was put to Mr Roden in cross-examination [In its closing submissions ASIC agreed to abide by Westpac's consolidated transcript of WIB.705.001.0032, Westpac submitted updated: WIB.705.001.0032_WBC with no relevant differences]. 1230 ASIC made the following points 1231 At line 1 of page 1 of the transcript, the early market for 3 month Prime Bank Bills is 94/90. At lines 16-17 of page 1 of the transcript, a broker [Jason Howell] says "I've got a little bit to sell in the Septs - [indistinct] - but it's not large … Two non-majors looking to sell at this stage". Mr Roden agreed that from this information, a trader such as himself could form the view that there were banks selling 3 month Prime Bank Bills. 1232 So much is confirmed by the broker, who says at line 2 of page 2 that there are "Three sellers at 89", one of whom was a "major joining the offer" (line 1 of page 2). From this, ASIC says that a trader such as Mr Roden would know that he would not need to spend too much to get the BBSW up as there were other active sellers. 1233 At line 5 of page 2, Mr Roden offers to sell at 4.90 and is quickly joined by another participant at the same rate. ASIC says that this would have put Mr Roden on notice that the other active sellers were likely to put upward pressure on the BBSW. Mr Roden accepted in cross-examination that "I do know that now", but ASIC submits that he would have known it then, too. 1234 At lines 6 to 8 of page 2, a bank crosses the spread and sells at 4.92, and other banks try to sell at that rate. From lines 8-18 there is urgency in the trading, with offers rapidly increasing to 4.94. At line 21, Mr Roden bids at 4.95, joining another bidder. At lines 22-23, the market reverse and trades lower, and Mr Roden then bids at 4.92 (at lines 24-34) and offers on at 4.92 (lines 36 of page 2 to line 11 of page 3). It is only at the very end of the period that Mr Roden lowers his offer to 4.91 (line 36 of page 3). 1235 In summary, ASIC contends that this trading is consistent with its case. Mr Roden provided selling pressure, but did not need to aggressively lead the BBSW up because there were other sellers to do so. The best Mr Roden could say in cross-examination was that he considered this interpretation of his trading to be "rather unusual". He suggested that what occurred was "quite normal sort of trading". 1236 I do not consider that examining the course of trading assists ASIC's case. 1237 In my view, the recording merely shows Mr Roden's trading was endeavouring to obtain the best prices he could for the modest amount of Prime Bank Bills he was seeking to sell. It does not establish any manipulative purpose, let alone any pattern of seeking to drive yields up (on the mistaken view that he had a long rate set exposure). In this regard, as Westpac has pointed out: (a) Mr Roden's opening offer of 4.92 was below the best offer of another seller of 4.93; (b) the other seller's offer of 4.93 was taken and the market moved to 4.93/4.92, with Mr Roden part of the offer at 4.92; (c) a buyer took Mr Roden's offer at 4.92 and Mr Roden offered on at 4.92; (d) Mr Roden accepted RBS' request to buy $100 million at his offer of 4.92; (e) another seller improved their offer to 4.93 and traded at 4.93, but Mr Roden maintained his offer at 4.92 (i.e. his was not the best offer); (f) a buyer then bid to buy $100 m at 4.92 which Mr Roden accepted; (g) Mr Howell then asked if Mr Roden wanted to continue offering at 4.92, but Mr Roden pulled his offer back to 4.91, saying "20 only back to 91 mate … 20 only back to 91 right". 1238 It is now convenient to address various of the communications that ASIC has relied upon.

Telephone call between Mr Roden and Mr Sharma on 8 June 2010 [Transcript not agreed - WBC.0003.0005.0111 (_WBC)] 1239 ASIC relies on a telephone call between Mr Roden and Mr Sharma on 8 June 2010. The transcript of the conversation is not agreed, and various versions of the transcript were put to Mr Roden and Mr Sharma. The audio of the conversation was also played to Mr Roden, but not Mr Sharma. 1240 On ASIC's version of the transcript, the following exchange took place: Mr Sharma: Yep so yeah the reason why I was bringing it down was if I give you more cash would you deliver less? Mr Roden: No oh, look give me more cash but give it to me fing next week. I'm happy to take more cash Mr Sharma: You don't want it next week right? You just want it sooner rather than later because rate sets from the 11th onwards are going to be hope- really bad Mr Roden: Well I know that and I'm going to f them as well that's why I don't want to get - I'm going to f*** the rate set right on the 10th after that … Mr Sharma: Yeah on the 10th Mr Roden: … well I've got big received … I tell you what the 10th right, on the 10th I am a big receiver … 1241 On Westpac's version of the transcript, the following exchange took place: Mr Sharma: Yep, umm so, yeah, the reason why um I, I was um, bringing it down was - if, if I give you more cash would you deliver less? Mr Roden: Nahh, look, give me more cash but give it to me fin next week, oh ye - I'm happy to take more cash Mr Sharma: You don't want it next week, right, you just want, you want it sooner rather than later because rate sets from the 11th onwards are going to be hope- really bad Mr Roden: Well, I know that and I'm gonna f them as well, that's why I don't want to get - I'm going to f*** the rate set, right … Mr Sharma: Yep Mr Roden: … on the, on the 10th after that … Mr Sharma: On the 10th [talking over each other] Mr Roden: Well I've got big received - Mr Sharma: So what's today … [talking over each other] Mr Roden: Well I'll tell you what the 10th, right … Mr Sharma: What's today … the 8th … [talking over each other] Mr Roden: … on the 10th I'm a big receiver, [inaudible] … 1242 I must say that listening to the audio tape, I prefer ASIC's version. Moreover, the "f***" word where it appears twice after "I'm going to …" arguably suggests a proposed action rather than to forecast an effect. 1243 ASIC says that its interpretation of this communication is straightforward and consistent with its ordinary and natural meaning. Mr Roden was going to sell Prime Bank Bills on 10 June 2010 because he believed he had a large received set. His selling was directly related to his rate set risk position "I've got big received … I am ["I'm" in Westpac's version] a big receiver". And it was directed at where the BBSW rate was going to set - in that sense, he was intending "to f*** the rate set". ASIC says that this statement of intention is consistent with the objective trading data on that day; Mr Roden did sell 3 month Prime Bank Bills (and the 3 month BBSW did move higher). Mr Zuber agreed in cross-examination that "using language like, 'I'm going to f*** the rate set' would, at the very least, be questionable activity". 1244 ASIC points out that Westpac has sought to advance an alternative interpretation. In its defence, Westpac pleaded that this conversation related to Westpac's proposed arbitrage trading strategy and its likely effect on the level of supply of Prime Bank Bills in the Bank Bill Market following that trading. Westpac pleaded that it carried out its proposed arbitrage strategy by delivering $3.148 billion of Prime Bank Bills into futures contracts expiring on 10 June 2010. But ASIC says that selling Prime Bank Bills on 10 June 2010 (as Westpac did) did not constitute delivery of Prime Bank Bills into expiring futures contracts. Delivery of Prime Bank Bills pursuant to futures contracts only occurred on 11 June 2010. At the time of the call on 8 June 2010, and on 10 June 2010, Westpac was short futures contracts. If it did not close out its futures positions prior to expiry it would be delivering Prime Bank Bills to counterparties. It could not know if or when the counterparties might sell the Prime Bank Bills into the BBSW Rate Set Window. In any event, prior to and after 8 June 2010, Westpac was closing out its futures position by selling futures contracts (that is, reducing its short position). By 10 June 2010, its futures position was not significant. Most importantly, Thursday 10 June 2010 was prior to the expiry and delivery of the BAB Futures contracts. No delivery of Prime Bank Bills into futures contracts would take place prior to trading in the BBSW Rate Set Window on that day. So, according to ASIC, Mr Roden was not referring to any delivery into futures contracts when he proposed to "f*** the rate set right on the 10th" [phrase contested as per above], when he was a big receiver. 1245 Further, ASIC points to the fact that in his first affidavit, Mr Roden said that when he said he was going to "f*** the rate set right on the 10th" [phrase contested as per above] he was "likely to be referring to [his] intention to deliver a relatively large amount of physical Prime Bank Bills into the BAB Futures close". In cross-examination, Mr Roden suggested that instead of 10 June 2010 "I'm really referring to some later date, whether it's the settlement date, the 11th or a later date". And Mr Roden went on to suggest (in cross-examination) that the rate set would be affected after 10 June 2010 not so much by his delivery but by the party on the other side of the futures contracts: it is my suspicion or my speculation that the person who is on the other side of these transactions, because of the uneconomic nature - what appear to be uneconomic nature, that they would be doing something that would impact the rate, and the natural thing if you're taking delivery of an amount that size is that you're probably going to sell them. There's just not many people that can take - as I said, in - I could be wrong, but I think that's the biggest delivery that has ever occurred. 1246 ASIC says that Mr Roden referred in the discussion several times to 10 June and to being a receiver on 10 June. The suggestion that he was referring in fact to affecting the rate set right on a subsequent date, unrelated to his received position, is implausible. So too is his suggestion that he was referring to the conduct of some other unidentified participant in the Bank Bill Market. 1247 ASIC says that in his first affidavit, Mr Sharma said that "I do not know exactly what Mr Roden meant by the expression 'f*** the rate set'", but that he did not think it to be a reference to affecting where the BBSW set. Rather, he took it "to mean that his trading or his intention to deliver Prime Bank Bills into the BAB Futures close may cause disruption in the Bank Bill Market" (emphasis added). This added to what Mr Sharma had said earlier in his affidavit: if STIRR was to retain a sizeable BAB Futures position up to the BAB Futures close out date, that position could potentially disrupt both the BAB Futures and Bank Bill markets. This is because holding a substantial open BAB Futures position through to expiry of the BAB Futures contracts and delivering a substantial volume of Bank Bills on BAB Futures settlement has the potential to cause volatility as the market copes with the larger volume of Bank Bills changing hands on the BAB Futures close and then being released into the Bank Bill market following the BAB Futures close out. 1248 ASIC submits that Mr Sharma's evidence during cross-examination was different. He said: "I guess he's referring to multiple rates on or around the 10th". When Mr Roden's reference to the 10th in the call was pointed out to Mr Sharma, he repeated: "I think he's talking about the 10th and around the 10th". Returning to the BAB Futures trading the subject of his first affidavit, Mr Sharma then said: "I guess he's referring to multiple rates in the first instance to me, that he may have an impact on as a result of his bank bill futures trading strategy". Mr Sharma continued to insist that holding a large BAB Futures position may affect "volatility in the markets in the day of, the day prior" to delivery, but referred repeatedly to the impact on the futures market, not the Bank Bill Market. It was only belatedly that Mr Sharma suggested that Mr Roden's futures trading strategy might have an impact on the Bank Bill Market or the futures market. 1249 ASIC contends that Mr Sharma's uncertainty about what Mr Roden might have meant is not matched by his reaction at the time of this call. Mr Sharma clearly understood what Mr Roden meant when he referred to effing the rate set on the 10th when he had a large receive set: his response was "yeah, on the 10th" and "Ahhh that's awesome" [both phrases contested as per above]. 1250 Further, ASIC says that Westpac's BAB Futures contracts expired at midday on 10 June 2010, and delivery took place on 11 June 2010. Both expiry and delivery took place after Westpac's trading in the Bank Bill Market on 10 June 2010. Any impact on the BBSW could only have taken place after trading in the BBSW Rate Set Window on 10 June 2010 had concluded. Mr Conway agreed that the futures expiry could affect the BBSW on days after expiry. 1251 ASIC also contends that its construction is fortified by a brief exchange in a call between Mr Roden and Mr Howell on 10 June 2010, in which Mr Roden referred to "this morning's outrageous behaviour". That is submitted to be a reference to the trading in the BBSW Rate Set Window on that day. The transcript of this conversation is not agreed, and a version was put to Mr Roden [Transcript not agreed - WBC.0003.0005.0728 (_WBC), but phrase not contested]. The audio of the conversation was also played to Mr Roden. 1252 It is also said to be fortified by Ms Johnston having told Mr Parker, before trading in the window on 10 June 2010, that the BBSW was likely to move up that day, above 4.90. The transcript of their conversation is not agreed [Transcript not agreed - WBC.0003.0005.0774 (_WBC)], and a version was put to inter-alia Ms Johnston. The conversation was as follows: Mr Parker: Ah right, what's - what secrets have you got? What's happening? Ms Johnston: Oh - oh you know, I think- Mr Parker: Does it get smashed? Or - is I mean - Ms Johnston: Um I think yesterday was probably pretty good. ["a pretty good …" in Westpac's version] I think it'll probably set similar to yesterday [indistinct]. Mr Parker: So 80 - 89ish and then we sort of roll off here or hereabouts. Ms Johnston: I feel like 90 maybe even 90 plus today. But um, just wanted to check - can you - just I'm not sure what you guys have. But can you just make sure that you guys are all square. Mr Parker: Yeah we will. [Indistinct]. Ms Johnston: And I don't have any possies. Mr Parker: Yeah well we will try not to leave you with any possies - we will do that ASAP. Like you know start of the market we'll make sure everyone's cleared so - 1253 Not without some hesitation, and after considering the totality of the evidence, I am not convinced that Westpac's interpretation of these communications is not as equally likely. 1254 The purpose of the 8 June 2010 was to discuss whether Mr Sharma should transfer cash from the London balance sheet through to STIRR in Sydney and, if so, when that should occur. 1255 Mr Roden responded to Mr Sharma's observation that rate sets from the 11th onwards were going to be really bad (a comment directed to the spike in BBSW at the end of the "earlies" period, which is relevant to the timing of transferring cash from London to Sydney) by saying "Well, I know that and I'm going to f*** them as well, that's why I want to get - I'm going to f*** the rate set, right…on the, on the 10th … after that …" [Phrase contested as per above]. Mr Roden went on to explain "On the 14th I got like a 4 yard rate set right, so I'm going to deliver. We may not deliver, but we may as well. We've got two-, we've got about 2.2 billion of other bank deliverable paper, which we're definitely going to deliver because we need the credit lines". The transcript also shows: Mr Roden: [inaudible] it's a four day … I've got a four yard rate set, right, so I'm gonna deliver - we may not deliver, but we may as well. We've got … Mr Sharma: Yep: Mr Roden: … 2 point - we've got … we've got about 2.2 billion of other bank deliverable paper which we're definitely gonna deliver because we need the credit lines 1256 Westpac contended, and I am prepared to accept, that the reference to "I'm going ["gonna" in Westpac's version] to f*** them [plural]" was a reference to the rate sets on the days from 11 June 2010 (being the futures settlement date). In other words, Mr Roden was speculating that the person taking delivery might attempt to sell those Prime Bank Bills in the BBSW Rate Set Window from the 11th onwards. Mr Roden was referring to the likelihood that the counterparty or counterparties to his BAB Futures contracts would sell back into the Bank Bill Market the sizeable quantity of Prime Bank Bills that Westpac would deliver on settlement of the BAB Futures contracts, which may result in a higher BBSW than would otherwise have been the case in the end of the "earlies" period. That is, Mr Roden was predicting that by delivering 3 month Prime Bank Bills into the BAB Futures close out which would likely be sold back into the Bank Bill Market the excess supply of Prime Bank Bills may influence 3 month BBSW on the day of and days following settlement of the BAB Futures contract. So, he was not referring to any effect his trading in the Bank Bill Market may have on BBSW. 1257 Now ASIC stresses that the close out of the futures contracts was on 10 June 2010, but (as Westpac points out) settlement was not until 11 June 2010. This has the consequence that counterparties to Mr Roden's futures position selling the Prime Bank Bills delivered under the futures contracts could only have an impact on BBSW from 11 June 2010, not 10 June 2010. I am inclined to the view that Mr Roden's comment about the effect of his delivery into the futures close was not directed to 10 June 2010 but was rather directed to the days after 10 June 2010. 1258 Accordingly, the actions by which Mr Roden anticipated he was going "to f*** them [rate sets from the 11th onwards]" and "to f*** the rate set" was a reference to delivering 3 month Prime Bank Bills into the futures close; that is apparent from the reference to "2.2 billion of other bank deliverable paper which we're definitely gonna ["going to" in ASIC's version] deliver". I agree with Westpac that no other method of "f***[ing] the rate set" was identified on the call. Mr Roden was speculating that the person on the other side of the futures position was likely, because of the size of the position, to sell the Prime Bank Bills taken on delivery which may well affect the rate. 1259 Further, Mr Sharma, although he perceived ambiguity around Mr Roden's reference to "the 10th", understood Mr Roden's comments that he was going "to f*** them" and "to f*** the rate set" as a reference to the impact of Mr Roden's futures delivery on multiple rate sets. 1260 Further, I agree with Westpac that Mr Roden's explanation of what he meant by "f*** the rate set" finds some support in the conversation he had with Mr Matthew Boge, Assistant Head of Financial Markets at the RBA, on 9 June 2010. The transcript for that conversation is agreed, and a version of the transcript was put to Mr Roden. The audio of the conversation was also played to Mr Roden. He commented to Mr Boge along the following lines: (a) Earlier in the week the futures and physicals were massively out of line, like 6 or 7 points, so Westpac bought about $2.5 billion of Prime Bank Bills which it would be delivering into the futures close; (b) He could not understand why CBA and ANZ were issuing deliverable CDs into the interbank market a week out from futures settlement when the physical market was trading 5 or 6 points over the futures yield; (c) Tomorrow (10 June 2010) was the futures close out so there could well be volatility and, once that was out of the way, the 15th could also be volatile "depend[ing] how big the delivery is, depend[ing] who takes delivery whether they don't want 'em because Monday's the 15th and it's got a four day run in it in terms of rate sets because Monday's a public holiday" and that "the 15th could be bigger than normal … [a]nd that will be you know the day after people get delivery as well so people may not want, [inaudible] who knows, I've got no idea what people's intentions are" [Agreed transcript - WBC.0003.0005.0120_AGR]. 1261 Mr Roden explained his concern by reference to a past incident where someone took a significant delivery and then had an enormous impact on the market on the delivery day, without ever actually having to pay for them. He had a suspicion that the size of his delivery, which was substantial (probably the largest delivery he could remember), and that the level at which NCDs had been issued during the week had been so uneconomic that the person who was on the other side of the futures positon may have had some improper purpose of what they were going to do with the stock following delivery. That is what he meant when he said he was "going to f*** them [the rate sets from the 11th]". 1262 I agree with Westpac that Mr Roden's explanation is also supported by evidence of both ANZ and NAB that they did in fact engage in the practice of taking delivery of Prime Bank Bills on settlement of the futures contract and selling those Prime Bank Bills straight back into rate set on the settlement date without ever paying cash for them. 1263 Further, the phenomenon which Mr Roden described does not appear to be controversial. Mr Conway said in cross-examination that there was a market perception that on days following a BAB Futures expiry, market rates for BBSW were at risk of being higher than at other times during the month because delivering Prime Bank Bills into the close-out can have an effect on the BBSW on the days after they are delivered. 1264 Finally in terms of communications, in relation to the 10 June 2010 call, it was put to Mr Roden that "this morning's outrageous behaviour" was a reference to the trading that had been done that morning and the effect that trading had on the rate, but Mr Roden denied this. It is also said that further context for Mr Roden's conversation with Mr Howell may be gleaned from earlier conversations on that day, in which he complained about CBA's acceptance outside the rate set window of a stale offer posted earlier in the morning. I do not consider that these communications advance ASIC's case.

Westpac's alternative explanations for trading 1265 I am inclined to accept Westpac's submission that the dominant purpose for the sales on 10 June 2010 was to dispose of Prime Bank Bills that had been acquired for delivery into the BAB Futures close out to capitalise on an arbitrage opportunity that had presented itself, but which were perceived to be ineligible for delivery. Mr Roden gave evidence consistent with such a purpose that I do not consider was significantly undermined in cross-examination. 1266 Mr Roden's practice in relation to BAB Futures trading was to take a long position in BAB Futures as a hedge against market movements and then gradually unwind the position, either to zero or potentially take up a short position in the week or two leading up to the BAB Futures close out. 1267 There was a difference in the price for BAB Futures and the price for Prime Bank Bills around 2 weeks out from the June 2010 BAB Futures close out date, which presented an arbitrage opportunity to purchase Prime Bank Bills in the physical market at the relatively lower price and deliver them into the BAB Futures market on the delivery date. 1268 Between 28 May 2010 and 10 June 2010, Westpac had an increasing net short position in BAB Futures contracts which would require it to deliver Prime Bank Bills on settlement of the BAB Futures contract. 1269 Between 1 and 7 June 2010, Westpac purchased approximately $4.620 billion of 3 month Prime Bank Bills. 1270 Mr Roden's practice, when he was intending to maintain a short BAB Futures position and deliver Prime Bank Bills into the BAB Futures close out, was to assess Westpac's Prime Bank Bill holdings in the days before delivery to ensure that the stock which had been acquired for possible delivery into the BAB Futures close out met the BAB Futures exchange requirements for deliverability (a maturity date between 85 and 95 days after settlement, issued by an eligible bank and maturing on or before the 15th of the month). 1271 Of the $360 million of Prime Bank Bills sold on 10 June 2010, all but $20 million of BNP Prime Bank Bills were ineligible for delivery into the BAB Futures close out: $220 million were ANZ Prime Bank Bills maturing on 3 September with only 84 days to maturity on the settlement date and $120 million were NAB Prime Bank Bills with only 82 days to maturity on the settlement date. 1272 Although the $20 million of BNP Prime Bank Bills were deliverable, the TS Holdings report for 10 June 2010 showed a negative $10 million credit limit for BNP so the sale of $20 million of BNP Prime Bank Bills was readily explicable by reason of the need to bring the position back within limits. Now I accept that Mr Roden was mistaken in his affidavit about BNP Prime Bank Bills being ineligible for delivery into the futures close out in June 2010. But that does not detract from the explanation that the $20 million of BNP Prime Bank Bills were very likely sold to bring the Bank back within its credit limits. 1273 On 10 June 2010, Westpac's final closing position in BAB Futures was short $3.418 billion, which obliged Westpac to deliver $3.418 billion of Prime Bank Bills to counterparties to the BAB Futures contracts on settlement on 11 June 2010. 1274 In summary, I accept that the dominant purpose for the sale of the $360 million of 3 month Prime Bank Bills on 10 June 2010 was that they were acquired for the purpose of delivery into the BAB Futures contract but were subsequently sold because they did not meet the eligibility requirements for delivery and, in respect of the $20 million of BNP Prime Bank Bills, because Westpac was $10 million over limit on BNP on 10 June 2010. 1275 Now ASIC put to Mr Roden that it was implausible that this was his purpose for selling on 10 June 2010. It put that when buying he could have specified to the brokers that he wanted to purchase futures deliverable Prime Bank Bills. But there was evidence before me suggesting that it was not possible to request futures deliverable Prime Bank Bills when buying Prime Bank Bills on the Bank Bill Market. 1276 Now ASIC says that ultimately Westpac's alternative explanations can go no higher than speculation as to potential commercial rationales that might not be inconsistent with Group Treasury's trading on 10 June 2010, without regard to the contemporaneous communication on 8 June 2010. I think that understates the evidence significantly. 1277 In summary, I reject ASIC's purpose case. Let me recap. First, the trading was selling Prime Bank Bills when there was a short BBSW Rate Set Exposure. This is the antithesis of ASIC's thesis. Second, the amount of Prime Bank Bills sold at $360 million was very modest indeed. Third, when one understands the 8 June 2010 communication in its context, it can be readily reconciled with the interpretation and purpose contended for by Westpac and was more directed to any effect on BBSW after 10 June 2010 (i.e. 11 June 2010).

Other matters - effect or likely effect 1278 In relation to the contravention date, I will deal with the question of effect or likely effect later in my reasons. 1279 At this point it is now convenient to deal with another matter.

A BAB Futures strategy? 1280 Now Westpac associated some of its trading in Prime Bank Bills with BAB Futures which expired at midday on the second Thursday in March, June, September and December of each year. The physical Prime Bank Bills under the BAB Futures were delivered on the second Friday of each such month. In broad terms, Westpac said that buying Prime Bank Bills in these months would permit Group Treasury to adopt a short BAB Futures position, which required Westpac to deliver Prime Bank Bills. But Prime Bank Bills that could not be delivered (i.e. not acceptable paper for delivery under BAB Futures), and thus could not be deployed as part of the strategy, were sold. So far so good. I accept that Westpac had such a strategy. But ASIC says that the contemporaneous communications reveal that Westpac consistently had a pre-conceived plan and intention in advance of BAB Futures expiry dates to: (a) purchase Prime Bank Bills during the BBSW Rate Set Window on days when Westpac anticipated that it would have a short or paid BBSW Rate Set Exposure, at the beginning of the futures close-out month; and (b) sell Prime Bank Bills in the BBSW Rate Set Window when Westpac had a receive or long BBSW Rate Set Exposure on dates that were prior to the BAB Futures expiry date and prior to the date on which any delivery of Prime Bank Bills needed to be made under BAB Futures. 1281 ASIC says that this was the pre-conceived plan disclosed in the following contemporaneous communications for the relevant months: (a) On 8 June 2010, Mr Roden told Mr Sharma that he was going to f*** the rate set on Thursday the 10th, when any delivery of Prime Bank Bills under a BAB Futures to the buyer would only take place after the BBSW Rate Set Window on Friday 11 June 2010 [Transcript not agreed WBC.0003.0005.0111 (_WBC)]; (b) On 17 November 2010, Mr Park told Mr Sharma and Mr Duignan not to have a paid BBSW Rate Set Exposure (i.e. against Group Treasury's received BBSW Rate Set Exposure) on Thursday 9 December 2010, when any delivery of Prime Bank Bills under a BAB Futures to the buyer would only take place after the BBSW Rate Set Window on Friday 10 December 2010 [Transcript agreed WBC.0003.0005.0142_AGR]; (c) Ms Johnston's email of 16 May 2011 (with reference, inter-alia, to June 2011) proposed buying Prime Bank Bills on payset days to "churn it out" on Thursday 9 June 2011 when any delivery of Prime Bank Bills under a BAB Futures to the buyer would only take place after the BBSW Rate Set Window on Friday 10 June 2011; (d) On 5 September 2011, Mr Hosie's email to Mr Roden stated that Group Treasury had holdings of $500 million "for [T]hursday's receive" on 8 September 2011, when any delivery of Prime Bank Bills under a BAB Futures to the buyer would only take place after the BBSW Rate Set Window on Friday 9 September 2011). 1282 ASIC also says that in so far as buying Prime Bank Bills was said to be justified by Westpac to maintain flexibility to adopt a short BAB Futures position, Westpac as a Prime Bank had the capacity to issue NCDs and to deliver those into the expiry of the BAB Futures. Alternatively, Westpac could simply close out the contracts. Now so much is true. 1283 On the material before me, I am not prepared to find that there was this general strategy as such of the type contended for by ASIC. But I do accept that on isolated occasions this may have been a motivation. I will discuss the 1 and 6 December 2010 contravention dates and also Ms Johnston's 16 May 2011 email shortly. I have already discussed the 8 June 2010 communication and will in a later section of my reasons discuss the 5 September 2011 email.

(f) 20 and 22 September 2010 1284 ASIC alleges that Westpac: (a) bought 1 month and 3 month Prime Bank Bills on 20 September 2010 for the sole or dominant purpose of lowering or maintaining the level at which BBSW set in both the 1 and 3 month tenors; and (b) bought 3 month Prime Bank Bills on 22 September 2010 for the sole or dominant purpose of lowering or maintaining the level at which BBSW set in the 3 month tenor. 1285 In summary, on balance I do not consider that ASIC has made out its case in relation to these dates. 1286 No rate set trading calls exist for either 20 or 22 September 2010. Accordingly, it is not known who on behalf of Group Treasury traded in the Bank Bill Market on those days. I agree with Westpac that this is an evidentiary deficit in ASIC's case given that it bears the onus of proving that the person responsible for the trading did so for the sole or dominant purpose of affecting the rate.

20 September 2010 - BBSW and Westpac rate set exposure in the 1 month tenor 1287 On 20 September 2010, Westpac bought $1.18 billion dollars of 1 month Prime Bank Bills, which was 100% of the market volume on the day. The purchases were made at yields of between 4.57 and 4.59. 1288 On 20 September 2010, 1 month BBSW set on 20 September 2010 at 4.5733. AFMA received submissions for the 1 month BBSW of between 4.56 and 4.58. Westpac's submission for the 1 month BBSW was 4.57. 1289 The table below shows where 1 month BBSW set relative to the preceding and subsequent days: 15 September 2010 4.6400 16 September 2010 4.5800 17 September 2010 4.5800 20 September 2010 4.5733 21 September 2010 4.6067 22 September 2010 4.6117 23 September 2010 4.6500

1290 On Monday 20 September 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 1 month tenor: (a) a short exposure in PRM of $3,462,893,716.77; (b) a short exposure in ALM of $9,740,000,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $915,619,672.61; and (e) a short exposure in ALM (transfer priced balance sheet) of $444,717,586.09. 1291 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $13,202,893,716.77 in the 1 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 1 month tenor was a short exposure of $12,731,991,630.25. 1292 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 20 September 2010. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $91,000 from a single basis point decrease in the 1 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

20 September 2010 - BBSW and Westpac rate set exposure in the 3 month tenor 1293 On 20 September 2010, Westpac bought $270 million of 3 month Prime Bank Bills, which was 62.79% of the market volume on the day. The purchases were made at yields of between 4.74 and 4.78, although a large part of that volume ($120 million) was acquired at 4.74. 1294 3 month BBSW set on 20 September 2010 at 4.7400. AFMA received submissions for the 3 month BBSW of between 4.73 and 4.75. Westpac's submission for the 3 month BBSW was 4.74. 1295 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 15 September 2010 4.8550 16 September 2010 4.7867 17 September 2010 4.7800 20 September 2010 4.7400 21 September 2010 4.7900 22 September 2010 4.8300 23 September 2010 4.8333

1296 On Monday 20 September 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $9,352,032,479.73; (b) a long exposure in ALM of $1,070,500,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $185,908,261.64; and (e) a long exposure in ALM (transfer priced balance sheet) of $221,474,227.37. 1297 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $8,281,532,479.73 in the 3 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $7,874,149,990.72. 1298 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 20 September 2010. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $177,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

22 September 2010 - BBSW and Westpac rate set exposure 1299 On 22 September 2010, Westpac bought $500 million of 3 month Prime Bank Bills, which was 38.2% of the market volume on the day. The purchases were made at a yield of 4.83. 1300 3 month BBSW set on 22 September 2010 at 4.8300. AFMA received submissions for the 3 month BBSW of between 4.82 and 4.83. Westpac's submission for the 3 month BBSW was 4.83. 1301 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 17 September 2010 4.7800 20 September 2010 4.7400 21 September 2010 4.7900 22 September 2010 4.8300 23 September 2010 4.8333 24 September 2010 4.8300 27 September 2010 4.9550

1302 On Wednesday 22 September 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $3,225,000,033.30; (b) a long exposure in ALM of $1,220,000,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $1,010,675,640.46; and (e) a short exposure in ALM (transfer priced balance sheet) of $65,567,542.49. 1303 ASIC submits that on Wednesday 22 September 2010 Group Treasury had a short BBSW Rate Set Exposure of $2,005,000,033.30 in the 3 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $1,059,891,935.33. 1304 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 22 September 2010. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $16,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

Mr Roden's and Ms Johnston's trading on 20 and 22 September 2010 1305 Neither Ms Johnston nor Mr Roden recall trading on 20 and 22 September 2010. And there are no rate set call audio tapes from these days. Nonetheless, ASIC says that I should find that the relevant trader in the 3 month tenor on these days was Mr Roden. It says that there is nothing to suggest that Mr Roden was on vacation on these days. Further, Mr Hosie's evidence was that Mr Roden would usually be the trader of 3 month Prime Bank Bills. Further, ASIC says that the contemporaneous communication referred to below is consistent with Mr Roden being the 3 month bank bill trader on 20 and 22 September 2010. ASIC says that I should find that the relevant trader in the 1 month tenor on 20 September 2010 was either Ms Johnston or Mr Roden. They were the employees working on the STIRR Desk at the time.

Relevant communications 1306 ASIC has relied upon the following communications. 1307 On 20 September 2010 at 7.37 am (prior to trading in the BBSW Rate Set Window that day), Ms Johnston sent an email to "DL ST Funding" entitled "Short end flows / interests" The email alerted the funding team to the "short end" maturities and interests that day. Ms Johnston concluded her email: Rate Set Interest Today • Big day ….. Large Buyer of 1mth & 3mth, large seller of 6 mth 1308 ASIC says that Ms Johnston's email disclosed Westpac's preconceived plan for trading in the BBSW Rate Set Window on 20 September 2010. It is said that Ms Johnston intended to alert the funding team of that plan. Her evidence was that she was "indicating that we're aware that we were going to be active for various reasons". But she did not explain what those reasons were. She could not recall the day at all. 1309 ASIC says that the trading on 20 September 2010 succeeded in keeping the 1 month BBSW below where it had set on the prior trading day, and below where it set on subsequent trading days. 1310 On 21 September 2010, a telephone call took place between Mr Sharma and Ms Johnston. The transcript of this conversation is not agreed, and a version was put to Mr Roden, Ms Johnston and Mr Sharma. The audio of the conversation was also played to Mr Roden, but not to Ms Johnston or Mr Sharma. 1311 One version of the transcript was as follows [WBC.0003.0005.0139 (_WBC)]: Mr Sharma: I wouldn't have a clue where that is in relation to where you think BBSW is but tomorrow but just thought I would let you know. Ms Johnston: Yeah it closed here at like 82 so it's probably not too bad, I've got a couple of billion payer tomorrow as it is Mr Sharma: You er you're paid for that much? Ms Johnston: Yeah we're a 2 billion payer tomorrow Mr Sharma: So if you paid the FRA you would reduce your rate set risk right Ms Johnston: Yeah we could clear it out Mr Sharma: Up to you I'm, I'm just more letting you know I don't know if there's, I don't really hear too much on FRAs up here so I just thought I would let you guys know Ms Johnston: Yeah no I heard … it was a name out of London that was looking to deal but I'll run it by Col again but I think he's generally quite happy to just keep it on -… Mr Sharma: Happy to have a, happy to have a lash Ms Johnston: If it's around about where we think it'll be… Mr Sharma: 2 billion is a rounding error for you isn't it? What do they call you? The "perfumed", what is it? Ms Johnston: It is… [Laughing]… steam roller… Mr Sharma: What's your nickname… the Perfumed Steam Roller! Ms Johnston: [Laughing] Mr Sharma: [Laughing] Ms Johnston: Monday ..Mon…yesterday was huge, we had like -yesterday we had like 8 billion in the 3s… Mr Sharma: [Laughing] Ms Johnston: …13, 13 billion in the 1s [indistinct] a billion and a half in the 6s Mr Sharma: Jesus… that is massive, wowee. All down. Ms Johnston: That was huge yesterday [indistinct] Mr Sharma: That sounds like a lot of BPV. Good stuff. Ms Johnston: It came in the 3s Mr Sharma: Yeah, there was a, there was definitely a strong scent of perfume in the air yesterday [laughing] Ms Johnston: [laughing] No that was Colin's cologne. But ah… Mr Sharma: OK, I'll leave you to it. See ya Ms Johnston: OK see ya 1312 Westpac relied on the following version: Mr Sharma: I wouldn't have a clue where that is in relation to where you think BBSW is but, tomorrow but, just thought I'd let you know Ms Johnston: Yeah it's closed here at like 82, so it's probably not too bad. Umm I've got a couple … we're a couple of billion payer tomorrow as it is, um … Mr Sharma: You're a - you're paid for that much? Ms Johnston: Yeah we're a 2 billion payer tomorrow Mr Sharma: So if you paid the FRA you'd reduce your rate set risk, right? Ms Johnston: Yeah, we could clear it out Mr Sharma: But, up to, up to you I'm, I'm just more letting you know, I don't know if there's … I don't really hear too much on FRAs up here, so I just thought I'd let you guys know. Ms Johnston: Yeah, no I heard, it was a name out of London that was, ah, looking to deal… but um I'll run it by Col again, but I think he is generally quite happy to [inaudible] Mr Sharma: Happy to have - happy to have a lash Ms Johnston: If it's round about where we think it'll be Mr Sharma: 2 billion is a rounding error for you isn't it? What do they call you? The perfume … what is it? What's your nickname? Ms Johnston: … steamroller … Mr Sharma: [inaudible, both laughing together] The perfumed steamroller? The perfumed steamroller … Yeah Ms Johnston: Monday… Yesterday it was huge. we had like, yesterday we had like 8 billion in the 3s, 13 billion in the 1s. [talking together] and a billion and a half in the 6s. Mr Sharma: Geez that is massive, wowee. All down. [talking together] Ms Johnston: Yeah, it was huge yesterday Mr Sharma: That sounds like a lot of BPV. Good stuff Ms Johnston: [inaudible]… it came in the 3s Mr Sharma: Yep, there was a, there was definitely a strong scent of perfume in the air yesterday. Ms Johnston: [laughing] No that was Colin's cologne, but ah … Mr Sharma: OK, I'll leave you to it. See ya Ms Johnston: OK see ya 1313 Having listened to the audiotape, I am inclined to accept Westpac's version. 1314 ASIC contends that this communication reveals that Group Treasury, and in particular Mr Roden and Ms Johnston, planned to buy 3 month Prime Bank Bills on 22 September 2010 with the sole or dominant purpose of moving the 3 month BBSW down. This may be inferred from Ms Johnston tentatively declining to enter into a FRA, which "would clear it [the BBSW rate set exposure] out", and instead indicating that Mr Roden is "generally quite happy to just keep it [the BBSW rate set exposure] on" ["happy to [inaudible]" in Westpac version]. As I say, I accept Westpac's version. Mr Sharma called this having a "lash". ASIC contends that one has a "lash" by attempting to make money from where the BBSW sets on a given day; one does not have a "lash" by hedging against an adverse move in the BBSW. 1315 Ms Johnston does not remember this conversation. But Ms Johnston understood the reference to having a lash, as she explained in her affidavit, as "referring to STIRR being happy to leave Group Treasury's Rate Set Exposure risk unhedged until the day, rather than reducing that risk in advance by entering a FRA". She thought having a lash might mean leaving the BBSW Rate Set Exposure unhedged and "hedg[ing] it through trading" on the day, but she was not sure and she regarded Mr Sharma as joking. I must say that I accept Ms Johnston's evidence as to this. 1316 ASIC contends that Ms Johnston suggested that the FRA may not have been for the full amount of Westpac's rate set risk that day, but she agreed that she had said that she could "clear it out", being their risk with the FRA and that this was true. She agreed that she did not have to explain to Mr Sharma how that would work because it would be obvious to Mr Sharma that it was a way in which she could have cleared out or hedged or reduced her rate set risk, had she (or Mr Roden) wanted to. 1317 ASIC contends that Mr Sharma (as he said in cross-examination) understood Ms Johnston's statement about Mr Roden to mean that "he's just saying that he'll just leave it be and deal with it as and when it occurs", where the "it" means the BBSW Rate Set Exposure, or what Mr Sharma referred to here as "rate set risk" or "fixing risk". Mr Sharma suggested in cross-examination that, at least in relation to 20 September 2010, all they were talking about was "the size of the risk". But ASIC says that explanation is implausible, as it cannot account for the words "all down" and "good stuff" used by Mr Sharma at the time. Mr Sharma went on to suggest that the "it" may well be outright interest rate risk or not wanting to enter into a FRA. ASIC says that it is not clear how either explanation fits with the contemporaneous language. ASIC says that Mr Sharma's reluctance to give any fixed answer tells against the reliability of his evidence. 1318 ASIC contends that this communication also reveals that Group Treasury, through Mr Roden and Ms Johnston, bought 3 month Prime Bank Bills on 20 September 2010 with the sole or dominant purpose of moving the 3 month BBSW down. It is said that this follows from the jocular references to Mr Roden's cologne, Ms Johnston as the perfumed steamroller and the "lot of BPV" which Group Treasury made from the "huge" rate set by the BBSW being "[a]ll down", which was "good stuff". 1319 But I agree with Westpac that there is not sufficient in this conversation to demonstrate that Westpac traded on 20 and 22 September 2010 for the sole or dominant purpose of lowering or maintaining BBSW. 1320 Group Treasury was expecting to have a $2 billion paid rate set on 22 September 2010, although by 22 September 2010 it was only $1.06 billion. 1321 Mr Sharma and Ms Johnston discuss the possibility of paying a FRA to reduce that paid rate set exposure, with Ms Johnston noting that Mr Roden was generally quite happy not to enter into a FRA and keep the rate set exposure unhedged until the day "if it's around ["'round" in Westpac version] about where we think it'll be" (meaning that if the FRA price was around where BBSW was expected to set, then it was unlikely that STIRR would proceed with trading the FRA as there would be not much value in it). 1322 Further, Mr Sharma's comment "happy to have a lash" was referring to STIRR being happy to leave Group Treasury's rate set exposure unhedged until the day rather than reducing that risk in advance through a FRA. 1323 I also accept that neither Ms Johnston nor Mr Sharma was saying that Group Treasury would not undertake any hedging on the following day, 22 September 2010, by way of purchasing Prime Bank Bills during the BBSW Rate Set Window. The conversation said nothing about whether Group Treasury might hedge on the day by trading in the Bank Bill Market. 1324 As for Mr Sharma's use of Ms Johnston's nickname "the Perfumed Steam Roller", this was said in a light hearted manner; the audiotape records both of them laughing at the comment. I also do not consider that much can be finessed by ASIC from her nickname, let alone it being suggestive of a reputation for manipulation. The size of Westpac's trades in the Bank Bill Market were usually not insignificant. Perhaps when Ms Johnston was trading it was perceived that she was not to be trifled with. 1325 Further, as to the proposition that Mr Roden could have reduced Group Treasury's rate set exposure on 22 September 2010 to zero by entering into a FRA but deliberately left the exposure in place to profit from his manipulative trading, that contention has no secure foundation. Mr Roden said that it would not have been possible to enter into a FRA to completely reduce a rate set exposure of the relevant size. Further, there are limitations on the use of FRAs to hedge rate set exposure in terms of liquidity and price. The suggestion put to Mr Roden that the price of the FRA was the same as Ms Johnston expected BBSW to set on 22 September 2010 had no foundation. 1326 Further, ASIC put to Ms Johnston that the words "All down" attributed to Mr Sharma were him congratulating her or Group Treasury on having moved the BBSW down. But those words were more likely Mr Sharma's observation that the rate set exposures referred to by Ms Johnston were all down (i.e. paid) rate set exposures. Further, Mr Sharma's subsequent reference to "a lot of BPV" indicates that he was focused on outright interest rate risk, rather than rate set exposure risk. 1327 Further, in relation to the email from Ms Johnston to "DL ST Funding" sent 20 September 2010, in which ASIC contends that the phrase "Big Day… Large Buyer of 1mth & 3mth, large seller of 6mth" was indicative of a pre-conceived plan for trading in the BBSW Rate Set Window, Ms Johnston's evidence was that she was simply indicating that STIRR were going to be active for various reasons. I agree with Westpac that this email does not advance ASIC's case in respect of the contravention date of 20 September 2010.

Westpac's alternative explanations for trading 1328 I also accept Westpac's position that there were various reasons to acquire Prime Bank Bills on 20 and 22 September 2010 consistent with Group Treasury's core objectives of managing funding, liquidity and interest rate risk. 1329 The potential reasons for such acquisitions on 20 September 2010 were the following: (a) First, maintaining Group Treasury's portfolio of liquid assets in circumstances where $1.526 billion of Westpac's Prime Bank Bill holdings would mature within the next 10 days and Westpac held only $20 million of liquid Prime Bank Bills in the 3 month tenor. (b) Second, utilising surplus cash generated by Group Treasury's very long cash position of $4.9 billion. (c) Third, hedging or reducing STIRR's short outright interest rate risk position (the overall risk position reduced from 17 to 21 September 2010). (d) Fourth, given that Group Treasury had a paid rate set exposure in both the 1 and 3 month tenors, purchasing Prime Bank Bills on 20 September 2010 would hedge or reduce the size of those exposures. 1330 The potential reasons for such acquisitions on 22 September 2010 were the following: (a) First, maintaining Group Treasury's portfolio of liquid assets in circumstances where $1.663 billion of Westpac's Prime Bank Bill holdings would mature within the next eight days. (b) Second, deploying surplus cash generated by Group Treasury's $390 million long cash position. (c) Third, hedging or reducing STIRR's short interest rate risk position (which reduced from 21 to 22 September 2010). (d) Fourth, hedging or reducing Group Treasury's paid 3 month rate set exposure of $1.06 billion, which would be reduced by nearly half by the purchases of 3 month Prime Bank Bills made on 22 September 2010. 1331 Now it may be accepted that there is an element of speculation and reconstruction as to advancing these potential purposes. But in my view, ASIC has not shown any of them to be so sufficiently unlikely as to be discarded. 1332 ASIC noted that Mr Zuber and Mr Roden both suggested that buying Prime Bank Bills, particularly on 20 September 2010, was consistent with hedging outright interest rate risk, but the size of the hedge was small in the 1 month tenor and very small in the 3 month tenor, as Mr Roden accepted. Further, Mr Roden accepted in cross-examination that the trading on 20 September 2010 "made no meaningful difference to the interest rate risk of STIRR" and Mr Zuber made a similar concession. 1333 Further, ASIC says that Ms Johnston did not recall 20 or 22 September 2010 or trading on those days. She agreed that in her affidavit she tried to reconstruct what she believed might have been the reasons for trading on those days. So much is true. 1334 Further, ASIC says that Ms Johnston did not dispute the proposition put to her in cross-examination that by deciding to "have a lash", and to "keep it on" ["[inaudible]" in Westpac's version], Westpac had decided not to hedge the risk. Ms Johnston's evidence in cross-examination was that declining a FRA so as to "have a lash" was a decision to leave the BBSW rate set risk unhedged, and that they would have been "happy to keep it on" because "we just don't see the need to - to hedge it [with a FRA] and reduce that risk … if we necessarily thought that could be just where it [that is, BBSW] sets anyway". ASIC submits that this was the antithesis of hedging BBSW Rate Set Exposure. It proceeds on the footing that the risk is and will remain unhedged. But some of the evidence suggested that all that was being said was that it would not be hedged before the day or BBSW Rate Set Window. 1335 At all events, it is not for Westpac to prove any dominant purpose. It is sufficient for me to say that ASIC has not discharged its onus of establishing a dominant manipulative purpose.

Other matters - effect or likely effect 1336 In relation to these contravention dates, I will deal with the question of effect or likely effect later in my reasons.

(g) 1 and 6 December 2010 1337 ASIC alleges that Westpac bought 3 month Prime Bank Bills on 1 December 2010 and 6 December 2010 for the sole or dominant purpose of influencing the level at which BBSW set in the 3 month tenor on both days. In summary, I accept ASIC's case concerning these dates. 1338 As there are no BBSW Rate Set Window trading calls with the brokers, it is not known who conducted trading on behalf of Westpac in the Bank Bill Market on either 1 December 2010 or 6 December 2010. Neither Ms Johnston nor Mr Roden recall trading on 1 December 2010 and 6 December 2010, nor do they recall the events on these days. There are no rate set call audio tapes from these days. Nonetheless, ASIC contends that I should find that the relevant trader in the 3 month tenor on these days was Mr Roden. First, there is nothing to suggest that Mr Roden was on vacation on these days. Second, Mr Hosie's evidence was that Mr Roden would usually be the trader of 3 month Prime Bank Bills. Third, the contemporaneous communications (referred to below) are consistent with Mr Roden being the trader on 1 December 2010 and 6 December 2010. I agree. 1339 ASIC contends that I should find that, on 1 December 2010 and 6 December 2010, Mr Roden traded with the sole or dominant purpose of influencing the BBSW to set lower. As I say, I accept that case. Let me elaborate.

1 December 2010 - BBSW and Westpac rate set exposure 1340 On 1 December 2010, Westpac bought $2.77 billion of 3 month Prime Bank Bills, which was 89.64% of the market volume on the day. The purchases were made at yields of between 4.99 and 5.02, although a large majority of that volume was acquired at yields between 5.00 or 5.01. 1341 On 1 December 2010, 3 month BBSW set at 4.9900. AFMA received submissions for the 3 month BBSW of between 4.98 and 5.00. Westpac's submission was 4.99. 1342 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 26 November 2010 5.0567 29 November 2010 5.0717 30 November 2010 5.0433 1 December 2010 4.9900 2 December 2010 4.9983 3 December 2010 4.9950 6 December 2010 4.9933

1343 Now on 1 December 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a long exposure in PRM of $1,773,000,000.00; (b) a short exposure in ALM of $6,675,100,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $100,868,538.43; and (e) a long exposure in ALM (transfer priced balance sheet) of $248,494,950.95. 1344 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $4,902,100,000.00 in the 3 month tenor. I note that the daily Rate Set Exposure email for 1 December 2010 is in evidence. It shows a under the heading "ALL AUD" a short (or paid) exposure in the 3 month tenor of $4,902,000,000. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $4,552,736,510.62. 1345 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 1 December 2010. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $103,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

6 December 2010 - BBSW and Westpac rate set exposure 1346 On 6 December 2010, Westpac bought $3.03 billion of 3 month Prime Bank Bills, which was 100% of the market volume on the day. The purchases were made at yields of between 4.98 and 5.01. 1347 On 6 December 2010, 3 month BBSW set at 4.9933. AFMA received submissions for the 3 month BBSW of between 4.98 and 5.00. Westpac's submission for the 3 month BBSW was 4.98. 1348 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 1 December 2010 4.9900 2 December 2010 4.9983 3 December 2010 4.9950 6 December 2010 4.9933 7 December 2010 4.9983 8 December 2010 5.0000 9 December 2010 5.0800

1349 Now on 6 December 2010, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $9,003,000,000.73; (b) a long exposure in ALM of $398,000,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $116,740,385.80; and (e) a long exposure in ALM (transfer priced balance sheet) of $380,295,013.28. 1350 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $8,605,000,000.73 in the 3 month tenor. I note that the daily Rate Set Exposure email for 6 December 2010 is in evidence. It shows under the heading "ALL AUD" a short (or paid) exposure in the 3 month tenor of $8,605,000,000. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $8,107,964,601.65. 1351 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 6 December 2010. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $203,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

Email from Ms Johnston to Mr Roden and Mr Hosie dated 16 May 2011 1352 ASIC's case of manipulative purpose on 1 and 6 December 2010 (and other dates that I consider later) is also based in part on the contents of an email from Ms Johnston to Mr Roden and Mr Hosie dated 16 May 2011. The email reads: Hi, Just a couple of things worth looking at in the leadup to the early June rateset madness … In Dec and March we had huge sets primarily against NAB on the 1st and 4th (or where the 4th rolls to) where they loaded us up with huge amounts of new paper, details below. Date WBC Rateset What we spent 1 Dec 10 4.9bn 3mth PAY rateset spent 2.77b (during this period 3mth stayed at 4.99 every day from 1 -7) 6 Dec 10 (4 sat) 8.6b 3mth PAY rateset spent 3bn 1 Mar 11 5.9bn 3mth PAY rateset spent 1.3b (3mth dropped from 4.97 on 28/2 to set a 4.95 on the 1/3, set at 4.94 the on the 2/3 and 3/3) 4 Mar 11 3.9bn 3mth PAY rateset spent 2.7b (3mth spiked to 4.98 after setting at 4.94 the prev two days) 1 Jun 11 5.4bn 3mth PAY rateset 6 Jun 11 (4 sat) 6.3bn 3mth PAY rateset

Given we are approaching these rolls again it may be worth doing some fras outright or as switches, ie pay 1/6 vs rec 3/6 etc. ICAP indicative FRAs for the dates are as follows: 1 Jun 5.02 / 5.01 2Jun Assume will be the same 3 Jun 5.02 / 5.01 6 Jun 5.035 / 5.025 7 Jun 5.035 / 5.025 If these large sets are ongoing for the next year you may also want to look into seeing if anyone will pay for a swap switch of 1/6 v 3/6 and/or 4/6 vs 3/6 another date, ie we pay fixed 1/6 and rec fixed 3/6. By doing the switch it wont change our outright position, just our ratesets. All that said, there will obviously be other shenanigans happening on the 9 June when we have a large REC rateset on the back of the FRA/OIS position, so you may want to keep some of the large sets on the 1st and 6th with NAB just to load up on paper so we can then churn it out on the 9th. Cheers, Soph 1353 ASIC says that the email from Ms Johnston to Mr Roden and Mr Hosie on 16 May 2011 is consistent with Mr Roden having traded with the purpose of buying Prime Bank Bills on 1 and 6 December 2010 to lower the rate at which BBSW set on those days. In that email, Ms Johnston recapped the trading on 1 and 6 December 2010 as follows: In Dec and March we had huge sets primarily against NAB on the 1st and 4th (or where the 4th rolls to) where they loaded us up with huge amounts of new paper, details below. Date WBC Rateset What we spent 1 Dec 10 4.9bn 3mth PAY rateset spent 2.77b (during this period 3mth stayed at 4.99 every day from 1 -7) 6 Dec 10 (4 sat) 8.6b 3mth PAY rateset spent 3bn

1354 ASIC says that Ms Johnston agreed in cross-examination that in this email she had set out historical rate set exposures and purchases of Prime Bank Bills during particular BBSW Rate Set Windows. Ms Johnston was identifying what Group Treasury's BBSW Rate Set Exposure was on each of these days, how much it had spent, and the level at which BBSW set on the day. Ms Johnston set out those details for 1 December 2010 and then for 6 December 2010. 1355 ASIC submits that the language used by Ms Johnston when referring to Westpac's buying on these days, that NAB had "loaded us up with huge amounts of new paper", suggests that Westpac was a reluctant buyer, in the sense that it did not have a genuine demand for the Prime Bank Bills. I accept that such an interpretation is open, although having heard Ms Johnston's evidence and considered the totality of the 16 May 2011 email, I am not comfortably satisfied that this is the smoking gun that ASIC has portrayed it as. 1356 ASIC submits that Ms Johnston's reference to what Westpac had "spent" on each of these days supports a finding that Westpac did not have a genuine demand for Prime Bank Bills on 1 and 6 December 2010, but was spending money to keep the rate down. ASIC makes the same submission with respect to the expression "loaded us up with huge amounts of new paper". 1357 ASIC says that Ms Johnston's language is not indicative of a buyer who managed to buy what they wanted or needed in the BBSW Rate Set Window and was pleased with this outcome. ASIC submits that Ms Johnston was cognisant of this when she gave evidence in cross-examination, and that this is why she sought to recast the word she used in her email "spent" as "how much was purchased" (an expression more indicative of a genuine buyer). ASIC submits that this evidence from Ms Johnston in cross-examination is indicative of her evidence generally. That is, she was using very carefully considered language not by reference to the contemporaneous records but seeking to adopt the most favourable language and narrative for Westpac in these proceedings. ASIC's contentions are not completely devoid of merit. But on balance I am not able to reject Ms Johnston's evidence concerning this email. 1358 But I tend to agree with ASIC that some aspects of the 16 May 2011 email are not, at least on their face, inconsistent with ASIC's thesis. But the email does have alternative explanations. Given that I have found in any event from other more direct evidence that I will now discuss that Westpac traded on 1 and 6 December 2010 for a dominant manipulative purpose, it is more convenient to postpone my discussion of this email to other contravention dates when it is the only specific evidence relied upon in terms of the precise dates for trading. I will also discuss this email again in a later section concerning pattern of conduct.

Telephone call between Mr Park, Mr Sharma and Mr Duignan on 17 November 2010 [Agreed transcript: WBC.0003.0005.0142_AGR] 1359 On 17 November 2010, a telephone call took place between Mr Sharma, Mr Duignan and Mr Park. The transcript of the conversation is agreed, and versions of the transcript were put to Mr Roden, Ms Johnston, Mr Park and Mr Duignan. The audio of the conversation was also played to Mr Roden and Ms Johnston, but not to Mr Park or Mr Duignan. In my view, this communication is damaging to Westpac's case. It indicates an understanding and awareness of actions in advance to deal with rate set exposure. 1360 The following exchange took place: Mr Park: Not much else from our perspective. One thing, I think I've mentioned it to you before, and obviously this is bloody sensitive, so we have to keep this just between the three of us, but, just go through and have a look at your Aussie rate sets, and just check what Aussie rate sets you've got in the first couple of weeks in Dec... Mr Sharma: Yep Mr Park: 'Cause, don't go out and do any new trades, but you want to be making sure that you're not received in the first few days of the month, like around the 6th, and you wanna make sure you are not gonna get paid in the period around the, sort of, futures delivery - it's the ninth or tenth. Mr Duignan: Yeah I haven't got any. Mr Sharma: I've got very little, I've got like a received four hundred bucks of one month on the second Mr Park: Yeah that's fine Mr Sharma: That's just with Col, so it's a bit of nothing. Then externally, I've got some paid sets on the 13, which is all the stitch up trades from OMIP, but that's only smalls as well, it's only like a hundred bucks. Mr Park: 'Cause at the moment I think Col's rate set on the 9th is 18 billion of three month. Mr Sharma: Are you serious? Mr Park: Yes. Mr Sharma: That's bloody, the Johnston trade - the Johnston's trade. Mr Park: On the 6th, on the 6th, they've got, like, a $8 billion pay set, or something like that, so … but it'll be lively, put it that way. You've just want to be kind of out of that, wherever you can be. Mr Sharma: [laughing] … yeah, I might have to dial in to, ah, to hear the set. Mr Park: Yeah, it'll be wild, 'cause it will be every man and his dog against - trying to work back on it and it will be, yeah, pretty nuts, so um yeah I was just saying be very careful around those dates, anything you got done … Mr Sharma: Jesus that's massive, yeah, I'm glad I've got nothing there. 1361 I agree with ASIC that this communication reveals that: (a) Mr Roden was going to be the trader on at least 6 December 2010; (b) Group Treasury employees were forecasting Group Treasury's rate set exposure on 6 December 2010; and (c) Group Treasury employees were predicting that Mr Roden was going to be buying Prime Bank Bills on 6 December 2010 and selling on 9 December 2010. Mr Park was informing Mr Duignan and Mr Sharma not to be in an opposite position to Mr Roden. He advised them not to be received on 6 December 2010 (when Mr Roden was paid) and not to be paid on 9 December 2010 (when Mr Roden was received). 1362 Now Mr Park, Mr Sharma and Mr Duignan each sought to characterise this conversation as merely directed at forecast "volatility" in the Bank Bill Market. Mr Sharma and Mr Duignan did not, however, have any memory of this conversation. But I agree with ASIC that this explanation is implausible, and revealed a reluctance to acknowledge that these employees were talking not about general volatility in the Bank Bill Market but Mr Roden's premeditated trading in that market in particular. Hence, Mr Park told Mr Sharma and Mr Duignan not to have a received position at the start of December and not to have a paid position on 9 December 2010, which positions would be opposite to Mr Roden. The specificity of the information and what position to have, tells against an interpretation that they were speaking about volatility in general. 1363 Moreover, Mr Park agreed that he knew on 17 November 2010 that Mr Roden had a huge receive rate set exposure on 9 December in the 3 month tenor, and that this was one of the facts that he was alerting his team to on this call. He agreed that he was telling Mr Sharma that he wants to be a paid set on 6 December and not to be a paid set on 9 December. 1364 As ASIC points out, Mr Park accepted in cross-examination that the selling of Prime Bank Bills on 9 December 2010 was what he thought "might happen". He elaborated that "what I was expecting is that given they had liabilities repricing on the 6th and they had assets repricing on the 9th that it was likely that we would be hedging the exposure between those periods", and he accepted that "[i]t's possible that he was going to" sell on 9 December 2010. Mr Park ultimately accepted that he considered such trading to be a "probability". 1365 Mr Duignan also accepted in cross-examination that Mr Park was instructing them not to be the other way to Mr Roden. But he proposed that Mr Park was instructing them about possible volatility in December "with also an RBA day and a futures delivery there as well". Mr Duignan insisted that the RBA decision and futures delivery were relevant to what Mr Park was telling him. But the speakers on the call were not focused on the RBA or on futures delivery but on Mr Roden's position and likely trading. I agree with ASIC that there is nothing "bloody sensitive" about the fact of an RBA decision and a futures expiry. 1366 Now Mr Sharma continued to insist in cross-examination that Mr Park was only informing him about likely market volatility, but this does not sit well with the plain language of the call. Moreover, Mr Sharma sent an email to Ms Johnston on 9 December 2010, which Mr Sharma confirmed was the day he had been told that Mr Roden had a large receive rate set exposure, after trading in the BBSW Rate Set Window had finished and the 3 month BBSW had set 8 points higher saying "nice day out for the perfume steam-roller". 1367 Now ASIC submits that Mr Sharma was in this email referring to what he had called the "Johnston trade" during the call on 17 November 2010. But Mr Sharma could not recall what the Johnston trade was. Ms Johnston's evidence was also that she was "not entirely sure" what Mr Sharma meant in his email, and "often it did seem that Zac just joked around a little bit". She did not explain the meaning of the "Johnston trade". In response to the suggestion that Mr Sharma was referring to the profit made thanks to Ms Johnston's FRA/OIS position - the "Johnston trade", Ms Johnston did not agree, but could not provide any alternative explanation for Mr Sharma's email or any other meaning for the "Johnston trade". 1368 Now ASIC submits that the "Johnston trade" was a reference to a FRA/OIS transaction that Ms Johnston had undertaken and which had resulted in a profitable outcome for Group Treasury on 9 December 2010. ASIC submits that the FRA/OIS transaction increased Group Treasury's BBSW Rate Set Exposure for 9 December 2010, with the effect of increasing any profit that Westpac made from movement in the BBSW higher. But I would note at this point that 9 December 2010 is not an alleged contravention date. 1369 ASIC says that Mr Sharma agreed that selling Prime Bank Bills on 9 December 2010 (if STIRR had a 3 month rate set exposure of about $16 billion and sold $3 billion in 3 month Prime Bank Bills) would have been likely to move BBSW higher on that day. 1370 ASIC points out that Mr Parker observed there had been a ramping of the rate set on 9 December 2010. His "fears of a ramp into bbsw today [were] confirmed". Now Mr Parker did not give evidence for Westpac. Mr Masnick said (albeit in relation to another instance of Mr Parker using the term "ramp" or "ramping") that he "can't comment on what Mr Parker's intention was in using that terminology". Mr Carritt, who was employed by CBA during the relevant period, said that "ramping" was understood by him to be perceived conduct of trying to move the BBSW up or down. 1371 Now in relation to the 17 November 2010 communication, Westpac says that Mr Park explained that his comment that "this is bloody sensitive" was in reference to the fact that the IMM team in London was in a small dealing room and located in close proximity to other areas of Westpac and he was attempting to maintain appropriate information barriers to make sure this information was kept within Group Treasury and not disclosed more widely to traders in Financial Markets. He also said that he wanted to emphasise the importance of confidentiality because Mr Duignan had only recently joined the Group Treasury team from Financial Markets. He was not challenged on that evidence. Mr Sharma and Mr Duignan gave similar unchallenged evidence. But even accepting this point, in my view it doesn't deal with the real sting in the 17 November 2010 call. 1372 Westpac further contends that Mr Park said that he wanted to alert Mr Sharma and Mr Duignan to what he thought would be a particularly volatile period in the market which would be worth avoiding if possible, because early December would be a BAB Futures close out time which was typically a time of greater volatility. It was put to Mr Park that the reason he was alerting Mr Sharma to this fact was because he thought that Mr Roden was likely to move BBSW in the 3 month tenor up on 9 December 2010 to benefit his received rate set exposure, a proposition which he denied. Mr Park explained that he was expecting, given Group Treasury had liabilities repricing on 6 December and had assets repricing on 9 December, Group Treasury would likely be hedging the exposure between those dates, although he did not know for sure how Mr Roden would trade on those days. Westpac says that Mr Sharma's evidence was to the same effect. He disagreed that what Mr Park was saying to him was that Mr Roden would be buying Prime Bank Bills to get the rate down and said that he thought Mr Park was just making Mr Duignan and him aware that there might be significant market volatility around that period. Similarly, so Westpac contends, Mr Duignan understood that Mr Park was telling Mr Sharma and him to avoid those days because it was going to be volatile, with an RBA cash rate decision day and futures delivery in the period as well. As Mr Duignan explained, 6 December 2010 was the day before an RBA interest rate decision, so he would expect Mr Roden to be managing his interest rate risk as he saw fit and appropriate. 1373 Now I should also say that in closing submissions I had a discussion with Mr Darke SC for Westpac regarding the evidence given by Mr Park as to whether this conversation predicted hedging activities in the lead up to 9 December 2010. Hedging is not mentioned during the 17 November 2010 call and I must say that my discussion with counsel for Westpac did not satisfy me that I should read any kind of hedging purpose into the conversation. 1374 Now I accept that these witnesses gave such evidence, but frankly I found their reconstructed versions to be implausible. There is little if anything in the transcript of the communication that gives me confidence in these versions. Moreover, the 17 November 2010 communication is also to be considered with the 30 November 2010 communication that I am just about to discuss.

Telephone call between Mr Sharma and Mr Roden on 30 November 2010 [Transcript not agreed - WBC.0003.0005.0306 (_WBC)] 1375 On 30 November 2010, Mr Sharma and Mr Roden had a phone call, the transcript of which is not agreed. A version of the transcript was put to Mr Zuber, Mr Roden and Mr Sharma. The audio of the conversation was also played to Mr Zuber and Mr Roden, but not Mr Sharma. 1376 The following exchange took place: Mr Sharma: Though ["Thought" in Westpac version] I'd give you a quick call um - We're swimming in cash over here. I know you guys have got a fair bit of cash around you as well Mr Roden: You've got a billion dollars, you've got a billion dollars in a collateral right? Mr Sharma: No, well we're long 1.7 and we're [indistinct]. Mr Roden: Well we're actually not swimming in, no, no, no. I'm not swimming in cash so convert it, I'm happy to convert it to Aussie alright? [indistinct]. Mr Sharma: Yeah so I converted some with Billy and Bench. Mr Roden: You know I'm going to spend at least ["about" in Westpac version] two or three billion dollars in the next couple of days - Mr Sharma: Oh really? In the next couple of days? So you - you're happy to take some Aussie - Mr Roden: [Indistinct] I've got this massive, massive rate sets, right? Mr Sharma: Right. Mr Roden: Over, like, four of five days, and then we've got a massive receiving and unload it all- Mr Sharma: Okay. Mr Roden: - but we are about square cash for, like, the next two or three weeks, so you giving me a couple of billion dollars is fine. Mr Sharma: Yeah okay. Well, the…I did some forwards, you know that forwards that Bench did with Bank of America today? I tacked on 500 for London as well to convert some US to Aussie. Mr Roden: I'm hap - Look I'm happy to do more, and I'm happy to pay a bit over, so if you want to do like [insert "- even if you've only got it" in Westpac version] for short period like two weeks or something like that - Mr Sharma: Yep. Mr Roden: - I'll pay a big rate in 2 weeks time, I'll pay like, 590 or something like that. 490 in two weeks or something like that. Mr Sharma: Well I reckon we're gonna be long, tomorrow if we're gonna be long 2.7 billion. Um, so if I can give you like, 500 - Mr Roden: Give me like - Mr Sharma: - 500 or more. Mr Roden: [indistinct] - give me like a billion, or one and a half billion, alright? Don't give me it all. Mr Sharma: Yeah okay. Mr Roden: [indistinct] for a month right? Mr Sharma: I'll have to check - I'll have to check the pool, the pool rules and all that kind of stuff, but leave it with me. But hey, um you've got, you're gonna have some - so you're gonna have some pool deals come through, and 3 month BBSW should drop down tomorrow shouldn't it? So you're - Mr Roden: Well it's already, it's already gonna, it's already setting, you know, already pricing below the figure, so - Mr Sharma: Yeah, okay. Mr Roden: Give me, I'm happy to take money there so 20 [indistinct]. Mr Sharma: Yeah, I was gonna say you, if it's below the figure you're pretty happy at in the 3s aren't you? Mr Roden: Oh, I'll take anything you can, well you know I'm already 40 over for it and it's paying 25 over, I'm very happy. Mr Sharma: And that's before compounding so yeah that's good uh- Mr Roden: Ah, yeah but that's worth f*** all. 1377 I prefer the Westpac version of the transcript, although nothing seems to turn on this. 1378 In my view this communication shows that as at 30 November 2010, Mr Roden was aware of his BBSW Rate Set Exposures over 1, 6 and 9 December 2010, and that he had a plan to spend money by buying Prime Bank Bills on 1 and 6 December 2010 and to sell them on his receive set on 9 December 2010. I have listened to the audio tape where Mr Roden emphasised the word "massive". 1379 In evidence, Mr Sharma accepted that "I understand Mr Roden to be suggesting that he is anticipating buying $2 billion to 3 billion in liquid assets", which would have included Prime Bank Bills. Mr Sharma accepted that "I understand him to mean that he had large rate reset exposures coming up and that he was potentially intending to purchase liquid assets … to seek to reduce the size of that exposure on the days on which he had a paid rate set position and sell them on the day he had a received rate set position (again, so as to reduce the size of that position)". The thrust of his evidence is that he appeared to accept that Mr Roden was planning to buy and sell having regard to Group Treasury's BBSW Rate Set Exposure. 1380 Mr Roden's evidence was (as he expressed it in his second affidavit) that "I think I am saying that I am expecting to have large rate set exposures over the following few days and that this is a reason I am expecting to be spending cash. I would need to spend cash to enter into transactions that would reduce the exposure to this risk". In cross-examination, Mr Roden maintained that "[w]hat we're doing here, amongst other things, is buying Prime Bank Bills to reduce our risk, and then we will be selling some Prime Bank Bills to reduce our risk the other way". He insisted that the plan was "not to move the rate" but "to try and reduce our risk". Even if I were to accept Westpac's position that buying and selling Prime Bank Bills can hedge rate set exposure risk, it does not seem to me that this was the dominant purpose, particularly when the strategy seems to have been preconceived as early as 17 November 2010. 1381 Westpac has attempted to give an innocent interpretation of the 30 November 2010 phone call. 1382 It says that the first portion of this telephone call is a discussion between Mr Roden and Mr Sharma about STIRR's cash position, in which Mr Roden indicates that he would be happy to receive cash from Mr Sharma (who was at that time working on the London desk). That is true so far as it goes. 1383 Further, it says that in terms of whether this conversation revealed that Mr Roden had a "pre-meditated plan", Mr Roden's evidence was that this may be "one of the plans", but that STIRR "always make sure we keep our options open in this two-week futures close-out period". Mr Roden's cross-examination on this email in fact proceeded on the basis that this was a plan only, and not necessarily what took place. I am not sure that this point assists Westpac greatly. 1384 Further, in terms of whether the conversation revealed trading to buy for the purpose of reducing the rate, Mr Roden denied this characterisation, and gave evidence that trading as foreshadowed in the telephone call would have been to reduce his rate set exposure. Mr Sharma also gave evidence that he understood Mr Roden to be referring to trading to reduce his rate set exposure. Mr Sharma's evidence on this point was not subject to any serious challenge. 1385 Westpac says that this telephone call does not advance ASIC's case in respect of 1 and 6 December 2010. 1386 I disagree, particularly when considered with the 17 November 2010 call.

Communications between Mr Roden and Mr Lee 1387 ASIC says that Mr Roden's communications with Mr Lee of the CBA, who was employed in its Treasury division, were entirely consistent with his having traded for the purpose of affecting the rate at which BBSW set on these dates. Mr Roden and Mr Lee had a number of conversations over the Bloomberg Chat function, which Westpac says were of a light-hearted nature but which ASIC says evidence discussions regarding the manipulation of BBSW. I would note at this point that the document timestamps often suggest that chats occurred late on the day (at around 11.00 pm) before the day ASIC suggests. But because it is unlikely that the two were chatting at close to midnight, it would seem that the documents are time-stamped with GMT, which would put the conversations in the mornings of the dates suggested by ASIC, around and after the BBSW Rate Set Window. 1388 On 1 December 2010, they had the following conversation: Mr Lee: I'm not sure I have the stomach for this gig Mr Roden: did someone slip some ratsak in your catfood this morning? Mr Lee: yes mate feels like it Mr Lee: you eat all the owl feed you? Mr Roden: i think so…no problem 1389 ASIC submits that this chat reveals that Mr Roden purchased a lot of Prime Bank Bills on 1 December 2010 and that he did so in a way that was likely to harm others in the Bank Bill Market (and thus benefit himself). That is the import of his reference to "ratsak" and "catfood". Mr Roden could not explain this conversation other than to describe it as banter (and Mr Lee as a "serial pest") during cross-examination. 1390 In my view, it is difficult to discern anything about trading in the Bank Bill Market from this communication. Perhaps it may be inferred that Mr Roden purchased Prime Bank Bills from CBA on the morning of 1 December 2010. Mr Roden's question "did someone slip some ratsak in your catfood this morning?" is obviously a humorous response to Mr Lee's statement "I'm not sure I have the stomach for this gig". Similarly, Mr Roden's comments in relation to acquiring Prime Bank Bills from CBA were banter. 1391 Further, on 9 December 2010, they had the following conversation: Mr Lee: fun fun fun Mr Roden: in relation to what ? Mr Lee: Watching the masterpiece unfold Mr Roden: 8-)…whats going down, bad kitty ? Mr Lee: I'm just glad that we only helped you kill everyone, rather than get killed ourselves Mr Roden: what are you talking about…bbsw today set at teh futures price…as it should …did people get hurt ? 1392 The Bloomberg chat message between Mr Roden and Mr Lee on 9 December 2010 appears to relate to trading in the Bank Bill Market on 9 December 2010. In my view the communication contained a sarcastic statement from Mr Roden regarding the convergence of the price for Prime Bank Bills and BAB Futures, but otherwise provides no real context about Mr Roden's trading on that day. It was put to Mr Roden that he sold CBA Prime Bank Bills on 9 December and "smashed the rate set". Mr Roden denied this. 1393 ASIC says that Mr Roden accepted that he was being sarcastic, and whilst he did not accept that he sold the Prime Bank Bills he bought previously to smash the rate set on 9 December 2010, that is the point of the sarcasm. ASIC says that this communication reveals that Mr Roden was selling on 9 December 2010 to affect the rate set; and this tends to suggest, therefore, that he was not buying on 1 and 6 December 2010 for legitimate commercial purposes either. I am not able to take these communications so far at least in relation to 9 December which is, of course, not a contravention date. 1394 Further, on 16 December 2010, they have the following conversation: Mr Roden: you dropping by teh casino for christmas day ? Mr Lee: which casino? BBSW? Mr Roden: hahaha…thats a professional risk mitigation device Mr Roden: do you celebrate christmas ? Mr Lee: risk mitigation? Mr Roden: yer…it is necessary for managing our risk … Mr Lee: I gave you my gift on 1 and 2 dec Mr Roden: hahaha Mr Lee: you didn't even wait until xmas morning to open it Mr Roden: seems to me that i gave you some pretty cheap funding…that was teh Christmas gift Mr Lee: yeah thanks col Mr Roden: it was making you look good 1395 ASIC says that this communication is consistent with its contention that Mr Roden traded 3 month Prime Bank Bills on 1 and 6 December 2010 to move the rate set lower. That is why he was content to give CBA "some pretty cheap funding", which would be cheap from CBA's perspective but expensive from Westpac's. Mr Roden said in cross-examination that "I actually don't know what this chat is about at all". He described it all as a joke. Mr Roden suggested in his first affidavit that Mr Lee's reference to BBSW as a casino was "joking about the unpredictability of the bank bill market", although he was not so sure in cross-examination. 1396 In my view this communication is light-hearted. It involves Mr Roden teasing Mr Lee about spending time at the casino. The phrase "which casino? BBSW?" from Mr Lee can be understood as a reference to the unpredictability of the Bank Bill Market for its players. It is not possible to discern anything more concrete about the Bank Bill Market or Mr Roden's trading in the Bank Bill Market. 1397 Further, in cross-examination, Mr Roden said that Mr Lee's reference in this communication to his "gift on 1 and 2 dec" was likely a reference to Prime Bank Bills purchased by Westpac from CBA, but Westpac did not purchase Prime Bank Bills on 2 December 2010. As Westpac points out, this illustrates the difficulty of attempting to discern anything serious from this banter about Mr Roden's trading. 1398 Further, on 22 December 2010, they had the following conversation: Mr Lee: not a lot....seasons greeting to you mate...appreciate all your help Mr Roden: and thanks for your help in early dec...much appreciated ....best wishes to you, your family , your neighbours and your team... … Mr Roden: but i do know i brought whatever i brought in the street...as you tried to run me over … Mr Lee: yes we were trying to spray BBSw up against oursleves as usual … Mr Roden: interesting that it seems we are teh devil...teh highest we sold was 5.08...but i note bbsw for the 12th set at 5.12 %...i cant imagine who the hell was responsible for that...we were a buyer that day...from just about everybody...but tehy are good, clean living folk ! Mr Lee: you buy, you sell, they buy they sell Mr Roden: i thinks that what everybody does…but when they dont win everyday they winge… 1399 ASIC says that Mr Roden accepted in cross-examination that he was referring to his purchases of Prime Bank Bills in early December 2010. ASIC says that what this chat reveals is that Mr Roden bought Prime Bank Bills in early December 2010 to try to "win". It says that one wins not by hedging, but by moving the rate set. 1400 Now again, this communication is also light-hearted. It includes a comment that CBA had a "funding crisis", which was obviously not a serious statement. Mr Roden stated to Mr Lee "you tried to run me over". But this referred to the fact that CBA appeared to be a large seller, Westpac a buyer, and the rate did not move. I am not able to infer that Mr Roden was trading with any intention to move the rate at which BBSW set from this communication. In fact, as Westpac submits, this communication suggests trading by Westpac contrary to the Rate Set Trading Practice. In the communication, Mr Roden stated: interesting that it seems we are teh devil…teh highest we sold was 5.08…but i note bbsw set for the 12th set at 5.12 %...i cant imagine who was responsible for that…we were a buyer that day…from just about everybody…but tehy are good, clean living folk ! 1401 Mr Roden gave evidence that this suggested Westpac was a seller on the relevant day, but as the rate became higher turned around to become a buyer. Mr Roden also gave evidence that such an approach to trading was not unusual. There is something to be said for Westpac's interpretation and conclusion. 1402 I do not consider that these communications between Mr Roden and Mr Lee carry much weight. They are problematic in their expression and the context in which they were made. Moreover they were between potential competitors with the attendant possibility of gaming each other. Now I accept that some of the communications are not inconsistent with ASIC's case but many of them are little more than airy persiflage.

Trading on 2 and 9 December 2010 1403 Let me now for completeness deal with two other dates around this time that are not contravention dates. 1404 ASIC has identified 2 and 9 December 2010 together with the alleged contravention dates of 1 and 6 December 2010 as days on which Westpac traded in accordance with the Rate Set Trading Practice by buying and selling 3 month Prime Bank Bills. 1405 As Westpac points out, ASIC's case in respect of 2 December 2010 is not clear. Although ASIC alleges that Westpac purchased 3 month Prime Bank Bills on 1 and 6 December 2010 for a manipulative purpose, on 2 December 2010 Westpac was in fact a small seller of 3 month Prime Bank Bills ($50 million being 5% of market volume) and had a paid rate set exposure in the three month tenor. ASIC did not put to any Westpac witnesses that 3 month Prime Bank Bills traded on that day for any manipulative purpose, and nor could such a proposition be maintainable. Further, to the extent that ASIC seeks to infer that trading on 2 December 2010 was for a manipulative purpose based on Ms Johnston's email of 16 May 2011, that email does not provide to the requisite level direct support for such a contention. I will discuss the 16 May 2011 email in more detail later. Moreover, Westpac was a seller of 3 month Prime Bank Bills on 2 December 2010. Further and in any event, Ms Johnston's email does not mention Westpac's trading on that date. 1406 In respect of 9 December 2010, Westpac had a large long BBSW Rate Set Exposure in the 3 month tenor and sold 3 month Prime Bank Bills on that day. ASIC put to several Westpac witnesses that 3 month Prime Bank Bills had been acquired on 1 and 6 December 2010 for the purpose of being sold to push up BBSW on 9 December 2010. But that contention appears to be based on Ms Johnston's email of 16 May 2011, which as I have said is of no direct assistance, and the 30 November 2010 call. Moreover, there is no mention of Westpac's trading on 9 December 2010 in Ms Johnston's email. 1407 Mr Roden gave evidence that 3 month Prime Bank Bills were acquired on 1 and 6 December 2010 to reduce Westpac's net short interest rate position in advance of the RBA cash rate decision on 7 December 2010, and to preserve the ability to deliver Prime Bank Bills into the BAB Futures close out on 9 December 2010. By 9 December 2010, 3 month Prime Bank Bills were no longer required for those purposes as: (a) the RBA cash decision had been made so that it was possible for Westpac to become more comfortable with its risk position; and (b) prior to 9 December 2010, Westpac had closed out its BAB Futures position. 1408 In respect of this date, ASIC also relied upon a one line email from Mr Sharma to Ms Johnston as being somehow indicative of manipulative trading on 9 December 2010. Ms Johnston gave evidence that she was not sure what Mr Sharma meant, and that he appeared to be joking around. Mr Sharma also gave evidence about that email and some later emails sent in response, and confirmed that he was simply joking around. Mr Sharma also made the observation that the relevant email chain refers to resetting of internal hedges, and that it does not appear to relate to trading at all.

Westpac's alternative explanations for trading 1409 Westpac's witnesses identified various likely commercial reasons for acquiring Prime Bank Bills on both 1 and 6 December 2010, consistent so Westpac contended with Group Treasury's core objectives in relation to managing funding, liquidity and interest rate risk. 1410 It is said that the likely reasons for such acquisitions on 1 December 2010 were the following: (a) First, maintaining Group Treasury's portfolio of liquid assets holdings given $8.223 billion worth of Prime Bank Bills would mature in December and maintaining that stock would require Group Treasury to spend on average approximately $750 million on Prime Bank Bills on each of the 11 business days until 15 December 2010; (b) Second, acquiring Prime Bank Bills was a means of deploying Group Treasury's $1.6 billion surplus cash position and ensure that surplus cash did not carry over into late December or early January when it would be more difficult to utilise; (c) Third, buying 3 month Prime Bank Bills took advantage of relative value, in that yields in the 3 month tenor were of comparatively better value than yields in the 1 month tenor given the roughly 15 basis point spread between the two tenors; (d) Fourth, buying Prime Bank Bills hedged or reduced Group Treasury's net short outright interest rate risk position as reflected in the Treasury Eagle, which had the effect of reducing Group Treasury's exposure to the upcoming RBA cash rate decision on 7 December, and which would serve as a partial replacement for STIRR's long BAB Futures hedge which would typically be unwound prior to the close out date; and (e) Fifth, buying Prime Bank Bills also served to hedge or reduce Group Treasury's short BBSW Rate Set Exposure to 3 month BBSW on 1 December 2010. 1411 It is also said that the likely reasons for such acquisitions on 6 December 2010 were the following: (a) First, maintaining Group Treasury's portfolio of liquid assets given $5.411 billion worth of Group Treasury's $10.171 billion holding of Prime Bank Bills would mature in December; (b) Second, deploying Group Treasury's $3.8 billion surplus cash position (again ensuring that the surplus cash did not carry over into the late December/early January period); (c) Third, taking advantage of relative value in the 3 month over the 1 month tenor; (d) Fourth, hedging or reducing Group Treasury's outright interest rate risk exposure. Buying Prime Bank Bills would reduce Group Treasury's exposure to the RBA cash rate decision on 7 December 2010, and buying on 6 December 2010 was consistent with Mr Roden's decision to defer unwinding the long BAB Futures hedge until after the RBA decision (Mr Roden unwound the long BAB Futures hedge on 7 December 2010, the day of the RBA decision). As noted, buying Prime Bank Bills served as a partial replacement hedge once the long BAB Futures hedge was unwound; (e) Fifth, hedging or reducing Group Treasury's net short rate set exposure to 3 month BBSW on 6 December 2010; and (f) Sixth, preserving the ability to deliver into the BAB Futures close out should an arbitrage opportunity arise. 1412 Now I agree with ASIC that none of Westpac's witnesses proffered an alternative explanation for the trading which dissuades me from finding that the trading was undertaken for the purpose contended for by ASIC. At most, the witnesses speculated as to possible commercial reasons that Westpac's purchases of Prime Bank Bills on 1 and 6 December 2010 might potentially have been consistent with (or at least not inconsistent with). But identifying consistency does not establish (or negate) purpose. 1413 Now Mr Zuber suggested that Mr Roden's buying of Prime Bank Bills on 1 and 6 December 2010 was consistent with building and maintaining inventory. But I agree with ASIC that the cogency of that explanation is undermined by the following: (a) On the days prior to 1 December 2010, Group Treasury bought no 3 month Prime Bank Bills, and in fact sold some; (b) On 2, 3 and 7 December 2010 Westpac sold 3 month Prime Bank Bills; and (c) On 9 December 2010, Mr Roden sold the vast bulk of the Prime Bank Bills he purchased on 1 and 6 December 2010. 1414 Further, Mr Zuber suggested that the Prime Bank Bills were purchased on 1 and 6 December 2010 so that they might potentially be delivered into the futures expiry. But Westpac as a Prime Bank could issue NCDs for delivery. Mr Roden also suggested in cross-examination that he "would be interested to know … whether or not we delivered bank bills on the 10th" because that would be "consistent" with selling the Prime Bank Bills bought on 1 and 6 December 2010 on 9 December 2010. Group Treasury did not deliver any Prime Bank Bills on 10 December 2010. 1415 Further, Mr Roden also suggested that he was buying to take advantage of relative value in the Bank Bill Market, but Mr Roden ultimately sold the Prime Bank Bills he purchased for a lower price (and higher yield). Further, Mr Roden was buying at the early point of the earlies cycle when prices were likely to be higher (and yields lower). 1416 I do not accept Westpac's alternative explanations. When one considers the 17 November 2010 and 30 November 2010 communications and the trading behaviour, in my view they make out ASIC's dominant purpose case for 1 and 6 December 2010.

Other matters - effect or likely effect 1417 In relation to these contravention dates, I will deal with the question of effect or likely effect later in my reasons.

(h) 1 and 4 March 2011 1418 ASIC says that Westpac bought 3 month Prime Bank Bills on 1 March 2011 and 4 March 2011 for the dominant purpose of lowering or maintaining the level at which BBSW set in the 3 month tenor. I do not accept ASIC's case on this aspect. It is largely based upon Ms Johnston's email of 16 May 2011 which is not in and of itself sufficient evidence to establish the impugned dominant purpose. 1419 There are no rate set trading calls with the brokers on either day. Accordingly, it is not possible to identify with certainty who traded on behalf of Westpac in the 3 month tenor on 1 and 4 March 2011. It is likely that Mr Roden was not the person responsible for trading on either day, as he was in Sri Lanka from 21 February to 4 March 2011. ASIC submits, and I am prepared to accept, that Ms Johnston traded Prime Bank Bills for Westpac during the BBSW Rate Set Window on 1 and 4 March 2011, whilst Mr Roden was in Sri Lanka and before Ms Johnston moved to her new role in liquidity management.

1 March 2011 - BBSW and Westpac rate set exposure 1420 On 1 March 2011, Westpac bought $1.39 billion of 3 month Prime Bank Bills, which was 62.05% of the market volume on the day. The purchases were made at yields of 4.94 and 4.95 (with $1.01 billion at 4.95). 1421 On 1 March 2011, 3 month BBSW set at 4.9500. AFMA received submissions that were between 4.94 and 4.95. Westpac submitted 4.94. 1422 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 24 February 2011 4.9250 25 February 2011 4.9333 28 February 2011 4.9700 1 March 2011 4.9500 2 March 2011 4.9433 3 March 2011 4.9400 4 March 2011 4.9800

1423 Now on Tuesday 1 March 2011, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a long exposure in PRM of $2,160,000,000.00; (b) a short exposure in ALM of $7,962,100,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $120,446,543.94; and (e) a short exposure in ALM (transfer priced balance sheet) of $16,155,990.56. 1424 ASIC submits that the PRM and ALM rate set exposure risk recorded on Westpac's Murex system was a short BBSW Rate Set Exposure of $5,802,100,000.00 in the 3 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $5,697,809,446.62. 1425 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 1 March 2011. Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $120,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

4 March 2011 - BBSW and Westpac's rate set exposure 1426 On 4 March 2011, Westpac bought $2.72 billion of 3 month Prime Bank Bills, which was 86.35% of the market volume on the day. The purchases were all made at a yield of 4.98, other than $20 million at 4.96. 1427 On 4 March 2011, 3 month BBSW set at 4.9800. AFMA received submissions for the 3 month BBSW of between 4.97 and 4.98. Westpac's submission was 4.97. 1428 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 1 March 2011 4.9500 2 March 2011 4.9433 3 March 2011 4.9400 4 March 2011 4.9800 7 March 2011 4.9800 8 March 2011 4.9500 9 March 2011 4.9600

1429 Now on Friday 4 March 2011, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $3,422,000,000.04; (b) a short exposure in ALM of $501,000,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $429,741,020.16; and (e) a short exposure in ALM (transfer priced balance sheet) of $713,365,434.16. 1430 ASIC submits that the PRM and ALM rate set exposure risk recorded on Westpac's Murex system was a short exposure of $3,923,000,000.04 in the 3 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $4,206,624,414.04. 1431 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 4 March 2011. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $101,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

Westpac's trading on 1 March 2011 1432 ASIC says that Ms Johnston received information that the short rate set risk in the 3 month tenor was $5,802,100,000 in the daily rate set report that traders received from the Treasury facilitation team each day by email. Ms Johnston received the daily rate set report for 1 March 2011 at 9.28 am, prior to trading in the BBSW Rate Set Window. 1433 Mr Howell of ICAP sent Ms Johnston a copy of the broker screen at 10.00 am on 1 March 2011 showing the bid offer spread of 4.95-94 at that time. 1434 On 3 March 2011, Ms Johnston informed her colleagues that there was "a lot more pressure on BBSW at the moment, aided by large market rate sets, bill roll jitters, and a huge influx of paper into the market on the 1st". She said the "3mth" BBSW "seems to have established a new base around 94/95 (around 15.5 spr to ois) and FRAs are indicating it will move higher into the bill roll, possibly up to the figure". By this, ASIC contends that Ms Johnston meant that she believed the 3 month BBSW was possibly going to rise to 5.00.

Westpac's trading on 4 March 2011 1435 ASIC says that a short exposure of $3,923,000,000.04 was recorded in the daily rate set report for that day. Ms Johnston received the rate set report at 8.29 am prior to trading on 4 March 2011, which recorded a short rate set exposure of $3,923,000,000. 1436 On 4 March 2011, AFMA received submissions for the 3 month BBSW of between 4.97 and 4.98. Westpac's submission was 4.97. The 3 month BBSW set at 4.98. 1437 Ms Johnston's evidence was that Westpac's trading on 4 March 2011 seemed to have an impact on where BBSW set on that day. 1438 At 11.03 am on 4 March 2011, in an email addressed to "ZZM-PRM traders", Ms Johnston told her colleagues that BBSW had moved "wider" that day "with NAB once again the main culprit and throwing everything they've got at it". In cross-examination, she said that she meant by this that NAB was the "main seller". Her response to the proposition that she was unhappy with their selling was "not necessarily. It moved four points higher. It's probably a better level to buy at". ASIC says that her answer was significant in several respects: (a) First, she associated the selling with the BBSW moving higher, which ASIC submits explains how selling pressure influences BBSW upwards; (b) Second, she correctly identified that a willing buyer would want the yield to rise; it would be a better level to buy at; (c) Third, the response that she was "not necessarily" (emphasis added) unhappy with NAB's selling suggested the following. She may well have been unhappy with NAB's selling, but she could only say that she was not necessarily unhappy. Further, a willing buyer seeking liquidity or favourable prices would not be unhappy with a seller offering lots of stock and liquidity at what was probably a better level to buy at, that is, cheaper. Further, the only reason she would have been unhappy with NAB's selling is if she thought it was more important than liquidity or favourable prices for the BBSW to move (or stay) down. 1439 ASIC says that Ms Johnston went on to say to her colleagues: "I believe it could have got to the figure if we hadn't been on the bid". By this she meant that if Westpac had not purchased 3 month Prime Bank Bills in the BBSW Rate Set Window, she believed that the 3 month BBSW could have set at 5.00, two basis points higher than it did set. Ms Johnston agreed in cross-examination that it seemed from her email that she believed on 4 March 2011 at about 11.00 am that if Westpac had not been "on the bid" that day, BBSW could have got to 5.00. She went on to say that: "it does appear … it seems like our trading has had an impact" (on where BBSW set that day). 1440 On Monday, 16 May 2011, Ms Johnston recapped the trading on 1 and 4 March 2011: In Dec and March we had huge sets primarily against NAB on the 1st and 4th (or where the 4th rolls to) where they loaded us up with huge amounts of new paper, details below. Date WBC Rateset What we spent … 1 Mar 11 5.9bn 3mth PAY rateset spent 1.3b (3mth dropped from 4.97 on 28/2 to set a 4.95 on the 1/3, set at 4.94 the on the 2/3 and 3/3) 4 Mar 11 3.9bn 3mth PAY rateset spent 2.7b (3mth spiked to 4.98 after setting at 4.94 the prev two days)

1441 ASIC says that Ms Johnston agreed that in this email she had set out historical rate set exposures and purchases of Prime Bank Bills during the BBSW Rate Set Windows on 1 and 4 March 2011. 1442 ASIC submits that I should infer from this email that the purpose for Westpac spending $1.3 billion on 3 month Prime Bank Bills on 1 March 2011, and for spending $2.7 billion on 3 month Prime Bank Bills on 4 March 2011, was to affect BBSW to benefit a short rate set exposure of $5.9 billion and $3.9 billion respectively. It says that I should also infer that the strategy was successful, in the sense of the level at which BBSW set. It dropped on 1 March 2011. Now although it increased on 4 March 2011, ASIC says that it may have been even higher absent the buying. 1443 Now ASIC submits that in cross-examination, Ms Johnston tried to deflect attention from the precise words she had used in her email, and sought to recast "spent" as "how much was purchased". It is said that her answer revealed a consciousness that she had in her email referred to the means by which an outcome or result was sought to be effected (that is, what was "spent") and not, as she was trying to suggest, the object or goal itself ("what we purchased"). It contends that Ms Johnston set out the object or goal at the end of each respective line: the movement in the 3 month BBSW and the level at which it set. 1444 ASIC says that in her 16 May 2011 email, Ms Johnston recalled that in March 2011, Westpac had been loaded up with huge amounts of new paper, in huge sets primarily against NAB on 1 and 4 March 2011. In her 4 March 2011 email, Ms Johnston had called NAB the "main culprit" and said that it was "throwing everything they've got at it". ASIC submits that Ms Johnston believed that NAB was selling Prime Bank Bills to try to move the rate up, which was against the interests of Westpac and against the direction that Westpac was trying to move BBSW. ASIC submits that this is why she used the expression "culprit", and that the "it" (i.e. what NAB was throwing everything at) was the rate (i.e. BBSW). 1445 ASIC says that the language used by Ms Johnston in these emails was not that of a willing buyer. A trader seeking to acquire Prime Bank Bills for genuine liquidity or a funding reason would not consider a willing seller to be a "culprit", particularly if their selling was resulting in cheaper prices for the willing buyer. It also submits that Westpac's purpose for trading on 4 March 2011 was confirmed by Ms Johnston in her emails of 3 and 4 March 2011. On 3 March 2011 she was anticipating the rate to rise to 5.00. And on 4 March 2011 she was on the bid and reported that she believed she had achieved her purpose, namely, keeping BBSW from getting to 5.00. 1446 But I agree with Westpac that ASIC's evidentiary foundation for its purpose case is too flimsy for ASIC to discharge its onus. 1447 ASIC's purpose case in relation to 1 and 4 March 2011 appears to be principally based on Ms Johnston's email of 16 May 2011. But that email is not of itself evidence of manipulative intent and is incapable of sustaining a finding that Westpac traded on 1 and 4 March 2011 with the sole or dominant purpose of lowering or maintaining 3 month BBSW. 1448 Let me make some general observations at this point concerning the 16 May 2011 email. 1449 First, it is reporting upon historical trading (December 2010 and March 2011) and future potential trading (June 2011). 1450 Second, there are only a limited number of dates discussed. One would have thought that there would have been more dates discussed if there was a Rate Set Trading Practice that was being implemented. Indeed, on ASIC's case, 9 December 2010 should have been referred to in the email for example. 1451 Third, much of the email refers to hedging strategies. In one sense it is supportive of Westpac's position that one can trade in Prime Bank Bills to hedge, albeit imperfectly, some BBSW Rate Set Exposure. Of course Prime Bank Bills themselves are not purpose built hedging instruments such as FRAs, swaps etc. referred to in the email, and therefore are not expressly so described in terms. But their trading, as Westpac says, can provide a hedge against other exposures albeit imperfectly. So, to refer to trading in Prime Bank Bills in an email which discusses hedging is as equally supportive of Westpac's case as it is against it. 1452 Fourth, if this email was said to be referring in essence to the implementation of a Rate Set Trading Practice, the description about the movement in BBSW itself on the historical trading days identified in the email is little used by the author to show any such successful implementation. 1453 Fifth, in terms of the anticipation concerning June 2011, it seems mostly concerned with hedging issues. 1454 Further, as to the email from Ms Johnston to "ZZM-PRM traders" sent 4 March 2011, ASIC has pointed to the statement "I believe it could have got to the figure [5.00] if we hadn't been on the bid" as being indicative of manipulative trading on that date. But Ms Johnston's evidence was that she was speculating that if Westpac had not purchased three month Prime Bank Bills, three month BBSW may have set higher at 5.00. Now Ms Johnston's email was necessarily speculation. Further, Ms Johnston accepted that it appeared that STIRR's trading had influenced the rate at which BBSW had set, but denied that this was the purpose of the trading. I agree with Westpac that at most this email shows speculation as to effect rather than purpose.

7 March 2011 1455 It is convenient at this point to deal with another date ASIC relied upon, being 7 March 2011. 1456 Although not an alleged contravention date, ASIC contends that Westpac's trading on 7 March 2011 formed part of the same pattern of trading as occurred on 1 and 4 March 2011. Again, ASIC's purpose case in respect of those contraventions appears to be based on Ms Johnston's email of 16 May 2011. But Westpac did not trade in 3 month Prime Bank Bills on that day. Further, the fact that Westpac did not trade on 7 March 2011 falsifies some aspects of ASIC's purpose case made on the basis of Ms Johnston's 16 May 2011 email.

Westpac's alternative explanations for trading 1457 Westpac's witnesses identified a number of likely commercial reasons for acquiring Prime Bank Bills on both 1 and 4 March 2011, consistent, so it was said, with Group Treasury's core objectives in relation to managing funding, liquidity and interest rate risk. 1458 The various potential reasons given by Westpac for such acquisitions on 1 March 2011 were the following: (a) First, deploying cash in circumstances where Westpac's AUD cash position was forecast to be long $2.38 billion (a considerably long position) and to be long on average in the amount of $1.257 billion each day until 21 March 2011; Westpac's upcoming domestic and offshore issuance in March 2011 was forecast to raise $13.61 billion; and the bank had $1.33 billion of Prime Bank Bills and other assets maturing on 1 March 2011 and a further $934 million maturing over the following 3 days. (b) Second, building and maintaining Group Treasury's holdings of short dated liquid assets, which was likely to have been particularly important on 1 March 2011 as it held only $40 million of early 3 month assets (and no Prime Bank Bills) and a significant amount of repo eligible NSW Treasury Corporation paper was maturing that would need to be replaced. (c) Third, opportunistic trading, given the yields and the spread to OIS of 3 month Prime Bank Bills. (d) Fourth, buying 3 month Prime Bank Bills in the lead up to the BAB Futures expiry on 10 March 2011 would enable Group Treasury to take advantage of any arbitrage opportunity between the BAB Futures market and the Bank Bill Market. (e) Fifth, reducing Group Treasury's outright short interest rate risk position. (f) Sixth, hedging or offsetting Group Treasury's 3 month paid BBSW Rate Set Exposure on 1 March 2011. 1459 Further, the various potential reasons given by Westpac for such acquisitions on 4 March 2011 were the following: (a) First, deploying cash in circumstances where Westpac's AUD cash position on 4 March 2011 was forecast to be long $3.931 billion (again, a considerably long position) and to remain long on average in the amount of $2.372 billion each day until 30 March 2011; an additional USD 1.175 billion term funding deal would settle on 7 March 2011; and the Bank expected to receive $1.643 billion in cash from maturities by 15 March 2011. (b) Second, building and maintaining Group Treasury's holdings of short dated liquid assets, conscious of the need to take advantage of opportunities to buy in volume when they presented themselves. (c) Third, opportunistic buying, given the 3 month Prime Bank Bills yields were trading at about 4 basis points higher than the previous day's BBSW and the spread to OIS was the highest it had been in the last week and a half. (d) Fourth, preserving the ability to deliver 3 month Prime Bank Bills into the BAB Futures close out on 10 March 2011 should an arbitrage opportunity arise. (e) Fifth, reducing Group Treasury's short interest rate risk position. (f) Sixth, reducing or hedging Group Treasury's paid BBSW Rate Set Exposure. 1460 Now Westpac says that the challenge to the witnesses' evidence of such likely commercial reasons for buying Prime Bank Bills on 1 and 4 March 2011 was perfunctory at best. The following examples were pointed to: (a) It was put to Mr Roden that buying Prime Bank Bills was likely to be most expensive at the beginning of the month, and that Group Treasury could have waited a few days to purchase to realise a better price, a proposition with which Mr Roden did not agree. (b) It was put to Mr Roden that buying Prime Bank Bills at the start of March would simply put pressure on the Bank's existing funding shortfall that was projected for March 2011, which again Mr Roden did not accept. (c) The reduction in outright interest rate risk from the purchase of Prime Bank Bills on 1 March 2011 was small in percentage terms relative to Group Treasury's overall interest rate risk position, which relative smallness Mr Roden did not accept undermined it as a reason for buying. (d) It was put to Mr Roden that Westpac could request deliverable Prime Bank Bills when buying in the Bank Bill Market and, by inference, because it did not do so it could not have been a purpose of the buying to preserve the ability to deliver into the futures close. But this proposition was rejected by Mr Roden as wrong. I accept that it is not possible to request deliverable Prime Bank Bills when trading in the Bank Bill Market. (e) It was put to Ms Johnston in cross-examination that the purpose of trading on 4 March 2011 was to try to keep the BBSW down, which she denied noting "We were incredibly long cash at that point in time, and we would have needed to be buying assets, and it has just spiked 4 points higher. It's quite an attractive level". (f) It was put to Ms Johnston that there was no urgency to acquire large volumes of Prime Bank Bills on 1 and 4 March 2011 such that buying for the purposes of holding liquid assets was not the purpose for trading, a proposition which she denied. (g) It was put to Ms Johnston, based on her email of 3 March 2011, that the price of Prime Bank Bills would not have looked attractive to her on 1 and 4 March 2011 because she thought yields were going to go higher, which she denied. She said in cross-examination that: I still think on 4th, it moved 4 points higher, which is heading towards the figure, so that would have been really attractive, 4 basis points higher, and on the 1st, that was before I sent this email, and I think I saw it looked like, as a spread to OIS, it was 16, only dropped two points from the turn from lates to earlies, which is not a very big drop, and so the first was potentially attractive as well. (h) It was put to Ms Johnston that the purchase of Prime Bank Bills on 1 and 4 March 2011 was not a hedge at all of Group Treasury's BBSW Rate Set Exposure, or at least not an effective hedge, propositions which Ms Johnston denied. 1461 I must say that Westpac's submissions and evidence on some possible purposes had some force. In any event, Westpac does not have the onus on this aspect of establishing any alternative hypotheses. 1462 Now ASIC points out that Mr Zuber and Mr Roden did not trade on 1 or 4 March 2011 and had no knowledge or recollection of the events of those days. They each reviewed certain material provided to them for the purpose of attempting to reconstruct the trading on that day, and to speculate as to the reasons why Westpac may have traded in the way that it did. Neither Mr Zuber nor Mr Roden took into account the communications referred to above. Now that is true so far as it goes. 1463 Both Mr Zuber and Mr Roden speculated that Westpac might have bought Prime Bank Bills to deploy excess cash on 1 and 4 March 2011. But ASIC says that in its 16 February 2011 maturity forecast Westpac had projected a cumulative funding shortfall for March 2011 of $1.3 billion. In any event, Mr Zuber's evidence in cross-examination was that the cash flow forecast for March 2011 indicated that cash levels were unlikely to have had a big impact on what trading occurred on 1 or 4 March 2011. Moreover, Mr Zuber could not explain why, if the purchases were made on 1 and 4 May 2011 to deploy excess cash, Westpac would have sold Prime Bank Bills on 3 March 2011 (and increased its cash reserves), when it had a longer cash position than on 1 or 4 March 2011. There is some force in ASIC's point. 1464 Further, Mr Roden speculated that Westpac may have bought Prime Bank Bills "for liquids", but Mr Zuber agreed that on 1 and 4 March 2011, Westpac held more Prime Bank Bills than its average holding throughout 2011. Accordingly, there was no urgency to acquire additional holdings. Again, ASIC's point has merit. 1465 Further, Mr Roden and Mr Zuber speculated that the Prime Bank Bills bought on 1 and 4 March 2011 might have been used to deliver Prime Bank Bills into the futures close-out, but as Mr Zuber explained in cross-examination Westpac could just issue NCDs. Further, Westpac would not know when buying Prime Bank Bills during the BBSW Rate Set Window whether the Prime Bank Bills it purchased would be deliverable. In fact none of the Prime Bank Bills purchased on 1 March 2011 were deliverable into the futures close out, and of the $2.72 billion of Prime Bank Bills purchased on 4 March 2011 apparently only $59 million were deliverable. ASIC also has a point on this aspect against Mr Roden's and Mr Zuber's speculation. 1466 Further, Mr Roden suggested that Westpac may have bought Prime Bank Bills on 1 and 4 March 2011 to hedge its outright interest rate risk. But Mr Zuber accepted that the purchase of nearly $1.4 billion in 3 month Prime Bank Bills would offset or "hedge" only 1.8% of the short overall interest rate risk exposure of Westpac on that day, and the purchase of $2.7 billion on 4 March 2011 offset only 3.9% of the overall interest rate risk exposure on that day. ASIC says that it is implausible that Westpac traded on 1 and 4 March 2011 with a primary or motivating purpose of spending more than $4 billion to fully fund the purchase of instruments to hedge or offset less than 2% and 4% of the bank's outright interest rate risk on those days (respectively). I am inclined to agree. 1467 Further, Ms Johnston had no recollection at all of the events of March 2011 when she gave evidence in relation to the trading on 1 and 4 March 2011. She did not recall that Mr Roden was in Sri Lanka. She did not recall that she was on the trading desk while Mr Roden was away, although she agreed that she may have potentially been trading Prime Bank Bills for Westpac on that day. Her evidence was that it was "[n]oting that I went to London at some point during March as well … I still don't remember it, sorry. It's six, seven years ago or so". Ms Johnston's evidence in relation to the purpose for which she traded on 1 and 4 March 2011 was an attempt to reconstruct events based on the materials which she was provided to undertake that task, but which were incomplete. 1468 Ms Johnston speculated in her affidavit that she might have purchased Prime Bank Bills on 1 and 4 March 2011 because the prices appeared attractive, but ASIC says that was unlikely for the following reasons: (a) In respect of the Prime Bank Bills bought on 1 March 2011, Prime Bank Bills bought on the first day of the earlies period (i.e. with the most liquidity) were likely to be more expensive, as Mr Zuber explained, than on the subsequent days. Further, as Mr Zuber also explained, Westpac had no urgent need for liquid stock; (b) It is unlikely in any event that the prices paid for the Prime Bank Bills on 1 March 2011 (4.93 and 4.94) could have appeared to be attractive when BBSW had set the previous day at 4.97; (c) In respect of the Prime Bank Bills bought on 4 March 2011, it is implausible that Ms Johnston thought that the prices paid for the Prime Bank Bills (4.98 and 4.99) seemed attractive when she believed that it was going to get to 5.00, and when she believed that the yield would get to 20 over OIS and it was only at 16 when she made the purchases. 1469 Ms Johnston agreed that it appeared, as she recorded in an email to her colleagues, that her trading on 4 March 2011 had an effect on where BBSW set on that day. In response to the suggestion that this was also the purpose of her trading, Ms Johnston, who could not recall trading on that day, said: "[n]o, I don't agree. We were incredibly long cash at that point in time, and we would have needed to be buying assets". She did not explain why Westpac would have sold Prime Bank Bills the previous day (on 3 March 2011) when it was even longer in cash. She could not explain why she thought it was necessary to deploy cash when Westpac was projecting a funding shortfall for the month. Nor did she proffer an explanation for why she needed to buy assets when Westpac was holding more than its average bill holdings or how that would be consistent with selling the previous day. But she nonetheless maintained her opposition to the proposition that there was no urgency to buy Prime Bank Bills on these days. ASIC says that Ms Johnston's refusal to depart from her evidence that there was some urgency to purchase Prime Bank Bills because Group Treasury was "incredibly long cash", and her refusal to reconsider that evidence in light of: (a) Mr Zuber's evidence that cash was not a significant factor for trading on these days; (b) Westpac had sold Prime Bank Bills on 3 March 2011 when it was even longer in cash; (c) the projected short cash position for the month; and (d) the only matters that Ms Johnston herself considered sufficiently significant to record in her contemporaneous communications, should lead me to find that Ms Johnston's evidence was a self-serving attempt to avoid the finding that Westpac traded on 1 and 4 March 2011 with the intention of affecting the rate at which BBSW set on those days. 1470 Now ASIC's contentions have some merit. But it bears the onus and in my view it has not discharged it. The fact is that ASIC needs to comfortably satisfy me of a dominant manipulative purpose which it has not done. It does not prove its "positive" case by only chipping away at potential alternative hypotheses consistent with innocence.

Other matters - effect or likely effect 1471 In relation to these contravention dates, I will deal with the question of effect or likely effect later in my reasons.

(i) 1, 6 and 9 June 2011 1472 ASIC alleges that Westpac bought 3 month Prime Bank Bills on 1 June 2011 and 6 June 2011 for the sole and dominant purpose of lowering or maintaining the level at which BBSW set in the 3 month tenor, and alleges that Westpac sold 3 month Prime Bank Bills on 9 June 2011 for the sole or dominant purpose of raising or maintaining the level at which BBSW set in the 3 month tenor. In summary, in my view ASIC has not discharged its onus in showing a dominant manipulative purpose on these dates. 1473 There are no rate set trading calls with the brokers on any of these days. Accordingly, it is not known who on behalf of Group Treasury was responsible for trading in the 3 month tenor on any of 1, 6 or 9 June 2011. It is unlikely that the trader was Ms Johnston. She ceased working on the STIRR desk from about March 2011 and moved to the Liquids desk. When on the Liquids desk, it was not her practice to trade in the Bank Bill Market. It is a problem for ASIC's purpose case that the identity of the trader is unknown. It is required to prove that the person responsible for the trading engaged in it for the sole or dominant purpose of affecting the level at which BBSW set.

BBSW, Group Treasury Rate Set Exposure and trading on 1 June 2011 1474 On 1 June 2011, Westpac bought $260 million of 3 month Prime Bank Bills, which was 52% of the market volume on the day. All the purchases were made at a yield of 4.99. 1475 On 1 June 2011, 3 month BBSW set at 4.9900. AFMA received submissions for the 3 month BBSW of between 4.98 and 5.00. Westpac's submission for the 3 month BBSW was 4.98. 1476 The table below shows where BBSW set in the 3 month tenor on the preceding and subsequent days: 27 May 2011 5.0300 30 May 2011 5.0367 31 May 2011 5.0233 1 June 2011 4.9900 2 June 2011 5.0033 3 June 2011 5.0083 6 June 2011 5.0200

1477 On Wednesday 1 June 2011, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a long exposure in PRM of $3,490,000,000.00; (b) a short exposure in ALM of $9,142,850,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $115,149,916.53; and (e) a long exposure in ALM (transfer priced balance sheet) of $222,499,434.91. 1478 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $5,652,850,000.00 in the 3 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $5,315,200,648.56. 1479 ASIC says that a rate set report setting out an exposure of $5,652,850,000.00 was circulated to Westpac's traders prior to trading on this day. 1480 Although Mr Roden cannot recall trading on 1, 6 or 9 June 2011, he was not on leave and he usually traded 3 month Prime Bank Bills. ASIC has submitted that I should find that Mr Roden traded Prime Bank Bills for Westpac on these days. I will assume in favour of ASIC that this is so for the moment, although I do not consider that ASIC has in fact demonstrated this. 1481 It is not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 1 June 2011. Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $117,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

BBSW, Group Treasury Rate Set Exposure and trading on 6 June 2011 1482 On 6 June 2011, Westpac bought $620 million of 3 month Prime Bank Bills, which was 40.26% of the market volume on the day. The purchases were made at yields of between 5.02 and 5.03, with the considerable majority at 5.02. 1483 On 6 June 2011, 3 month BBSW set at 5.0200. AFMA received submissions for the 3 month BBSW of between 5.01 and 5.03. Westpac's submission for the 3 month BBSW was 5.01. 1484 The table below shows where BBSW set in the 3 month tenor on the preceding and subsequent days: 1 June 2011 4.9900 2 June 2011 5.0033 3 June 2011 5.0083 6 June 2011 5.0200 7 June 2011 5.0300 8 June 2011 5.0000 9 June 2011 5.0150

1485 On Monday 6 June 2011, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $7,902,000,000.27; (b) a long exposure in ALM of $793,900,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $48,362,757.14; and (e) a long exposure in ALM (transfer priced balance sheet) of $205,220,908.07. 1486 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $7,108,100,000.27 in the 3 month tenor recorded on its Murex system. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $6,854,516,335.06. 1487 ASIC says that a rate set report which set out a short exposure of $7,108,100,000 was circulated by email prior to trading on that day. 1488 It is not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 6 June 2011. Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $145,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

BBSW, Group Treasury Rate Set Exposure and trading on 9 June 2011 1489 On 9 June 2011, Westpac sold $1.47 billion of 3 month Prime Bank Bills, which was 69.01% of the market volume on the day. The purchases were made at yields of between 5.00 and 5.02, with all but $40 million traded at 5.01 or 5.02. 1490 On 9 June 2011, 3 month BBSW set at 5.0150. AFMA received submissions for the 3 month BBSW of between 5.01 and 5.02. Westpac's submission was 5.02. The 3 month BBSW was set at 5.015. 1491 The table below shows where BBSW set in the 3 month tenor on the preceding and subsequent days: 6 June 2011 5.0200 7 June 2011 5.0300 8 June 2011 5.0000 9 June 2011 5.0150 10 June 2011 5.0117 14 June 2011 5.0067 15 June 2011 5.0217

1492 On Thursday 9 June 2011, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a long exposure in PRM of $39,844,000,000.00; (b) a short exposure in ALM of $32,820,500,000.00; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $146,809,274.69; and (e) a long exposure in ALM (transfer priced balance sheet) of $117,713,129.80. 1493 ASIC submits that Group Treasury had a long BBSW Rate Set Exposure of $7,023,500,000.00 in the 3 month tenor recorded on its Murex system. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a long exposure of $7,288,022,404.49. 1494 ASIC says that Westpac circulated a rate set report which set out a short exposure of $7,023,500,000.00 prior to trading on 9 June 2011. 1495 It is also not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 9 June 2011. Further, Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $178,000 from a single basis point increase in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

Ms Johnston's email of 16 May 2011 1496 ASIC submits that Ms Johnston's email of 16 May 2011 referred to the BBSW Rate Set Exposures that Westpac was anticipating that it would have (and which closely approximated the exposures) in June 2011: Just a couple of things worth looking at in the leadup to the early June rateset madness… In Dec and March we had huge sets primarily against NAB on the 1st and 4th (or where the 4th rolls to) where they loaded us up with huge amounts of new paper, details below. … 1 Jun 11 5.4bn 3mth PAY rateset 6 Jun 11 (4 sat) 6.3bn 3mth PAY rateset Given we are approaching these rolls again it may be worth doing some fras outright or as switches ie pay 1/6 vx rec 3/6 etc. … If these large sets are ongoing for the next year you may also want to look into seeing if anyone will pay for a swap switch of 1/6 v 3/6 and/ or 4/6 vs 3/6 another date, ie we pay fixed 1/6 and rec fixed 3/6. By doing the switch it wont change our outright position, just our ratesets. All that said, there will obviously be other shenanigans happening on the 9 June when we have a large REC rateset on the back of the FRA/OIS position, so you may want to keep some of the large sets on the 1st and the 6th with NAB just to load up on paper so we can then churn it out on the 9th. 1497 ASIC says that Ms Johnston agreed in cross-examination that in this email she had anticipated, and was correct, that on 1 and 6 June 2011, there were going to be significant short or paid BBSW Rate Set Exposures for Westpac. 1498 ASIC says that in her email, Ms Johnston first identified some strategies for hedging, reducing or offsetting the large BBSW Rate Set Exposures expected on 1 and 6 June 2011. The proposals were to consider entering into some FRAs (outright or as switches) or swap switches. Mr Roden agreed that this part of Ms Johnston's email set out potential strategies for hedging rate set risk. 1499 ASIC says that the strategy was to reduce the size of the rate set risk exposure when Ms Johnston expected NAB to "load" Westpac up with paper. 1500 ASIC submits that in final paragraph of her email, Ms Johnston suggested a strategy whereby Westpac would buy Prime Bank Bills on 1 and 6 June when Westpac had large short rate set exposures for the dominant purpose of trying to maintain or move the 3 month BBSW lower on those days, and to then sell those Prime Bank Bills into the rate set on 9 June 2011 when Group Treasury anticipated having a large receive rate set for the purpose of trying to move the 3 month BBSW higher on that day. 1501 ASIC says that the strategy is characterised by Ms Johnston in her email by reference to the "other shenanigans" that she believed would "obviously" be happening "on the 9 June when we have a large REC rateset on the back of the FRA/OIS position". ASIC submits that the shenanigans Ms Johnston knew would "obviously" be happening "on the 9 June when we have a large REC rateset" were the shenanigans that Westpac would be engaging in when it traded with the purpose of trying to increase the rate at which BBSW set. It is said that any other shenanigans would not be obvious to Ms Johnston. 1502 Now Ms Johnston's evidence was that her reference to "shenanigans" was a reference to "anticipating that there will be a lot of activity in the market generally on that day as participants in the Bank Bill Market would be actively trading around the time of the BAB Futures expiry". But ASIC says that is implausible. It says that if she were intending to refer to volatility around the futures close out, she would have referred to 10 June 2011 which is closer to expiry and more likely to be volatile than 9 June 2011. 1503 Moreover, ASIC submits that in her email she expressly and directly relates the "shenanigans" to Westpac's anticipated large receive set, and to the proposed strategy of acquiring Prime Bank Bills to churn out on 9 June 2011: "there will obviously be other shenanigans … when we have a large REC rateset … so you may want to keep some of the large sets … so that we can then churn [the NAB paper] out on the 9th" (emphasis added). 1504 ASIC says that Ms Johnston says nothing about the futures close out in her email, and there is nothing in what she does say in her email that is related to the futures close out. 1505 Now Ms Johnston's evidence was that her suggestion to "churn it out on the 9th" was a suggestion to sell Prime Bank Bills in the BBSW Rate Set Window on that day, although she characterises it as a "hedge". But ASIC submits that Ms Johnston's email proposed a number of hedging strategies but that the final suggestion, to keep large rate sets, "load up on paper" to "churn it out on the 9th" was something different: it was a suggestion to trade with the purpose of affecting the rate at which BBSW set to profit from the large rate set exposures that she suggested Group Treasury "keep" for that purpose. ASIC submits that the expression "churn it out" was used by traders in the Bank Bill Market to mean selling into the rate set for the purpose of pushing up BBSW. 1506 ASIC says that the suggestion that Mr Roden and Mr Hosie did not read the email should be rejected. Ms Johnston was a more experienced trader than Mr Hosie, she was Westpac's representative on the NTI Committee, and she took an active interest in Westpac's rate set trading, despite not regularly trading Prime Bank Bills for Westpac at this time. 1507 Further, ASIC says that Ms Johnston was in her email doing no more than repeating the strategy that had been set out in Mr Roden's email instructions of 15 August 2008 for when he was on leave in 2008 (I will discuss this later), and which was repeated by Mr Hosie in his email of 5 September 2011 (I will also discuss this later). Further, Mr Roden agreed in cross-examination that ASIC's counsel's paraphrase of the text of the email: "so buy on the 1st and the 6th just to load up on paper so we can churn it out on the 9th" was just like he was telling Mr Sharma he was going to do in December 2010. ASIC says that this was a preconceived plan for trading. The plan was to "manage the risk", with "manage the risk" being understood as benefitting the rate set risk position by seeking to move the rate at which BBSW sets. 1508 But I agree with Westpac that, on balance, the 16 May 2011 email is not evidence in and of itself of manipulative intent and is incapable of sustaining of itself a finding that Westpac traded on 1, 6 and 9 June 2011 for the sole or dominant purpose of affecting the level of 3 month BBSW. I have already made some observations concerning the 16 May 2011 email when dealing with the March 2011 contravention dates. Let me add some further observations. 1509 Ms Johnston's email proposed a number of potential hedging strategies for upcoming large paid rate set exposures in early June. I agree with Westpac that her email disclosed expressly or impliedly the following possibilities: (a) First, entering into FRAs to hedge the exposures outright with indicative FRA pricing from ICAP noted in her email. (b) Second, entering into FRA switches to pay the fixed rate on 1 June and receive the fixed rate on 3 June, thereby reducing both the paid rate set exposure on 1 June and the received rate set exposure on 3 June. (c) Third, doing a swap switch by paying a one year fixed swap out of a particular date (1 or 4 June) against receiving a one year fixed swap out of another date (3 June), which would not reduce the outright risk in the STIRR portfolio but would at least partially hedge the rate set exposures for June 2011 and potentially future quarters. (d) Fourth, hedging the rate set exposures without entering into FRAs by purchasing Prime Bank Bills on 1 and 6 June to reduce the paid rate set exposures and selling Prime Bank Bills on 9 June to reduce the received rate set exposure. 1510 I agree with Westpac that the subject matter of the email concerned potential hedging strategies, which were proposed at a time when Ms Johnston was no longer working on the STIRR desk. Ms Johnston explained those strategies in detail. I am not satisfied that the email amounts to significant evidence in and of itself of a practice of manipulating BBSW. 1511 Now ASIC put to Ms Johnston that the final paragraph of her email was not advocating a hedging strategy unlike the remainder of the email. But Ms Johnston gave evidence that the whole email was about hedging, with the last paragraph dealing with an alternative hedging strategy, namely, trading in the Bank Bill Market on the day of the rate set exposure to hedge or reduce that exposure. On balance I found her evidence to be reliable on this aspect, although ASIC's alternative interpretation is understandable. 1512 Further, in relation to the word "shenanigans" in the final paragraph of Ms Johnston's email, Ms Johnston and Mr Roden gave reasonably plausible evidence that the term "shenanigans" does not necessarily imply improper conduct. In the context of the 16 May 2011 email, it is open to me to find as I do that it was a reference to the expected greater volume and volatility and behaviour of non-Westpac traders in the Bank Bill Market around the BAB Futures close out date rather than a reference to shenanigans by Westpac. 1513 I am not comfortably satisfied that ASIC has demonstrated from the 16 May 2011 email in the context of all the other evidence the requisite dominant manipulative purpose.

Westpac's alternative explanations for trading 1514 Westpac's witnesses identified a number of likely commercial reasons for acquiring Prime Bank Bills on both 1 and 6 June 2011 and for selling Prime Bank Bills on 9 June 2011, consistent, so it was said, with Group Treasury's core objectives in relation to managing funding, liquidity and interest rate risk. 1515 The likely reasons for such acquisitions on 1 June 2011 advanced by Westpac were the following: (a) First, maintaining Group Treasury's portfolio of liquid asset holdings given $6.92 billion worth of Prime Bank Bill holdings would mature by the end of the month and, as 1 June 2011 was the first day of the "earlies" period, it was common to purchase Prime Bank Bills in the early days of the month to replenish tradeable stock; (b) Second, preserving the ability to deliver into the BAB Futures close out, particularly in circumstances where on 1 June 2011 Westpac did not hold any Prime Bank Bills eligible for delivery into the close out; (c) Third, hedging or reducing Group Treasury's net short outright interest rate risk position and net short rate set exposure to 3 month BBSW; and (d) Fourth, taking advantage of value in the Bank Bill Market, given yields in the 3 month tenor appeared attractive compared to prevailing yields in the 1 month tenor. 1516 The likely reasons for such acquisitions on 6 June 2011 advanced by Westpac were the following: (a) First, buying 3 month Prime Bank Bills was consistent with the need to maintain Group Treasury's portfolio of liquid assets; (b) Second, preserving the ability to deliver into the BAB Futures close out. As at 6 June 2011, Westpac had a short BAB Futures position of $3.262 billion, which would require Westpac to purchase 3 month Prime Bank Bills to deliver into the futures close should it wish to take advantage of any arbitrage opportunity; (c) Third, hedging or reducing Group Treasury's net short outright interest rate risk position and net short rate set exposure to 3 month BBSW; and (d) Fourth, taking advantage of value in the Bank Bill Market for 3 month Prime Bank Bills, which still represented relative value compared to the 1 month tenor. 1517 The likely reasons for such disposals on 9 June 2011 advanced by Westpac were the following: (a) First, selling Prime Bank Bills on 9 June 2011 was consistent with freeing up credit limits. Westpac would most likely have sold $430 million of deliverable Prime Bank Bills where CBA was the acceptor because Group Treasury's available credit limit on CBA was lower than Mr Roden would normally have been comfortable with; (b) Second, tidying Westpac's position in advance of the June futures close out. On 9 June 2011, Westpac sold $347 million of other bank Prime Bank Bills that had been acquired for possible delivery into the BAB Futures close out but which were not eligible for delivery; (c) Third, hedging or reducing Group Treasury's net long (i.e. received) rate set exposure to 3 month BBSW; and (d) Fourth, raising short term funding for the bank, in circumstances where there had been no rise in the cash rate and the RBA announcement indicated there may not be a further rate rise in July, from which Mr Roden would consider June to be a good time to be a borrower in the market. This is consistent with Westpac purchasing $1.632 billion of BAB Futures contracts on 9 June 2011, reflecting a preference to raise funds in the physical Bank Bill Market rather than delivering stock into the BAB Futures close out, and Westpac issuing $678 million of its own NCDs on 9 June 2011 as a means of raising short term funds. 1518 Westpac contends that these were rational, sensible reasons for purchasing and selling Prime Bank Bills on these dates. Westpac contends that no challenge was made to Mr Roden's evidence in respect of the reasons for buying Prime Bank Bills on 6 June 2011 and selling Prime Bank Bills on 9 June 2011. The only challenge to his evidence of the reasons for buying Prime Bank Bills on 1 June 2011 was the following: (a) First, that Westpac did not need to buy Prime Bank Bills to preserve the ability to deliver into the BAB Futures close out because it could issue its own paper or could close out its futures position by buying back the futures contract, a proposition which, while technically correct, was beside the point. As Mr Roden explained, it is always an economic decision and closing out the futures contract can become inordinately expensive and the main reason Westpac would deliver into the futures close out would be because of such pricing disparity between the two markets; (b) Second, that buying Prime Bank Bills on 1 June 2011 would add to funding pressure given the Bank's short cash position, a proposition with which Mr Roden disagreed because the forecast cash position was conservative due to its assumptions and the net cash position was not really an issue in terms of buying unless it was a very large short position; and (c) Third, that buying Prime Bank Bills on 1 June 2011 at 4.99 was not good value because Group Treasury's book was structured on an expectation that the RBA was going to raise the official cash rate to 5%, a proposition with which Mr Roden did not agree noting that the prospect of a rate increase could be highly priced in by the Bank Bill Market and Westpac may buy them for other reasons. 1519 In response, ASIC has contended the following. 1520 Mr Zuber speculated that buying Prime Bank Bills on 1 and 6 June 2011 may have been to build and maintain Westpac's portfolio of liquid assets. But on 1 June 2011 Westpac held more Prime Bank Bills than it did on average for that year and Mr Zuber agreed that there would be no pressing need to buy Prime Bank Bills. Mr Zuber said in cross-examination that "I would agree that on this outstanding of the bill there is no pressing need but there could be a lot of other reasons why you would purchase". But he could not say what the reason was for trading on that day. On 6 June 2011, Mr Zuber agreed that Westpac held just under its average holding of Prime Bank Bills. 1521 Mr Zuber speculated that Westpac was acquiring Prime Bank Bills on 1 and 6 June 2011 to do so at reasonable prices, but he accepted that Prime Bank Bills purchased on the first day of the earlies period are usually expensive because of their extended period of liquidity. 1522 Mr Zuber speculated that Westpac was deploying cash, but he agreed that Westpac was at that time "short to close to square" in cash, so this could not have been the reason for purchasing Prime Bank Bills on 1 and 6 June 2011. 1523 Mr Zuber agreed that the acquisition of Prime Bank Bills on 1 and 6 June 2011 would only have provided a small "hedge" of Westpac's overall exposure on those days. ASIC says that it is implausible that Westpac fully funded the purchase of Prime Bank Bills for the purpose of hedging its overall risk exposure on these days. 1524 Mr Roden speculated that the factors which may have been relevant to Westpac purchasing 3 month Prime Bank Bills on 1 June 2011 were the RBA Cash Rate decision on 6 June 2011, and the BAB Futures expiry on 9 June 2011 and delivery on 10 June 2011. Mr Roden's evidence was that the "because of the fundamental importance of the Cash Rate to the rate at which Prime Bank Bills trade, both my view and the market's view as to whether the RBA would change the Cash Rate often had a significant impact on my trading in the Bank Bill Market". But ASIC says that Mr Roden agreed that his expectation was that the RBA would raise rates and this would make the Prime Bank Bills on 1 June expensive. He then offered the following evidence: "it's highly likely that they may have been purchased just to reduce our rate set risk". Mr Roden knew at least by 16 May 2011 that he would have a large short Rate Set exposure on 1 June 2011. Mr Roden elected to pursue none of the options suggested by Ms Johnston in her email other than the final suggestion: to load up on 1 and 6 June 2011 to churn out Prime Bank Bills on 9 June 2011. He elected to buy Prime Bank Bills on 1 June to benefit Westpac's rate set exposure knowing that purchasing Prime Bank Bills on that day could affect the rate at which BBSW set and, ASIC submits, with the purpose of doing so. 1525 Mr Zuber's evidence was that it made sense for Westpac to sell Prime Bank Bills on 9 June 2011 in order to raise short term funding, because the daily cash position was significantly short. But the daily cash position on 1 June 2011 was also significantly short (in excess of $1.3 billion) and on 1 June 2011 Westpac purchased, rather than issued, Prime Bank Bills. On 30 April 2010 and 6 June 2012 Westpac also had significant short daily cash positions and purchased Prime Bank Bills in substantial amounts. 1526 Mr Zuber deposes that selling Prime Bank Bills on 9 June 2011 was consistent with the end of the "earlies" trading period on 15 June 2011. But there were a further three business days after 9 June 2011 before 15 June 2011. This is an improbable explanation to sell almost one and a half billion Prime Bank Bills into the Bank Bill Market on 9 June 2011. 1527 Mr Zuber suggested in his affidavit that a reason for selling 3 month Prime Bank Bills on 9 June 2011 "appears (at least in part) to be for the purpose of disposing of any inventory that was not deliverable after the BAB Futures close out" on the basis that $142 million of the Prime Bank Bills Westpac bought on 1 and 6 June 2011 that were not eligible for BAB Futures delivery were sold on 9 June 2011. This was less than 10% of the total amount of Prime Bank Bills sold on 9 June 2011. It does not explain why Westpac sold the other $1.328 billion of Prime Bank Bills sold on that day. 1528 I think that ASIC has made a number of fair criticisms of some of the alternative hypotheses proposed. But at the end of the day, ASIC rather than Westpac has the onus and in my view it has not discharged it.

Other matters - effect or likely effect 1529 In relation to these contravention dates, I will deal with the question of effect or likely effect later in my reasons.

1 July 2011 1530 It is convenient at this point to deal with another date relied upon by ASIC being 1 July 2011. 1531 ASIC contends that trading by Mr Hosie on 1 July 2011, which is not an alleged contravention date, was undertaken in accordance with the Rate Set Trading Practice. But the evidence does not support that contention. Before discussing the communications on which ASIC relies in respect of this date, there are two contextual matters relevant to Mr Hosie's trading: (a) First, Westpac had a negligible paid rate set exposure of $54.4 million in the 1 month tenor on 1 July 2011, although I accept that if you look at the PRM+ALM figure, that short exposure is actually $753 million. It is difficult to suggest that Westpac bought $608 million of 1 month Prime Bank Bills to benefit a $54.4 million rate set exposure. There is little basis for the proposition put to Mr Roden that the purpose of Westpac's trading on that day was to move the rate in a way that was beneficial to Westpac. (b) Second, the trading occurred on the first day of the financial year. Mr Hosie gave evidence that the end of the financial year is often volatile as participants look to sell Prime Bank Bills to raise funds or tidy up balance sheets. A consequence of this was that there were fewer buyers, and BBSW often set higher in the days leading up to 30 June (in addition to the "earlies"/"lates" impact). This pattern occurred around 1 July 2011. For example, in the week before 1 July 2011, 1 month BBSW set between 4.8900 and 4.9150; in the week after 1 July 2011, 1 month BBSW set between 4.8200 and 4.8400. 1532 ASIC has relied on two communications in respect of trading on 1 July 2011. First, it relies on a telephone call between Mr Roden and Mr Hosie that occurred after trading on 1 July 2011. Second, it relies on an instant message chat between Mr Hosie and Mr Conway on 1 July 2011. 1533 In the telephone call, Mr Roden and Mr Hosie discuss trading in both the 1 month and 3 month tenors. In respect of the 1 month tenor, ASIC relies on the portion of the transcript in which Mr Roden refers to Mr Hosie as a "f***en thief" and Mr Hosie says "we got it back down", referring to 1 month BBSW. In this exchange, Mr Hosie and Mr Roden were referring to Mr Hosie buying 1 month Prime Bank Bills at favourable yields, and the 1 month BBSW setting at a rate more consistent than where the rate had set prior to the end of the financial year. In respect of buying at favourable yields, Mr Hosie had managed to buy some 1 month Prime Bank Bills at elevated levels before the rate returned to pre-30 June levels. It was in this context that "Doddy got run over" - it appears that ANZ had sold 1 month Prime Bank Bills at 4.86 (to Westpac) in circumstances in which 1 month Prime Bank Bills traded down to 4.82. The Prime Bank Bills sold at 4.86 were a bad sale by ANZ, but a good purchase by Mr Hosie. In respect of the 3 month tenor, ASIC relies on the portion of the transcript in which Mr Hosie appears to suggest that he did not wish to acquire more 3 month Prime Bank Bills from CBA "for little effect". That comment was made in circumstances in which CBA had been offering a large volume ($600 million) of 3 month Prime Bank Bills at a yield of 4.97. Mr Hosie explains his reasons for not wanting to buy at that level, which included that CBA's offer acted as a "wall", which meant that any other seller would need to cross the spread to meet Mr Hosie's bid. Mr Roden was cross-examined in respect of Mr Hosie's trading, and gave evidence that he considered Mr Hosie was acting in a professional manner: He's probably making a professional judgment, which is - you know, "I don't need to buy at 97 because if I sit on it in the bid at 98, I might get my securities there". I think he's just acting in a professional manner. 1534 But I agree with Westpac that there is no reason to think that Mr Hosie's trading in the 3 month tenor was other than proper and legitimate. 1535 The second communication relied upon by ASIC in respect of 1 July 2011 is an instant chat message between Mr Hosie and Mr Conway. This chat message is light-hearted in nature. The reference to Mr Hosie's "fingerprints [being] all over it" was based on little more than an understanding that Westpac was a regular buyer of 1 month Prime Bank Bills. The reference to the trading being either "nasty" or "tasty" is banter. The comment "nasty" is a reference to there being a large change in the 1 month rate, and the response "tasty" is a reference to devouring the available supply, but not trading for a manipulative purpose. I have dealt with this previously. 1536 In my view, there is insufficient evidence to show a manipulative purpose concerning Mr Hosie's trading on 1 July 2011. Further, Group Treasury had a negligible rate set position on the day, which is inconsistent with ASIC's case thesis in terms of 1 July 2011.

(j) 6 June 2012 1537 ASIC alleges that Westpac bought 3 month Prime Bank Bills on 6 June 2012 for the sole or dominant purpose of lowering or maintaining the level at which BBSW set in the 3 month tenor. 1538 Mr Roden traded 3 month Prime Bank Bills in the Bank Bill Market on 6 June 2012. It is his voice on the rate set trading call audio recordings. Mr Roden acknowledged that these recordings "appear to be of a broker communicating with me regarding trading in the three month tenor during the BBSW Rate Set Window on 6 June 2012". But Mr Roden had no specific recollection of trading on 6 June 2012 or the events of that day.

6 June 2012 - BBSW and Westpac rate set exposure 1539 On 6 June 2012, Westpac bought $3.06 billion of 3 month Prime Bank Bills, which was 87.43% of the market volume on the day. The purchases were made at yields of between 3.40 and 4.40, with the substantial majority trading at 3.40. 1540 On 6 June 2012, the 3 month BBSW set at 3.4050. AFMA received submissions for the 3 month BBSW of between 3.40 and 3.42. Apparently, Westpac's submission was 3.40. 1541 The table below shows where 3 month BBSW set relative to the preceding and subsequent days: 1 June 2012 3.3600 4 June 2012 3.2700 5 June 2012 3.3100 6 June 2012 3.4050 7 June 2012 3.4950 8 June 2012 3.5433 12 June 2012 3.5067

1542 On Wednesday 6 June 2012, Group Treasury had the following component BBSW Rate Set Exposures in the 3 month tenor: (a) a short exposure in PRM of $6,124,437,709.30; (b) a long exposure in ALM of $845,815,416.98; (c) no exposure in St George; (d) a long exposure in Corporate Bill Lending of $450,717,401.20; and (e) a short exposure in ALM (transfer priced balance sheet) of $49,047,927.48. 1543 ASIC submits that Group Treasury had a short BBSW Rate Set Exposure of $5,278,622,292.32 in the 3 month tenor. But Group Treasury's aggregate BBSW Rate Set Exposure that day in the 3 month tenor was a short exposure of $4,876,952,818.60. 1544 At 9:26 am AEST, prior to the BBSW Rate Set Window on 6 June 2012, the Treasury Facilitation Team sent an email to the "DL PRM Dealers" with the BBSW Rate Set Exposure for 6 June 2012 recording a substantial short exposure. 1545 It is not in doubt that the profit/loss of the books in Group Treasury would have been potentially affected by movement in the BBSW on 6 June 2012. Mr Zuber gave evidence that Group Treasury's BBSW Rate Set Exposure would have benefited approximately $94,000 from a single basis point decrease in the 3 month BBSW rate set on that day, but those figures are based on the aggregate Group Treasury exposure.

Mr Roden's trading during the BBSW Rate Set Window 1546 ASIC contends that the course of Mr Roden's trading during the BBSW Rate Set Window is consistent with him trading for the sole or dominant purpose of seeking to lower the rate at which BBSW set. There is an agreed transcript of the trading in the call with Mr Howell of ICAP and a version of the transcript was put to Mr Roden. In its closing submissions, ASIC agreed to abide by Westpac's consolidated transcript of the recordings of trading on that day [WIB.705.001.0036], which WBC has updated [WIB.705.001.0036_WBC] with no relevant differences. As to the transcript, ASIC says that it discloses in essence the following: (a) Mr Roden starts bidding at 3.42; (b) Someone joins Mr Roden's bid at 3.42. Mr Roden therefore has a sense that there is another buyer; (c) Mr Roden is told someone else is trading at 3.41. Mr Roden then takes 3.41, and he continues to bid at 3.41; and (d) Mr Roden goes down to 3.40. Mr Roden then goes back up to 3.41 but he is then told that 40s are being offered and that a hundred is taken at 3.40. 1547 ASIC says that this course of trading is consistent with ASIC's case, even though there was another buyer making lower bids than Mr Roden. It is said that Mr Roden did not need to waste his ammunition to get the rate down when he could see someone else buying and doing the job for him. In any event, Mr Roden did purchase "a lot". It is said that someone may have gone lower but Mr Roden provided the bulk. 1548 Contrastingly, Westpac has contended that the course of trading as revealed in that call was unremarkable. Its interpretation is as follows, with which I agree: (a) Mr Roden commenced bidding at a bid of 3.42, which was hit by Citibank. (b) After that bid was hit and a period of time had elapsed, Mr Roden put in a bid of 3.41 at which time the best offers in the Bank Bill Market were at 3.40. (c) Mr Roden then communicates to Mr Howell that he wished to put in a bid of 3.40. (d) Mr Roden's bid of 3.40 is hit by multiple sellers. (e) After that trading, Mr Roden takes his bid back to 3.41 and sellers hit his bid at that level. (f) Mr Howell says to Mr Roden "Done quite a bit at 40, Col, I'll give you the numbers in a sec", meaning that Mr Roden had purchased a substantial volume at a yield of 3.40. (g) Sellers continue to accept Mr Roden's bid of 3.41. (h) Mr Howell then says "Done quite a bit, Col". Mr Roden's responds "What are we talkin?", to which Mr Howell replies "Probably … mid … one and a half to two, maybe?". (i) At the conclusion of the call Mr Howell starts adding up the executed trades. Mr Roden says "I'll be surprised if its two yards, so I'll be interested to see what it is, right". 1549 Westpac says that it is evident that Westpac ended up acquiring significantly greater volume of 3 month Prime Bank Bills ($3.06 billion) than both Mr Roden and Mr Howell had appreciated during the course of the BBSW Rate Set Window. 1550 ASIC says that, despite bidding aggressively, Mr Roden was surprised at the volume he has acquired. It contends that this indicates that Mr Roden was bidding with little regard to volume and was acquiring with an intent to set the rate with as much volume as he was required to deploy until he hit the "world" of genuine sellers. 1551 It is also said that Mr Roden was aggressively instructing his broker to enter bids for Prime Bank Bills. It is said that this is confirmed by a later telephone call between Mr Roden and Mr Howell on 6 June 2012. The transcript for this conversation is not agreed [Transcript not agreed - WBC.0003.0005.0173 (_WBC)]. A version was put to Mr Roden. The audio was also played to Mr Roden. ASIC's transcript of the conversation was as follows: Mr Howell: You're plus 300 at 40, ANZ. Mr Hosie: 300? Mr Howell: Yep, from ANZ at 40. Mr Hosie: [indistinct] a yard, did he? Mr Howell: Well, they gave us clips of 100 and then one clip of 500. Col's going, "bid on, bid on". I'm offering the screen at 500 and he's taken it. Mr Roden: You know what, I don't have a problem with that but it would have been really nice to say, "I've given you 500 twice" Jas - you know what I mean? Mr Howell: I gave you 500 once, Col. The rest was a hundred. Mr Roden: I didn't hear it, to be honest. Mr Howell: I shouted at you, "I've got five hundred on the screen" and you've gone, "mine, bid on" so - Mr Roden: I never took the 500, mate. Never ever touched the 500. I saw the 500 and never touched it - Mr Howell: But Col if you're going "bid on, bid on" and the screen's offered in 500, I got to take it. Mr Roden: I know, but if you say - mate, I never - as soon as the screen went 500 offered, I fing ran away, right? Mr Howell: Well he only got up there once. And then I took it because you're going fing "bid on, bid on" and later he come back and offered 500. And that's when it made the screen again. Do you want me to try and cut it down, Col? Mr Roden: I don't want to run away cos I'm not a pussy cat, right? Mr Howell: No, I know that. Mr Roden: But, but, but - Mr Howell: But the thing is, I can't - Mr Roden: When it went 500 offered - Mr Howell: Yeah Mr Roden: [indistinct] straight away. I never took the 500. Ever. Ever. Mr Howell: In the middle of the madness, when you first went to 40, they were all coming at you, right? Mr Roden: No, I understand that. Mr Howell: "I'm giving you large, I'm giving you big. I'm taking them all on." Mr Roden: I understand that, but then it went to 500 offered and I went, "F***, I'm out of here." Mr Howell: But that was the second time he come back in 500. Mr Roden: I never - Mr Howell: He already gave up clips of 100s. Mr Roden: OK, I never saw a 500 offer on screen. Never. I never touched the 400 offer on screen. I appreciate [indistinct] - Mr Howell: Well - Mr Roden: And I appreciate you saying, "you got lots here". I understand that. Mr Howell: It's happening that quickly - Mr Roden: I know, but if the guy's going to give me 500, I mean maybe I didn't hear it, but you know I got no problem, what's done is done. Mr Howell: It happened that quickly Col, I've got fing 5 guys yelling at me, going fing "yours", you're going fing "bid on." Mr Roden: I understand that. I understand that. But yeah, if you could cut it down that would be great, but I'm not going to walk away from any deal, alright. Deal's done, right. But if you could cut down that would be great. But if not, it's done. Mr Howell: OK, I'll try. Mr Roden: Ta. Mr Howell: Cheers 1552 Westpac's version was: Mr Howell: You're plus 300 of 40 ANZ. Mr Hosie: 300? Mr Howell: Yeah, from ANZ at 40. Mr Hosie: Right. [Inaudible] gave us a yard did he? Mr Howell: Well they gave us clips of 100s and then one clip of 500. Col's going bid on, bid on, I'm offered on the screen at 500, he's taken it. Mr Roden: You know what, I don't have a problem with that, but it would've been really nice to say I've given you 500 twice, Jase, you know what I mean? Mr Howell: I gave you 500 once, Col, the rest was a hundred. Mr Roden: I didn't hear it, to be honest. Mr Howell: I shouted at you we've got 500 on the screen, you're going mine, bid on, so… Mr Roden: I never took the 500, mate, never ever touched the 500. [Talking together] I saw the 500 and never touched it - Mr Howell: Yeah but Col if you're going bid on, bid on, and the screen's offered you 500, I've gotta take it. Mr Roden: Yeah, I know, but you've just… mate I never… when it went… as soon as the screen went 500 offered I fen ran away, right. [Talking together] Mr Howell: Well he, well he only got up there once, and then I took it, 'cause you're going fen bid on, bid on, and later… later he come back and offered 500, and that's when it made the screen again. Do you want me to try and cut it down, Col? Mr Roden: I don't wanna run away, cos I'm not a pussycat, right? Mr Howell: No, I know that… Mr Roden: But, but, but… Mr Howell: [Talking over each other] But the thing is… I'm trying… [inaudible] Mr Roden: When it went 500 offered, - Mr Howell: Yeah. Mr Roden: I stopped straight away. I never took the 500 ever. Ever. Mr Howell: In the middle of the madness and when you first went to 40 they're all coming at you, right… Mr Roden: Yeah, no, I… I understand that. Mr Howell: I'm giving you large I'm giving you big, I'm taking them all… Mr Roden: Yeah I understand that, and then it went to 500 offered and I went F I've gotta get outta here. Mr Howell: Yeah but that was the second time it come back in 500, okay? Mr Roden: I - I never… [Talking together] Mr Howell: He'd already gave us clips of 100s [inaudible] Mr Roden: Okay, I never saw a 500 offer on screen, never. I never touched a 400 offer on screen. I appreciate that [talking together]… Mr Howell: [Talking together] Well I… Mr Roden: [Talking together] and I appreciate you're saying you've got lots here, I understand that… Mr Howell: [Talking together] [inaudible] it was happening that quickly Mr Roden: [Talking together] If a guy's… I know, but if a guy's giving me 500… I mean maybe I didn't hear it, but you know… [inaudible] [talking together] I got no problem, what's done is done. Mr Howell: [Talking together]It was happening that quickly Col, I've got fen 5 guys yelling at me, and going fin' yours… [Mr Roden talking inaudibly over Mr Howell] you're going f***en bid on. Mr Roden: Yeah, no, yeah, no… [laughing] I understand that, I understand that, um, but yeah, if you could cut it down that'd be great, but I'm not gonna walk away from any deal right, deal's done, deal's done right… Mr Howell: [Talking together] Okay Mr Roden: … but if you could cut down that'd be great, but if not, it's done. Mr Howell: Okay I'll try. Yep 1553 It seems reasonably clear from this communication, accepting Westpac's transcript, that Mr Roden acquired more than he intended. 1554 ASIC also points out that another relevant communication occurred at around 10:01:20 am on 6 June 2012 between Mr Howell and Mr Roden [Agreed transcript - WIB.705.001.0036_WBC]: Mr Howell: Done quite a bit, Col. Mr Roden: What are we talkin? Mr Howell: Probably … mid … one and a half to two, maybe? [pause] I reckon [pause] I had the world give us at 40. Mr Roden: Okay, well, you know, it's all about price discovery, my friend. Mr Howell: [Laughs] We found the base, I think. 1555 ASIC submits that in his first affidavit, Mr Roden suggested that "I understand that Mr Howell and I are discussing that through a process of price discovery, I had found the liquidity point at 3.40 where a large volume of Prime Bank Bills were available for purchase". But ASIC says that what is of greater significance is the statement by Mr Howell that "We found the base, I think". ASIC says that this is consistent with Westpac having traded to move yields as low as possible - to the "base", and that Mr Howell was expressing the view that it had succeeded. I consider this to be a stretch in terms of substantiating manipulative purpose.

Communication between Ms Johnston and Mr Conway on 6 June 2012 1556 ASIC has also relied on a Bloomberg chat between Ms Johnston and Mr Conway on 6 June 2012. Neither Ms Johnston nor Mr Conway traded Prime Bank Bills on 6 June 2012. 1557 On 6 June 2012, after trading during the BBSW Rate Set Window had finished, Ms Johnston and Mr Conway had the following Bloomberg chat: Mr Conway: Did we have any rate sets today? Ms Johnston: Set at 3.405 (+9.5) Ms Johnston: Huge set Ms Johnston: Col purchased 3bn!! off nab Ms Johnston: (thanks jase….) Mr Conway: 3.50? Ms Johnston: 3mth… no set at 3.405 Mr Conway: Ok Mr Conway: Where now? Ms Johnston: Nothing trading obviously Ms Johnston: Billy thinks maybe round 46 Ms Johnston: But likely to go higher 2mos Ms Johnston: I dont think they've got a big set but got heaps of stock they want to offload. Mr Conway: Ok Mr Conway: Ta Mr Conway: I will wait on the june hedge then! Ms Johnston: yep Ms Johnston: Good idea Ms Johnston: Col is warning it could get ugly tho given his possie haha Mr Conway: Not if he has all that stock to offload tell him 1558 ASIC says that it is apparent from this communication that Mr Roden had not purchased $3 billion Prime Bank Bills in the 3 month tenor for the purpose of acquiring and holding those Prime Bank Bills; rather, they were purchased only for them to "want to offload" them. ASIC submits that this communication supports a finding that Mr Roden traded with the sole or dominant purpose of moving the 1 month BBSW down on 6 June 2012 and that once the purpose was served, the Prime Bank Bills purchased that day could be offloaded. It says that this conversation can be treated as probative of Mr Roden's purpose. Ms Johnston's reference to "thanks jase" is to the error made by Mr Howell that day in buying too many Prime Bank Bills. Ms Johnston could not have known that this occurred unless she spoke to Mr Roden or to Mr Hosie, who were the staff employed on the STIRR desk at the time. ASIC also says that the evidence of Mr Conway and of Ms Johnston does not detract from the natural and ordinary meaning of the words used. ASIC says that Mr Conway did not remember the chat. He did not attempt to explain what he understood Mr Johnston to have meant by saying that they "want to offload" them, although in cross-examination he accepted that he understood this to mean that Mr Roden was intending to sell the Prime Bank Bills the next day. Mr Conway sought to emphasise that he did not do the trades, and did not know the reasons for trading. ASIC says that Ms Johnston also did not remember the chat. She suggested that the reference to wanting to offload them meant: I think I am referring to the fact that Group Treasury's Rate Set Exposure may not be large, and so would not necessarily need to be hedged by trading in Prime Bank Bills. However, STIRR may have credit limit issues that they need to clean up or Prime Bank Bills that the desk no longer wants to hold before the end of the "earlies" maturity period. 1559 In my view there is nothing in this chat which could support to the requisite degree a finding of manipulative purpose. Ms Johnston and Mr Conway dealt with the chat in their affidavit evidence and both were cross-examined on it. Their evidence, which I accept, is inconsistent with ASIC's case. First, when Mr Conway asked "Did we have any rate sets today?" he was asking about rate set exposures in the LTIRR book which he managed and which Ms Johnston was likely looking after in his absence. Second, Ms Johnston's comment "[h]uge set" was likely a reference to the substantial increase in 3 month BBSW or the volume of trading, rather than a reference to Group Treasury's BBSW Rate Set Exposure. Third, Ms Johnston's comment "[b]ut likely to go higher 2mos" was just recording the view of where it was thought BBSW would set the following day. Fourth, Ms Johnston's comment "I don't think they've got a big set but got heaps of stock they want to offload" was referring to STIRR wanting to sell Prime Bank Bills on 7 June 2012, for example, due to credit limit issues or to sell before the end of the "earlies" period.

7 June 2012 1560 It is convenient to deal with one other date being 7 June 2012. 1561 Although not a contravention date and outside the relevant period, ASIC contends that 7 June 2012 is a date that falls to be considered with 6 June 2012. I have considered the communications relied upon by ASIC in the context of the trading on 6 June 2012. For similar reasons, there is little basis for ASIC to contend that trading on 7 June 2012 occurred in accordance with the Rate Set Trading Practice.

Westpac's alternative explanations for trading 1562 Westpac's witnesses identified a number of likely commercial reasons for acquiring Prime Bank Bills on 6 June 2012, consistent so it was said with Group Treasury's core objectives in relation to managing funding, liquidity and interest rate risk. The likely reasons for such acquisitions on 6 June 2012 advanced by Westpac were the following: (a) First, maintaining Group Treasury's portfolio of liquid asset holdings given $3.953 billion worth of Prime Bank Bill holdings would mature in the month of June; (b) Second, deploying Group Treasury's $3 billion surplus cash position by acquiring Prime Bank Bills; (c) Third, hedging or reducing Group Treasury's net short outright interest rate risk position and net short rate set exposure to the 3 month BBSW. This was a particularly relevant consideration given the RBA's decision on 5 June 2012 to lower the cash rate by 25 basis points (and not 50 basis points as expected by the market and which had been priced into Prime Bank Bill yields) - meaning that Mr Roden would have expected the market to correct itself on 6 June 2012 through an increase in BBSW across all tenors. Purchasing Prime Bank Bills would reduce STIRR's exposure to the likely increase in rates and also serve to replace the BAB Futures hedge which Westpac was unwinding on 6 June 2012; (d) Fourth, taking advantage of value in the Bank Bill Market for 3 month Prime Bank Bills, given the market and commentators were generally expecting a reduction in the cash rate over the following three months which would flow through to lower Prime Bank Bill yields; and (e) Fifth, preserving the ability to deliver into the BAB Futures close out should Westpac choose to go into the close out with a short futures position (which it in fact did). 1563 Westpac also contends that Mr Roden was not seriously challenged on his evidence of the purposes for trading on 6 June 2012, and that the challenge, if any, was rebuffed. I am inclined to agree. Westpac referred to the following matters: (a) It was put to Mr Roden that he ended up buying more Prime Bank Bills on 6 June 2012 than he wanted because his buying was sacrificial in implementation of the Rate Set Trading Practice, which was denied. (b) It was suggested to Mr Roden that he was bidding with little regard to the volume he was purchasing, which was also rejected. (c) It was put to Mr Roden that if he was genuinely seeking to hedge he would have been paying closer attention to the volume he was acquiring, which Mr Roden rightly pointed out misunderstands how fast the Bank Bill Market operates. I tend to agree. One only needs to read some of the transcripts and listen to some of the calls to appreciate this. (d) It was put to Mr Roden that if he was genuinely seeking to hedge he would be heard in the transcript being satisfied with the emergence of genuine selling volume. But I am not sure how it is said this should have been expressed. Further, I consider that it is too simplistic to assert that merely because there was another genuine buyer, Mr Roden should have had no problem in buying more. (e) It was put to Mr Roden that his buying on 6 June 2012 and his selling on 7 June 2012, which is not an alleged contravention date, was part of the Rate Set Trading Practice, which Mr Roden denied. He pointed out that that week was a BAB Futures close out week and it was likely that trading on 6 and 7 June 2012 was related not only to reductions in risk positions but also dealing with a significant movement in Group Treasury's BAB Futures position. 1564 Now ASIC says that none of Westpac's witnesses proffered an alternative explanation for the trading which would dislodge the purpose contended for by it. 1565 ASIC says that Mr Zuber in his first affidavit suggested that Mr Roden's purchasing was consistent with "[b]uilding and maintaining the Bank's portfolio of liquid assets". Mr Roden also so suggested. But ASIC says that there are problems with this explanation. Mr Zuber accepted in cross-examination that there was no urgent need to buy Prime Bank Bills, based on existing inventory. Further, the fact that Group Treasury then sold a great number of Prime Bank Bills the next day suggests that they were not purchased on 6 June 2012 for liquidity purposes. Further, if the trading was simply about building and maintaining liquid assets, one would expect Mr Roden not to be especially upset with the broker for causing Mr Roden to acquire an additional $500 million Prime Bank Bills. 1566 Further, ASIC submits that Mr Zuber and Mr Roden both suggested that Mr Roden's trading was consistent with deploying excess cash held in USD. Yet Westpac was short so far as AUD is concerned. 1567 Further, ASIC says that Mr Zuber also suggested that Mr Roden's trading was consistent with attempting to acquire volume at a reasonable price, and with hedging outright interest rate risk. But again, so ASIC says, it is improbable that Mr Roden would be unhappy with Mr Howell for causing Westpac to acquire an additional volume of Prime Bank Bills, when that volume would have contributed to offsetting the outright interest rate risk and been similarly priced at a reasonable level. Nor would Mr Roden be unhappy about the emergence of genuine selling volume. 1568 Further, ASIC says that Mr Roden also suggested that buying Prime Bank Bills was consistent with "[p]reserving an ability to deliver into the BAB Futures close out". But it would have been open to Westpac to issue NCDs if it needed Prime Bank Bills for delivery. And the fact that Group Treasury went on to sell many of the Prime Bank Bills purchased on the next day suggests that it is implausible that they were bought the day before for delivery purposes. 1569 Perhaps there is some force in some of these observations by ASIC. But they still do not lead me to be comfortably satisfied that there was trading for a manipulative purpose. Throwing doubt on some alternative potential non-manipulative purposes hardly establishes the flip-side being ASIC's positive case of a manipulative purpose.

Other matters - effect or likely effect 1570 In relation to this contravention date, I will deal with the question of effect or likely effect later in my reasons.

(k) A pattern of conduct - Rate Set Trading Practice? 1571 ASIC submits that the evidence reveals a pattern of conduct by Westpac throughout the relevant period of having the purpose of affecting the rate at which the BBSW set when it suited Westpac to do so. It says that the evidence establishes a recognition by Westpac of its capacity to affect the BBSW and on the contravention dates that Westpac traded with the sole or dominant purpose of affecting the rate at which it set. It has referred to various communications from prior to and during the relevant period, which it says show that Westpac had the desire and intention to influence BBSW on days when it had a large BBSW Rate Set Exposure and would be financially advantaged by a movement in BBSW, that Westpac believed that it had the capacity to influence the rate at which BBSW set, consistent with objective evidence establishing that it in fact had the capacity to do so, and that it traded on the specific contravention dates with the sole or dominant purpose and the likely effect of affecting the rate at which BBSW set. As I have said above, in my view ASIC has only established such a dominant manipulative purpose on four of the contravention dates. 1572 ASIC also says that communications prior to and during the relevant period show that Westpac's pattern of manipulative trading predated the relevant period. It says that the communications evidence Westpac's recognition of its capacity to trade in a way that could affect BBSW and from time to time that its purpose was to do so. 1573 ASIC says that Westpac's traders credited themselves and each other when they appeared to achieve this purpose. I accept that this was so on the occasions that I have identified for the contravention dates, viz: (a) "I pushed the one month down …" [Mr Roden in phone conversation with Ms Johnston, 6 April 2010]; (b) "we got the one month down to 4.23 'cause we had a 13 or 14 yard rate set" [Mr Duignan in phone conversation with Ms Johnston, 7 April 2010]; (c) "looks like you're keeping the one month down" and "[y]ou're a force to be reckoned with" [Ms Johnston in phone conversation with Mr Roden, 8 April 2010]; (d) "like, today I got, you know, 1 month from everyone, 'cause I pushed the 1 month down right, it was gonna set at 30, right, and I got it down to 23" [Mr Roden in phone conversation with Ms Johnston, 6 April 2010]; (e) "I knew it was completely wrong but I thought f*** it, I may as well f*** it. We've got so much money on it, we just had to do it, right" [Mr Roden in phone conversation with Ms Johnston, 6 April 2010]. 1574 Of course, one must be careful with some of the other examples referred to by ASIC as they are equally consistent with traders crediting themselves or others with producing the beneficial effect of the relevant trading, rather than crediting themselves or others with successfully implementing a preconceived manipulative strategy. 1575 ASIC also says that the Rate Set Trading Practice was to some extent recorded in "instructive" contemporaneous communications from and to Mr Roden. Let me deal with these communications in the sequence and with the priority that ASIC gave them.

Email from Mr Roden to Mr Stokes, Mr Sharma and others sent on 15 August 2008 1576 In an email dated 15 August 2008, Mr Roden gave Mr Stokes, Mr Sharma, Bryce Lloyd and Ms Dawson instructions on how to trade in his absence while he was on vacation. He said: 1. can you check the "combined risk" spread sheet each and every day i am currently "massively short" september....happy to stay that way until as late as possible...last day if necessary...about 12,000 contracts 2. i think it will drop to mid 60's before close out...no one will want to take em, and our short possy will influence the price....we also want the 3 m physical rate up as we will have lots of receive rate sets so, on days when you can buy 3m bank bills (but try to get lots without pushing the price down) , so you have lotsa ammo to sell on receive days. 1577 ASIC says that the meaning of this email is clear on its face. When Mr Roden said "we also want the 3 m physical rate up as we will have lots of receive rate sets", he was instructing his staff that he wanted the rate at which the 3 month BBSW set to rise, because Group Treasury had long exposures, and would benefit if BBSW set at a higher rate. ASIC says that no other meaning can be given to "want[ing] the 3m physical rate up", and none is proffered by Westpac. That he wants the rate to rise higher as [they] will have lots of receive rate sets is, so ASIC says, unequivocal in expressing a desire to have the BBSW move up. 1578 Mr Roden then explains what should be done to give effect to this desire: "so, on days when you can buy 3m bank bills (but try to get lots without pushing the price down), so you have lotsa ammo to sell on receive days" (emphasis added). ASIC says that Mr Roden was instructing his staff to buy 3 month Prime Bank Bills to have "ammo" to sell on days when Group Treasury had a receive rate set exposure. 1579 ASIC says that Mr Roden used the term "ammo" in what is an established meaning in the Bank Bill Market, namely, the selling of physical Prime Bank Bills with the purpose of influencing where the BBSW set. I do accept though that there was conflicting evidence about this term. 1580 ASIC says that Mr Stokes' evidence in cross-examination was that he understood the statement "we also want the 3 m physical rate up as we will have lots of receive rate sets" to mean that "we have receive rate sets so if three-month goes up, we will benefit". And Mr Stokes accepted that Mr Roden was suggesting that they "buy three-month bank bills without pushing the yield down so that you can sell them on those days when you have receive rate sets". Mr Stokes suggested that this was part of a hedging strategy. 1581 ASIC says that Mr Sharma likewise accepted in cross-examination that the statement "we also want the 3 m physical rate up as we will have lots of receive rate sets" meant that "if the three month rate was up, it would - it would suit, because STIRR, if it had receive rate sets, it would receive more interest, I guess, all other things being equal in general terms". Mr Sharma then suggested that Mr Roden was merely suggesting to "have a sufficient amount of bills so that if it - if it's desirable to sell on days where you have receive rate sets, to reduce those exposures, you can do so". Mr Sharma suggested that Mr Roden was "quite clearly saying that if it's desirable to reduce your interest rate [ ] set exposures on those days, you have the stock available to sell, if it's desirable". 1582 ASIC says that Mr Roden's evidence in cross-examination about this email was evasive, and revealed an unwillingness to accept the obvious meaning of the words on their face. He did, however, agree that he was suggesting to staff that they should aim to sell on receive rate set trading days, and said that this was "to offset or minimise some of the risk associated with that", when he knew that selling on a receive day could have the effect of pushing the rate up. 1583 Mr Roden also said that by suggesting that his staff buy Prime Bank Bills "without pushing the price down" he was suggesting that they trade with "no great desire to cross spreads and purchase bank bills". ASIC says that it follows that Mr Roden was conscious at the time that he could push the rate down by crossing spreads and purchasing Prime Bank Bills. 1584 Generally, ASIC submits that Mr Roden's email revealed a strategy of trading with the purpose of trying to move the rate down on paysets and up on receive sets, which strategy ASIC says was intended to be, and was often, implemented. 1585 But I tend to consider that ASIC has overplayed its hand concerning this email. This email was sent during what has been described as the global financial crisis (GFC) at a time of significant market volatility. The context was that Mr Roden was going away for a period of approximately one month, and was informing the recipients of the email about STIRR's risk position (including its holdings of BAB Futures) and providing some guidance around how that position could be managed. 1586 Mr Roden stated in this email: … we also want the 3 m physical rate up as we will have lots of receive rate sets so, on days when you can buy 3m bank bills ( but try to get lots without pushing the price down) , so you have lotsa ammo to sell on receive days. 1587 But he was saying nothing more than, all else being equal, the following. First, it would be in Westpac's interest that 3 month BBSW be at a favourable level. Second, it would be preferable to avoid trading in a way that may put downward pressure on the rate ("try to get lots without pushing the price down"). Third, where there is liquidity, STIRR should purchase Prime Bank Bills where this would not put downward pressure on the yield, so that those Prime Bank Bills could be held and sold on days on which Westpac had received rate sets. 1588 Mr Roden also gave evidence that he would have considered it prudent to acquire Prime Bank Bills to ensure that there was sufficient stock to deliver into the BAB Futures close out particularly given the very large short BAB Futures position. 1589 Mr Roden was challenged in relation to this communication on the basis that the reference to "ammo" was consistent only with trading with a manipulative intent. But Mr Roden rejected that contention, and gave evidence that "ammo" was nothing more than a reference to a portfolio of securities. I do accept though that evidence of some of the NAB employees did, however, support ASIC's interpretation. Mr Roden was also challenged on the basis that the email makes no reference to hedging. But Mr Roden's explanation was that such a reference was not necessary amongst people trading Prime Bank Bills as it was well understood, and it was not necessary to write down minutiae of things that were well understood. I am not, in all the circumstances, prepared to reject Mr Roden's interpretation of this email and likewise the evidence of Mr Sharma and Mr Stokes to similar effect. It is not contradictory to ASIC's case thesis but it does not necessarily negate a non-manipulative purpose.

Email of Ms Johnston of 16 May 2011 to Westpac employees 1590 Further, ASIC says that the manipulative strategy was recorded again in Ms Johnston's email of 16 May 2011. I have referred to this earlier, but given how ASIC has sought to deploy it more generally, it is worth restating a few themes. Now ASIC says that it is important to notice the structure of this email and points to the following matters: (a) Ms Johnston commenced the email: "[j]ust a couple of things worth looking at in the leadup to the early June rateset madness". (b) Ms Johnston wrote: "Dec and March we had huge sets primarily against NAB on the 1st and 4th (or where the 4th rolls to) where they loaded us up with huge amounts of new paper, details below". ASIC says that this is language that would be adopted by a reluctant buyer, not one with genuine demand for Prime Bank Bills but instead a buyer interested in keeping or moving the rate down. I disagree. (c) The historic data was set out under the headings: "Date", "WBC Rateset" and "What we spent". Under each heading, the details for 1 and 6 December 2010 and 1 and 4 March 2011 were set out, with each line concluding with where BBSW had moved to and set. ASIC says that the language in this part of the email is also telling. ASIC submits that the language discloses that the focus of this part of the email was on what resources were required (i.e. what was spent) to effect a result (i.e. where BBSW set). But I would note that Ms Johnston in cross-examination said that "spent" and "purchased" are interchangeable. (d) Ms Johnston then identified the forecast BBSW Rate Set Exposures for 1 June 2011 and 6 June 2011. Ms Johnston then suggested "it may be worth doing some fras outright or as switches, ie pay 1/6 vs rec 3/6 etc". As I have indicated, this was a proposed hedging strategy. She also suggested "you may also want to look into seeing if anyone will pay for a swap switch … By doing the switch it wont change our outright position, just our ratesets". ASIC says this shows two things. First, that when referring to rate sets she is referring to something different from outright interest rate risk. I agree with that. Second, in the context of this email it shows that what she was focused on was the BBSW rate set. I would agree with that statement, albeit an incomplete one. (e) In her final paragraph, she set out an alternative strategy (as she accepted in cross-examination): "All that said, there will obviously be other shenanigans happening on the 9 June when we have a large REC rateset on the back of the FRA/OIS position, so you may want to keep some of the large sets on the 1st and 6th with NAB just to load up on paper so we can then churn it out on the 9th". ASIC says that this was a strategy to buy Prime Bank Bills to move the rate down on 1 and 6 June 2011 and sell them on 9 June 2011 to move the rate up. I disagree as I have already said. ASIC says that Ms Johnston agreed in cross-examination that this was the only strategy that might involve influencing the level at which BBSW set. I would note that Ms Johnston said that it was most likely the other strategies wouldn't affect where BBSW set, whereas the final alternative might because one never knew the impact of one's trading on BBSW. So her evidence in cross-examination was equivocal. 1591 ASIC submits that the shenanigans Ms Johnston knew would "obviously" be happening "on the 9 June when we have a large REC rateset" was the shenanigans that Westpac would be engaging in when it traded with the purpose of trying to increase BBSW on that day. I have already said that I disagree with this. 1592 ASIC also says that Mr Roden agreed in cross-examination that the strategy set out in Ms Johnston's email was what he had told Mr Sharma he was going to do in December 2010. I do not consider that ASIC can usefully leverage off such evidence. I have taken a different view to Mr Roden's conduct in December 2010 than what I think can be fairly gleaned from Ms Johnston's email of 16 May 2011 in terms of what she intended to mean by her email. 1593 I have already addressed the 16 May 2011 email. Let me recap. 1594 First, there are only a limited number of dates discussed. One would have thought that there would have been more dates discussed if there was a Rate Set Trading Practice that was being implemented. Indeed, on ASIC's case, 9 December 2010 should have been referred to in the email for example. 1595 Second, much of the email refers to hedging strategies. In one sense it is supportive of Westpac's position that one can trade in Prime Bank Bills to hedge, albeit imperfectly, BBSW Rate Set Exposure. And as I have said, Prime Bank Bills themselves are not purpose built hedging instruments such as FRAs, swaps etc. referred to in the email, and therefore are not expressly so described in terms. But their trading can provide a partial hedge against other exposures albeit imperfectly. So, to refer to trading in Prime Bank Bills in an email which discusses hedging is as equally supportive of Westpac's case as it is against it. 1596 Third, if this email was said to be referring in essence to the implementation of a Rate Set Trading Practice, the description about the movement in BBSW itself on the historical trading days identified in the email is little used by the author to show any such successful implementation.

Email from Mr Hosie to Mr Roden of 5 September 2011 1597 Further, ASIC says that Mr Hosie repeated the strategy in his email to Mr Roden of 5 September 2011. Mr Hosie's email recorded that on 5 September 2011, Westpac had: (a) prior to trading in the BBSW Rate Set Window a short rateset of $11 billion in the 1 month tenor, and had purchased about $650 million of 1 month Prime Bank Bills, and that the rate had set at 4.79; (b) bought $60 million of 3 month Prime Bank Bills to take its "holdings to an even 500m for thursday's receive"; and (c) "750m of room into tomorrows big pay 3s which should be fine. Can sell out the 170m of the longs also if needed". 1598 Mr Hosie's evidence in cross-examination was that by 5 September 2011 Westpac had accumulated $500m in 3mth Prime Bank Bills for Thursday's (8 September) "receive" and that selling into the receive set on 8 September 2011 was a "potential option … one of the variables that, yes, that would have been possible". 1599 Now I am not convinced that this 5 September 2011 email takes ASIC as far as it contends. 1600 Mr Hosie provided a summary of that morning's trading to Mr Roden. ASIC put to both Mr Roden and Mr Hosie that the reference in Mr Hosie's email to buying 3 month Prime Bank Bills "taking our holdings to an even 500m for thursday's receive. Also a buyer tomorrow…" was a reference to Westpac stockpiling Prime Bank Bills for the purpose of selling those Prime Bank Bills to manipulate BBSW. But both of them denied that characterisation in cross-examination. 1601 Mr Hosie also said that the 3 month Prime Bank Bills purchased on 5 September 2011, and which Mr Hosie anticipated may be bought on 6 September 2011, would form part of STIRR's inventory that would be available to sell to hedge the rate set exposure the following Thursday. He also identified that the following Thursday was 8 September 2011, which was a BAB Futures expiry date. He said that the upcoming BAB Futures expiry date was also a likely reason why he would have been building STIRR's inventory of 3 month Prime Bank Bills on 5 and 6 September 2011. I do not find that explanation implausible. 1602 ASIC also put to Mr Hosie that his reference to buying a "fair bit more than I was hoping" in the 6 month tenor demonstrated a disregard for the quantity that was being purchased, with regard only being had to the rate at which BBSW set. But Mr Hosie denied that characterisation. He said that in all likelihood he had inadvertently purchased more Prime Bank Bills than he had intended. He may have lost track of his purchases or there may have been a miscommunication with a broker. I agree with Westpac that there is little basis to infer from the fact that a greater quantity of Prime Bank Bills than intended was purchased, that the trading occurred for a manipulative purpose. 1603 Further, on 6 September 2011, Westpac: (a) had a paid BBSW Rate Set Exposure of $8.5 billion, [Rate set report email from Jian Xiao, 6 September 2011] (a "big pay 3s", as had been foreshadowed in the 5 September email); and (b) purchased $1.58 billion of 3 month Prime Bank Bills, [Internal Westpac email sent by Mr Hosie, 6 September 2011] which was 77% of the market volume that day. 1604 On 7 September 2011, Mr Hosie told Mr Roden that he had bought more Prime Bank Bills that day: it was a "good excuse to get a little more stock in" and that Jase (Mr Howell of ICAP) was "starting to talk it up for tomorrow, said ANZ came across the box saying he was set to buy an f load" [Email from Mr Hosie to Mr Roden, 7 September 2011]. ASIC says that the portions of this email in which Mr Hosie states that there "was a good excuse to get a little more stock in" and that Mr Howell was "starting to talk it up for tomorrow, said ANZ came across the box saying he was set to buy an f load", together with the fact that Group Treasury had a received rate set on 8 September 2011, indicate a manipulative purpose in respect of trading on that day. But in my view the communications are incapable of supporting such an inference. Mr Hosie was cross examined on this email, and gave evidence that from the email it appeared that he was happy at the rate at which he had bought stock on that day. And Mr Hosie was not cross-examined about trading on 8 September 2011, although I do not doubt that Westpac had a large received rate set exposure in the 3 month tenor on 8 September 2011 of $4.168 billion. Considering the foregoing, I do not consider that any of this demonstrates a manipulative purpose.

Email from Mr Roden to Mr Park on 29 July 2008 1605 Further, ASIC says that yet another example of the manipulative strategy is an email from Mr Roden to Mr Park on 29 July 2008 which recorded that Westpac had: (a) "accumulated" Prime Bank Bills "during paid rate sets"; (b) had then sold "as" (i.e. because) it "had receive sets"; and (c) credited itself for the movement in BBSW caused by selling Prime Bank Bills: "bbsw set high today … we were a large part of this … had accumulated about 1 bill" and "offered it up today …". 1606 ASIC referred to this as an example of Westpac "stockpiling" Prime Bank Bills to implement the Rate Set Trading Practice. But the email in my view doesn't establish the alleged practice. The email refers to nothing more than: (a) the larger volume of trading that occurs at the end of the month (due to the "earlies" and "lates" distinction); (b) that during the preceding week, Mr Roden had bought and sold Prime Bank Bills on days when his trading would not adversely affect Westpac's BBSW Rate Set Exposure; (c) that on 29 July 2008, Mr Roden started selling Prime Bank Bills, but changed his strategy to buying to take advantage of what he perceived to be good value, notwithstanding that such a strategy increased Westpac's rate set exposure ("despite havin[g] a big rate set today, we managed to buy…"); and (d) that Mr Roden had credit concerns regarding the Bank of Scotland and, having acquired Bank of Scotland Bank Bills on 29 July 2008, wished to sell that paper before it became illiquid after the conclusion of the "lates" period; so the context of the phrase "dont worry, they will be going out the door before month end…..have a $1bill receive tomorrow, so i think they might find a new owner at that time!".

Email from Mr Roden to Mr Whitfield of 30 January 2012 1607 Further, ASIC says that Mr Roden reported to Mr Whitfield (who did not give evidence): 3. What are we doing: … Spending money trying to get the BBSW rate set as low as possible in an attempt to reduce our cash bucket negative carry. 1608 It is said that this was a reference to Mr Roden buying Prime Bank Bills to get the rate at which BBSW set lower. It is said that Westpac could have taken other steps to offset or reduce its current and future BBSW Rate Set Exposures which would not have required "spending money". Now this email concerned positioning Group Treasury's interest rate risk in light of a possible cut in interest rates from the RBA. Now as to the statement "Spending money trying to get the BBSW rate set as low as possible in an attempt to reduce our cash bucket negative carry", it was put to Mr Roden that this sentence was referring to the level at which BBSW set, rather than Westpac's rate set exposure. But Mr Roden denied this characterisation. I agree with Westpac that when the phrase is considered in context, appreciating that the volume of liabilities setting off BBSW will add to the short outright interest rate risk in the cash buckets once BBSW sets, the reference to "BBSW rate set" is in my view as equally likely to be a reference to Westpac's rate set positions.

Telephone call between Ms Johnston and Mr Greg Ryan on 24 May 2010 1609 Further, ASIC says that Ms Johnston disclosed the same purpose in her call on 24 May 2010 to another Group Treasury employee, Mr Greg Ryan: Ms Johnston: … so, um, in our team here we manage BBSW and the rate set, so we actually, um, [pause] we kind of manage and monitor where BBSW gets set Mr Ryan: Yep Ms Johnston: and if we've got a large rate set and it's interest, the bank's interests to, umm, try and decrease that rate or something, Mr Ryan: Oh OK, yeah Ms Johnston: we kind of just oversee how that gets set Mr Ryan: Yeah Ms Johnston: … as well as a number of other banks. 1610 ASIC says that Ms Johnston was very clearly telling Mr Ryan that Westpac managed and monitored where BBSW got set. Ms Johnston was in plain terms referring to Westpac's interest in trying to "decrease the rate" and in overseeing how that same rate (the BBSW) got set. 1611 Now Ms Johnston had no recollection of this call. I am inclined to agree with Westpac that the conversation related to reporting in relation to rate set exposure. But it is also not inconsistent with the perception that trading in the BBSW Rate Set Window could affect where BBSW set. During the first part of the conversation, Ms Johnston referred to reporting on rate set risk on several of occasions: "this report shows us how much risk umm there is, um resetting on that date…" and "so, all we kind need is the data of um what the risk is on that day that we have resetting off BBSW". Mr Ryan then asked "and then if you see risk… and then you're looking to, like, reduce that risk, are you?". The remainder of the conversation seems to be a response to that question. Further, Ms Johnston stated that where she said "we manage BBSW and the rate set … we kind of manage and monitor where BBSW gets set", this could be understood as a reference to STIRR managing Group Treasury's BBSW Rate Set Exposure, which was consistent with the introductory part of the conversation that refers to rate set risk reporting. According to her, this was not an uncommon use of expressions like "manage BBSW" or "manage the rate set". Similarly, the reference to "decrease that rate" can be understood as a reference to the rate set (or the rate set exposure), referring back to the reference to "large rate set" earlier in that sentence. Ms Johnston gave evidence in cross-examination that in the relevant parts of the conversation she was referring to reducing rate set exposure. I am inclined to the view that when the conversation is considered as a whole, Ms Johnston's explanation is cogent and credible.

Telephone call between Ms Johnston and Mr Parker on 7 May 2010 1612 Further, ASIC says that Ms Johnston, as she told Mr Parker in a phone conversation on 7 May 2010, traded throughout the relevant period with the purpose of "try[ing to] keep it [BBSW] from getting too out of whack", and trying to do so without getting "run over". It says that Ms Johnston's purpose was to move or maintain BBSW in the direction that suited Westpac. It says that no sensible meaning can be attributed to her statement that does not involve seeking to affect the level at which BBSW set. 1613 Now this telephone call occurred prior to trading on 7 May 2010. Ms Johnston gave evidence that the reference to "keep it from getting too out of whack" was a reference to the possibility that Ms Johnston may buy or sell, depending on whether there were attractive bids in the market. Further, the reference to not wanting to be run over is a reference to the conventional meaning for that phrase in markets. In other words, Ms Johnston did not want to buy or sell Prime Bank Bills at yields which, with the benefit of hindsight, were bought or sold at unattractive rates. I do not consider that this communication confirms the Rate Set Trading Practice.

Voicemail from Ms Johnston to Mr Roden on 20 May 2010 1614 Further, ASIC says that Ms Johnston's unequivocal statements of her purpose for trading include her voicemail to Mr Roden on 20 May 2010: "1 month ticked up a point, um I tried to keep that down because we had a pretty decent rate set but there was quite a bit of resistance". The plain meaning of this voicemail has to be accepted: Ms Johnston was trading with the purpose of keeping the 1 month BBSW down because she had a pretty decent rate set. As I have already said, I agree with ASIC's case on this aspect. 1615 It is appropriate to say something about other communications relied upon by ASIC and the trading on those identified days.

Instant chat message between Mr Parker and Mr Roden on 5 June 2008 1616 Mr Roden said "IF WE WERE NOT THERE IT WOULD BE FFLAT TO PL US 20…" Mr Roden said that this was a reference to Westpac's ability to be both a buyer and seller in the Bank Bill Market, and to take advantage of mispricing until prices corrected. This was not challenged in cross-examination. Indeed, Mr Roden's cross-examination on this chat concerned a breach of the information barrier.

Email from Mr Roden to Mr Zuber and Ms Dawson sent 16 February 2009 1617 ASIC referred to this email as being a recognition on the part of Mr Roden of the susceptibility of the Bank Bill Market to manipulation. This communication was made in the context of a proposal to introduce a new form of futures contract which would be cash settled by reference to BBSW. In the email, Mr Roden identifies reasons why he considered that introducing such a contract would be a bad idea. The email is not otherwise concerned with the Bank Bill Market. Now the email referred to "manipulation". But Mr Roden gave evidence that this was a reference to the practice of some investment banks to buy or sell Prime Bank Bills at the market close (around 4.30 pm) only to reverse those transactions before being required to cash settle those transactions on the following day. Westpac reported its concerns about this activity to AFMA. In my view this is not a reference to manipulation of the type ASIC alleges in this case.

Emails between Mr Sharma and Ms Johnston on 21 October 2009 1618 This email exchange demonstrates little more than Mr Sharma informing Ms Johnston that the London desk had some large rate set exposures, and that these should be taken into account by STIRR. It goes nowhere.

Instant chat message between Mr Stokes and Mr Masters on 24 November 2009 1619 This communication contained general speculation about where BBSW might set. But neither Mr Stokes nor Mr Masters were trading on the STIRR desk at the time. Mr Stokes' statement that "we have natural interest to see lower rates all the time" is nothing more than the obvious. Westpac wanted to pay less interest on funds raised in the wholesale funding market. This is hardly a startling commercial proposition.

Email from Mr Roden to Ms Johnston sent 11 December 2009 1620 ASIC referred to this email as an example of a pattern of conduct by Westpac to manipulate BBSW. But its contents do not evidence such a practice. Mr Roden said that the portion of the email referred to by ASIC "we want the 6 months up as well…" was a reference to him wanting to sell Westpac's holding of six month Prime Bank Bills before they became illiquid on 15 December 2012. It was not a reference to the six month BBSW rate. Mr Roden explained that what he was communicating was that he wanted Ms Johnston to offer up the CBA Prime Bank Bills that Group Treasury then held because they were about to become illiquid and then to issue NCDs. And he wanted her to offer those Prime Bank Bills up or to raise money at a level that did not exceed more than 15 basis points over the zero curve, which at that time would have been a fair mid-value price.

Email from Ms Johnston to Mr Sharma sent 23 February 2010 1621 ASIC referred to this email as evidencing conduct by Westpac to manipulate BBSW. But Ms Johnston, the sender of the email, was not cross-examined on its contents. The portion of the email relied upon by ASIC referred to Westpac being "likely to loose cash on Friday and next week as we have some big rate sets…". Ms Johnston gave unchallenged evidence in her affidavit, based on her review of the email, that: (a) at this time Group Treasury had a long cash position; (b) STIRR would considering buying Prime Bank Bills to deploy that excess cash; and (c) in those circumstances, it was likely that STIRR would time the purchase of Prime Bank Bills to reduce its rate set exposure on upcoming days. 1622 Now it was put to Mr Sharma that Ms Johnston's email was referring to buying Prime Bank Bills in order to move the rate in a way that benefited Group Treasury, but this was not put to Ms Johnston. But in any event Mr Sharma denied this characterisation. I do not consider that this email assists ASIC.

Telephone call between Ms Johnston and Mr Sharma on 8 March 2010 1623 ASIC has referred to the statement by Ms Johnston to Mr Sharma that "it's been really low. Thanks - thanks to um Col" as indicating both a capacity and purpose to trade to influence BBSW. 1624 In cross-examination, Ms Johnston agreed that based on her comment it was likely that Mr Roden had been purchasing three month Prime Bank Bills and that this could have had an impact on the rate. But importantly Ms Johnston did not accept that this was what Mr Roden set out to achieve. She said "No, I don't know that that's the case". Ms Johnston's comment "So yeah it's been good" is innocuous. Ms Johnston did not accept that Mr Roden had been keeping the rate down, or that this comment indicated a belief that it was "good" that Mr Roden had been keeping the rate down. I agree with Westpac that the overall context of the conversation is important. Other portions indicate that the one month rate was also low, and that there was limited liquidity in the Bank Bill Market at that time. In that context, I am not able to infer from this conversation that Ms Johnston had any awareness of a manipulative purpose in respect of Mr Roden's trading at that time. But it is evidence of knowledge or perception that trading could affect where BBSW set.

Instant chat message between Ms Johnston and Mr Howell on 9 March 2010 1625 Ms Johnston said that this communication primarily concerned FRA pricing and contained nothing more than general encouragement from Ms Johnston's broker. I agree.

Telephone call between Ms Johnston and Mr Sharma on 10 August 2010 1626 ASIC relied upon the following exchange between Ms Johnston and Mr Sharma as being indicative of manipulative trading: Mr Sharma: Ah cool. That is really low. Good for you guys. Ms Johnston: Thanks to yours truly. 1627 Now it was put to Ms Johnston that this was an acknowledgement that Ms Johnston and others in Mr Roden's team had successfully traded to lower BBSW. But Ms Johnston did not accept this. In my view, it is difficult to discern anything specific about STIRR's trading in the Bank Bill Market from this communication alone. Ms Johnston was not entirely sure what Mr Sharma meant by the phrase "Good for you guys". Mr Sharma explained that this was a reference to the fact that banks are generally borrowers of money, so borrowing money at a lower rate is a good thing. Whatever Mr Sharma's explanation, I do not think that this communication significantly assists ASIC in showing manipulative purpose, as distinct from showing a perception that trading may affect or may have affected where BBSW set.

Email from Mr Sharma to Ms Johnston sent 29 October 2010 1628 This email contained some commentary on trading in the BBSW Rate Set Window. Ms Johnston said that the reference to "massive puke out in the set today" was a reference to the spike in other market participants selling 3 month Prime Bank Bills on the last day before those Prime Bank Bills became illiquid. 1629 I agree with Westpac that Mr Sharma's comment "i can smell the perfume from here" was nothing more than light-hearted banter. That comment is little basis to infer anything about Westpac's trading on the relevant day. Indeed, Mr Sharma had little, if any, visibility in respect of STIRR's trading at that time, being based in London. Mr Sharma denied that he was speculating that Ms Johnston was responsible for the move in the rate on that day. Ms Johnston was not cross-examined in respect of her trading on this date. This communication adds little to the matter.

Email from Mr Hosie to Mr Duignan and Mr Sharma sent 29 March 2011 1630 In this email Mr Hosie speculated about the trading of other participants in the Bank Bill Market, but the communication does not shed any light on Westpac's reasons for trading on 29 March 2011. Mr Hosie considered that purchasers of BNP Prime Bank Bills would seek to sell those Prime Bank Bills immediately after acquiring them. This was unsurprising given the credit concerns over BNP at the time.

Chats with Garfield Lee 1631 A large number of instant message chats with Mr Lee have been referred to by ASIC. It seems to me that these communications are for the most part light-hearted banter. They are of little probative value in assessing whether Westpac engaged in the Rate Set Trading Practice. On occasion they seemed to have involved some sort of game-playing, with Mr Lee perhaps seeking to obtain information from a competitor. As Mr Lee was not called to give evidence to explain these communications or his purpose behind them, it is appropriate for me to be circumspect about the meaning and context of these communications.

Bloomberg chat message between Mr Conway and Mr Lee on 15 April 2009 1632 At this time Mr Conway was working in Financial Markets and had no insight into Group Treasury's trading in the Bank Bill Market. For this communication and other communications between Mr Conway and Mr Lee, I am prepared to accept Mr Conway's version of the meaning and context to be given to these communications. 1633 Mr Conway was asked about his comment "ha. theres only 2 guys who pushit round likr that" He said that what he was referring to was that CBA and Westpac were the two biggest balance sheets in Australia so that when those two balance sheets entered the Bank Bill Market to trade, their activities were likely to be the ones that were moving the rate. He then gave the following more complete explanation: balance sheets have, you know, exposures that they need to hedge within risk limits and counter-party limits for credit. So they will enter the market to try and reduce their rate set exposure by buying and selling bank bills or using FRAs, for example, but for the best - the best hedge for a rate set exposure is to buy or sell a bank bill. Now, if for whatever reason they have large pays or receives, then they're going to have to try and do the best hedge they can. They're going to have to buy or sell a lot of bank bills. So that activity is what ultimately may have the second-order effect of moving the rate, if there's not as many people on the other side. 1634 It was put to Mr Conway, which he denied, that this chat showed that he suspected that Mr Roden was trading for the purposes of targeting the rate.

Bloomberg chat message between Mr Conway and Mr Lee on 29 June 2009 1635 In this chat Mr Conway noted that 3 month Prime Bank Bills were then trading at 3.18/3.14, down from 3.27 yesterday. It was put to him that when he later responded "y" to a comment from Mr Lee, he was bragging to Mr Lee about Westpac having moved the rate down. But, as Mr Conway pointed out, over 2 minutes had passed from the earlier comments, and his "y" was responding to a different comment from Mr Lee unrelated to BBSW. It was then put to Mr Conway that his comment "yeah weve had a cracker" was a reference to Westpac having moved the rate down. Mr Conway denied that it was, noting that he was in Financial Markets, had no idea who was trading and was not following the rate set process. He went on to explain that he was sitting on the derivatives trading desk within Financial Markets and his book was "long rates", that it appears rates had rallied and that he had made money on his derivatives book. But he had no idea what was going on in Group Treasury and would not have known if they had made a gain or a loss on the increase in rates.

Bloomberg chat message between Mr Conway and Mr Lee on 7 March 2010 1636 It was put to Mr Conway that based on Mr Lee's comment "is your new boss killing the rate set again?", he understood Mr Lee to be suggesting that Mr Roden traded to push the rate up or down. Mr Conway did not agree that he understood Mr Lee's comment as making that suggestion.

Bloomberg chat message between Mr Conway and Mr Lee on 12 March 2010 1637 Any comment in respect of STIRR's trading was speculation only. At this time, Mr Conway had no information or visibility in respect of Westpac's trading in the Bank Bill Market. Mr Conway denied that this communication revealed that he was aware that Mr Roden traded for the purpose of pushing the rate. I agree with Westpac that there is little basis to infer from this communication that Mr Conway had an awareness of manipulative trading by STIRR.

Bloomberg chat message between Mr Roden and Mr Lee on 12 March 2010 1638 Mr Roden and Mr Lee joked about the way in which CBA could be restructured to transfer responsibility for trading Prime Bank Bills from CBA's Financial Markets to CBA's Group Treasury. Mr Roden said: cases is easy….1. it is just another liability 2, your (ie treasury) ratesets with dwarf teh cba FM rate sets 3. teh goal is to get bbsw down as all your liabilities are set off it …FM s is usually to get it up…we are taliking massive dollars here 1639 Mr Roden's evidence was that as CBA was a competitor, he would not have provided any serious advice to Mr Lee about how to structure CBA's trading operations. To the extent that anything serious can be gleaned from Mr Roden's comments, it is little more than that Group Treasury and Financial Markets divisions may have had conflicting interests, that the interests of Group Treasury were more often than not for interest rates to set lower so as to reduce the costs of wholesale funding, and that the interests of Financial Markets were more variable. The communication does not take ASIC far.

Bloomberg chat message between Mr Roden and Mr Lee on 22 April 2010 1640 This communication contains little more than light-hearted comments about the sometimes volatile nature of the BBSW Rate Set Window.

Bloomberg chat message between Mr Roden and Mr Lee on 6 August 2010 1641 Mr Lee said: "I have no influence on BBSW at all….I just sit here hoping and praying like the rest of us that you won't run me over". It was put to Mr Roden that the phrase "run over" in this context implied something about manipulative trading, which was denied by Mr Roden. He explained the market meaning of the phrase: The definition in the market, just to be clear, for "run over" is someone buys securities and they trade through their price, and that happens all the time in every market. It's not unique to this market. 1642 I do not consider that I can infer anything probative about Mr Roden's trading practices from this communication.

Bloomberg chat message between Mr Conway and Mr Lee on 31 August 2010 1643 Mr Lee appeared to be speculating about the ways in which Westpac internally transfer priced risk from the variable rate home loan book to Group Treasury. At this time Mr Conway was a member of Group Treasury, having commenced in April 2010. Mr Lee speculated that the risk was priced 6-monthly on a single day and that this created an incentive for Group Treasury to push down 1 month BBSW twice a year. But this appeared to be speculation and rumour: "I'm gonna tell you all I have heard" and "anyway … that's what I have heard". The discussion was light-hearted. Moreover, Mr Conway did not agree with Mr Lee's speculation: "no way it is a rate setting priocess" and "I can telly uo that we dont rate set the asset side of the baklance sheet on a single day/month". Moreover, the only matter of substance put to Mr Conway in cross-examination was that the comment "you know cols first rule of [F]ight [C]lub" was a reference to not talking about the Rate Set Trading Practice. Mr Conway denied this and explained that what he was referring to was the general rule that Group Treasury members do not discuss trading activities with outside market participants. Further, Mr Conway noted in the chat that Mr Lee's speculation was wrong in any event. This communication does not assist ASIC.

Bloomberg chat message between Mr Conway and Mr Lee on 10 September 2010 1644 It was put to Mr Conway that his comment to Mr Lee "never trade for the sets!!" was a warning to Mr Lee not to trade because he might get "run over" by Mr Roden. But he denied that characterisation and explained that he was referring to the danger in entering into a two year swap, which is what the chat was about. His view was that the rate on the first quarterly leg of the swap would be advantageous given the phenomenon of higher rates that usually followed the futures close out, but it was more important to consider the remaining legs over the life of the swap. As to the exchange of comments "can't you ask sophie which way she is going prior to doing deals?" and "yeah i have all her ratesets", it was put to him that because he could see Ms Johnston's rate sets, he knew how she was going to trade on particular days, particularly to buy Prime Bank Bills to push the rate down. But Mr Conway said that he would not know how Ms Johnston was going to trade and that her trading would be based on what Group Treasury's overall risk position was, its view of the market, whether it was an RBA day and other matters. This communication does not take ASIC far.

Bloomberg chat message between Mr Sharma and Mr Lee on 16 September 2010 1645 Mr Sharma made comments regarding Mr Lee potentially taking on a new role in short-end Australian interest rate management trading in BAB Futures, FRAs, OIS and other products to manage short-term interest rate risk, but he did not consider it likely that Mr Lee would be trading Prime Bank Bills for CBA.

Bloomberg chat message between Mr Conway and Mr Lee on 23 November 2010 1646 As to Mr Conway's comment "it is open for ramping", it was put to him that he knew that the term "ramping" was used to mean trading Prime Bank Bills to influence where the BBSW set. But he said that he did not have that understanding. He explained his understanding of "ramping" as a descriptive word of price action, usually fast price action in a small amount of time. In my view, the chat is of little value. Moreover, his view of the term "ramping" was within the range of meanings given to the term. I accept his evidence.

Bloomberg chat message between Ms Johnston and Mr Lee on 25 November 2010 1647 Mr Lee appears to have been joking about Westpac's trading in the Bank Bill Market having an effect on where BBSW set, but Ms Johnston did not consider those comments to be serious. I accept her interpretation.

Bloomberg chat message between Mr Roden and Mr Lee on 25 November 2010 1648 Mr Roden's comment "welcome to teh world of trying to fund ands keep the rate down at the same time!", refers to the obvious tension between wanting to borrow at the lowest rate and the upward pressure that can be caused to the rate by issuing Prime Bank Bills to raise funding. This communication adds little.

Bloomberg chat message between Mr Roden and Mr Lee on 10 February 2011 1649 Mr Roden stated: [T]hey will want to load you up with illiquid risk….in size….at mid market…tell em they are dreaming … you cant do that unless you have control over BBSW…to protect yourself … Or else you get run over 1650 This part of the communication was made in response to a comment by Mr Lee that he might be running a "single currency basis book". In that context, Mr Roden's statement addressed the way in which risk could be managed in such a book, and was a reference to the fact that if Mr Lee had access to Prime Bank Bill trading, he would be in a better position to mitigate his risk. Mr Roden denied that his comment was concerned with the rate at which BBSW set. The communication also contained the statement from Mr Roden that "i wouldnt go near an aussie basis book without bbsw control". Again, the context of this statement is important. Mr Roden explained the meaning of this comment as follows: That basically means if you get - an Aussie basis book is a book that's going to give you floating rate exposures in Aussie dollars, pay and receive sets, and my view is I wouldn't manage a book like that unless I had some methodology to mitigate some of my risk, because bank bills is really the only efficient mechanism for doing that. There are other mechanisms, but they're inordinately expensive and they throw up other risks. 1651 On balance, I am prepared to accept Mr Roden's explanation.

Bloomberg chat message between Mr Roden and Mr Lee on 25 March 2011 1652 This communication contained general comments about Westpac's structure. When its context is appreciated, I do not think that it assists ASIC. It was put to Mr Roden that this communication indicated that Mr Roden had "control over the BBSW rate set", but he explained that the communication concerned Group Treasury's control over client Prime Bank Bills, which were managed by Group Treasury as another asset, which was different from other banks, saying: And what you're telling Mr Lee is because of the mandate you had from the bank to be consistently buying bank bills and being able to fund as you chose, you had control over the BBSW rate set, didn't you? - Sorry, your Honour, that's a misinterpretation. What that actually means is within Westpac, Westpac Treasury bought all the client bank bills from the Institutional Bank, whereas most of the other banks sold those bank bills into the marketplace. And what we did is we managed that as just an asset - another asset of the bank, and we issued our liabilities in a fashion that didn't necessarily match up with our bank bills, generally because a lot of those bank bills are short-date and we want to borrow longer-dated tenors in our funding, because funding is - funding and liquidity are Treasury's number 1 and most important goals and this is a manifestation of that, which is different to some of the other banks where we actually do buy all the assets of the bank, including the bank bill loan customers, and we hold them within Treasury and we fund how Treasury needs to fund, which is generally of a much longer tenor than what those bank bills are.

Other Bloomberg chat messages between Mr Roden and Mr Lee 1653 ASIC has also relied on other instant chat messages between Mr Roden and Mr Lee which did not relate to trading in the Bank Bill Market, but appeared to be relied upon to demonstrate that Mr Roden and Mr Lee had an intimate relationship. ASIC suggested that Mr Roden had a closer relationship with Mr Lee than he was willing to admit. But I am inclined to the view that the communications between Mr Roden and Mr Lee do not establish that there was a close relationship. Mr Lee was a large customer of WIB (Westpac Institutional Bank), and Mr Roden was asked to respond to Mr Lee's requests. Mr Roden's communications can be understood in that context. Indeed Mr Roden seemed to consider Mr Lee to be as he described it "a serial pest".

Some Statistics 1654 On the final day of the trial and at the heel of the hunt, Mr Borsky QC for ASIC served up an aide memoire purporting to summarise the number of days during the relevant period (546 business days) that Westpac had a short BBSW Rate Set Exposure and a summary of its trading. It is useful to reproduce that information, noting that when ASIC refers to Westpac's BBSW Rate Set Exposure, it has only used the "PRM+ALM" exposure and not the aggregate Group Treasury exposure, i.e. it has used column F and not column J figures from the schedules to the SOAF as I have discussed earlier, which is a deficiency. Table 1. 522 days of 546 business days during the relevant period Westpac had a short exposure in the 1 month tenor. Short Average % Average Trading No. of days Buy 80% 420,535,211.27 426/522 days Sell 37% 135,863,636.36 22/522 days

70 days no trading, 4 days buy/sells offset each other Table 2. During the relevant period, in the 1 month tenor, Westpac had a short exposure which was greater or equal to $2b on 359 days of 546. Short Average % Average Trading No. of days Buy 81% 474,009,584.66 313/359 days Sell 20% 86,666,666.67 12/359 days

31 days no trading, 3 days buy/sells offset each other Table 3. During the relevant period, in the 1 month tenor, Westpac had a short exposure which was greater or equal to $5b on 123 days of 546. Short Average % Average Trading No. of days Buy 87% 658,915,254.24 118/123 days Sell 13% 66,666,666.67 3/123 days

2 days no trading Table 4. During the relevant period, in the 1 month tenor, Westpac had a short exposure which was greater or equal to $10b on 35 days of 546. Short Average % Average Trading No. of days Buy 89% 875,342,857.14 35/35 days Sell 0% - -

1655 ASIC explained that: (a) The first column represents the direction of trading (buying or selling). (b) The second column represents Westpac's trading volume expressed as an average percentage of the market. (c) The third column represents Westpac's average trading volume, that is, the total amount of 1 month Prime Bank Bills purchased by Westpac during the relevant period divided by the number of days when Prime Bank Bills were purchased. (d) The fourth column represents the number of days when Westpac only purchased or only sold 1 month Prime Bank Bills. 1656 Putting to one side the deficiency in the use of column F figures rather than column J figures, the following may be noted. First, Westpac was a large buyer of Prime Bank Bills on most days when it had a short BBSW Rate Set Exposure. But it was also a significant seller of Prime Bank Bills on some days when it had a short BBSW Rate Set Exposure. Further, on some days when it had a short BBSW Rate Set Exposure it did not even trade. The tables are consistent with the variable and different reasons for why and how one might trade for or against or neutrally in respect of BBSW Rate Set Exposure. Second, the tables present correlation statistics, rather than demonstrate causation. But I agree that they show a general pattern of buying Prime Bank Bills on days when there was a short BBSW Rate Set Exposure, with the trend being more pronounced the larger the exposure. Third, the tables are not inconsistent with Westpac's thesis that one could trade Prime Bank Bills to hedge rate set risk or for other non-manipulative purposes. I have taken this data into account in my overall assessment. And true it is that it might be said to support ASIC's position. But I do not consider that it is sufficient taken with all of the other evidence to comfortably satisfy me that Westpac engaged in the Rate Set Trading Practice. 1657 Further, I should say more generally that although I have separately analysed each piece of evidence referred to above and in previous sections of my reasons, I have considered the totality of the evidence including considering each item of evidence in the context of the other evidence and weighing its probative value in that light. As one will appreciate, this has involved a complex iterative process to ensure that each item and the evidence in its totality has been properly assessed and reassessed.

(l) Interim conclusions 1658 I have accepted ASIC's case that on the four occasions identified (6 April 2010, 20 May 2010, 1 December and 6 December 2010) Westpac traded for the dominant purpose of manipulating the BBSW. And in doing so I have attributed to the corporate entity an individual state of mind, i.e. that of the traders. Why is that so? 1659 Lord Thurlow in 1778 succinctly expressed the point that a corporation has "no soul to damn, no body to kick". Strictly, corporations are mindless. Accordingly an individual state of mind needs to be attributed to the corporate entity, particularly where one is focused upon the motivation or purpose for an action. But whose? 1660 I have said elsewhere that the conventional approach has been to identify the individual who was the "directing mind and will" of the corporation in relation to the relevant act or conduct and to attribute that person's state of mind to the corporation. But after the injection of flexibility into that concept by Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506 to 511, metaphors and metaphysics have had diminished utility. First, there are no longer the rigid categories for identifying the "directing mind and will" that may be perceived to have existed after Viscount Haldane LC's use of the phrase in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 at 713 and indeed after Tesco Supermarkets Ltd v Nattrass [1972] AC 153 until Meridian. Second, and relatedly, the appropriate test is more one of the interpretation of the relevant rule of responsibility, liability or proscription to be applied to the corporate entity. One has to consider the context and purpose of that rule. If the relevant rule was intended to apply to a corporation, how was it intended to apply? Assuming that a particular state of mind of the corporation was required to be established by the rule, the question becomes: whose state of mind was for the purpose of the relevant rule of responsibility to count as the knowledge or state of mind of the corporation? (see Bilta (UK) Ltd (in liquidation) v Nazir (No 2) [2015] 2 WLR 1168 at [41] per Lord Mance). The question is one of the interpretation of the relevant rule taking into account its context and purpose. Now once you have asked and answered that question and identified the individual in question, you may then apply the title of "directing mind and will". But so to proceed adds little to the analysis. The label "directing mind and will" is nebulous if not question begging. It also follows that if you use such a label, then it will have variable application even within the same corporation depending upon the particular context and function of the relevant rule of responsibility. And as soon as one admits of that variability, the advantages in using the label become illusory, except to distinguish such a person who can be identified with the corporation from a person for whose acts the corporation is merely vicariously liable (Bilta at [70] per Lord Sumption). I agree with Lord Walker of Gestingthorpe who suggested that it might be better if the label "directing mind and will" was allowed to fade away (see Moulin Global Eyecare Trading Ltd (in liquidation) v Commissioner of Inland Revenue [2014] HKCFA 22 at [106]). 1661 In the present context, the relevant rule of proscription that I have to consider is that enshrined, inter-alia, in ss 1041A and 1041B. Now, of course, they do not directly refer to questions of purpose let alone dominant purpose. Moreover no mens rea concepts need to be imported from elsewhere (see generally Australian Securities and Investments Commission v Whitebox Trading Pty Ltd (2017) 251 FCR 448). Nevertheless, given the observations in Director of Public Prosecutions (Cth) v JM (2013) 250 CLR 135, concepts of dominant purpose loom large at least concerning s 1041A and in the way ASIC has framed its case. 1662 It is sufficient to say for present purposes that in terms of s 1041A and given its focus on a transaction(s), the relevant state of mind is that of the individual person who instigated and carried out the particular trade. Given the freedom of choice and discretion given to Westpac's traders, it seems to me that relevantly for present purposes it is the state of mind of each of Mr Roden and Ms Johnston in relation to their respective trading that should be so attributed to Westpac in relation to the trading in the Bank Bill Market on the contravention dates. 1663 As I say, by attributing their state(s) of mind to Westpac, in my view Westpac traded for the dominant manipulative purpose on the four occasions specified. 1664 Let me say something further at this point on the question of alternative explanations. For particular contravention dates and as should be clear from the above discussion, Westpac raised possible alternative explanations for its conduct. ASIC says that this raises a question as to onus of proof. ASIC says that it has adduced sufficient evidence to show that on each of the contravention dates Westpac traded with the sole or dominant purpose of influencing the BBSW. In such circumstances it says that the evidential burden shifted onto Westpac to make good its alternative explanations. ASIC has relied on Campbell J's observations in Hawksford v Hawksford (2005) 191 FLR 173; [2005] NSWSC 463 at [54] and [55], where he explained: The distinction between an onus of proof and an onus of adducing evidence is of particular relevance in the present situation. Where party A has the legal onus of proving a negative proposition, and relevant facts are peculiarly in the knowledge of party B or where party B has the greater means to produce evidence relating to those facts, then provided party A establishes sufficient evidence from which the negative proposition may be inferred, party B then comes under an evidential burden, or an onus of adducing evidence … I conclude that in the present case the plaintiffs bear the legal onus of proving that there is no retainer given by the second and third defendants, but that (in the words of Hunt J in Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corp): provided that the plaintiffs have established sufficient evidence from which the negative proposition may be inferred, the defendant carries what has been called an evidential burden to advance in evidence any particular matters with which (if relevant) the plaintiffs would have to deal in the discharge of their overall burden of proof … the plaintiffs' burden of proof of the negative proposition for which they contend is not as difficult in this case as it might otherwise have been because of the defendants' greater means to produce evidence which contradicts that proposition. 1665 ASIC says that Westpac did not discharge its evidentiary onus, and that at its highest Westpac's evidence only showed that its trading was potentially consistent with one or more of a raft of Group Treasury functions or objects. ASIC says that in the absence of any recollection or contemporaneous records to support any of the potential purposes proffered, Westpac could do no more than speculate that its trading decisions might potentially have borne the character of a rational commercial decision. But ASIC says that even if the trading might be said to be consistent with certain commercial imperatives of Group Treasury, this did not detract from the contemporaneous evidence which disclosed, so ASIC says, that Westpac's actual purpose for trading on the contravention dates was a manipulative purpose. Further, it says that none of the contemporaneous communications identify or point to any of the alternative purposes with which Westpac now contends its trading may have been consistent. 1666 Further, ASIC says that a particular course of trading may be driven by the relevant impugned purpose whilst also potentially bearing the character of a rational commercial decision. ASIC says that any potentially consistent commercial rationale says nothing about the purpose that in fact exercised the mind of the relevant trader on the particular contravention date. 1667 Further, ASIC says that Westpac pleaded a positive case that it traded for one or more of various legitimate and rational commercial purposes on each of the contravention dates. Accordingly, ASIC says that it was incumbent upon Westpac to substantiate them, but that it has failed to do so. 1668 I would say now that in my view the legal and evidentiary onus to establish a manipulative purpose on any and each of the contravention dates starts and finishes with ASIC. 1669 And for the four contravention dates (6 April 2010, 20 May 2010 and 1 & 6 December 2010), ASIC has discharged its onus to establish a dominant manipulative purpose. Westpac's alternative hypotheses as to the purposes for trading did not rise to the level of negating ASIC's case. 1670 But for those contravention dates where ASIC did not discharge its onus, it was not because Westpac persuaded me of the merits of its alternative hypotheses for trading. Rather, ASIC failed because it did not comfortably satisfy me on the material as to the existence of the impugned dominant purpose that it had contended for. But if, contrary to what I have said, the evidentiary onus shifted to Westpac on those contravention dates, then that onus was discharged by Westpac establishing reasonably open hypotheses for trading for a non-impugned purpose(s) on those contravention dates. 1671 Finally, I do not accept that there was the Rate Set Trading Practice throughout the relevant period of the type contended for by ASIC. I say this for a number of reasons. 1672 First, there was no formal or informal Westpac system or general practice to manipulate yields or BBSW. 1673 Second, it seems to me that when one carefully analyses each of the contravention dates, the purposive behaviour to manipulate was quite ad hoc. It seems to have been done on only a few occasions when all other relevant strategic conditions were satisfied such as good value, liquidity, cash position etc. and when all the stars aligned in terms of all relevant factors informing the decision to trade or not trade, or to trade in one way as opposed to another. This was so notwithstanding that it was sometimes possible to forecast with varying degrees of accuracy some components of BBSW Rate Set Exposures well in advance of trading. But such knowledge is only one aspect. 1674 Third, to take a few occasions and to then dolly them up in the pleader's formalistic finery of "Rate Set Trading Practice" in my view is not sustainable, even considering the few occasions with the totality of the evidence. 1675 Fourth, whose state(s) of mind or conduct is to be considered in terms of formulating and implementing such a Rate Set Trading Practice? Surely not Mr Zuber's state of mind or conduct. He gave credible and reliable evidence that there was no such practice as far as he was concerned. ASIC's case necessarily fails if it is based upon his state of mind or conduct. In my view, for ASIC to succeed it has to fall back to the state(s) of mind and conduct of Mr Roden and Ms Johnston. But as I have indicated, the evidence only rises to showing a relevant manipulative purpose and conduct on four occasions during the relevant period of some two years. This is nowhere sufficient to establishing the Rate Set Trading Practice over the relevant period in terms of purpose and conduct. I am not comfortably satisfied in drawing the conclusion that ASIC has contended for. And to be clear, I am not just considering the contravention dates in making that assessment, but have considered all of the evidence during and outside the relevant period including incentives and opportunities to manipulate, and also market perceptions. 1676 Fifth, true it is that the Bank Bill Market and BBSW were potentially susceptible to manipulation. True it is that market participants perceived the BBSW to be potentially manipulable. True it is that there were financial incentives that occasionally arose to manipulate. I say occasionally because there were a host of other financial considerations and incentives that needed to be considered for each trading day, some of which were in tension with each other. But when one analyses in detail what was going on, manipulative trading of the type under discussion seems to have been actually engaged in on very few occasions. This is understandable when one appreciates the considerable complexity, which I have set out earlier in my reasons, attending the reasons and choices as to why traders might or might not trade on particular occasions and in particular ways. Now reputations, posturings and perceptions of market participants as to manipulative trading are one thing, no doubt fuelled by ego, ignorance or suspicion depending upon who was saying what to whom. But when you analyse the detail, the occasions seem to me to have been quite ad hoc. 1677 In summary, I do not accept ASIC's Rate Set Trading Practice plea. Now such a pleading construct has little relevance to the s 1041A claims outside transactions on the contravention dates. It seems to have been more designed for the misleading or deceptive conduct and unconscionable conduct claims with also a late amendment adding in claims under s 1041B. I will discuss all of these claims shortly. But before doing so it is now necessary to discuss questions concerning the objective effect or likely effect of the impugned trading. After all, the text of s 1041A says nothing expressly about dominant purpose. In its textual expression, it is focused upon effect or likely effect.

TRADING AND PRICE IMPACTS 1678 I now propose to descend into the depths of some evidence directed to microeconomic theories, market microstructure theories and quantitative forensic analysis adduced by ASIC concerning the effect of Westpac's trading on Prime Bank Bill yields and BBSW. I have modified some of the notation used by the experts relating to quantitative empirical evidence for simplicity and lay out purposes. The context for this evidence is provided by the following assertions of ASIC. 1679 ASIC says that on any business day in the relevant period, the purchase by a participant in the Bank Bill Market of Prime Bank Bills in a particular tenor in sufficient volumes during the BBSW Rate Set Window was likely to: (a) deplete the supply of Prime Bank Bills in that tenor for sale in the Bank Bill Market during the BBSW Rate Set Window; (b) as a result of subparagraph (a), cause Prime Bank Bills in that tenor to trade at a lower yield during the BBSW Rate Set Window; (c) as a result of subparagraph (b), cause the BBSW panellists' views submitted to AFMA of the mid-rate of the yield for Prime Bank Bills in that tenor to be lower than they otherwise would have been; and (d) as a result of subparagraph (c), cause the BBSW for that tenor to be set by AFMA at a yield lower than it would otherwise have been. 1680 Conversely, ASIC says that on any business day in the relevant period, the sale by a participant of Prime Bank Bills in a particular tenor in sufficient volumes during the BBSW Rate Set Window was likely to: (a) increase the volume of Prime Bank Bills in that tenor for sale in the Bank Bill Market during the BBSW Rate Set Window; (b) as a result of subparagraph (a), cause Prime Bank Bills in that tenor to trade at an increased yield during the BBSW Rate Set Window; (c) as a result of subparagraph (b), cause the BBSW panellists' views submitted to AFMA of the mid-rate of the yield for Prime Bank Bills in that tenor to be higher than they otherwise would have been; and (d) as a result of subparagraph (c), cause the BBSW for that tenor to be set by AFMA at a yield higher than it would otherwise have been. 1681 Accordingly, ASIC has submitted that the purchase or sale of Prime Bank Bills on any business day in the relevant period by Westpac in sufficient volumes during the BBSW Rate Set Window was likely to affect the setting of the BBSW for the relevant tenor on the relevant day. 1682 Now ASIC contends that economic theory demonstrates that trading during the relevant period by a participant in the Bank Bill Market for the sole or dominant purpose of affecting the BBSW rate set had or was likely to have the intended effect. It contends that the expert evidence supports the drawing of an inference that Westpac's trading affected or was likely to affect the rate at which BBSW set. 1683 Westpac has denied such assertions and challenged the expert evidence led by ASIC. 1684 ASIC has relied on the evidence of Professor Talis J Putnins, a professor of finance at the University of Technology Sydney. He is said to be an authority in the field of market microstructure, a sub-discipline within financial economics that includes the design and functioning of financial markets, including how and why market participants trade, how trading affects prices, and what determines market liquidity. He obtained a PhD from the University of Sydney, which relevantly dealt with reference price manipulation, the definition, detection and effects of market manipulation, its distinction from legitimate trading, the strategies used in market manipulation, and what makes markets or securities more/less susceptible to market manipulation. His published research over the past 10 years has focused on market manipulation and the effect of trading on price and liquidity within a market. Professor Putnins' evidence addressed how microeconomic theory and market microstructure theory provide a foundation for concluding that the Bank Bill Market operated relevantly similarly to many other markets, in that increases in volumes of supply or demand were likely to affect the price quoted or traded for Prime Bank Bills. 1685 In his evidence he also developed a model for estimating the economic effect of Westpac's conduct on contravention dates, by estimating a regression of the daily change in Prime Bank Bill yields (the dependent variable) on the signed volume of trading in the Bank Bill Market (the independent variable). ASIC says that such analysis confirmed that Westpac's conduct was very likely to have affected BBSW in moving or maintaining BBSW differently from where it would have set in the absence of Westpac's conduct. I will say now that I was unconvinced by such modelling. 1686 Westpac called Mr Simon Leslie Bishop, a British applied economist and managing partner of RBB Economics, a specialist consultancy in the field of competition law. Mr Bishop's expertise relates to the intersection of economics and competition policy, and he has co-authored many reports for British and European Union competition authorities. This is in addition to extensive consulting work as a competition economist for private industry and national competition authorities over 25 years. He disputed Professor Putnins' evidence. But ASIC contends that, unlike Professor Putnins, he did not have any relevant depth of experience in market manipulation nor in the Bank Bill Market or banking generally. It submitted that to the extent that Mr Bishop disagreed with aspects of Professor Putnins' evidence, his lack of relevant expertise and specialised knowledge diminished the force of his evidence. Now I have taken this into account. But having said that, Mr Bishop was adequately qualified to comment on and address the particular theories and their application.

(a) Microeconomic analysis 1687 Professor Putnins gave the following evidence. 1688 The standard microeconomics of supply and demand illustrates how prices and volumes in a market adjust to selling by market participants. As shown in Figure 1 below, Panel A illustrates outcomes in the Bank Bill Market in the absence of a particular bank ("Bank X"). Banks other than Bank X have an aggregate demand curve D0 showing the quantities of Prime Bank Bills they are willing to buy at different prices. The demand curve is downward sloping because at higher prices, Prime Bank Bills are more expensive and therefore less attractive to buy so fewer banks are willing to buy them or given banks are only willing to buy smaller quantities. Now for illustration purposes, the supply and demand curves are represented as linear functions, but linearity is not a necessary condition for the conclusions drawn from Professor Putnins' analysis. Other shapes, as long as demand is decreasing in price and supply is increasing in price at the margin, lead to the same conclusions. Banks other than Bank X have an aggregate supply curve S0 showing the quantities of Prime Bank Bills they are willing to sell at different prices. The supply includes selling of Prime Bank Bills held in inventory and any new Prime Bank Bills that would be issued. The supply curve is upward sloping because at higher prices, selling Prime Bank Bills becomes relatively more attractive and therefore more banks are willing to sell them or given banks are willing to sell larger quantities. Figure 1 - The effect of sales ("selling") on prices, supply/demand, and quantities. 1689 The market arrives at an equilibrium price of P* at which a quantity Q* of Prime Bank Bills is traded. This is the point where the supply and demand curves (S0 and D0) intersect. The banks willing to buy at or above price P* end up buying Prime Bank Bills from the banks willing to sell at or below price P*. 1690 But as Professor Putnins posited, consider what happens in the presence of selling by Bank X. Suppose Bank X sells a quantity of Prime Bank Bills QSELL=Q1 - Q0 at market prices at those prices at which other banks willingly buy from Bank X. The selling by Bank X pushes the supply curve from S0 horizontally to the right QSELL units to the new supply curve, S1. The point at which this new supply curve intersects the demand curve is the new market equilibrium. The selling by Bank X decreases the price at which Prime Bank Bills are traded in the Bank Bill Market from P* to P1. It also increases the total quantity of Prime Bank Bills traded from Q* to Q1 because at the lower price of P1 other banks are willing to buy a larger quantity (given by the downward sloping demand curve). Of the total traded quantity, Q1, Bank X sells quantity Q1 - Q0 and other banks sell quantity Q0 (the supply curve of other banks, S0, indicates that at a price of P1 they would sell quantity Q0). The larger the quantity sold by Bank X, QSELL, the larger the decrease in price caused by Bank X's selling, the higher the overall traded volume in the Bank Bill Market, and the larger Bank X's share of volume (Bank X's share is (Q1 - Q0 )/Q1 and as QSELL increases, Q1 increases and Q0 decreases). 1691 Now Prime Bank Bills in the Bank Bill Market are traded in terms of yields rather than prices. But this does not change the microeconomic analysis above because prices and yields of Prime Bank Bills are inversely related. So, as Professor Putnins said, one can equivalently think about trading in terms of prices or yields, recognising that they are inverses of one another. Therefore, the microeconomic analysis set out above shows that selling on the Bank Bill Market causes Prime Bank Bills to trade at lower prices and higher yields. 1692 From the microeconomic analysis of supply and demand in the Bank Bill Market, Professor Putnins concluded the following about the likely effects of selling on the Bank Bill Market. First, selling by a participant on the Bank Bill Market decreases the price at which Prime Bank Bills trade, increases the yield at which Prime Bank Bills trade, increases the volume of Prime Bank Bills for sale, and increases the volume of Prime Bank Bills traded. Second, the larger the quantity of Prime Bank Bills sold by a participant on the Bank Bill Market (both in absolute terms and as a fraction of the total volume), the larger the decrease in price and increase in yield caused by the participant's selling. 1693 Further, according to Professor Putnins, the standard microeconomics of supply and demand also illustrates how prices and quantities in a market adjust to buying by market participants. As shown in Figure 2 below, Panel A again illustrates outcomes in the Bank Bill Market in the absence of a particular bank ("Bank X"). Banks other than Bank X have an aggregate demand curve D0, showing the quantities of Prime Bank Bills they are willing to purchase at different prices, and an aggregate supply curve S0, showing the quantities of Prime Bank Bills they are willing to sell at different prices. The supply includes selling of Prime Bank Bills held in inventory and any new Prime Bank Bills that would be issued. The market arrives at an equilibrium price of P* at which a quantity Q* of Prime Bank Bills is traded; this is the point where the supply and demand curves (S0 and D0) intersect. The banks willing to buy at or above price P* end up buying Prime Bank Bills from the banks willing to sell at or below price P*. Figure 2 - The effect of purchases ("buying") on prices, supply/demand, and quantities. 1694 Now consider what happens in the presence of buying by Bank X. Suppose Bank X buys a quantity QBUY = Q1 - Q0 at market prices at those prices at which other banks willingly sell to Bank X. The buying by Bank X pushes the demand curve from D0 horizontally to the right QBUY units to the new demand curve of D1. The point at which this new demand curve intersects the supply curve is the new market equilibrium. The buying by Bank X increases the price at which Prime Bank Bills are traded in the Bank Bill Market from P* to P1. It also increases the total quantity of Prime Bank Bills traded from Q* to Q1 because at the higher price of P1 banks are willing to supply a larger quantity (given by the upward sloping supply curve). However, the buying by Bank X also depletes the supply available to other banks for purchase. Bank X buys quantity Q1 - Q0 and other banks buy quantity Q0, which is less than they would have otherwise bought. 1695 From the microeconomic analysis of supply and demand in the Bank Bill Market, Professor Putnins concluded the following about the likely effects of buying on the Bank Bill Market. First, buying by a participant on the Bank Bill Market increases the price at which Prime Bank Bills trade, decreases the yield at which Prime Bank Bills trade, depletes the supply available to other participants for purchase, and increases the volume of Prime Bank Bills traded. Second, the larger the quantity of Prime Bank Bills bought by a participant on the Bank Bill Market (both in absolute terms and as a fraction of the total volume), the larger the increase in price and decrease in yield caused by the participant's buying. Therefore, buying by a participant on the Bank Bill Market in sufficient volumes is likely to have a material effect on the yields at which Prime Bank Bills trade on the Bank Bill Market (decreasing the yields) and the volume of Prime Bank Bills traded on the Bank Bill Market (increasing volume). 1696 Professor Putnins posited that when prices are not constrained by minimum increments, even the smallest amount of buying or selling has an effect on the price. In practice, however, yields of Prime Bank Bills in the Bank Bill Market have minimum price increments of one basis point and therefore very small amounts of buying and selling could have an effect that is too small to be observed as it does not result in Prime Bank Bill yields or BBSW changing by the minimum increment. Professor Putnins defined a material effect to be one that is measurable and observable, recognising that Prime Bank Bill yields/BBSW have minimum increments. He said that the notion that small effects may or may not be observable when a variable has minimum increments can be understood through an analogy. Suppose one measures the temperature in a room, a continuous variable, using a digital thermometer that displays readings in units of 1°C and so rounds to the nearest 1°C. A small temperature increase of say 0.2°C might not lead to an observable change in the thermometer's reading; for example, if the true temperature rises from 22.1°C to 22.3°C the thermometer will read 22°C before and after and the increase is not observable due to the coarse scale. But a temperature increase that is less than 1°C can have an observable effect in some instances; for example, if the true temperature rises from 22.4°C to 22.6°C the thermometer reading will increase from 22°C to 23°C, an observable increase. Temperature increases that are larger than 1°C will always have an observable effect on the temperature reading. Therefore, sufficiently large temperature increases will always be observable, while small increases may or may not be observable. Similarly, so Professor Putnins said, with yields of Prime Bank Bills and the level of BBSW measured on a discrete scale. Sufficiently strong pressure on the price from buying or selling in sufficient quantities will have an observable and thus material effect, whereas small amounts of pressure on the price may or may not have an observable effect. 1697 Further, according to Professor Putnins, microeconomic analysis also indicates that trading in larger volumes has greater impact on prices/yields. It follows, therefore, that buying or selling in volumes that exceed a particular threshold (sufficient volumes) will lead to material price/yield impacts. So he took the notion of sufficient volumes to mean the amount of buying or selling volume that is likely to have a material impact on the prices/yields of Prime Bank Bills. His later empirical analysis of trading on the Bank Bill Market estimated the sensitivity of Prime Bank Bill yields/BBSW to trading volume and was, so he said, able to quantify "sufficient volumes" on the Bank Bill Market.

(b) Market microstructure analysis 1698 Before I turn to the analysis of Professor Putnins' theories on microeconomics, I should at this point introduce market microstructure theory and Professor Putnins' analysis thereof which was said to be consistent with and to reinforce his views concerning microeconomics. 1699 According to Professor Putnins, market microstructure theory of the trading process provides a foundation for why trading causes prices to move in the direction of trading, that is, why buying causes prices to increase and selling causes prices to decrease. The field of market microstructure deals with the design and functioning of financial markets, including how and why market participants trade and how trading affects prices and volumes. Mathematical models of the trading process, known as market microstructure theory, it is said assist to understand the functioning of financial markets and how prices are determined. It is said that market microstructure theory extends the microeconomic analysis by: (a) considering trading as a dynamic process in which prices evolve through time from the interaction of buy and sell order flows; (b) incorporating realistic features of market structure such as distinct bid and offer prices at which trades occur, with a "passive" and "active" side to each trade; and (c) accounting for a variety of different trading motivations including informed trading, uninformed trading (e.g. hedging or diversification), and liquidity provision or market making obligations. The "passive" side of a trade (also known as the "liquidity provider") is the counterparty that provided the quote to either buy or sell a given quantity at a given price, whereas the "active" side of a trade (also known as the "aggressor" side of the trade, the trade "initiator" or the "liquidity demander") is the counterparty that accepted the standing quote of the counterparty to buy or sell. 1700 Professor Putnins explained that market microstructure theory identifies three main reasons why trades have "price impact". The expression "price impact" means trades that cause prices to move in the direction of trading, i.e. buying causes prices to increase and vice versa, and is sometimes also referred to as "market impact". The first reason identified is the information contained in trades. If some traders are more informed about the "fundamental value", i.e. what the security would be worth if everyone knew all the relevant information or the likely price of the security at a future point in time, than other market participants, then buys will signal that the security is likely to be under-priced and sells will signal that the security is likely to be over-priced. This is because informed traders will buy when the price is too low and sell when the price is too high relative to their belief about the fundamental value, so other participants adjust upward their beliefs about the security value following buys and vice versa for sells. This process, known as "price discovery", is how prices come to incorporate information about the value of the underlying asset. It applies even if the informed traders are not perfectly informed and even if market participants do not know which traders are informed. The information possessed by the informed traders can take many forms, including beliefs formed through fundamental analysis using pricing models to estimate the value of a security, beliefs formed through forecasting of the factors that affect the security price, knowledge of their own likely future trading of the security or the trading of other market participants, prices of other related securities, and so on. 1701 Professor Putnins gave evidence specifically directed to the Bank Bill Market that assuming market participants could not perfectly discern which trades were informed and which were not, which he said was likely to be the case given that Bank Bill Market participants regularly trade for a number of different reasons, trades are likely to, on average, have price impact irrespective of the underlying motivation for the trade and irrespective of whether it is informed or not. That is, trades that are undertaken to hedge risks, trades that are undertaken to meet short term funding needs, trades that are undertaken because of views about where the market will be in the future, trades undertaken for the purpose of affecting the price, and trades undertaken for other reasons, are all (so Professor Putnins asserts) likely to have price impact. In fact, some trade-based market manipulation (manipulation using trades to influence prices) exploits the inability of market participants to perfectly discern the underlying motivation behind individual trades. 1702 The second reason identified in market microstructure theory for why trades have price impact is inventory management by liquidity providers. Consider a market in which some traders participate in the market primarily for the purpose of liquidity provision (also known as "market makers"), that is, they post quotes to buy and sell thus providing liquidity to other traders, and seek to earn the difference between the prices at which they buy and sell. For liquidity providers, carrying inventory of the underlying security (either long or short) is risky and therefore undesirable because if the underlying security price changes, the liquidity providers make a loss or a gain on any inventory. 1703 The risk faced by a liquidity provider when holding inventory has two implications for the price impact caused by trades. First, liquidity providers will charge a premium to compensate them for this risk, known as the "inventory holding risk" component of the bid-offer spread, creating another source of immediate price impact for trades. Second, liquidity providers will adjust quotes following trades to attract offsetting trades in an attempt to manage their inventory position and risk. After buys (trades in which the liquidity provider is the seller), liquidity traders are likely to adjust their quoted bid and offer prices upwards to attract sells (trades in which the liquidity provider is the buyer), and vice versa following sells, causing trades to have price impact. 1704 This process of inventory management is also likely to cause price impact in markets where there are no traders whose sole purpose for trading is liquidity provision or market making, but some traders act as liquidity providers either opportunistically or in addition to trading for other reasons. Professor Putnins opined that the Bank Bill Market is an example of such a market. Prime Banks, as an ongoing condition of accepting Prime Bank status, have obligations (set out in the relevant AFMA conventions) to act as market makers. Further, opportunistic liquidity provision occurs when an imbalance between buyers and sellers puts temporary pressure on the price (upward pressure if the number of buyers exceeds the number of sellers and vice versa) causing traders that would not have otherwise traded to take the opportunity to sell at high prices or buy at low prices. Traders react to the opportunities created by temporary price pressure because it is profitable to trade against the price pressure. When traders provide liquidity, either opportunistically or due to obligations arising from their status as a Prime Bank, they face the same inventory management challenges as market makers and consequently are likely to adjust their quotes in a similar manner to manage their inventory positions and risk. 1705 Professor Putnins said that while pure market makers (traders with the sole or dominant purpose of acting as liquidity providers) often target an inventory of zero, Prime Banks that act as market makers in the Bank Bill Market in addition to their other reasons for trading Prime Bank Bills are likely to have an optimal inventory that differs from zero and reflects the other reasons for trading Prime Bank Bills (e.g. managing their short-term funding needs). The same mechanism of inventory management described for market makers applies when the optimal inventory is different from zero. For example, suppose Bank X is at its optimal inventory of Prime Bank Bills in a particular tenor and suppose that inventory level is long $1 billion, but Bank X continues to post bid or offer quotes as part of its market making obligations or for the purpose of opportunistic liquidity provision. When a buy order for say $100 million from a different market participant arrives and trades against the posted quotes of Bank X, Bank X's inventory falls from the optimal $1 billion to less than the optimum ($0.9 billion). In order to get its inventory back towards the optimal level, Bank X has to buy more Prime Bank Bills of the same tenor, which it can do by attracting sellers by setting higher quoted prices or lower quoted yields. 1706 The third reason identified in market microstructure theory for why trades have price impact is fixed order processing costs and "rent extraction" by liquidity providers. "Rent extraction" means earning a rate of return or profit that is not commensurate with the time/effort/risk involved in the economic activity and occurs in the absence of strong competition. Strong competition can drive economic "rents" to zero such that market participants earn only fair compensation for the time/effort/risk involved in the economic activity. Liquidity providers on the Bank Bill Market, whether they provide liquidity opportunistically or as a result of their market making obligations, are likely to face costs for processing a transaction, including trading fees, back office work, time, and so on. But liquidity providers would want to be compensated for these costs and that compensation typically occurs through the bid-offer spread - by buying at higher prices / lower yields and selling at lower prices / higher yields. In the absence of strong competition, liquidity providers can extract economic rents (excess profits after accounting for the risk and capital involved) by setting bid-offer spreads wider than they would be in the face of strong competition. Fixed order processing costs and rent extraction therefore contribute to the bid-offer spread and thus the immediate (temporary) price impact of trades. 1707 Now Professor Putnins also noted two features of the price impact mechanisms that he described. 1708 First, price impacts from the information contained in prices are permanent (they are not reversed) whereas price impacts from inventory management and order processing costs / rent extraction are temporary (they are reversed some time after the initial price impact). Professor Putnins said that both permanent and temporary price impacts are relevant in determining the effect of trading by Bank Bill Market participants on the BBSW because during the relevant period the BBSW was set using BBSW panellists' views of the mid-rate of the yield of Prime Bank Bills at 10.00 am, irrespective of whether the mid-rates were affected by temporary or permanent price impact. Also, according to Professor Putnins, both types of price impact are exploited in market manipulation strategies that target reference prices because a manipulator only needs to maintain a price at an artificial level temporarily at the time the reference price sets. 1709 Second, both trade prices and quoted prices are affected by the price impact mechanisms. Quotes adjust after trades to account for both the information content of the trades and the inventory management actions of liquidity providers. And even before trades occur, quotes reflect the liquidity provider's compensation for the three components described earlier of informed trader risk, inventory holding risk, and order processing costs. Trades typically occur at the quoted prices and therefore both quotes and trade prices reflect all three of these price impact components. 1710 In summary, according to Professor Putnins, market microstructure theory also indicates that buying or selling by a participant in the Bank Bill Market in sufficient volumes, which in my view is a question begging phrase, is likely to have a material effect on the prices/yields at which Prime Bank Bills are quoted and traded including mid-rates. 1711 So, according to Professor Putnins, the price impact mechanisms in market microstructure theory are consistent with, and complementary to, the microeconomics of supply and demand. So, market microstructure theory provides reasons why the supply curve would slope upwards, which implies that additional buying or expansions of demand will result in higher prices and lower yields, and the demand curve slopes downwards, which implies that additional selling or expansions of supply will result in lower prices and higher yields. According to Professor Putnins, both theoretical frameworks arrive at similar conclusions about how buying and selling affects prices.

(c) Analysis of Professor Putnins' theories 1712 Now as Mr Bishop correctly pointed out in my view in relation to microeconomic theory, Professor Putnins provided a partial equilibrium analysis only. Professor Putnins did not take into account competitor responses in the Bank Bill Market, which would limit the ability of any one market participant to influence Prime Bank Bill yields, BBSW observations and therefore BBSW. 1713 Mr Bishop accepted that a firm's actions by buying or selling more of a product may affect its price, but he said that the microeconomic analysis presented by Professor Putnins may be inappropriate for assessing outcomes in the Bank Bill Market. Professor Putnins assumed that the supply (or demand) by all others bar a particular bank ("Bank X") is the same at any given price regardless of what Bank X chooses to supply (or demand). But as Mr Bishop pointed out, this is rarely likely to be the case. In most oligopolies, which characterises most real world markets, including the Bank Bill Market, the pricing and hence supply decisions of each firm would affect and be affected by the pricing and supply decisions of other market participants. Mr Bishop said that Professor Putnins did not take these competitor responses into account when addressing the relationship between Prime Bank Bill trading, Prime Bank Bill yields and BBSW. I tend to agree. 1714 As Mr Bishop said in evidence, if trading by one Prime Bank led Prime Bank Bill yields to be mispriced, this would also be likely to generate large volumes of trading in the opposite direction, as other Prime Banks sought to take advantage of Prime Bank Bills being mispriced, and this would, in turn, push Prime Bank Bill yields back to their former levels. Such an incentive to buy or sell at mispriced yields would be likely to apply to all Prime Banks, given the opportunity to profit from yields being mispriced or to buy or sell at favourable rates. 1715 Mr Bishop said that, for example, the divergence of the price from its fair value would lead other market participants to increase their purchases for Prime Bank Bills, to take advantage of the low price, or decrease their selling of Prime Bank Bills, to avoid selling at the low price. This would tend to push the price back towards its fair value. 1716 By way of example, as Mr Bishop gave, suppose that market participants expect Prime Bank Bills to trade at 4.00 per cent given their expectations of, for example, the RBA cash rate, the credit risk premium for Prime Banks, and the cost and availability of alternative funding, such as overseas borrowing. Suppose further that additional trading by Bank X temporarily drives the Prime Bank Bill yield down from 4.00 per cent to 3.95 per cent. The divergence of the yield from its fair value would lead other market participants to increase their sales of Prime Bank Bills, to take advantage of the ability to borrow cash at the low yield, or decrease their buying of Prime Bank Bills to avoid investing cash at the low yield. This would push the yield back towards its fair value. In theory, this trading by other participants could offset the actions of Bank X. 1717 Mr Bishop cogently demonstrated, in my view, how competitive responses would at least limit the impact of an attempt by any one competitor to drive yields up or down. He illustrated the importance of these competitive responses with reference to standard economic models of oligopoly. These models take into account the interactions between firms and how this interaction may affect the outcome of competition. This approach reflects the fact that in most markets, firms recognise that changes in their behaviour, including how much of a good they plan to supply, may affect the decisions of other firms in the relevant market, and they will take this into account when making their commercial decisions. For the Bank Bill Market, the trading by one Prime Bank that led yields to be mispriced would be likely to lead to competitive responses by other participants. 1718 Now in this context Mr Bishop referred to a branch of economics known as non-cooperative game theory which directly addresses the strategic interaction between firms. It is worth lingering on this for a moment. Non-cooperative game theory models competition between firms as each one trying to do the best that it can subject to the actions of its competitors. A key concept in non-cooperative game theory is that of the Nash non-cooperative equilibrium. A non-cooperative Nash equilibrium occurs when, given the behaviour of all other firms in the market, no firm wishes to change its behaviour. 1719 One of the standard oligopoly models of competition is the Cournot model. This model considers the optimal quantity supplied by each firm given the quantity supplied by the other firm, which is called the "reaction function". 1720 Mr Bishop used the Cournot model with just two firms solely to illustrate the impact of competitor responses. The reaction function for Firm 1 (R1) is the profit-maximising quantity that it supplies given the quantity supplied by Firm 2. The reaction function for Firm 2 (R2) is the profit-maximising quantity that it supplies given the quantity supplied by Firm 1. Mr Bishop presented the reaction functions as downward-sloping. This implies that if one firm increases the quantity that it supplies, all else being equal the price decreases, which makes it less attractive for the other firm to supply. 1721 Figure 3 below shows the non-cooperative Nash equilibrium for the Cournot model, which is at the intersection of the two reaction functions. At the equilibrium, the quantity supplied by each firm is such that both firms choose a profit-maximising quantity given the quantity supplied by the other firm. If Firm 1 were to increase its quantity this leads to the out of equilibrium situation shown in Figure 4. As shown in the figure, Firm 2's best response would be to reduce the amount that it supplies. Figure 3: Market equilibrium scenario Figure 4: Market out of equilibrium scenario

1722 Figure 3 shows the normal competitive equilibrium in a Cournot setting. Both firms in the industry choose the optimal volume to supply given the volume supplied by the other firm. Figure 4 shows that manipulation would lead to an out of equilibrium situation. Instead of supplying a volume equal to Q1*, Firm 1 has instead chosen to increase its supply to Q1. Given this quantity supplied by Firm 1, Firm 2 has decreased its supply to Q2. However, the volume supplied by Firm 1 is suboptimal. Given that Firm 2 has now chosen to supply Q2, Firm 1 would be better off supplying Q1' as shown by its reaction function. 1723 Mr Bishop drew out the following two points. First, manipulation in the form of oversupply by Firm 1 leads to a non-equilibrium outcome. Mr Bishop did not expect such a situation to be sustainable because of the competitive response that it would induce from Firm 2. Second, the competitive response from Firm 2 partially offsets the additional supply from Firm 1 and so mitigates the impact of that oversupply on prices. 1724 Now while the standard Cournot model assesses quantity supplied by firms, it can also be applied to the quantity demanded. Similar reaction functions can be drawn as in Figure 3 and Figure 4 above. As Mr Bishop said, instead of interpreting the reaction functions as the optimal quantity supplied by each firm given the quantity supplied by the other firm, they can be interpreted as the optimal quantity demanded by each firm given the quantity demanded by the other firm. Similar to the discussion of "overselling" above, "overbuying" by one firm, say Firm 1, would lead to an out of equilibrium situation. It would also lead the other firm, Firm 2, to reduce its quantity demanded thus partially offsetting the impact on the Prime Bank Bill yield from overbuying by Firm 1. 1725 A further complication in the Bank Bill Market arises from the fact that market participants can act as both sellers and buyers. But as Mr Bishop said, the Cournot model described above is still of relevance to understand the out of equilibrium situation that arises from overselling and overbuying, and also the way in which reactions from other firms in the industry are likely to partially offset the impact of overbuying or overselling by any one firm. 1726 Mr Bishop opined that these competitive reactions are one reason why even if Westpac wanted to influence Prime Bank Bill yields and the BBSW, that may not be achieved in practice. 1727 Now Professor Putnins acknowledged in another part of his evidence that market responses were important to determining whether manipulation was possible. Professor Putnins stated that: For example, suppose Bank X intended to push yields of PBBs up by selling large quantities of PBBs on the BBM. Once yields start to rise (prices fall) from Bank X's selling, buying PBBs becomes attractive to other market participants because PBBs are temporarily trading at prices that are below their natural levels (yields that are higher than their natural levels). Bank Y might want to exploit the opportunity by buying PBBs from the seller, Bank X. 1728 But Professor Putnins suggested that market participants would be constrained by trading and position limits: However, once Bank Y buys a sufficient quantity of PBBs from Bank X such that it hits its position limits (either in terms of general interest rate exposure or exposure specifically to Bank X) it can buy no more. At that point, Bank Y ceases to act as an opposing force to Bank X, who can then more easily drive up the yields of PBBs. 1729 Now Mr Bishop accepted that in theory this argument might hold, but only if other banks knew when their competitors were likely to be constrained. Moreover, it is not sufficient (for Professor Putnins' point to be valid) that only one bank is constrained, but that all banks other than the market manipulator are. 1730 Mr Bishop also said that if other participants were similar to Westpac with respect to how Prime Bank Bills contributed to their overall interest rate risk, and the credit limits they generally had against each other, this suggests that they would not be constrained in responding to "additional volumes" from Westpac. Generally, I am inclined to the view that credit risk limits, interest rate risk limits and liquidity risk limits although of course relevant were unlikely to sufficiently constrain competitive responses. 1731 Further, Mr Bishop said that the strength of likely competitive responses also marks an important difference between this case and other cases such as the manipulation of LIBOR, which involved some coordination between traders at different banks. The LIBOR scenario involved alleged collusion between traders at different banks on their submissions to make as part of the benchmark rate set process. The EURIBOR manipulation also involved an alleged euro interest rate derivative (EIRD) cartel in which banks were alleged to have colluded on EIRD pricing elements and to have exchanged sensitive information. Mr Bishop said that the coordination aspect in those cases presented a potential way in which there could be a deviation from the genuine forces of supply and demand, but importantly for present purposes, that element of coordination was missing in the present case. Of course, ASIC does not in the present case suggest any collusion or coordination between the Prime Banks or other participants in the Bank Bill Market to manipulate yields or BBSW. Indeed the evidence before me suggests that each participant during the relevant period engaged in hard fought trading in its own interests, with attempts to game each other from time to time. There is little doubt that the Bank Bill Market was a robust workably competitive environment, although this does not entail that it was not from time to time susceptible to manipulation. 1732 Let me deal with another point that Mr Bishop addressed that had some force. 1733 Professor Putnins' theories are dependent upon the concept of sufficient volumes. This is a key threshold question, given that trading in the Bank Bill Market took place in blocks of Prime Bank Bills of, generally, $20 million or more and given that once volume had been taken up at a particular yield, more Prime Bank Bills could be made available at the same yield. This question is also significant given the importance of assessing the likely effect on Prime Bank Bill yields and BBSW from any increment of volumes associated with manipulation as opposed to all Westpac trading on a particular day. 1734 As Mr Bishop explained, Figure 5 and Figure 6 below show the impact of the shifts in the supply and demand curves modelled by Professor Putnins, but this time assuming that there are flat sections in the demand curve when modelling a shift in the supply curve and flat sections in the supply curve when modelling a shift in the demand curve. This assumes that market participants will demand or supply Prime Bank Bills in blocks of volume and only large changes in volume will lead to a change in yield. Figure 5: Market with increased sales Figure 6: Market with increased purchases

1735 As shown in Figure 5 above, an increase in supply does not lead to any change in price (or yield) so long as market participants are willing to continue buying Prime Bank Bills at the prevailing price. Similarly, as shown in Figure 6, an increase in demand does not lead to any change in price so long as market participants are willing to continue to supply at the prevailing price. In these examples, only a sufficiently large change in supply that leads to a new equilibrium on a lower part of the demand curve, or a sufficiently large change in demand that leads to a new equilibrium on a higher part of the supply curve would lead to a change in price. These figures are consistent with the way in which the Bank Bill Market operated. If a market participant buys from existing orders made available in the broker channel, they would not know how much they would need to buy in order to shift the price. They can only observe the lowest price (i.e. the highest yield) at which they can buy on the broker screen, and they do not know by how much, if at all, the price will increase (i.e. the yield will fall) if they purchase all the volume that is made available. This is an important point and contrary to Professor Putnins' analysis, which claims that trading will always have an effect on price but sometimes that effect is too small to measure. In the examples shown above, there is zero effect on price over certain volumes, not just an effect that is too small to measure. These figures show that small changes in supply and demand are unlikely to have a price impact. 1736 In summary, I largely accept Mr Bishop's analysis on these aspects. 1737 In my view, Professor Putnins' evidence that all buying pushes prices up and all selling pushes prices down, reflected in his conclusion that "the consensus in the empirical academic literature is trades cause price impact and that this is a universal phenomenon", does not hold in the Bank Bill Market as a matter of course. 1738 I agree with Westpac in relation to trading in Prime Bank Bills that in terms of looking at whether the best bid or the best offer changes, that will depend upon whether the buying exhausts the volume offered at the best offer or the selling exhausts the volume bid at the best bid. In other words, the best bid or the best offer will not necessarily change as a result of buying or selling at a particular yield. You have to consider the question of the volumes bid or offered and whether they will be exhausted by consummated transactions or whether the balance of the order for the non-exhausted volumes is cancelled. 1739 Further, because trades on the Bank Bill Market can only take place at the best bid or best offer, then buying or selling Prime Bank Bills will not necessarily change the yield/price from that of the preceding trade or change the yield/price of the next trade that occurs in the market. Professor Putnins had to fall back on the proposition that buying or selling would affect the volume weighted average yield/price over a period of time, but not incrementally the yield/price of any given trade. In my view that fall-back position does not significantly assist ASIC's case. 1740 Moreover, Professor Putnins' opinion was qualified by the concept of trading in sufficient volumes having a price impact. But he did not provide substantial assistance in how to determine sufficient volumes. Now Professor Putnins did accept in cross-examination that he used the term sufficient volumes to mean the volume sufficient to exhaust the volume bid or offered at the best bid or offer so as to change the bid/offer spread. But as Westpac pointed out, this demonstrated circularity in this part of his evidence. The issue to be determined is whether Westpac's trading on each alleged contravention date caused the best bid/offer spread to change so as potentially to impact BBSW. The opinion expressed that trading in sufficient volumes to move the bid/offer spread will cause a price movement does not significantly advance the analysis. 1741 Further, it may be accepted that increases in traded volumes impact price. But a single firm may not necessarily have an impact on the market, principally because there may be competitive reactions of other market participants. But I accept that competitive reaction to manipulative conduct may be imperfect and delayed, and there remains an opportunity to influence the rates at around 10.00 am. There may be difficulties in relation to market participants quickly identifying and reacting to aberrant trading. And as I have said more generally elsewhere, the Bank Bill Market and BBSW were potentially susceptible to manipulation. 1742 In summary, in my view there are significant difficulties with a wholesale adoption of Professor Putnins' theories. At a high level of theory he has made some good points, but I have significant doubts about taking his theories and finding in relation to Westpac's specific trading on a particular contravention date the requisite effect or likely effect that ASIC has contended for.

(d) Quantitative empirical evidence 1743 Professor Putnins also provided his own quantitative empirical analysis. 1744 He gave evidence that a large number of empirical studies have analysed how prices respond to trading and have quantified price impact functions. It is said that these studies consistently find support for the notion that trades have price impact, with buying causing prices to increase and vice versa. Such empirical studies have established various empirical features of price impact. For example, larger trades both in absolute volume and as a proportion of daily volume have larger price impact but at a diminishing rate, price impacts have temporary and permanent components consistent with market microstructure theory, and price impacts are larger in smaller and less liquid securities but nevertheless present in even the largest and most liquid securities, including large capitalisation stocks and foreign exchange markets. By "diminishing rate", Professor Putnins meant that the impact of each additional unit of volume in a given direction is smaller than the previous unit; for example, if buying a volume X pushes the price up an amount Y, buying twice as much (a volume of 2X) pushes the price up less than twice as much (more than Y but less than 2Y). 1745 Professor Putnins also said that the empirical support for the notion that trading impacts prices is so consistent and widely accepted that recent empirical work on price impact has now turned its attention to precisely characterising the functional form of price impact curves, i.e. how much price changes in response to trades of different volume. Moreover, apparently several studies in this line of research have found that when the right functional forms are used, price impact curves of many different assets seem to consistently follow a universal price impact curve. Professor Putnins says that this suggests that the way trading impacts prices in different markets and different securities is governed by the same statistical rules and a common theoretical basis. I would say now that in my view that assertion was overly ambitious. Moreover, I would note that the empirical literature, such as it exists, did not directly deal with the Bank Bill Market and its complexity. I am not here dealing with the simplicity of a market for trading in widgets. 1746 Generally, according to Professor Putnins, the consensus in the empirical academic literature is that trades cause price impact and that this is a phenomenon that holds in a large number of different markets and securities. But notwithstanding this so called "consensus", Professor Putnins nevertheless found it necessary to conduct and did conduct his own empirical analysis of how trading on the Bank Bill Market affects the prices/yields of Prime Bank Bills and the BBSW. The main conclusions he drew from his empirical analysis were as follows: (a) There is very strong evidence (a high level of statistical significance, at a confidence level exceeding 99%) that trading on the Bank Bill Market impacts both the yields of Prime Bank Bills and the level of the BBSW. (b) It is very likely that buying on the Bank Bill Market pushes yields/BBSW down and selling on the Bank Bill Market pushes yields/BBSW up. (c) In addition to the very strong statistical significance, the magnitudes of the price impacts (effects of trading on both Prime Bank Bill yields and the BBSW) are material in magnitude, even in response to fairly small volumes of buying or selling. (d) Price impacts are found consistently for a number of different model specifications and alternative assumptions, indicating that the evidence is robust and not particularly sensitive to the specific choice of model or assumptions. (e) The nature of price impacts (functional form and characteristics) on the Bank Bill Market is similar to price impacts in a large number of other markets (other asset classes and other countries), suggesting that the Bank Bill Market conforms to the standard theoretical mechanisms and statistical properties that he referred to. 1747 Professor Putnins gave evidence that the overall approach to analysing how trading on the Bank Bill Market affects the prices/yields of Prime Bank Bills and the level of the BBSW is to estimate regressions of changes in yields/BBSW on measures of the net "signed" volume of buys and sells (buy volume minus sell volume). These regressions use the trading data to measure the typical (average or expected) change in Prime Bank Bill yields/BBSW for a given volume of buying or selling. Apparently, this approach is common in the empirical market microstructure literature. The regression coefficient estimates are used to test whether trading has an impact on yields/BBSW, if so what is the nature of that impact (magnitude, shape, characteristics), plot price impact curves, and ultimately arrive at a calibrated price impact model that can be used to estimate impacts of specific trading activity. 1748 In the first step, estimating the signed volume of trading (also known as the "order imbalance", i.e. the difference between buying and selling volumes), Professor Putnins used the "bulk volume classification" (BVC) approach (see Easley D, Lopez de Prado M and O'Hara M "Discerning Information from Trade Data" (2016) 120 Journal of Financial Economics 269). He used this approach so he said for two reasons: (a) it is well suited to the nature of the trading data for the Bank Bill Market, which is only reliable at daily levels of aggregation, and (b) it provides improvements over older methods (such as the Lee-Ready algorithm) that focus on the "aggressor side" of trading to classify buying and selling. Professor Putnins said that the advantages of the BVC over "aggressor side" approaches are particularly relevant in this setting where the objective is to estimate the price impact of trading. 1749 Let me explain why Professor Putnins did not use the Lee-Ready algorithm, and the reasons are not unimportant. In the data available to him, the time stamps were unreliable, the putative sequence of trades did not necessarily reflect the sequence in which they occurred, there was little information on quotes, and several individual trades could have been aggregated into one printed trade. These issues made it unrealistic to do a tick-by-tick analysis and thus apply other trade classification procedures such as the Lee-Ready algorithm, but according to Professor Putnins they did not limit the ability to work with daily aggregates. The empirical market microstructure literature provided tools for working at either level of granularity being tick-by-tick data or clock-time aggregated data, such as the trading data for the Bank Bill Market. 1750 In the second step, estimating the price impact regressions, Professor Putnins controlled for a number of factors that could affect changes in yields/BBSW, including past changes (accounting for temporary price impacts and reversals), day-of-the-week effects, and day-of-the-month effects including effects around the transition from one maturity bucket to the next. He also tested for differences between three tenors (1 month, 3 month and 6 month), differences between the impacts of buying and selling, and different functional forms for how yields/BBSW respond to trading. According to Professor Putnins his results indicate the following: (a) There is negative serial correlation in yield changes similar to many other markets, meaning that an increase in yields on one day is likely to be followed by a partial reversal (a decrease in yields) the following day. This tendency for reversals indicates the presence of temporary price impacts. He said that reversals and negative serial correlation can be caused by, inter-alia, market manipulation. (b) There is intra-week and intra-month seasonality in yield changes, including effects around maturity bucket boundaries, confirming the need for these control variables. (c) The three tenors differ significantly in their levels of liquidity, with the three-month being the most liquid, followed by the one-month, and then the six-month. (d) There is no evidence of asymmetry in the impact of buys compared to sells. For this reason, Professor Putnins considered symmetric price impact functions. (e) There is a very high correlation (0.96) between daily changes in volume-weighted average yields at which Prime Bank Bills are traded and daily changes in the level of the BBSW for the respective tenor. Professor Putnins said that the very high correlation indicates that the BBSW closely mirrors the yields at which trades occur on the Bank Bill Market in the respective tenor, consistent with the design of the BBSW rate setting mechanism. This result also suggests that if trading affects Prime Bank Bill yields, it is also likely to affect the BBSW through its effect on BBSW panellists' views and submissions to AFMA. (f) In all models, the coefficients of signed trading volume (irrespective of the functional form) are highly statistically significant indicating, so Professor Putnins said, very strong evidence (greater than 99% confidence level) that trading on the Bank Bill Market impacts both the yields of Prime Bank Bills and the level of the BBSW. Professor Putnins said that this is a highly robust result. Specifically, buying on the Bank Bill Market pushes yields/BBSW down and selling on the Bank Bill Market pushes yields/BBSW up. (g) The net trading activity of Bank Bill Market participants is responsible for a considerable fraction of the daily variation in Prime Bank Bill yields. When signed volume is added to the regression models, R-squared values increase considerably, and the final calibrated models explain 63% to 75% of the daily variation in Prime Bank Bill yields and the BBSW. (h) Price impacts in the Bank Bill Market, that is, effects of trading on both Prime Bank Bill yields and the BBSW, can be well fitted to a power law model with exponent 0.6. The model is represented by the following equation: The power exponent (lower case delta) is 0.6. The upper case delta r term with the t subscript represents daily changes in Prime Bank Bill yields. V (with superscript SIGNED and subscript t) is signed volume, sign(.) is the sign operator, |. | is the absolute value operator, and C (as a function of t) is a set of control variables. This exponent is very similar to that found in the empirical price impact literature of around 1/2 to 2/3 (0.5 to 0.67) in a large number of different markets. Professor Putnins said that this finding suggests that the nature of price impact on the Bank Bill Market is similar to price impact in a large number of other markets (other asset classes, other countries). Square-root impact laws have been used in industry models of price impact functions and various price impact studies. Exponents around 2/3 have been documented. According to Professor Putnins this result indicates that price impacts in the Bank Bill Market conform to the standard theory and statistical properties that have become widely accepted in the market microstructure literature. (i) Professor Putnins said that the price impact curves indicate that in addition to the very strong statistical significance, the price impacts, that is, effects of trading on both Prime Bank Bill yields and the BBSW, are material, even in response to fairly small volumes of buys or sells. 1751 Let me elaborate further on some aspects of the methodology. First let me deal with the preliminary but important question of trade classification. 1752 Professor Putnins gave the following evidence. 1753 He applied the "bulk volume classification" (BVC) technique of Easley, Lopez de Prado, and O'Hara (2016) to estimate the percentage of buy and sell order flow (trading volume) on each day in each tenor. The "signed order flow" is then calculated as the buy percentage multiplied by the volume traded that day in that tenor minus the sell percentage multiplied by the volume traded that day in that tenor. 1754 Easley, Lopez de Prado, and O'Hara (2016) developed this method to discern the direction and quantum of trading intentions from market data so as to identify within a given period of time (e.g. one day) whether there was an imbalance between buyers and sellers and if so how large that imbalance was. "Buy" and "sell" order flow refers to those orders for which the trader has some underlying reason or intention to buy or sell the security (respectively) other than simply accommodating, or providing liquidity to, the imbalance between buy and sell order flow of other market participants. Examples of buy/sell order flow include buying or selling by a trader that believes the security is under-priced or over-priced, buying or selling to satisfy short-term funding needs, buying or selling to hedge risks or exposures, and buying or selling to influence the price. 1755 According to Professor Putnins, this task of discerning trading intentions from data is related to the idea of identifying which side of a trade (the buyer or the seller) was the aggressor (the active order that executed against a resting quote), insomuch as traders with strong intentions to buy or sell might more often be on the aggressor side of a trade, but not necessarily. Suppose a buyer has some fundamental reason for wanting to buy the security (e.g. a belief that it is under-priced). Instead of hitting the prevailing offer quote in the market and becoming the aggressor side of the trade, the trader may instead post an order to buy at its own bid in a specific volume (a limit order). When that order is hit by the seller, the buyer is on the non-aggressor side of the trade. To continue to buy via limit orders, the trader has to repeatedly post at its bid or at higher prices, meaning that prices are forced up (or prevented from declining) by the buyer even though the active side of the trade is the seller. 1756 It is now necessary to descend further into Professor Putnins' equations, the question of signed volumes and BVC. Why is this so? Well, one of the principal challenges to Professor Putnins' evidence concerns the problem of circularity which is manifested by considering equations (1), (2), (3) and (4) that I will set out in a moment. Let me first explain equations (1), (2) and (3). Equations (1) and (2) are used to construct equation (3). The output of equation (3) is then used as one of the inputs to equation (4). 1757 Let r (subscripts i,t) be the volume-weighted average yield at which Prime Bank Bills in tenor i are traded on day t, and V (subscripts i,t) be the volume (principal, in $100 million) of tenor i Prime Bank Bills traded on day t. The estimated buy volume in tenor i on day t (following Easley, Lopez de Prado, and O'Hara (2016)) is given by equation (1): where T(.) is the cumulative distribution function (CDF) of student's t-distribution with df degrees of freedom, r (subscripts i,t) minus r (subscripts i,t-1) is the change from day t - 1 to day t in the yield at which Prime Bank Bills in tenor i are traded (in basis points), and lower case sigma (subscript delta r) is the standard deviation of daily yield changes. Following Easley, Lopez de Prado, and O'Hara (2016), Professor Putnins used df = 0.25 to account for fat tails in the data. Because Prime Bank Bills were traded in terms of yield rather than price, and yields were inversely related to prices, he switched the expressions for V (with superscript BUY, and subscripts i,t) and V (with superscript SELL, and subscripts i,t) (relative to Easley, Lopez de Prado, and O'Hara (2016) who worked with prices) to account for the fact that if buying pushed prices up, it pushed yields down, and vice versa. 1758 Similarly, the estimated sell volume in tenor i on day t is given by equation (2): and the signed volume of the tenor-day (the "order flow imbalance", measured in units of $100 million of principal) is given by equation (3): 1759 Now let me turn to Professor Putnins' method of empirical analysis in more detail. The primary objective of his analysis was to quantify the magnitude of the impact of trading on the Bank Bill Market, because according to him the direction of the impact was already well-established by theory (microeconomic analysis and market microstructure theory) as well as previous empirical studies. That is, buying tends to increase prices and selling tends to decrease prices. According to Professor Putnins, the magnitudes of price impacts (the sensitivity of prices to a given volume of buying or selling) are a function of market-specific factors such as liquidity and therefore have to be estimated for the Bank Bill Market. 1760 To quantify the effects of trading on the Bank Bill Market or the "price impact" of trading, starting with the effect on the yields of Prime Bank Bills, Professor Putnins used an approach that he said was standard in the empirical market microstructure literature. The approach is to estimate regressions of yield changes (the equivalent of price changes or realised returns in securities that are traded with reference to price rather than yield) on measures of the volume of purchases/sales ("buys"/ "sells") or the imbalance between buying and selling. For securities that trade in terms of yield, VWAY is the analogue of the volume-weighted average price (VWAP), which is a commonly used measure of the price at which trades occur when aggregating a number of trades through time. 1761 For each tenor i on each day t, Professor Putnins estimated the signed volume of trading (also known as the "order imbalance"), denoted V (with superscript SIGNED and subscripts i,t). This measure indicates the volume of buying, net of the volume of selling. It is positive when there is more buying than selling and negative when there is more selling than buying. He also measured the change in the yields at which Prime Bank Bills traded on the Bank Bill Market by taking the difference between the volume-weighted average yield (VWAY) of trades in Prime Bank Bills of tenor i on day t and the VWAY of trades in Prime Bank Bills of tenor i on day t - 1 (the previous trading day). 1762 An alternative measure of the yields quoted for Prime Bank Bills during the BBSW Rate Set Window is the level at which the BBSW for the tenor i sets that day t. Professor Putnins also measured the daily changes in the BBSW for each tenor. 1763 The basic form of the price impact regressions (estimated separately for each tenor and therefore suppressing tenor subscripts, i, from here onwards) is given by equation (4): . 1764 C (as a function of t) is a vector of control variables including: (a) lagged yield changes (upper case delta r term with the t-1 subscript) to absorb first-order serial correlation that could arise from reversals after yields are temporarily dislocated from their equilibrium levels; (b) a set of day-of-the-week dummy variables to account for any intra-week seasonality; and (c) a set of day-of-the-month dummy variables to account for any intra-month seasonality and in particular transition effects when going from one maturity bucket to the next (late to early instruments or early to late instruments). Factors that affect Prime Bank Bill yields but are not included in the model are captured in the error term (lower case epsilon as a function of t). Professor Putnins modified the basic form of the price impact regressions in various ways that he explained to test specific effects and to introduce non-linearity in price impacts. 1765 To begin with, Professor Putnins regressed yield changes (uppercase delta r term with the t subscript) on only the control variables to investigate autocorrelation, seasonality, and maturity bucket transition effects. He reported the results in Table B.1, which I have not thought it necessary to reproduce in these reasons given my principal conclusions on this entire analysis that I will explain later. 1766 Professor Putnins' overall approach was to take Westpac's trading on each of the contravention dates, feed it through the calibrated price impact model to obtain an estimate of the effect of that trading on Prime Bank Bill yields and the BBSW and quantify the error bounds on the estimate using standard statistical techniques. On his approach the estimated impacts with error bounds provided evidence on the magnitude of Westpac's impact (if any) and the degree of confidence (statistical likelihood) that one could have in those estimated impacts. 1767 The first step is to calculate Westpac's signed (directional) trading volume each day, which Professor Putnins did using two different approaches. The first approach takes the difference between Westpac's volume of buys represented by V (superscript BUY, and subscripts WBC,i,t) and its volume of sells represented by V (superscript SELL and subscripts WBC,i,t) in a given tenor on a given date, to give you the signed volumes represented by V (superscript SIGNED, and subscripts WBC,i,t). The signed volumes, V (superscript SIGNED, and subscripts i,t) in the price impact models measure order flow with respect to trading intentions, not just the aggressor side of trades. This approach to calculating Westpac's signed volumes accounts for the possibility that some of Westpac's trading could be undertaken for the purpose of providing liquidity (by acting as a market maker) and some of Westpac's trading is undertaken for other reasons involving intentions to buy or sell, such as beliefs about whether Prime Bank Bills are over- or under-priced, managing funding and short-term liquidity needs, hedging risks, and managing exposure. In this approach, the amount of volume associated with market making is approximated by the roundtrip volume (volume of buys that are accompanied by sells within the same tenor and day). Accordingly, only the non-roundtrip (that is, directional) volume contributes to Westpac's signed volumes. Professor Putnins said that it is likely that roundtrip volume is associated with market making activity and non-roundtrip volume with trading for other reasons and he therefore referred to this approach as the "likely approach". 1768 Professor Putnins said that the reason that roundtrip volume approximates the trading associated with market making is that typically market making involves holding positions for only a short period of time and actively managing inventory positions towards zero. Such trading generates approximately equal volumes of buying and selling, and a high proportion of roundtrip volume within a trading day. Professor Putnins said that the characteristics of Westpac's trading activity indicate that on the contravention dates it is likely that most of Westpac's trading was undertaken for reasons other than market making because on many days Westpac's trading is 100% non-roundtrip (all buying or all selling). 1769 The second approach, referred to by Professor Putnins as the "conservative approach", counts only one-half of Westpac's signed directional volume (after removing the roundtrip volume). The motivation for this approach is that on average and in aggregate, one-half of trading volume (counting both buy volume and sell volume) is on the aggressor side of the trade. It is said that this approach is conservative in that it is likely to underestimate the volume traded by Westpac for purposes other than market making (volume where there was an intention to buy or sell, which is what is used in the signed volume and consequently the price impact models), and therefore underestimate Westpac's impact on Prime Bank Bill yields and the BBSW. For example, on the majority of days, where Westpac is trading entirely in one direction (only buying or only selling a given tenor) and therefore (so Professor Putnins says) it is unlikely that much (if any) of Westpac's trades are due to market making, only half of its volume is attributed as arising from an intention to buy or sell for non-market making reasons. It is said that estimates from the conservative approach should therefore be viewed as a lower bound on the estimated impact of Westpac's trading. 1770 Table C.1 of Professor Putnins' report tabulated the estimated impacts of Westpac's trading on particular dates. Now it is obvious that the Table does not of itself show trading for a manipulative purpose, nor establishes any "artificial price" as such. It is only purporting to show the effect or likely effect of trades. Let me explain some features of the Table. Lower case r (subscripts i,t) is the volume-weighted average yield at which Prime Bank Bills of the given tenor were traded on the Bank Bill Market on the given date. BBSW (subscripts i,t) is the rate at which the BBSW set for the given tenor on the given date. Westpac direction specifies whether Westpac was a net buyer or net seller in the given tenor on the given date. Westpac volume in direction identifies the volume (in $mil) traded by Westpac in the direction given by Westpac direction (it is the volume of their sales when they are net selling and the volume of their purchases when they are net buying). Westpac signed volume is the directional net volume (in $mil) traded by Westpac (volume of buys minus volume of sells). This is the value used as V (superscript SIGNED, and subscripts WBC,i,t) in the likely approach (as I have explained). Directionality is the percentage of Westpac's total volume (buy volume plus sell volume) that is in the direction given by Westpac direction. As noted previously, Directionality shows that on the majority of days, Westpac traded entirely in one direction (only buying or only selling a given tenor). 1771 I have considered it appropriate to set out the entirety of Table C.1 in these reasons. As is apparent from other parts of my reasons, ASIC's dominant purpose analysis has only been made out on the trading days of 6 April 2010, 20 May 2010 and 1 and 6 December 2010. Accordingly, strictly speaking in terms of the contravention dates I need only consider the question of effect or likely effect on the said four dates. But just in case others take a different view, it is appropriate to set out the quantitative analysis in respect of all contravention dates. But I should also say now, more generally, that whatever the date, I have not found Professor Putnins' model and approach to be that persuasive, as I will explain shortly. So even for the said four dates, the results produced in Table C.1 are of little assistance. But I accept the possibility that others may take a different approach and so I have reproduced Table C.1 below. 1772 By way of explanation, Professor Putnins provided the following note to Table C.1, albeit with minor amendments to two of the values that I have made: This table reports the estimated effects of Westpac's trading on the BBM on particular dates. The estimates are obtained from the fitted price impacts of the signed volume traded by Westpac (the "Likely Approach") and half of the signed volume traded by Westpac (the "Conservative Approach") using the calibrated price impact model described in Appendix B. Ref. refers to the Schedule Number and Item Number (separated by a dot) from the ASIC Amended Pleading. r (subscripts i, t) is the volume-weighted average yield at which PBBs of the given tenor were traded on the BBM on the given date. BBSW (subscripts i, t) is the rate at which the BBSW set for the given tenor on the given date. Westpac direction specifies whether Westpac was a net buyer or net seller in the given tenor on the given date. Westpac volume in direction identifies the volume (in $mil) traded by Westpac in the direction given by Westpac direction (it is the volume of their sales when they are net selling and the volume of their purchases when they are net buying). Westpac signed volume is the directional net volume (in $mil) traded by Westpac (volume of buys minus volume of sells). Directionality is the percentage of Westpac's total volume (buy volume plus sell volume) that is in the direction given by Westpac direction. Likely effect on r (subscripts i, t) and Likely effect on BBSW (subscripts i, t) are the point estimates of how r (subscripts i, t) and BBSW (subscripts i, t) (respectively) are impacted by Westpac's trading in the given tenor on the given date, using the Likely Approach and the calibrated price impact model (measured in basis points, bps). Effect bounds provides a 99% confidence interval for the effect of Westpac's trading on r (subscripts i, t) and BBSW (subscripts i, t), accounting for both statistical error on estimates within the calibrated price impact model, and variation between the Likely and Conservative Approaches. Effect confidence provides a categorical description of the impact of Westpac's trading on r (subscripts i, t) and BBSW (subscripts i, t) and the statistical confidence in that estimate. It takes one of five categories. The two categories corresponding to the strongest evidence are "Material Increase, Very Likely" and "Material Decrease, Very Likely". An effect is classified in one of these first two categories if, using the Conservative Approach, the absolute estimated effect is greater than 1bp with statistical confidence exceeding 99%. The next two categories by strength of evidence are "Material Increase, Likely" and "Material Decrease, Likely". An effect that is not classified in either of the first two categories is classified in one of the next two categories if, using the Likely Approach, the absolute estimated effect is greater than 0.5bp with statistical confidence exceeding 90%. Effects that do not satisfy any of the previous four categories are assigned to the fifth category, "Marginal or insignificant", indicating the absence of strong evidence for Material impacts. 1773 At this point it is now appropriate to consider the evidence given by Mr Bishop. Mr Bishop considered that the econometric analysis presented by Professor Putnins was flawed and could not be relied upon. I should say that I tend to agree, as I will elaborate on later. 1774 Mr Bishop said that traded volumes alone did not reveal whether pressures on yields were in a particular direction as a result of a party seeking to either buy or sell Prime Bank Bills. He said that in reality there were two sides to every trade and every trade had both a buyer and a seller. Mr Bishop pointed out that Professor Putnins, seemingly to avoid this problem, used the BVC method to classify daily volumes as buy or sell volumes based on the change in yield compared to the previous day. Professor Putnins used this to estimate the percentage of buy and sell order flow on each day and for each tenor. In particular, Professor Putnins designated volumes traded as "sell volumes" if the yield increased from the previous day, and designated them as "buy volumes" if the yield decreased from the previous day. The calculated signed order flow ("net volume") was the buy percentage multiplied by the volume traded for that day and tenor minus the sell percentage multiplied by the volume traded for that day and tenor. 1775 But Mr Bishop said that by using the change in yield as the dependent variable, and by using volumes based on the BVC as the independent variable, Professor Putnins estimated a model that was circular. I agree. Now Professor Putnins relied on Easley, Lopez de Prado and O'Hara (2016) to estimate the impact of volumes, classified using the BVC, on the change in the Prime Bank Bill yield (for 1, 3 and 6 month tenors respectively), but Mr Bishop said that the Easley, Lopez de Prado, and O'Hara (2016) equation (6) used a measure of the difference between the best buy and sell price (i.e. the spread) as the dependent variable, not the change in yield compared to the previous day. This is well apparent from p 282 of that article which stipulated: Mr Bishop said that as a result it was not subject to the same circularity problem as Professor Putnins' model. In relation to Easley, Lopez de Prado and O'Hara (2016), Professor Putnins appeared to rely on equation (6) from that article. But in Professor Putnins' own work, the supposedly independent variable (the net buy or sell volume) was itself a function of the dependent variable (the change in yield), and so the change in yield was effectively explained in terms of the change in yield. 1776 Again, I agree with Mr Bishop's analysis. In equation (4) that I have set out earlier, it is well apparent that the independent variable (V, superscript SIGNED, subscript t) with the beta co-efficient is being used to, inter-alia, explain the dependent variable (the delta r term, subscript t), which is the change in yield. But the independent variable is itself sourced from equation (3), which is itself derived from equations (1) and (2), as I have set out above. But if you analyse equations (1) and (2), they themselves use as inputs changes in yield. Following this all through, the independent variable in equation (4) is used to explain the dependent variable in circumstances where the independent variable itself is ultimately derived from the dependent variable. This is a plain vanilla example of circularity, and in my view not only in terms of directionality but also in having some impact on magnitude as I will shortly explain. 1777 Mr Bishop also said that Professor Putnins' models using volume weighted average Prime Bank Bill yields and BBSW were essentially the same. He said that Professor Putnins either used the change in the volume weighted average Prime Bank Bill yields to estimate "net volume" and then used this to estimate changes in volume weighted average Prime Bank Bill yields, or Professor Putnins used the change in BBSW to estimate "net volume" and then used this to estimate the change in BBSW. Mr Bishop said that both of these approaches were circular. Again, I agree. 1778 Now Professor Putnins argued that circularity was only relevant to the direction of the relationship. He claimed that theory and empirical evidence strongly supported assuming that demand-driven trades increase prices and supply-driven trades reduce prices. But Mr Bishop considered that the circularity in Professor Putnins' approach rendered the analysis not only unreliable for estimating the direction of trading on prices but also the magnitude of the relationship between Prime Bank Bill volumes traded and price changes. That is, circularity was a problem for the whole analysis. In elaboration, Mr Bishop said the following. 1779 He gave a simple example of how circularity affects the magnitude of the measured relationship as well as the direction. Consider a variable for daily rainfall ("y"). Then assume the generation of a new variable, which is ten times daily rainfall ("x"). If one regresses y on x, one will obtain a highly statistical significant relationship with a coefficient of ten. The relationship being estimated is y = 10x. The circularity not only guarantees a statistically significant result but also determines the coefficient of ten. Now Mr Bishop said that Professor Putnins used a more complicated transformation of the daily change in Prime Bank Bill yields and BBSW than that described for rainfall, but he said that this more complex transformation did not change the essence of what Professor Putnins' results purported to show and the assumed transformation still determined the results. In particular, his approach transformed the daily change in yields using a t-distribution, multiplied the transformed variable by the daily total volumes traded and, in his preferred model, raised the resulting variable to an exponent of 0.6. He said that the only way in which anything other than the daily change in yields entered into the volume variable was through multiplication by the actual volumes traded in the day. 1780 But Mr Bishop contended that Professor Putnins' approach allocated more of actual volumes to "buy" trades on days on which the price increased (yield decreased) by a greater extent and allocated more of total volumes to "sell" trades on days on which the prices decreased (yield increased) to a greater extent. He said that this generated a correlation between yield changes and signed volumes, which were defined as buy trades minus sell trades. 1781 Mr Bishop said that the total volume affected the magnitude of the measured coefficient, so that, if, for example, Prime Bank Bill volumes were ten times as large for the same yield changes, or if they were measured in billions of dollars rather than millions of dollars, the estimated coefficient would change. The chosen transformation also affected the estimates. Mr Bishop said that the fact that the coefficient could change depending on the total volumes used as an input rendered Professor Putnins' approach an unreliable method to measure the magnitude of effects because they also depended on the arbitrary transformation used. Now Professor Putnins claimed that other relevant studies were subject to the same circularity. But as Mr Bishop pointed out, Professor Putnins used the change in yield not only to determine the direction of a trade as "buy" or "sell" but also the quantity of the trade that was "buy" or "sell". But only one paper cited by Professor Putnins appeared to carry out the same regression as him (Chakrabarty B, Pascual R and Shkilko A, "Evaluating Trade Classification Algorithms: Bulk Volume Classification versus the Tick Rule and the Lee-Ready Algorithm" (2015) 25 Journal of Financial Markets 52). But as Mr Bishop said, this is only one of the many regressions they performed and the purpose was not to make any inferences from the regression but to compare different ways of computing the "order imbalance" by evaluating different trade classification algorithms. As the authors clearly explain, at least on my understanding of this paper, they compared the BVC approach with the trade-based tick rule and the apparently popular Lee-Ready algorithm and ultimately concluded that the latter approaches gave higher accuracy for signing both volume and order imbalances. 1782 In summary, according to Mr Bishop, the estimated coefficient, that is the magnitude, reflected the circularity in the model in which change in yield was regressed on a transformation of change in yield. As he said, the assumed form of the relationship determined the size of the effect, and so the circularity determined not only the direction of the finding but also the size of the measured finding. I must say that I agree with Mr Bishop. 1783 As Mr Bishop pointed out, the main problem with circularity was that it produced no new evidence to solve the problem because the results followed directly from what was assumed. Mr Bishop also gave evidence that there were other conceptual limitations with Professor Putnins' econometric analysis, in addition to the circularity in the model, that it is now convenient to also deal with. 1784 First, Professor Putnins' analysis did not examine whether Westpac's observed trading deviated from commercially rational behaviour. Professor Putnins assumed that either 100 per cent or 50 per cent (on a "conservative" basis) of volumes were artificial and then attempted to estimate the impact of those volumes on Prime Bank Bill yields and BBSW. 1785 Professor Putnins assumed that all of Westpac's actual net volumes (actual Westpac buy trades minus actual Westpac sell trades) were intentional "buy" volumes for those days it was alleged to have acted to influence Prime Bank Bill yields downwards and assumed that all of Westpac's net volumes were intentional "sell" volumes for those days on which Westpac was alleged to have influenced Prime Bank Bill yields and BBSW upwards as opposed to trading undertaken to provide liquidity to other market participants. This was based on the assumption that liquidity trades would cancel each other out on the same day. That is, Professor Putnins' assumed that there would be an equal volume of buy and sell trades for liquidity provision in a day. Mr Bishop said that although this may have been broadly true over time, it was very unlikely that buy and sell trades for liquidity provision would exactly offset each other on each and every day, and that there were legitimate commercial rationales to trade other than providing liquidity. 1786 Further, on a "conservative" approach, Professor Putnins assumed that 50 per cent of Westpac volumes for the alleged manipulation days involved active buying or selling. But Mr Bishop said that this assumption was arbitrary. 1787 Further, Professor Putnins did not investigate whether the relevant net buy or sell volumes (even if correctly classified) were traded for a manipulative purpose as opposed to one or more commercially rational purposes. As a result, according to Mr Bishop, Professor Putnins did not show what increment, if any, of volumes were for the purpose of manipulation, and so could not establish what the effects or likely effects of that increment of volumes were on Prime Bank Bill yields and BBSW. 1788 Second, a further conceptual issue with Professor Putnins' econometric analysis was that, even if circularity did not exist, the model did not take into account factors other than volumes traded in the Bank Bill Market that could influence Prime Bank Bill yields and BBSW, such as the expected RBA cash rate between the purchase date and maturity date, the cost and availability of international wholesale funding, and the credit risk of Prime Banks. 1789 According to Mr Bishop, by excluding important drivers of Prime Bank Bill yields from the econometric model, Professor Putnins risked over-estimating the effect of the included variables, notably "net volumes". Such a deficiency is known as omitted variable bias. 1790 Third, Professor Putnins did not know the timing of Prime Bank Bill trades. This was because the time stamp on the Prime Bank Bill trades in the broker data that Professor Putnins analysed was not reliable. The Prime Bank Bill trades used in Professor Putnins' analysis could have been, for example, at 10.05 am. Professor Putnins could not therefore have come to a reliable conclusion that the volumes that were traded had an impact when BBSW observations were meant to take place. 1791 Fourth, Professor Putnins calibrated a model for market-wide estimated "net volumes" and then used a different volume measure, Westpac actual net volumes, as an input. Mr Bishop said that this was inappropriate given that the model was designed to estimate the effect of market-wide volumes (estimated using the BVC) rather than Westpac actual net volumes (measured as actual Westpac buy trades minus actual Westpac sell trades). Westpac's actual net volumes could be much higher than the estimated market wide "net volumes". 1792 Mr Bishop produced a table, which I have reproduced below but slightly re-ordered, showing for each of the alleged contravention dates the relevant tenor, the market wide "net volumes" for that tenor obtained using Professor Putnins' econometric model and Westpac's actual net volumes. Professor Putnins used the Westpac net volumes as an input into the market wide model to estimate the impact of Westpac's trading on Prime Bank Bill yields and BBSW. Mr Bishop's table also shows the actual total volumes traded in the Bank Bill Market on each of these dates. Inconsistency between market-wide estimated "net volume" and actual net volume Trade date Tenor Market-wide "net volume" ($m) Westpac actual net volume ($m) Total volume ($m) 06 Apr 2010 1 182.1 1,622 1,622 06 Apr 2010 3 -483.5 1,020 1,400 30 Apr 2010 1 -526.1 980 1,380 20 May 2010 1 -85.4 710 710 10 Jun 2010 3 -359.7 -360 1,590 20 Sep 2010 1 69.5 1,180 1,180 20 Sep 2010 3 99.4 250 430 22 Sep 2010 3 -318.5 500 1,310 01 Dec 2010 3 980.3 2,770 3,090 06 Dec 2010 3 60.6 3,030 3,030 01 Mar 2011 3 283.6 1,390 2,240 04 Mar 2011 3 -890.6 2,720 3,150 01 Jun 2011 3 125.2 260 500 06 Jun 2011 3 -209.9 620 1,540 09 Jun 2011 3 -226.6 -1,470 2,130 06 Jun 2012 3 -1452.6 3,060 3,500

1793 As shown in the third and fourth columns, Westpac's actual net volume was in the opposite direction of Putnins' estimate of market-wide "net volumes" for seven instances (6 April 2010 for the 3 month tenor, 30 April 2010, 20 May 2010, 22 September 2010, 4 March 2011, 6 June 2011 and 6 June 2012). For example, on 6 April 2010 for the 3 month tenor, Professor Putnins estimated market wide "net volumes" of -$483.5 million and Westpac's actual net volume was $1,020 million. According to Mr Bishop this suggested that Professor Putnins' model and the input of Westpac's actual net volumes did not give a reliable estimate of the impact of Westpac's trading. 1794 Further, as shown in the fourth and fifth columns, when Westpac's actual net volume was in the same direction as the market-wide "net" volume (10 June 2010, 9 June 2011, 6 April 2010 for the 1 month tenor, 20 September 2010 for both the 1 and 3 month tenors, 1 December 2010, 6 December 2010, 1 March 2011 and 1 June 2011), it was larger than the market-wide estimated "net volume" in absolute terms in every instance. For example, on 9 June 2011, Professor Putnins' estimated market-wide net sales using the BVC of $226.6 million and yet Westpac was estimated to have engaged in sell transactions of $1,470 million. Again, according to Mr Bishop, this suggested that Professor Putnins' model and the input of Westpac's actual net volumes did not give a reliable estimate of the impact of Westpac's trading. 1795 According to Mr Bishop, given the discrepancy between Professor Putnins' estimates of market-wide "net volumes" and Westpac actual net volumes, this confirmed to him that Westpac actual net volumes were not an appropriate input into the market-wide model in order to obtain estimated effects of Westpac's trading on Prime Bank Bill yields and BBSW. 1796 Finally, Professor Putnins assumed that Westpac's trading had an effect on yields and did not take into account the effect of trading of other banks in the same direction, or even opposite directions on the same day, and could not identify which bank, if any, would have led yields to change. 1797 I must say that there is force in each of the above criticisms. 1798 Now ASIC has rejected the circularity criticism. 1799 ASIC has submitted that Professor Putnins explained in the course of evidence that his estimation method does use the 'actual observed volume', and then applies the imbalance between buyers and sellers obtained from a trade classification algorithm (which is proportional because the method is applied to aggregated data). It is said that this is identical in principle to the example addressed by Cornell B and Sirri ER, "The Reaction of Investors and Stock Prices to Insider Trading" (1992) 47 The Journal of Finance 1031, which applied the method to the actual volume of a single trade (not aggregated trades) and an imbalance measure obtained from the trade classification algorithm (being either positive or negative, rather than proportionate, because it was a single trade). The imbalance measure from the trade classification algorithm (BVC) also is not a function of a change in yield, but is a proportion of trading in a particular direction (not the signed order flow itself). Accordingly it is said that the model is not circular in the way impugned, and not unreliable on that basis. 1800 Further, ASIC says that it was put against Professor Putnins that his model did not account for other explanatory variables which may influence changes in yields, such as macroeconomic news. But ASIC submits that his model already captures news events to the extent that they lead to a change in volume. To the extent that news events do not generate a change in volume, they are accounted for in the error term of the formula. ASIC accepts that the model might be further developed to control discretely for such other variables, and to do so successfully may increase the statistical precision of the coefficient referable to volume, but it says that difficulties would be encountered in building such a model, which would detract from the accuracy of the coefficient referable to volume of trading. 1801 ASIC also makes reference to the fact that the model was also attacked for the technique of calculating net signed volume, arbitrarily applying the estimation method to 'likely' and 'conservative' proportions of Westpac's actual net signed volume, and the impact of unreliable time stamps, but it says that Professor Putnins explained each of them. 1802 Further, ASIC makes reference to the substantial criticism of Professor Putnins in relation to the model's explanation for circumstances arising if Westpac had not undertaken the impugned trading. But ASIC asserts that the line of questioning misconceived the basis of the approach being undertaken. ASIC says that Professor Putnins' model is not a factual exploration of what would have happened 'but for' Westpac's completed trades. Rather, it is an application of economic analysis directed at estimating the effect of Westpac's trading conduct on contravention dates, taken in isolation from the other events in the market. On the assumption of holding all else constant (an assumption adopted in economic analysis for isolating the causal effect of a variable), Professor Putnins found that Westpac's conduct was economically forceful and estimated that the BBSW would have set differently. 1803 Further, ASIC says that the model looks at Westpac's trading behaviour (including bidding / offering), not only concluded trades, in order to estimate the economic force of that commercial activity in the market. 1804 Now Westpac put to Professor Putnins that, on days where Westpac undertook 100% of trades opposite to the market's net signed volume, those same transactions are treated as putting pressure in one direction when analysing the market's net signed volume, but inconsistently putting pressure in the opposite direction when analysing Westpac's impact. But ASIC says that the attack proceeds on a misconception as to the analysis of his model. It does not estimate the economic force of any one concluded trade or "split up" that trade. Rather, it estimates the average force applied to the market on a day in respect of any particular participant's net signed volume. 1805 Further, ASIC says that as Professor Putnins explained, the "hold all else constant" does not assume that no trades would happen or that particular replacement trades would happen. It assumes other market participants sitting behind would have conducted quotes or transactions at different prices. ASIC asserts that prices adjust from the processes of buying and selling, not only the concluded transaction. It is said that Westpac might have traded differently without the manipulative purpose. 1806 It is said that the economic force of Westpac's trading, taken as a whole, may have been in the opposite direction to the market's net signed volume. That would show that, in the absence of Westpac's trading, the yield would have been pushed in the opposite direction and the effect of the trading may have been to maintain the rate. 1807 I largely reject ASIC's submissions. I found Mr Bishop's analysis and criticisms to be compelling. Let me explain. 1808 Professor Putnins conducted a regression analysis to discern the relationship between trading in the Bank Bill Market and changes in BBSW. However, every trade has both a buyer and seller. ASIC's case is that buying in sufficient volume is likely to reduce the yield at which Prime Bank Bills trade and therefore BBSW, and vice versa for selling in sufficient volume. But as Westpac pointed out, simply observing movement in BBSW following a day's trading cannot make good that theory because any movement in BBSW could be equally correlated to the same amount of buying and selling. 1809 So, as Westpac rightly identified, Professor Putnins sought to resolve this difficulty by identifying what he described as the "net signed volume" on each day, being the buy volume minus sell volume or "order imbalance". He did so using the BVC approach, which identified net signed volume on a day (i.e. whether there was more buying or selling volume) by looking at whether the price moved up or down. In simplified terms, he determined whether trading on a given day was to be signed as "net buying volume" or "net selling volume" by reference to whether Prime Bank Bill yields/BBSW went up or down on that day compared with the day before. And then having so classified the signed volume for each day, he conducted a linear regression of signed volume so determined and changes in Prime Bank Bill yields/BBSW. As Westpac points out, unsurprisingly, the correlation between the signed volume and the movement in Prime Bank Bill yields/BBSW is very strong. The latter was in fact used to derive the former. 1810 So the first problem with Professor Putnins' model is that it is circular. Now although Professor Putnins did not disclose this in his original report, he conceded in the Joint Report that his model was circular at least in so far as it estimated the direction of any price impact from trading in the Bank Bill Market. As I have explained earlier, that circularity is apparent from equations (1) to (3) and equation (4). Equations (1) to (3) determined a net signed volume of trading in the Bank Bill Market on any given day (i.e. whether buy volume exceeded sell volume or vice versa) as a function of the change in Prime Bank Bill yields/BBSW between that day and the day before. Accordingly, if Prime Bank Bill yields/BBSW increased on a day, Professor Putnins' model determined that selling volume must have exceeded buying volume and thus the signed volume of trading would be negative, and vice versa if BBSW decreased on the day. The signed volume of trading was then used as the independent variable in Professor Putnins' model, the form of which is shown by equation (4). But the dependent variable in equation (4) is also the change in Prime Bank Bill yields/BBSW between the day in question and the day before. Accordingly, there is built into the model a circular relationship between the direction of the signed volume of trading (which is a function of the change in Prime Bank Bill yields/BBSW), being the independent variable, and the direction of the change in Prime Bank Bill yields/BBSW, being the dependent variable. 1811 Further, I agree with Westpac that the circularity in his model affects not only the direction of any price impact but also its magnitude. That is also apparent from equations (1) to (3), and equation (4). Equations (1) to (3) determine not only the direction, but also the magnitude of the buy volume and sell volume and thus the signed volume of trading on any given day. The magnitude of that net signed volume of trading is also a function of the change in Prime Bank Bill yields/BBSW between the previous day and that day. That is, the greater the decrease in yield from the previous day, the greater the percentage of the total trading volume allocated to buy order flow than sell order flow and the greater the magnitude of the positive signed volume of trading, and vice versa with increases in yield from the previous day. 1812 As already clear, the signed volume of trading is the independent variable in Professor Putnins' model, as shown in equation (4). As a result, there is built into the model a relationship between the magnitude of that signed volume of trading (which is a function of the magnitude of the change in Prime Bank Bill yields/BBSW), being the independent variable, and the magnitude of the change in Prime Bank Bill yields/BBSW, being the dependent variable. In essence, the independent variable is a function of the dependent variable. Further, it should also be apparent from equation (4) that the magnitude of each of those two variables will determine the magnitude of the beta coefficient, which in essence explains the relationship between them. In my view the model is circular as to the magnitude as well as the direction of price impact. 1813 As succinctly and correctly submitted by Westpac, the objective of Professor Putnins' model was to determine the magnitude of the relationship between the dependent variable (change in Prime Bank Bill yields/BBSW from the previous day) and the key independent variable (signed volume of trading). Yet the magnitude for the independent variable (signed volume of trading) on a given day was a product of the magnitude of the change in Prime Bank Bill yields/BBSW from the previous day. The magnitude of the signed volume of trading affected the magnitude of the beta coefficient for that variable. And the magnitude of the beta coefficient estimated the magnitude of the impact of the signed volume of trading on the dependent variable. Accordingly the model was circular insofar as it estimated the magnitude of the impact of trading on a change in BBSW. Professor Putnins constructed a regression analysis where the dependent variable was being regressed on itself. 1814 I also note that in Mr Bishop's supplementary report, he changed the distribution assumption from a t distribution to a normal distribution using the same data. But the beta coefficient, and therefore the magnitude of the impact of the signed volume of trading on Prime Bank Bill yields/BBSW, then changed materially. Professor Putnins agreed that changing the distribution but using the same data will produce different magnitudes of the relationship between the dependent and independent variable. I agree with Mr Bishop that this shows that the magnitude of the estimates is a "function of the circularity built into the model and that assuming different transformations within the estimated circular relationship leads to different estimates of the magnitude of effects". 1815 Further, as Mr Bishop pointed out, the circularity of the model, both in terms of direction and magnitude, is demonstrated by the fact that Professor Putnins' model when applied to randomly generated data finds a statistically significant result of a similar magnitude. 1816 Further, to complete this particular aspect I should also observe that Cornell and Sirri (1992) in my view was of little assistance to Professor Putnins. 1817 Let me set out the following extracts from 1048 and 1049 as one of the equations reported on by Cornell and Sirri was the subject of discussion in the concurrent evidence session before me: 1818 The following discussion took place between the experts and myself: Mr Bishop: So if you look at the figure - if we brought up equation 3 of Cornell and Sirri. … Mr Darke: Page 1048 in the general numbering. … Mr Bishop: And equation 3. So we can see here that there's a sign the indicator variable, which is, you know, the classification which Professor Putnins has been talking about, but the volume is the volume traded. It's not a volume related to the change in the price. His Honour: Yes. It's independent. Yes, I see that. Professor, do you want to comment about that? Prof Putnins: Sure. So I have to familiarise myself again with this. It has been a couple of weeks since I was reading this. But if I am just on the fly looking at these terms. So what you have on the left-hand side is D, which is defined to be equal to the trade to trade price change. So you've got Pt minus Pt minus 1. His Honour: Yes. Prof Putnins: So we agree that the D is a - it's a return variable. It's a price change variable. Then on the right-hand side, if we have a look at what we have, we have - the key term, I think, in here is going to be the VQ term on the right-hand side. So Q is an indicator variable taking the value of 1, if a trade at time T is a purchase and minus 1 if it's a sale. That's a sign indicator. That's a Lee and Ready buy/sell indicator where that indication of plus one/minus one has come from the return around that trade. And that Q, that direction variable, is multiplied by V, which I would be guessing is a volume here. Yes. So V is the volume of shares. So what you have with Q times - with Q times V is a signed volume. You have direction times volume, which gives you signed volume. Where did the direction come from? The direction came from the return around that trade. It is exactly the same thing that's going on in my regression. Mr Bishop: It is not exactly the same, because that is - V is the actual volume observed, whereas in Professor Putnins' regressions, the V signed is a function of the change in price. That's the big difference. And that's where, you know, there are some circularity issues here, but it's not - you don't have on the right-hand side a transformation of the dependent variable. His Honour: Circularity for the direction, because of what Q1 is - Mr Bishop: Yes. His Honour: - said to be, but you say that V1 or Vt, whatever it is, is independent and not calculated by reference to the change in yield. Mr Bishop: Correct. His Honour: And, therefore, it is truly an explanatory variable that can be used to explain the dependent variable Dt without circularity as to magnitude. Is that right? Mr Bishop: Correct. His Honour: Professor, do you want to say anything about that. Prof Putnins: Yes, I would say to that, your Honour, that V times Q is the variable VQ. What is VQ? VQ is signed volume. So you are regressing a price change on signed volume. Where did you come up with a signed volume? You came up with a signed volume based on the return around the trade. What does my method do? It calculates, rather than a binary indicator, a proportion, a proportion of buys or sells in an aggregate of trades. Right? Which is just if you have a binary variable, you have several copies of that binary variable. You can't summarise it with a binary variable; you summarise it with a proportion variable. Similarly, I estimate imbalance proportion, which is where the direction comes into it, and then multiply by volume, which is exactly what this is doing. You estimate direction, you multiply direction by volume. That gives you signed volume. This is very close analogy to what is going on in the bulk volume classification. His Honour: Mr Bishop. Mr Bishop: Well, I think the key point is, of any of those dependent variables, a function in this equation 3 of the change in price. And the answer is no. You've got indicator variables which are determined in a previous step, but, you know, you don't have a change in [return] on the right-hand side, whereas in your equation you do and that's the circularity issue. Prof Putnins: You do in fact in this regression have a change in [return] on the right-hand side, because the Q is a function of the change in [return]. Mr Bishop: But Q only takes two values. So you don't have - in your model - and take my very simple example of just multiplying the change by 10 - you're just going to have, you know, if the variable on the left-hand side is 10 and the variable on the right-hand side will be 100. If the variable on the left is 50, that one will be 500. You do not get that same relationship in this model, the one on the screen. His Honour: All right. I'm going to have the read the paper a little bit more carefully. But there are a couple of other papers. Should we go to those, as well? Are they any different to this? Prof Putnins: They're no different in essence, your Honour. This is probably a clear enough illustration, because, also, this one is in a regression framework, it's using the return to sign the volume, so this is probably about as clear as it is going to get. There is probably going to be little incremental value from going through other papers. His Honour: Very good. 1819 Having read Cornell and Sirri for myself, in my view Mr Bishop's analysis was the correct interpretation. 1820 The second problem with Professor Putnins' model is that it applies market wide price impacts based on net market wide signed volume using the BVC approach to net actual volumes traded by individual market participants, such as Westpac. Professor Putnins did not identify any study that had applied the BVC approach in this way to an individual participant's actual net trading volume to determine the price impact of that participant's trading. 1821 Westpac contended, which I accept, that applying the relationship between market wide net signed volume determined using the BVC approach and changes in Prime Bank Bill yields/BBSW to a single participant's actual volumes gave rise to anomalous results. The point was exemplified using the 20 May 2010 contravention date, a day on which BBSW increased but on which Westpac was a buyer. Because BBSW increased from 19 to 20 May 2010, the BVC approach calculated a market wide net signed volume of trading showing that sell volume exceeded buy volume. Now because Westpac was 100% of the buying volume on 20 May 2010, some of its buying must have formed part of the market wide signed volume of trading for that day, that is, Westpac must have been on the other side of some of the net selling that made up the signed volume of trading. The market wide signed volume on 20 May 2010 including trades in which Westpac was a buyer was used to estimate that those trades increased BBSW. But when Professor Putnins' price impact models are applied to Westpac's actual net volume of trading (comprising the same trades which form part of the market wide signed volume) he estimated that the effect of those same trades was to cause BBSW to decrease by 8.14 basis points. 1822 I agree with Westpac that the same inconsistency arose on days where Professor Putnins calculated that two banks both had contradictory impacts on Prime Bank Bill yields/BBSW through common trades with each other. For example, on 1 December 2010, Professor Putnins' models calculated that ANZ's selling of $930 million had the "likely effect" of causing 3 month BBSW to increase by 7.74 basis points. Westpac was the buyer on the other side of at least $610 million of those trades. Yet Professor Putnins' model calculated that Westpac's buying on that day had the "likely effect" of decreasing 3 month BBSW by 14.91 basis points. Accordingly, when Professor Putnins' model was applied to Westpac's trading, the model estimated that the $610 million of trading between ANZ and Westpac contributed to BBSW decreasing. But when the same model was applied to ANZ's trading, the model estimated that the same $610 million of trades contributed to BBSW increasing. 1823 Now Professor Putnins had to accept that a completed trade could not have contradictory impacts on market price. But he refused to accept the problem with his analysis which purported to find that the same completed trade could put both upward and downward pressure on BBSW. 1824 At this point, let me set out some of Professor Putnins' evidence. 1825 He said that Westpac's buying would put downward pressure on yields and that selling by other banks would put upward pressure on yields. But he also accepted that one trade cannot have a contradictory effect on yields. As he accepted, a trade only moves the market in one direction. As Mr Matthew Darke SC for Westpac in his close cross-examination put to Professor Putnins, which he accepted, a single trade could only ever have one directional effect on price. In other words, a trade could not affect price both positively and negatively. 1826 Mr Darke cross-examined along the following lines: Mr Darke: And you are attributing contradictory BBSW effects to the same trades. Prof Putnins: Not contradictory. These - on the same trade you can have two counterparties going in opposite directions, each pushing the yield in the opposite direction. That can net out. And in the absence of one of those counterparties, the other counterparty's effect would have prevailed. Mr Darke: That can't happen where the two counterparties are parties to the one trade, can it, Professor? Because the one trade can't have contradictory price effects. Prof Putnins: On the one trade the two counterparties can be putting pressure on the price in two opposite directions and the net effect can be very close to zero, or the net effect can be positive or negative, depending on which counterparty is more aggressively trading that particular trade. Mr Darke: But the trade itself can only have one effect on price, can't it? It can only affect price up or down; it can't be both. Prof Putnins: The two counterparties to the trades can be putting pressure on the price in either direction. The actual price movement around a trade can only be in a single direction. Mr Darke: Precisely. And you attribute contradictory movements in price as a result of the same trades. Correct? Prof Putnins: I would, if both counterparties are initiating or are wanting to trade in a given direction and they're both trading the same volume. Mr Darke: With each other. Prof Putnins: With each other. Then that is likely to net out. Mr Darke: With each other, Professor. The price effects of trading with each other can't net out, because there can only be a price effect in one direction for one trade. Prof Putnins: There is a price direction in one direction for one trader. There is one trader trading in one direction. Another trader can trade in the other direction. When those two traders meet the net effect - in other words, the price movement around trade can be very close to zero, but that net effect will be one particular price movement. 1827 Professor Putnins also said the following after I raised a query with him: Prof Putnins: If you've got one counterparty trading in one direction, contributing to the side order of balance, another counterparty trades in the other direction and those two are the counterparties to the one trade, they can both be having price pressure. His Honour: Yes. That's exactly right. That's why I wanted you to perhaps elaborate on what you mean by "likely effect". Prof Putnins: Okay. His Honour: One would be pressure in the one direction and the other will be the counter pressure. I understand that. Prof Putnins: Okay. His Honour: So when you describe likely effect, I am thinking of the actual net objective effect or likely effect. So that's where the pressure and the counter pressure have, basically - netted out is probably the incorrect expression, but you are coming to some net effect, I suppose. So what do you mean by likely effect? Prof Putnins: Yes. So it's not that - His Honour: You don't just mean pressure in one direction from the buy or pressure in one direction from the seller. I took likely effect as looking at the consummated trade and seeing what that likely effect would be. Or am I wrong about that? Prof Putnins: So it's not the net effect of the two counterparties trading against each other. It's the likely impact that one bank has had as a result of its trading activity. So, in other words, you can think about it as, in the absence of that bank's trading activity, the other bank's pressure would have prevailed and you would have seen a movement in one direction. And so the effect of that bank's trading activity is to undo what would have been the pressure. His Honour: Yes. Prof Putnins: So it might revert the market back to a netting out state. His Honour: Yes. Prof Putnins: But the likely impact is, you know, where the rate set, relative to where it would have been in the absence of that bank's trading, but in the presence of the other bank's trading. 1828 The cross-examination later proceeded: Mr Darke: But are you not, then, Professor, attributing to the same trades different effects? Prof Putnins: I am attributing different effects to the different sides of the trade. Mr Darke: But they're still the same trade, regardless of the different side you are considering, aren't they? Prof Putnins: There's one return movement around a particular trade, but there's two sides have two different effects. Those effects can be offsetting, resulting in what you actually observe as the movement around a particular trade. Mr Darke: Professor, you have accepted a number of times now that one trade can only have one effect on BBSW or prime bank bill yields. You adhere to that evidence, don't you? Prof Putnins: What I accepted is that there is one price movement around one trade, but not that - you know, not that there can only be one effect in the sense of, you know, only one counterparty can be having an effect. Mr Darke: It - look - His Honour: But it's the same - we're looking at the effect of the trade, aren't we, or likely effect of the trade? Prof Putnins: The - yes. But the effect of the trade from the perspective of, you know, who's doing the trading. So if you are thinking about what - you know, one side of the trade, what is - what is their effect on the price? Their effect because this buying is negative - His Honour: But it's the trade that affects the yield. Prof Putnins: Yes. But the two counterparties have an effect - His Honour: Well, they had an effect when they were negotiating and - the bid and the offer, I understand, pressure and counter-pressure, but I'm just having trouble with understanding that once you have a trade, when you're looking at the effect or likely effect of that trade on the yield and then, ultimately, the BBSW, how you can, at that stage, still be splitting it up between Westpac's perspective as opposed to the ANZ's perspective. Prof Putnins: So there's one return around a trade, but there's - each side of the trade is having an effect in the sense of - in the absence of that side of the trade, the trade would have happened, perhaps, at a different price, the market as a whole might have been at a different place. That's what I mean by an effect. 1829 Now Professor Putnins did return to this question later and repeated his commentary, explaining its relevance to the counterfactual where Westpac's bid or offer had not been made. 1830 Let me draw some threads together. Clearly a trade in the sense of a consummated transaction cannot have two contradictory effects or likely effects on yields or BBSW. 1831 Accordingly, Professor Putnins seemed to be saying that the prior bids or offers had some effect or likely effect. In other words, some form of pressure and counter-pressure. 1832 Then he sought to explain himself in the following terms: So one thing that we discussed yesterday where I think things weren't completely clear to everyone in terms of how - understanding how the model works was the issue of, you know, a trade having an effect versus a buyer having an effect versus a seller having an effect. That is the point that I want to pick up on that will take us into the counterfactual because I understand a counterfactual is actually crucial for understanding these effects. So if you think about what affects prices, what is it that causes prices to adjust. Buying causes prices to adjust, that is, buying that's undertaken for a purpose other than just providing liquidity to other people's trading. And selling causes prices to adjust, that is, selling that is undertaken for a purpose other than just market making. And so when you think about a simple trade where someone - and we're going to talk about buying and selling in the context of this. I am going to be referring to buying and selling for purposes other than market making so the type of buying and selling that does, according to the theory and according to the empirics, have an effect on prices. So if you think about a simple trade or sequence of trades where a buyer trades with a market-maker, the buyer is going to have an effect on the price or is likely to have an effect on the price and is probably going to be to push the price up. In such a case, if you think about the effect of the trade, what you are actually referring to is the effect of the buyer. It is the effect of the buying that you are referring to when you talk about the effect of the trade there. It's a simple trade because only one side of the trade has an effect on the price. The other side is just passively providing liquidity to the person who wanted, for some fundamental reason, to buy or sell. The same is true if you considering selling. A seller that sells against a marketmaker is going to affect the price. If you think about the effect of the trade, you can - you are actually referring to the effect of the selling. So it is actually buying and selling that moves prices. Not trades per se. Trades only move prices to the extent that they are associated with buying or selling. Now, if you consider a more complicated trade where there isn't a market-maker intermediating but you've got two people that for fundamental reasons wanted to buy or sell and they trade against each other, that buying and that selling both have effect on market prices. Right. It is just those effects go in opposite directions so you may not see that particular trade have a price movement round that trade or around that volume that is matched up where there is no residual imbalance coming through. So in such a trade it is difficult to think about there is no residual imbalance coming through. And so in such a trade it's difficult to think about the effects of the trade per se. You would think about the effects of the buying. The effects of the buying was almost equal to put upward pressure on the price. The effect of the selling was almost equal to put a downward effect or a downward pressure on the price. I think this can be made even clearer with an example if we put numbers to this. So consider a price starts off at, say, $10 and you've got a buyer arrives, does a lot of buying and pushes the price up $1 to, say, $11. And that trading was happening against the liquidity provider that was just standing there to accommodate the buying intentions of this person who came to the market. Then you have a seller arrive and the seller does his selling and pushes the price down a dollar and the price goes back down to $10. Okay. It has the same price impact because suppose he traded the same volume, for example. So what would you say is the price impact of the buyer in this case. Well, you could have a look at it directly in this example. It's pretty simple. The buyer pushed the price up a dollar. An equivalent way of thinking about that price impact is to say what was the actual price in the market with the buyer in the market minus what would the price have been in the absence of the buyer but not changing what the seller was doing. So that counterfactual - that way of doing the calculation of the buyer's impact is the equivalent to thinking about the direct impact. And so if you do that calculation what you get is the market price is $10 minus what it would have been in the absence of the buyer. In the absence of the buyer you would have only had the seller. The seller would have moved the price down a dollar from 10 to nine so $10 minus $9 gives you the plus $1 impact of that buying. Okay. The same as measuring the impact directly those two things are equivalent. You can do the same exercise with the seller and think about what is the impact of the selling. Well, the seller is drawing the price down $1 so the direct impact you could measure is minus 1. Alternatively and equivalently you could say what was the actual price in the market and what would it have been, so minus what would it have been in the absence of the selling but without changing the behaviour of buyer. Well, the actual price was $10 after the buy and the sell. The price in the absence of the selling would have been $11 because you would only have had the buyer, not the seller there. So it's $10 minus $11 gives you minus 1 is the impact of the seller. Same as measuring the direct impact. Okay. So when you break up the trades like this, thinking about the effect is relatively straightforward. Now, consider a slight modification to this example that actually doesn't change the demand and supply shocks to the example. It doesn't change the fundamental buying or selling in the market. What about rather than these two traders having to trade via a market-maker so the buyer buying from a market-maker and the seller selling to the market-maker so the market-maker is doing nothing other than taking the asset from the seller and giving it to the buyer so there is just an intermediary. Take the market-maker out from these two counterparties but suppose the market-maker is still in the market ready to accommodate any imbalance should these counterparties not be able to find each sorry. Okay. So what is going to happen? Now, the participant that wanted to buy is going to trade directly with the participant that wanted to sell. Things are going to be no different. You have just taken out the intermediary. … So let's do this exercise for the buyer. What was the price - they would have traded $10 if they trade against each other. What was the actual price? The actual price was $10. What would the price have been in the absence of the buying? Well, you would have had just the seller in the market. Okay. So you would have the price go down to $9. So the impact of the buying was $10 minus $9, it was plus $1. It's exactly the same as we had in the previous scenario. What was the impact of the selling? Well, the actual price was $10. In the absence of seller you would have only had the buying so the price would have been $11. So $10 minus $11 gives you minus $1. The impact of the seller is minus $1. You can see once I have taken the market-maker out of the picture the buying and the selling still has an effect if you measure effect in terms of where the price actually was minus where it would have been in the absence of that person's actions but without changing the other fundamental demand and supply in the market. Yes. They both had effect. Now, if you think about that trade between the two counterparties, the buyer had an effect, the seller had an effect. So it is still consistent to talk about buying having an effect and selling having an effect but it becomes more complicated to try and talk about that trade as having effect because what actually happened in the trade was the two counterparties each had an effect and those effects went in opposition directions. Okay. And that takes me to, you know, the counterfactual and how the analysis is performed to do these calculations of impacts in this model. 1833 But then this leads on to the third problem. 1834 The third problem with Professor Putnins' approach is the counterfactual assumed by him. In calculating the impact on BBSW of Westpac's trading on each alleged contravention date, Professor Putnins purported to calculate what the price would have been in the absence of Westpac's trading but without changing the buying or selling of the other banks. That is, he made a ceteris paribus assumption. Now what that assumption meant in practice was not clear. Strictly applied, if Westpac was 100% of the buying volume on a day, Professor Putnins should have assumed that there would have been no trades on the day. But it became apparent that what Professor Putnins assumed was that in Westpac's absence, sellers would have moved yields up to trade with liquidity providers or would have increased their quotes. The consequence of such an assumption is that the removal of Westpac's buying necessarily increases the estimated yields, and vice versa. But as Westpac pointed out, that assumption is doubtful. If, as Professor Putnins' predicts, yields would have markedly increased if Westpac did not participate in the market on the day, other market participants (not just "liquidity providers") are likely to have bought at the elevated levels to which Professor Putnins estimates yields would have moved as a result and accordingly had the reverse effect. As Westpac points out, the effect of this doubtful assumption is demonstrated in the estimates of the likely price impacts of Westpac's trading in Table C.1, which I have set out earlier, some of which calculate likely movements in BBSW which do not compare well with actual traded yields. 1835 Finally, and notwithstanding Professor Putnins' empirical analysis, there are also other reasons why no assumptions can be made about the effect on BBSW of trading in Prime Bank Bills. Those matters include the following. 1836 First, the Bank Bill Market operates on a continuous trading basis, with the result that trades do not necessarily alter the best bid and offer. 1837 Second, the relationship between the Bank Bill Market and other markets such as the futures market means that textbook microeconomic theories are not of direct application to the Bank Bill Market. In particular, Prime Bank Bills can continue to be issued by a bank, whereas shares in a company are finite. Further, Prime Bank Bills are substitutable for BAB Futures; the latter of course require deliverability. 1838 Third, most of the academic literature relied upon by Professor Putnins to assert the existence of volume trading effects on BBSW concern primarily securities markets that significantly differ from the Bank Bill Market. 1839 Fourth, the open outcry nature of the Bank Bill Market during the BBSW Rate Set Window means that there is no order of trading data available at the time BBSW panellists' submissions are required to be made to AFMA. In the absence of such data, it is difficult to be satisfied that any particular trade by Westpac had a particular impact on the BBSW. Further, I would note that Professor Putnins purported to calculate the effect of trading in Prime Bank Bills on BBSW where some of the trades he relied upon took place after BBSW had already set. 1840 Fifth, the prices at which executed trades were fixed and the volume of Prime Bank Bills actually traded was not information that was normally made available to participants in real time. The convention in the Bank Bill Market was for bids and offers (but not executed trades) to be quoted by brokers and for Prime Bank Bills to be traded in minimum parcels of $20 million unless otherwise indicated. 1841 Sixth, as should already be apparent, strictly BBSW was not set on the basis of trading in Prime Bank Bills during the BBSW Rate Set Window, but rather set by reference to manual submissions made by BBSW Panellists to AFMA on the basis of their own observations of bids and offers in the Bank Bill Market. Submissions were required by AFMA to reflect the BBSW panellist's view as to the mid-point of the best bid and offer rates for Prime Bank Bills at 10.00 am in each tenor, although I have accepted that this was not always followed in the sense that bids/offers after 10.00 am may have been considered. I will return to this shortly. 1842 Seventh, on one view Professor Putnins' focus on the impact that volumes of Prime Bank Bill trading had on BBSW is misdirected. Volume was not a matter to which BBSW panellists were specifically required to have regard to, let alone a matter on which they were permitted to base their submissions. The focus of BBSW panellists was required to be the mid-point of bids and offers. Nevertheless, as I have described earlier, some panellists did informally take volume into account by selecting their best estimate from higher volume trades. 1843 In summary, I did not find Professor Putnins' empirical analysis to be particularly useful on the question of effect or likely effect. No doubt one's intuition is to readily assume that buying Prime Bank Bills pushes up prices and decreases yields (and BBSW), and selling Prime Bank Bills decreases prices and increases yields (and BBSW). But intuition cannot be easily applied to the complex dynamics of the Bank Bill Market as the above discussion should demonstrate.

(e) Other matters 1844 Stepping back from economic theories and Mr Collinson QC's endeavours to extol their virtues to me, I would make some further observations concerning how the dynamics of the Bank Bill Market worked in fact as distinct from some abstract theoretical overlay.

The dynamics of trading 1845 It is not contentious that trading in the Bank Bill Market may have an effect on BBSW. And it is not controversial that trading by any one participant may have an impact on BBSW on any given day. For example, if one participant buys all of the Prime Bank Bills that all other participants are willing to offer at a particular yield, the bid/offer spread may change as a result of that participant's buying. But whether that buying would have or be likely to have that effect depends on the willingness of other participants to sell Prime Bank Bills at that and other yields, and the volume of Prime Bank Bills on offer. It is not sufficient to look at the activity of one participant, its bids and offers and its volumes, in order to determine effect or likely effect. 1846 It is uncontroversial that the Bank Bill Market was characterised by concentrated trading in large volumes by a small number of well-funded, sophisticated participants. Accordingly, there was the possibility that buying by one participant would exert no downward pressure on the market mid-rate because one or more sellers were willing to sell that volume at the prevailing yield. Alternatively, the market mid-rate may have increased notwithstanding the participant's buying if one or more sellers wished to sell more Prime Bank Bills that day than were bid at the prevailing yield. Accordingly, whether the market mid-rate (and potentially BBSW through the submission and calculation process) would decrease, remain the same or increase in response to buying by one participant depended on the interaction between the volume of that participant's buying and the volume of Prime Bank Bills which other participants were willing to sell that day. One can apply a similar analysis concerning the potential for one participant's selling to affect BBSW. 1847 More generally, the potential for trading to affect BBSW cannot of itself establish that trading by any one bank on any day was likely to affect the level at which BBSW set that day. As Westpac correctly pointed out, unlike trading on the ASX, in which there is a publicly disclosed order book recording all bids and offers with prices and volumes, in relation to the Bank Bill Market there is no such available evidence of the complete volumes and prices at which other market participants were willing to trade on any day. Only the best bid and offer was disclosed on the brokers' screens, and to traders over the telephone or speaker lines. Further, usually those bids and offers were only for the minimum trade amount of $20 million. It was not apparent in real time how much real liquidity was available at any yield. 1848 And even more generally in the terms of the evidence (indeed lack of evidence) before me, there is no record now available of how the relevant best bids and offers on the contravention dates changed over the course of the BBSW Rate Set Window on any given day, other than as may be observed from some taped telephone lines between traders and brokers on certain days. Forensically, on the evidence before me I am not able to say on the balance of probabilities whether buying or selling by any one participant lowered, raised or left unchanged the prevailing mid-rate at the time the trade was effected, let alone at 10.00 am, which is the time supposedly used by the BBSW panellists for their estimates.

100% of the market 1849 On trading days where Westpac undertook 100% of the trades, ASIC says that its case that Westpac's trading had the alleged effect or likely effect is stronger. It says that on such days I need be even less concerned about the magnitude or quantification of the impact of the traders' conduct on those days. 1850 I would also note at this point that there is an aide memoire that ASIC took me to, purporting to summarise the number of days (per calendar year) that Westpac, ANZ and NAB bought or sold 100% of the Prime Bank Bills traded in the Bank Bill Market. According to the document, there were 251 trading days in 2010 and 2012, and 250 trading days in 2011. Westpac 30-Day 90-Day 2010 - Buy 91 1 2010 - Sell 1 - 2011 - Buy 100 3 2011 - Sell 1 1 2012 - Buy 62 10 2012 - Sell 3 4

NAB 30-Day 90-Day 2010 - Buy - 1 2010 - Sell 1 2 2011 - Buy 1 3 2011 - Sell 6 2 2012 - Buy 3 11 2012 - Sell 3 4

ANZ 30-Day 90-Day 2010 - Buy 9 - 2010 - Sell 16 1 2011 - Buy 3 2 2011 - Sell 12 1 2012 - Buy 11 5 2012 - Sell 16 7

1851 Now I accept that Westpac's volume of trading on a particular day may be a relevant consideration when determining the effect or likely effect of its trading, particularly for dates on which Westpac's trading was 100% of the market. 1852 Now at one point Ms Johnston agreed that if Westpac bought 100% of the Prime Bank Bills on a trading day in a particular tenor, its trading would likely have had an effect on the bid/offer spread. But she subsequently agreed that even on those days it might be possible for a bid and an offer from other participants in the market to be posted after Westpac had completed trading say at 9.58 am. There may have been bids or offers thereafter but with no completed trade. But such bids or offers say at 10.00 am may form the basis used by panellists for their estimates relevant to the setting of BBSW. BBSW is set on the mid-point of bids and offers, rather than being based on actual completed transactions. Further, even if you were 100% of the buyers or 100% of the sellers, spreads may not change over the course of trading. You may just bounce between the same bid and offer. Further, being 100% on one side may not change the best bid or offer if the relevant trade does not exhaust volumes at that level. More generally, you need to look at the course of trading even if one participant was 100% of one side before you could determine the effect on BBSW. 1853 But generally speaking, and with all else being equal, there is relatively likely to be more of an effect from Westpac's trading if it was 100% of one side than if it was a lesser percentage.

Earlies/lates 1854 I have already discussed the "earlies" and "lates" convention in the Bank Bill Market which was summarised by Mr Roden in the following terms and is worth recapping: Bank Bills which matured between the 1st and the 15th of the month were referred to as "earlies" and were only liquid on the Bank Bill Market between these dates (that is, 1st to the 15th of the month). Bank Bills which matured between the 16th and the end of the month were referred to as "lates" and were only liquid on the Bank Bill Market on these dates. 1855 Now the increased selling towards the end of the earlies/lates cycle (i.e. towards the middle and the end of the month) increased the yields of Prime Bank Bills, whilst the increased buying towards the start of each cycle (i.e. at the start of the month and just after the middle of the month) reduced the yields of Prime Bank Bills. Such increased volume of buying may have influenced the BBSW lower whilst such increased volume of selling may have influenced the BBSW higher. I accept, all else being equal, that this so-called naturally occurring phenomenon, if anything to do with the Bank Bill Market could be so described, may support the general proposition that greater buying likely reduces yields while greater selling likely increases yields.

Post-10.00 am trading 1856 As I have sought to explain elsewhere, the substantial majority of all trading in Prime Bank Bills in the Bank Bill Market took place in the period between approximately 9.55 am and 10.05 am on each Sydney business day, i.e. the BBSW Rate Set Window. Mr Roden confirmed that virtually all trading in the Bank Bill Market was concentrated in a short period during the BBSW Rate Set Window. Further, Mr Zuber agreed that the majority of the trading occurred then. Further, Ms Johnston was aware that there was limited liquidity for Prime Bank Bills outside of the BBSW Rate Set Window, that she would have to conduct her trading in a relatively short period of time of five to ten minutes and that trading would commence before 10.00 am and the bulk of trades would conclude by 10.05 am. Further, Mr Hosie agreed that there was more liquidity in the BBSW Rate Set Window and very limited liquidity around 4.20 to 4.30 pm. 1857 Now as I have said, the BBSW in each tenor was intended to be based on submissions made by BBSW panellists of relevant observations at around 10.00 am on each business day. But an issue has been raised as to whether trading post-10.00 am was relevant to an analysis of effect or likely effect on BBSW of trading for the relevant purpose. 1858 Now Mr Roden's evidence was that during the relevant period, submissions made to AFMA to determine the BBSW included trading that occurred after 10.00 am. Mr Roden said that when traders were buying and selling after 10.00 am, including at around 10.03 am, those transactions might be submitted to AFMA as reflecting the mid-rate of the bid/offer spread as at 10.00 am, to determine the BBSW for the relevant tenor. 1859 Further, Ms Johnston monitored the submissions made by panellists and the extent to which submissions diverged from the mid-point of the bid-offer spread throughout the relevant period. She was a party to communications about submissions being made to AFMA based on trading that occurred after 10.00 am. For example, she circulated an internal email including to Mr Roden advising that she was "compiling data to monitor where bbsw sets relative to where it is at 10am", and observed "the fact that the market isn't always inputting the rate at 10am" [Email, Ms Johnston to K Nixon (Westpac), Roden and Park, 12 May 2010]. Further, she told AFMA on 14 May 2010 that "people aren't always inputting the 10am rate" [Email, Ms Johnston to A Young (AFMA), 14 May 2010]. Further, she received emails which identified that BBSW took into account trading after 10.00 am including from Mr Hosie and Mr Regan of AFMA. Ms Johnston initially gave evidence that she had assumed that all panellists submitted rates reflecting the bid-offer spread at exactly 10.00 am, but she later accepted that submitters may have taken into account trading after 10.00 am and that she was aware of this during the relevant period after June 2010. 1860 Further, on 7 July 2011, Mr Parker, in an email copied to Mr Simon Masnick recorded that trading after 10.00 am had affected BBSW on that day, that is, that submissions were made to AFMA based on trading after 10.00 am: "sellers in 10.03am pusshing through 4.96%, and small trading 4.97% - set 4.9633%." Mr Masnick also understood that trading in Prime Bank Bills at or shortly after 10.00 am could affect the rate at which BBSW set. 1861 Further, other participants in the Bank Bill Market also knew that submissions may have taken into account trading after 10.00 am. Mr Hulme (CBA) told Ms Johnston on 31 May 2010, in relation to the "extended window for input of rates", that "the market at 10am was 4.85/84 as seen by ICAP [h]owever the majority of contributors input 86,87 and even 88 by yourselves [Westpac]. The move up in rate occurred after 10am…" [Email, Mr Hulme (CBA) to Ms Johnston and also A Young (AFMA), 31 May 2010]. Mr Tsakiris (NAB) told other NAB staff on 17 June 2011 that "[w]e were sellers of 3mth getting the market to 00/99 unfortunately setting 4.9867% with ANZ buying it down post 10am" [Email, Mr Tsakiris to Rhys Finch, Peter Betros (both NAB), 17 June 2011]. Mr Howarth (NAB) told other NAB staff on 1 November 2012 that "BBSW contributions are gathered from the market participants on the basis of where they see the market trading at 10 o'clock and over the observable window of 10.00 to 10.02". Mr Brizuela's (NAB) evidence was that BBSW is the interest rate that Bank Bills are traded at between banks via brokers "at around 10:00am" on each Sydney business day. Mr Johnson (NAB) understood that the submissions were supposed to represent the volume weighted traded rate for each tenor that was observed being traded in the Bank Bill Market "at around" 10.00 am. Further, evidence of submitters from other banks confirmed that when the bulk of trading occurred after 10.00 am, at least some submitters took that trading into account when submitting rates to AFMA. 1862 Now as I have previously discussed, AFMA's BBSW Procedures required mid-rate contributions from BBSW panellists for each tenor by 10.05 am Sydney time to reflect each BBSW panellist's view of the mid rates (mid of bid/offer rates for each tenor) for Prime Bank Bills as at 10.00 am; in an earlier part of my reasons I have referred to the period between 10.00 am and 10.05 am as the Submissions Period. Accordingly, Westpac says that only the best bid and offer at 10.00 am should have a bearing on BBSW that day. 1863 Now I would note at this point that the evidence before me does not establish which bank placed the best bid or offer at 10.00 am on each of the contravention dates. Further, I would also note that there is no reliable course of transactions information available to me to show the order in which, and times at which, completed trades were executed in the Bank Bill Market. In the case of ICAP, trades were entered into a reporting system only after the BBSW Rate Set Window and brokers frequently aggregated multiple trades between the same counterparties for reporting purposes by aggregating volume and averaging prices to simplify the accounting and recording keeping process. And in the case of Tullett, trades were entered in a recording system in real time, but could subsequently be aggregated, in which case the time of the trades would be recorded as the time the consolidated entry was created. Now a trade completed shortly prior to 10.00 am may have affected the bid/offer spread at 10.00 am if its effect was to remove available supply or demand such as to lead to a change in the bid/offer spread at 10.00 am. But in relation to the contravention dates I am not able to ascertain whether any trade had this effect. No reliable historical information exists as to completed trades, bids and offers during the BBSW Rate Set Window. 1864 In relation to trading or bids/offers after 10.00 am, ASIC says that submitters based their submissions on the course of trading throughout the whole of the BBSW Rate Set Window such that trading by Westpac at any time during the BBSW Rate Set Window was likely to have an impact on BBSW. But as Westpac points out, this is not a fair reflection of the evidence. 1865 First, as I have already said, evidence was led by ASIC from submitters from four BBSW panellists (HSBC, Société Générale, Suncorp and RBC) to the effect that they made BBSW submissions based not on the bid/offer spread at 10.00 am, but on the course of trading throughout the whole of the BBSW Rate Set Window and, in particular, would update their submissions in response to trading between 10.00 am and 10.05 am. But as Westpac points out, there were 14 panel banks at all times during the relevant period, of which ASIC has led evidence only from 4. Moreover, Suncorp only became a panel bank in May 2012; evidence from the Suncorp submitters is only potentially relevant to 1 out of the 16 contravention occasions. Further, Société Générale ceased to be a panel bank on 28 May 2010. 1866 Second, BBSW was determined by the 6 mid-ranking submissions (as per the elimination processes I have discussed earlier in these reasons). Accordingly, outlier submissions from a minority of submitters who failed to comply with AFMA's BBSW Procedures are likely to have been excluded if they differed from the mid-rate of the bid/offer spread at 10.00 am. 1867 Relatedly, I agree with Westpac that the statistical analysis conducted by Mr Paulo Pinto, an inhouse economist and senior specialist with ASIC, cannot of itself establish that trading after 10.00 am was likely to have influenced the level at which BBSW set on a given day. That analysis shows only that on a majority of days in the relevant period, one or more panellist banks submitted updated rates between 10.00 am and 10.05 am. That is, having submitted a rate at or about 10.00 am, the submitter updated the submitted rate prior to 10.05 am. But that analysis cannot prove that BBSW was likely to have been affected by trading after 10.00 am. BBSW was set by the 6 mid-ranking submissions. Rates submitted by one or a small number of panellists which reflected trading after 10.00 am would likely have been omitted if the updated rate differed from the rates submitted by the other panellist banks. 1868 Third, there is other evidence which is in tension with the proposition that submissions were based on trading across the entire BBSW Rate Set Window, including the following: (a) Mr Brizuela's evidence was that BBSW was based on the bid/offer spread at exactly 10.00 am, which explains his evidence that a tactic sometime used by the NAB STIRT traders was to reverse their trading immediately after 10.00 am. (b) The internal NAB emails tendered by ASIC support the conclusion that most panellists were submitting the 10.00 am rate. 1869 Fourth, I agree with Westpac's point that Mr Roden's evidence that he thought some submitters may have been submitting as late as 10.05 am does not establish that all or even most submitters made submissions on that basis. And as I have said, a minority of outlier submissions, if different from the 10.00 am bid/offer spread, would in all likelihood have been eliminated in the reduction from 14 to 8, and then to 6 submissions. Moreover, as Westpac points out, Mr Roden recorded in an email to Mr Whitfield, which was copied to Mr Zuber and Mr Hosie, on 8 March 2012 that the "input by the 14 banks are ordinarily all within 1 basis point across all maturities. AFMA actually tracks each bank[']s input from the average to ensure that banks are contributing rates that reflect traded market prices". Mr Roden confirmed in his evidence that "[o]n the overall ranking, every single bank was within one basis point on average overall". 1870 In summary, I am not able to conclude that trading after 10.00 am would have affected or likely have affected (at least in any significant way) where BBSW set.

Forensic deficiencies 1871 Before drawing some interim conclusions let me say something further about the lack of evidence in relation to being able to pinpoint the exact times at which Westpac traded or made bids or offers during the BBSW Rate Set Window. 1872 The timestamps contained within the broker data for trades entered into during the BBSW Rate Set Window were unreliable. As I have said, Professor Putnins had to assume that the sequence of trades did not necessarily reflect the sequence in which they occurred, there was no detailed information on quotes, and several individual trades could be aggregated into one printed trade. So, such data as was available about trading provided very little information about a single trade's sequence or place or the relevant bids or offers in terms of the precise time and order in the BBSW Rate Set Window. 1873 Further, the audio recordings of trading were similarly unreliable in terms of timing. I was taken to a number of consolidated transcripts of calls made within the BBSW Rate Set Window, but they came with the warning that: The time stamps included in the associated metadata for audio recordings produced by Westpac to ASIC were affected by a number of issues and accordingly are not accurate representations of the time at which a particular call occurred. 1874 Now various consequences flow from this evidentiary deficiency. First, Professor Putnins explained that the lack of reliable or accurate timestamps limited the empirical analysis he could undertake on trading. Second, as Westpac submitted: (a) proving that Westpac traded on a particular day, even in volume, of itself does not prove that its trading had, or was likely to have, an effect on the yields at which Prime Bank Bills were trading, because the absence of time-stamped trading data prevents identification of when that trading occurred and what the bid/offer spread was immediately before and after each trade; and (b) again due to the absence of time-stamped trading data, ASIC cannot identify whether Westpac's trading took place before or after 10.00 am and therefore whether it had any impact on the bid/offer spread at 10.00 am and the views of BBSW panellists making submissions to AFMA. 1875 I agree with Westpac that these are significant forensic obstacles for ASIC's case on effect or likely effect. However, for those four contravention dates where I have found that Westpac traded with a dominant manipulative purpose (6 April 2010, 20 May 2010, and 1 and 6 December 2010), I am prepared to infer in ASIC's favour that Westpac's trading occurred before or at 10.00 am (prior to the clock ticking over to 10.01 am). If it occurred after that time in my view it would in all likelihood have had a de minimis impact on where BBSW set for the reasons that I have explained above.

(f) Interim conclusions 1876 Let me draw together some of the conclusions based upon the above analysis. 1877 First, I do not consider Professor Putnins' theories, models or the application thereof to be sufficiently probative to draw conclusions concerning the effect on yields or BBSW of Westpac's trading in Bank Bills on the contravention dates. Certainly, his analysis does not establish actual effect. As to the question of likely effect, if "likely" means more probable than not, then his evidence in my view does not assist to show this. And I say that also in relation to the contravention dates when Westpac may have been 100% of one side of the trades of Prime Bank Bills in a particular tenor. But if "likely" means no more than a real but not remote chance, then I accept that his theories at least (not the empirical analysis itself) may provide a basis for showing on four contravention dates (6 April 2010, 20 May 2010 and 1 & 6 December 2010) likely effect at that lower level, particularly where Westpac was 100% of one side, but only if I assume in favour of ASIC that Westpac's relevant trading behaviour occurred on or before 10.00 am (i.e. before 10.01 am clicked over) on each trading day, which is a problematic assumption for many of the contravention dates given the deficiencies in the evidence. 1878 Second, the other matters that I have just discussed fortify this last conclusion as does my view that the Bank Bill Market and BBSW were potentially susceptible to manipulation during the relevant period, consistently with market participants' perceptions. 1879 Further, one also has to be careful drilling down further concerning specific contravention dates and particularly looking at changes in BBSW to determine effect. Take each of the contravention dates where I have found a dominant manipulative purpose for trading (6 April 2010, 20 May 2010 and 1 & 6 December 2010). 1880 First, in relation to 6 April 2010, Westpac was the 100% buyer of 1 month Prime Bank Bills, yet BBSW only declined by about 1 basis point from the previous trading day. 1881 Second, in relation to 20 May 2010, Westpac was the 100% buyer of 1 month Prime Bank Bills, but in fact BBSW increased by about 1 basis point from the previous trading day. 1882 Third, in relation to 1 December 2010, Westpac was the 89.64% buyer of 3 month Prime Bank Bills, and the BBSW declined by about 5 basis points from the previous trading day. 1883 Fourth, in relation to 6 December 2010, Westpac was the 100% buyer of 3 month Prime Bank Bills, but in substance the BBSW did not alter from the previous day. 1884 Now ASIC rightly says, as I have discussed previously, that one should not undertake such a comparison in order to directly determine effect or likely effect. It says that absent Westpac's manipulative buying on each such date that: (a) for a case where BBSW declined, it would have otherwise declined less or increased; (b) for a case where BBSW stayed the same, it would have otherwise increased; and (c) for a case where BBSW increased, it would have otherwise increased further. 1885 Now this is in the realm of speculation. But as I have said, I agree with ASIC that looking at actual movements in BBSW to determine effect or likely effect is a problematic exercise. But generally, as I have said, I am able to find in relation to the said four contravention dates likely effect on yields and BBSW, if likely is at the lower threshold of a real but not a remote chance and I assume in favour of ASIC that Westpac's trading behaviour occurred at (i.e. before 10.01 am clicked over) or before 10.00 am.

(a) Setting the scene 1886 Section 1041A of the Corporations Act provides: A person must not take part in, or carry out (whether directly or indirectly and whether in this jurisdiction or elsewhere): (a) a transaction that has or is likely to have; or (b) 2 or more transactions that have or are likely to have; the effect of: (c) creating an artificial price for trading in financial products on a financial market operated in this jurisdiction; or (d) maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market operated in this jurisdiction. 1887 In the present context, the relevant transactions are the trades engaged in by Westpac in the Bank Bill Market on the contravention dates. The term "transaction" covers any act, negotiation or dealing (R v Manesseh (2002) 167 FLR 44; [2002] NSWCCA 27 at [57] per Sheller JA). Now it is to be noted that s 1041A does not expressly state that the transaction need occur of the financial product or in the financial market identified in sub-paragraphs (c) and (d). In other words, the transaction can be of a different product or in a different market to that identified in sub-paragraphs (c) and (d) provided it has the effect or likely effect stipulated in sub-paragraphs (c) or (d). 1888 Further, s 1041A prohibits a transaction which has or is likely to have the effect of creating or maintaining an "artificial price", a concept that is not defined. But it does not refer to any particular movement in price in any direction or to the resistance of any such movement that might occur but for the transaction in question. 1889 Section 1041A may be contrasted with s 1041B(1), which relevantly provides: A person must not do, or omit to do, an act (whether in this jurisdiction or elsewhere) if that act or omission has or is likely to have the effect of creating, or causing the creation of, a false or misleading appearance: … (b) with respect to the market for, or the price for trading in, financial products on a financial market operated in this jurisdiction. 1890 For the purposes of s 1041B there is no requirement that the relevant act be a transaction, let alone as to the relevant product traded on a financial market. 1891 In essence, ASIC contends the following: (a) On the contravention dates and at other times during the relevant period, Westpac engaged in the practice of trading Prime Bank Bills in the Bank Bill Market with the sole or dominant purpose of affecting BBSW in a manner favourable to Group Treasury's BBSW Rate Set Exposure. (b) Such trading was at least likely to result in yields and therefore prices for Prime Bank Bills and thus BBSW not reflecting the forces of genuine supply and demand. (c) The price for trading in the traded BBSW Referenced Products being BAB Futures, cross-currency swaps and interest rate swaps (the Traded BBSW Referenced Products), which were financial products traded on a financial market(s) operated in this jurisdiction, was affected by the price/yield of Prime Bank Bills and/or BBSW and was thus at least likely to have been artificial as a result of the trading for the purposes of at least s 1041A. (d) Further, it was at least likely that there was a false or misleading appearance with respect to the price for trading in Traded BBSW Referenced Products or a false or misleading appearance with respect to the market(s) for trading in those products for the purposes of s 1041B. 1892 Now what is meant by an "artificial price"? This phrase has not been defined for the purposes of s 1041A. Putting to one side for the moment the text, context and purpose of s 1041A and the case law, there are various commercial possibilities as Professor Emilios Avgouleas discusses in The Mechanics and Regulation of Market Abuse: A Legal and Economic Analysis (Oxford University Press, 2005) at 108 to 113; the author is currently the International Banking Law and Finance Chair at the University of Edinburgh. His analysis provokes the following questions: (a) Does "artificial price" mean a price which diverges from the legitimate forces of supply and demand? (b) Does it mean a price which would be different if the price manipulating efforts were absent? In other words, has it become a non-equilibrium price or a price that has moved away from its correct level? (c) Does showing an "artificial price" amount to showing a difference between two price equilibria? One price equilibrium is that resulting from manipulation. The other price equilibrium is a "but for" counterfactual price equilibrium that is forecast to have arisen absent the manipulation, with the forecasting being derived from historical data. (d) Does showing an "artificial price" mean showing an unusual price that manifests itself by separation from normal pricing mechanisms for no apparent reason? Examples may be an unexplained price increase or a substantial divergence between the price of an asset and the price implied for the same asset in the associated futures contract. Another example that Avgouleas gives for the listed securities market context is an abnormal price differential between the closing prices of similar securities or futures contracts on different exchanges. 1893 I will return to this concept shortly, but for the moment it is appropriate to note that only category (a) is in play, subject to some qualifications that I will come to. Current authority that binds me suggests that if one party to a trade is doing so for a sole or dominant manipulative purpose then necessarily any price struck for the trade is not in accordance with the legitimate forces of supply and demand; indeed artificiality is established by that reason alone without objective divergence being demonstrated. As to the other categories, there has been no successful attempt made by ASIC to show a price of the type described in categories (b) to (d). Indeed, it says it does not need to show or demonstrate any objective price change or maintenance by reason of the manipulative trading. 1894 Let me deal with another general concept before proceeding further. 1895 In general terms what is embraced by the concept of market manipulation? Avgouleas has helpfully classified the various categories (at 118 to 153). Let me paraphrase parts of his comprehensive analysis. 1896 The first category is information-based manipulations involving for example the dissemination of false or misleading rumours or misleading or deceptive conduct by brokers or investment advisers seeking to "talk up" securities or the like (cf s 1041E). Such forms of manipulation may include a form of market rigging by a security holder or an insider seeking to spread false or misleading rumours. A notable example in this category is the Great Stock Exchange Fraud of 1814, where an elaborate hoax falsely announced the death of the Emperor Napoleon thereby enabling manipulators to benefit from the sale of large amounts of British government securities, the value of which increased with the news. 1897 The second category of manipulation is one based on artificial transactions. The artificial transaction could be fictitious trades (cf s 1041C). The artificial transactions could also be what Avgouleas describes as "wash sales", where the manipulator enters both a buy order and a sell order for the same security at the same price. In this situation, no change in beneficial ownership occurs (cf s 1041B(2)(a)). Another type of artificial transaction can be produced by the practice of "matched orders" (cf s 1041B(2)(b)). This consists of one party placing an order whilst knowing that simultaneously another party has entered a sale order or purchase order from the other side matching the size and price of the first order. 1898 Now the first and second categories of manipulation are not applicable to the present context that I am considering. 1899 The third category of manipulation concerns price manipulation. This category is of relevance to the present context. Avgouleas makes a distinction between three types of price manipulation. 1900 First, there are trade-based manipulations, where large or specifically structured and timed trades are designed to influence the price levels of traded investments, but which involve neither the exercise of market power nor trade subsidisation. Such manipulations may involve "trading at the end of the day" scenarios or "penny stock" manipulations. I can put such a type of case to one side. 1901 Second, there are contract-based manipulations involving structured and timed trades which are designed to move prices of a particular product in order to make a gain or reduce a loss in another contractual position. In such a situation the trader's profit or other advantage is not intended to come directly from the manipulative trades, but rather from a favourable movement in its rights or obligations under a separate contract, instrument or investment as a result of the manipulated price caused by the trading activity. Such a transaction presents what Avgouleas describes as a form of trade subsidisation. Clearly, ASIC's case before me is said to involve a form of price manipulation involving this type of contract-based manipulation. 1902 Third, there are market power manipulations, where market power is used to acquire a large part of the supply of or demand for a product in order to dictate the level of prices for that product. The practices of "corners" and "squeezes" are examples of such market power manipulations, perhaps to advantage a derivatives position; in that sense, one may have a hybrid of a market power manipulation with a contract-based manipulation. I will say something about these practices later. But the case before me is not said to be of this type given the relative strengths of the Prime Banks, and notwithstanding Westpac's strength and perception as being a large buyer of Prime Bank Bills from time to time during the relevant period.

(b) Legislative history 1903 Before proceeding further, it is worthwhile setting out some legislative history. 1904 The Full Federal Court in Australian Securities and Investments Commission v Whitebox Trading Pty Ltd (2017) 251 FCR 448 at [39] to [71] (per Allsop CJ, Middleton and Bromwich JJ) discussed some of the legislative history to the present provisions. They did so in the context of determining whether Ch 2 of the Criminal Code (Schedule to the Criminal Code Act 1995 (Cth)) applied to civil penalty proceedings commenced under the Corporations Act concerning ss 1041A and 1041B. It is useful to both paraphrase and supplement some aspects of their description, although their discussion had a different focus to what I am now considering. I have changed some of their references to relevant but now repealed Victorian legislation and also identified the genesis of the concept "artificial price". 1905 The Companies Act 1961 (Vic) and equivalent legislation in other States and Territories lacked specific market manipulation provisions. This perceived deficiency was addressed in Victoria, initially by ss 70 to 72 of the Securities Industry Act 1970 (Vic) and then in substantially similar terms by ss 109 to 111 of the Securities Industry Act 1975 (Vic) which contained earlier versions of the present market manipulation proscriptions. Section 109(1) (the successor to s 70 and a precursor to what is now s 1041B) in particular provided: A person shall not create, or cause to be created, or do anything that is calculated to create, a false or misleading appearance of active trading in any securities on a stock market in the State, or a false or misleading appearance with respect to the market for, or the price of, any such securities. 1906 In North v Marra Developments Ltd (1981) 148 CLR 42, a contravention of s 70 of the earlier equivalent Securities Industry Act 1970 (NSW) was successfully pleaded as a shield in defence of a claim for payment of a stockbroker's fees. The application was granted in circumstances where share purchases had taken place for the purpose of securing the success of a takeover by maintaining the market price of the company's shares. In the course of upholding that outcome, the High Court considered what was required to constitute a criminal offence in breach of s 70, which had a bearing on the outcome of the civil proceedings. 1907 Mason J in North v Marra Developments pointed out that the generality of the language in s 70 did not easily translate into a specific prohibition against injurious activity by way of giving the market or price of securities a false or misleading appearance, whilst at the same time allowing for legitimate commercial activity which would have the same effect. In his view, the way to achieve the necessary distinction between proscribed and legitimate activities was to confine the operation of the provision to buyers and sellers whose transactions were undertaken for the sole or primary purpose of setting or maintaining the market price. The word "calculated" in s 70 was interpreted to mean "designed" or "intended", being the language of a state of mind of fault or responsibility, rather than the neutral concepts of "adapted" or "suited". 1908 But the Full Court in ASIC v Whitebox Trading said that North v Marra Developments may still provide useful guidance in ascertaining what, if any, state of mind is required to be established when none is specifically provided. 1909 In 1981 the Securities Industry (Victoria) Code, being the Victorian version of a quasi-national co-operative scheme (sourced to the Securities Industry Act 1980 (Cth)) applied by the Securities Industry (Application of Laws) Act 1981 (Vic), introduced new market manipulation proscription provisions containing specific elements of intention, coupled with a general offence provision and a corresponding compensation provision. Section 123 of the Securities Industry Act 1980 (Cth) is a predecessor to s 1041A (albeit an imperfect analogue), and s 124(1) is a predecessor to s 1041B. But at this time, there was no express reference to the concept of "artificial price" as such. In parallel, the Companies (Victoria) Code, being another part of the same overall quasi-national co-operative scheme, was introduced in Victoria in 1981 by the Companies (Application of Laws) Act 1981 (Vic). 1910 In 1986, a quasi-national co-operative scheme was introduced for the futures industry. The Futures Industry Act 1986 (Cth), which was then applied by the Futures Industry (Application of Laws) Act 1986 (Vic) to Victoria, created the Futures Industry (Victoria) Code which contained, inter-alia, ss 130 and 131 proscribing various forms of market misconduct concerning futures markets including the creation of or maintaining of artificial prices for dealings in futures contracts on a futures market(s). Section 130 was the first time that the concept of "artificial price" was introduced. Section 130 provided: 130 Futures market manipulation A person shall not, whether within or outside the [State/Territory], take part in, be concerned in or carry out, whether directly or indirectly - (a) a transaction (whether or not the transaction is a dealing in a futures contract) that has, is intended to have or is likely to have; or (b) 2 or more transactions (whether or not any of the transactions is a dealing in a futures contract) that have, are intended to have or are likely to have, the effect of - (c) creating an artificial price for dealing in futures contracts on a futures market within the [State/Territory]; or (d) maintaining at a level that is artificial (whether or not that level was previously artificial) a price for dealing in futures contracts on a futures market within the [State/Territory]. 1911 The concept of "artificial price" was not defined. Section 130 also embraced an intentional component. 1912 Later a national legislative arrangement for companies law was legislated by way of the Corporations Act 1989 (Cth) and then various State Application Acts which introduced inter-alia the Corporations Law of Victoria and comparable provisions in other States on 1 January 1991. Market manipulation provisions for both the securities industry and for the futures industry were contained in ss 997 to 998 and 1259 to 1260, respectively. Sections 997 and 1259 were predecessors to what ultimately became s 1041A. Sections 998 and 1260 were predecessors to what ultimately became s 1041B. 1913 The landscape further changed a few years later with the enactment of the Corporate Law Reform Act 1992 (Cth), which in 1993 inserted a new Pt 9.4B into the Corporations Law. This introduced, for the first time, a limited number of civil penalty provisions, including for directors' duties. Section 1317FA provided that a contravention of a civil penalty provision would also constitute a criminal offence if additional fault elements were established. The market manipulation provisions remained only criminal with no civil penalties, but were supplemented by the option of other ancillary civil remedies. 1914 In Australian Securities Commission v Nomura International plc (1998) 89 FCR 301, Sackville J considered the then market manipulation provisions in ss 998 and 1260 of the Corporations Law in the context of declarations and injunctions being sought by the then Australian Securities Commission (now ASIC). Each of the substantive provisions contained mental components, referring respectively to "intended" and "calculated". His Honour concluded that the use of the word "intended" in s 998(1) did not require proof that the defendant knew that the false or misleading appearances were likely to be created by the conduct, however that did not mean that there was no mental element. It was necessary to show that the alleged wrongdoer intended to carry out the conduct relied on as creating the likelihood of a misleading or deceptive appearance. 1915 The above legislative history informed the reforms brought about by the Corporate Law Economic Reform Program Act 1999 (Cth) amendments to the Corporations Law, which relevantly commenced in March 2000. The March 2000 amendments repealed s 1317FA and adopted a different mechanism for creating criminal offences for all of the proscriptions after the general duty proscriptions in ss 180 to 183 (civil penalty provisions) and s 184 (criminal offence). Instead of creating criminal offences by referring to all civil penalty provisions globally and in one place in the manner of s 1317FA, the creation of criminal offences took place either adjacent to the individual norm, or, by virtue of s 1311(1), by being based on such norms, rather than by any reference to civil penalty provisions or contraventions. 1916 On 15 July 2001 the Corporations Act came into force and re-enacted ss 997, 998, 1259 and 1260 of the Corporations Law in the form that they were in at that time and with the same numbering. On their transition from the Corporations Law to the Corporations Act, ss 1259 and 1260 were not amended, but in ss 997(1), (4) and (7) and in ss 998(1) and (3) the word "shall" in the Corporations Law became "must" in the Corporations Act. The provisions were not otherwise amended. 1917 On 11 March 2002, amendments brought about by the Financial Services Reform Act 2001 (Cth) commenced and replaced ss 997 and 1259 with s 1041A and replaced ss 998 and 1260 with ss 1041B and 1041C. 1918 For ease of comparison, I have set out below ss 997 and 1259 of the Corporations Act (sourced to the earlier Corporations Law provisions) as they were as at the time of their repeal (there were no subs 997(2), (3), (5), (6), (8) or (9)), as well as s 1041A, which has not been amended since its commencement: 997 Stock market manipulation (1) A person must not enter into or carry out, either directly or indirectly, 2 or more transactions in securities of a body corporate, being transactions that have, or are likely to have, the effect of increasing the price of securities of the body corporate on a stock market, with intention to induce other persons to buy or subscribe for securities of the body corporate or of a related body corporate. (4) A person must not enter into, or carry out, either directly or indirectly, 2 or more transactions in securities of a body corporate, being transactions that have, or are likely to have, the effect of reducing the price of securities of the body corporate on a stock market, with intent to induce other persons to sell securities of the body corporate or of a related body corporate. (7) A person must not enter into, or carry out, either directly or indirectly, 2 or more transactions in securities of a body corporate, being transactions that have, or are likely to have, the effect of maintaining or stabilising the price of securities of the body corporate on a stock market, with intent to induce other persons to sell, buy or subscribe for securities of the body corporate or of a related body corporate. (10) A reference in this section to a transaction, in relation to securities, includes: (a) a reference to the making of an offer to sell or buy securities; and (b) a reference to the making of an invitation, however expressed, that expressly or impliedly invites a person to offer to sell or buy securities. … 1259 Futures market manipulation A person must not, in this jurisdiction or elsewhere, take part in, be concerned in, or carry out, whether directly or indirectly: (a) a transaction (whether a dealing in a futures contract or not) that has, is intended to have, or is likely to have; or (b) 2 or more transactions (whether any of them is a dealing in a futures contract or not) that have, are intended to have, or are likely to have: the effect of: (c) creating an artificial price for dealings in futures contracts on a futures market in this jurisdiction; or (d) maintaining at a level that is artificial (whether or not it was previously artificial) a price for dealings in futures contracts on a futures market in this jurisdiction. … 1041A Market manipulation A person must not take part in, or carry out (whether directly or indirectly and whether in this jurisdiction or elsewhere): (a) a transaction that has or is likely to have; or (b) 2 or more transactions that have or are likely to have; the effect of: (c) creating an artificial price for trading in financial products on a financial market operated in this jurisdiction; or (d) maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market operated in this jurisdiction. 1919 Further, and again for ease of comparison, I have set out below ss 998 and 1260 of the Corporations Act (sourced to the earlier Corporations Law provisions) as they were as at the time of their repeal (there were no subs 998(2) or (4)), as well as s 1041B as it was upon its insertion by the Financial Services Reform Act 2001 (Cth) (it has been amended since by the introduction of a new subsection (1A) which is not relevant for present purposes): 998 False trading and market rigging transactions (1) A person must not create, or do anything that is intended or likely to create, a false or misleading appearance of active trading in any securities on a stock market or a false or misleading appearance with respect to the market for, or the price of, any securities. (3) A person must not, by means of purchases or sales of any securities that do not involve a change in the beneficial ownership of those securities or by any fictitious transactions or devices, maintain, increase, reduce, or cause fluctuations in, the market price of any securities. (5) Without limiting the generality of subsection (1), a person who: (a) enters into, or carries out, either directly or indirectly, any transaction of sale or purchase of any securities, being a transaction that does not involve any change in the beneficial ownership of the securities; (b) offers to sell any securities at a specified price where the person has made or proposes to make, or knows that an associate of the person has made or proposes to make, an offer to buy the same number, or substantially the same number, of securities at a price that is substantially the same as the first-mentioned price; or (c) offers to buy any securities at a specified price where the person has made or proposes to make, or knows that an associate of the person has made or proposes to make, an offer to sell the same number, or substantially the same number, of securities at a price that is substantially the same as the first-mentioned price; shall be deemed to have created a false or misleading appearance of active trading in those securities on a stock market. (6) In a prosecution of a person for a contravention of subsection (1) constituted by an act referred to in subsection (5), it is a defence if it is proved that the purpose or purposes for which the person did the act was not, or did not include, the purpose of creating a false or misleading appearance of active trading in securities on a stock market. (7) A purchase or sale of securities does not involve a change in the beneficial ownership for the purposes of this section if a person who had an interest in the securities before the purchase or sale, or an associate of the person in relation to those securities, has an interest in the securities after the purchase or sale. (8) In a prosecution for a contravention of subsection (3) in relation to a purchase or sale of securities that did not involve a change in the beneficial ownership of those securities, it is a defence if it is proved that the purpose or purposes for which the securities were bought or sold was not, or did not include, the purpose of creating a false or misleading appearance with respect to the market for, or the price of, securities. (9) The reference in paragraph (5)(a) to a transaction of sale or purchase of securities includes: (a) a reference to the making of an offer to sell or buy securities; and (b) a reference to the making of an invitation, however expressed, that expressly or impliedly invites a person to offer to sell or buy securities. … 1260 False trading and market rigging (1) A person must not, in this jurisdiction or elsewhere, create, cause to be created, or do anything that is calculated to create, a false or misleading appearance: (a) of active dealing in futures contracts on a futures market in this jurisdiction; or (b) with respect to the market for, or the price for dealings in, futures contracts on a futures market in this jurisdiction. (2) A person must not, in this jurisdiction or elsewhere, by any fictitious or artificial transactions or devices, maintain, inflate, depress, or cause fluctuations in, the price for dealings in futures contracts on a futures market in this jurisdiction. (3) In determining whether a transaction is fictitious or artificial for the purposes of subsection (2), the fact that the transaction is, or was at any time, intended by the parties who entered into it to have effect according to its terms is not conclusive. … 1041B False trading and market rigging - creating a false or misleading appearance of active trading etc. (1) A person must not do, or omit to do, an act (whether in this jurisdiction or elsewhere) if that act or omission has or is likely to have the effect of creating, or causing the creation of, a false or misleading appearance: (a) of active trading in financial products on a financial market operated in this jurisdiction; or (b) with respect to the market for, or the price for trading in, financial products on a financial market operated in this jurisdiction. (2) For the purposes of subsection (1), a person is taken to have created a false or misleading appearance of active trading in particular financial products on a financial market if the person: (a) enters into, or carries out, either directly or indirectly, any transaction of acquisition or disposal of any of those financial products that does not involve any change in the beneficial ownership of the products; or (b) makes an offer (the regulated offer) to acquire or to dispose of any of those financial products in the following circumstances: (i) the offer is to acquire or to dispose of at a specified price; and (ii) the person has made or proposes to make, or knows that an associate of the person has made or proposes to make: (A) if the regulated offer is an offer to acquire - an offer to dispose of; or (B) if the regulated offer is an offer to dispose of - an offer to acquire; the same number, or substantially the same number, of those financial products at a price that is substantially the same as the price referred to in subparagraph (i). (3) For the purposes of paragraph (2)(a), an acquisition or disposal of financial products does not involve a change in the beneficial ownership if: (a) a person who had an interest in the financial products before the acquisition or disposal; or (b) an associate of such a person; has an interest in the financial products after the acquisition or disposal. (4) The reference in paragraph (2)(a) to a transaction of acquisition or disposal of financial products includes: (a) a reference to the making of an offer to acquire or dispose of financial products; and (b) a reference to the making of an invitation, however expressed, that expressly or impliedly invites a person to offer to acquire or dispose of financial products. 1920 In relation to s 1041A, the Full Court in ASIC v Whitebox Trading explained at [67] to [71] and [73] the following: [67] An immediately notable change was that the references to "intention" or "intent" in s 997(1), (4) and (7), emphasised above, were dispensed with. Section 1311(1) had operated to make a breach of s 997 or s 1259 an offence, and with the advent of the Criminal Code, criminal fault elements applied by that mechanism. However, neither s 997 or s 1259 was ever a civil penalty provision. That consequence was confined to a relatively small number of provisions set out in s 1317E(1), not including any civil penalty consequence for market manipulation. [68] The legislature, in deciding to make market manipulation provisions also civil penalty provisions, had available to it a number of different possible models used in the past. Instead, the legislature chose to maintain and extend the simplified separate streams created in March 2000, with statutory norms remaining dispersed throughout the Corporations Act. The new market manipulation provisions were the basis for criminal offences created by virtue of s 1311(1), in common with their predecessors. Those norm provisions also became civil penalty provisions by that designation in s 1317E(1). In that way, the new market manipulation provisions provided a norm both constituting civil penalty provisions and forming the basis for separate criminal offence provisions. The same approach was taken with a number of other new civil penalty provisions. [69] In expanding the number of civil penalty provisions, the legislature evidently made a deliberate choice to maintain separate norms which constituted most of the civil penalty provisions and upon which most of the criminal offence provisions were based, and to make the market manipulation proscriptions also civil penalty provisions. The effect was the same as if a civil penalty provision subsection had been added to the former market manipulation provisions as they existed prior to the March 2000 amendments. If that had been the means by which civil penalty consequences were enacted for market manipulation proscriptions, there is no question that this would have been separate from the criminal market manipulation provisions. In that event, s 1308A would not have applied Ch 2 of the Criminal Code to such civil penalty provisions. [70] The norm simpliciter on this legislative approach does not of itself attach any consequences, any more than it had done so when market manipulation was only a criminal offence. Rather the norm provision simply describes what is proscribed in one way or another. The consequences then separately attach. There are civil consequences, including by way of civil penalty proceedings, and criminal consequences, by way of proceedings for a criminal offence. [71] Thus, for market manipulation, instead of having the same elements applied criminally, and only in a collateral way civilly, as had been the earliest iterations referred to above, the legislative approach in March 2002 for market manipulation was to maintain a standalone norm, and to add civil consequences, including civil penalty consequences, in addition to the criminal offence consequences created by virtue of s 1311(1). That approach was clear and deliberate and must be given full force and effect according to its terms. … [73] … Chapter 2 of the Criminal Code is not engaged in, and does not apply to, proceedings brought for a contravention of a civil provision, including a civil penalty provision, and therefore necessarily does not apply to s 1041A or s 1041B(1) when made the subject of such proceedings. 1921 In summary, it is well apparent that for most of the relevant legislative history, the predecessors to s 1041A contained an express state of mind element concerning intention or "calculated to". But such a state of mind element does not appear in s 1041A, and neither does it appear in s 1041B. Moreover, according to what the Full Court said in ASIC v Whitebox Trading, albeit in its original jurisdiction and not its appellate jurisdiction, the mental element in Ch 2 of the Criminal Code cannot be imported into civil penalty proceedings for a contravention of ss 1041A and 1041B. Now strictly the Full Court in Gore v Australian Securities and Investments Commission (2017) 249 FCR 167 may otherwise have bound me as its decision was in the Court's appellate jurisdiction, but I have taken its statements concerning Ch 2 of the Criminal Code to be arguably obiter. In any event, in the present case Westpac did not contend that I should import into my analysis any aspect of Ch 2 of the Criminal Code.

(c) Director of Public Prosecutions (Cth) v JM 1922 Let me now discuss the principal authority which makes it plain that even though state of mind is not an express element for the statutory proscriptions where one is dealing with civil penalty proceedings, nevertheless questions of sole or dominant purpose may loom large in assessing the question of "artificial price". 1923 Director of Public Prosecutions (Cth) v JM (2013) 250 CLR 135 observed that "market manipulation is centrally concerned with conduct, intentionally engaged in, which has resulted in a price which does not reflect the forces of supply and demand" (at [70]). The Court approved Mason J's statement in North v Marra Developments (at 59) with respect to s 70 of the Securities Industry Act 1970 (NSW) that: The section seeks to ensure that the market reflects the forces of genuine supply and demand. By "genuine supply and demand" I exclude buyers and sellers whose transactions are undertaken for the sole or primary purpose of setting or maintaining the market price. 1924 DPP (Cth) v JM explained what was meant by the forces of genuine supply and demand (at [71]): The forces of "genuine supply and demand" are those forces which are created in a market by buyers whose purpose is to acquire at the lowest available price and sellers whose purpose is to sell at the highest realisable price. 1925 An example of a transaction that would not reflect these forces of genuine supply and demand was given (at [72]): The price that results from a transaction in which one party has the sole or dominant purpose of setting or maintaining the price at a particular level is not a price which reflects the forces of genuine supply and demand in an open, informed and efficient market. It is, within the meaning of s 1041A, an "artificial price". The offer to supply or acquire of the kind described is made at a price which is determined by the offeror's purpose of setting or maintaining the price. It is not determined by the offeror's purpose, if buying, to minimise, or, if selling, to maximise, the price paid, and it is not determined by the competition between other buyers whose purpose is to minimise the price and other sellers whose purpose is to maximise the price. If the offer results in a transaction, that is a transaction which can be characterised as at least likely to have the effect of creating or maintaining an artificial price for trading in the shares. (emphasis in original) (footnote omitted) 1926 The Court cited Australian Securities and Investments Commission v Soust (2010) 183 FCR 21 at [90], where Goldberg J said that an artificial price within the context of s 1041A: connotes a price created not for the purpose of implementing or consummating a transaction between genuine parties wishing to buy and sell securities, but rather for a purpose unrelated to achieving the outcome of the interplay of genuine market forces of supply and demand. 1927 Goldberg J went on to explain that he considered Mason J's analysis in North v Marra Developments to equally apply to ss 1041A and 1041B(1)(b). 1928 Let me say something concerning trading for the sole or dominant purpose of creating or maintaining an artificial price. Where such a purpose can be demonstrated, DPP (Cth) v JM stated (at [73], [75] and [76]): Because s 1041A prohibits transactions which are likely to have that effect, it is not necessary to demonstrate, whether by some counterfactual analysis or otherwise, that the impugned transactions did create or maintain an artificial price. It is sufficient to show that the buyer or seller set the price with the sole or dominant purpose described. … … Proof of a dominant, as distinct from sole, purpose of setting or maintaining a price would establish that the relevant transaction established or maintained an artificial price. … proof of a sole or dominant purpose of setting or maintaining a price is one way of demonstrating that the impugned transaction was at least likely to have the effect of setting or maintaining an artificial price. 1929 Accordingly, a transaction which is undertaken for the relevant impugned sole or dominant purpose need not be colourable or fictitious in order to create, or be likely to create, an artificial price for trading. So as Mason J in North v Marra Developments (at 59) stated: Transactions which are real and genuine but only in the sense that they are intended to operate according to their terms, like fictitious or colourable transactions, are capable of creating quite a false or misleading impression as to the market or the price. This is because they would not have been entered into but for the object on the part of the buyer or of the seller of setting and maintaining the price, yet in the absence of revelation of their true character they are seen as transactions reflecting genuine supply and demand and having as such an impact on the market. 1930 Now I agree that it does not matter whether the yield or price accords with true value or is set at a reasonable level because of trading with a sole or dominant purpose of affecting price or yield. I also accept that it does not matter whether the trader's intention is to correct or to manage a price or yield or to oppose or counteract manipulative trading in the opposite direction. Such conduct where a buyer is not concerned to buy at the lowest price and a seller is not concerned to sell at the highest price is necessarily a distortion of the interaction of market forces of supply and demand. 1931 Further, as Goldberg J in ASIC v Soust (at [94]) made clear, it is no answer to trading with an impugned purpose to point to: a seller in the market with a posted or "ask" price who was independent of, and not connected or associated in any way with, a person such as the defendant who was wanting to buy at that price to achieve his purpose of increasing the price … 1932 That is because, as Goldberg J explained at [95], such an assessment: places emphasis only on the existence of a genuine seller and fails to take into account that there also needs to be, as Mason J observed in North v Marra Developments Ltd, a genuine buyer whose purpose in buying the shares is to achieve a genuine purchase at the lowest possible price and thereby reflect the forces of genuine supply and demand. The defendant was not such a genuine buyer. His purpose in buying the shares was rather to set the market price. Mason J excluded such a buyer from the equation of the interplay of the forces of genuine supply and demand. (citation omitted) 1933 Now ASIC had to accept that DPP (Cth) v JM emphasised that the case before it concerned on-market transactions in shares listed on the ASX, and that its discussion was confined to transactions of that kind. But I accept that the High Court's emphasis was partly to be understood in the context of the submissions made to it by the respondent JM that the court below had been correct to conclude that the expression "artificial price" was principally contemplating market prices resulting from "cornering" and "squeezing" of underlying commodities deliverable under futures contracts, apparently relying upon the United States Court of Appeals decision in Cargill Inc v Hardin (1971) 452 F2d 1154. 1934 I would interpolate at this point that a "corner" classically occurs where someone (the cornerer) has a monopoly of supply of a commodity together with owning futures contracts in excess of the amount of the commodity, so that shorts, those on the other side of the futures contracts and who because of the cornerer's monopoly over the commodity itself cannot obtain the commodity to physically deliver on their contracts, are compelled to offset their contracts by the long at a price which the cornerer dictates. A "squeeze" can be considered to be a "little corner". It does not involve a monopoly in the supply of the commodity. It may occur where supplies of the commodity are low close to the time of physical delivery being required under futures contracts. Those who are short may not be able to satisfy their contracts by delivery. Therefore to offset their contracts they have to buy futures forcing their price up; I am assuming that the open interest on the futures market well exceeds the physical supply of the commodity, but no assumption of monopolisation in the physical supply need be made. Those who are long can hold out for higher prices. 1935 The High Court explained that one of its reasons for rejecting JM's submission was that it would have given s 1041A little work to do in respect of shares listed on the ASX because, unlike for commodities that had separate futures markets, there was (so it was said apparently) no separate market for the future delivery or sale of shares. In other words, the Court was not looking to narrow the application of s 1041A to the particular financial products relevant in the case before it, being ASX-listed shares. Now all of this may be so, but nevertheless the observations made by the Court must be considered in the context of the market that it was considering. The Court was only considering the question of the price of a product, the purpose for the trade in that product and the effect on price of that trade where all of this occurred in the same dimension. Moreover, the dimension for the trading was the ASX, a quite different dimension to the Bank Bill Market, and even putting to one side the additional and different dimensions of, first, the setting of the BBSW and, second, the market(s) for trading in BAB Futures, interest rate swaps and cross-currency swaps.

Dominant purpose 1936 Let me at this point say something further on the subject of identifying dominant purpose in the context of dominant manipulative purpose. 1937 First, as I have said, the relevant purpose is the subjective end sought to be achieved by the STIRR trader(s), whose state of mind is then to be attributed to Westpac as I have already explained. Purpose means the subjective purpose of a party or its actual mental state. 1938 Second, as I have already endeavoured to explain, although it is the subjective purpose of the trader(s) that is ultimately determinative, that purpose may be identified from objective considerations (including the context of the market) and inferred from circumstantial evidence (see my comments in Australian Competition and Consumer Commission v Olex Australia Pty Ltd [2017] FCA 222 at [493] and [494]). 1939 Third, a dominant purpose may be regarded as the prevailing, ruling or principal reason why that conduct was engaged in. It matters not that there might be consistent incidental purposes. Moreover, as Gageler J explained in Mills v Federal Commissioner of Taxation (2012) 250 CLR 171 at [66]: a purpose can be incidental even where it is central to the design of a scheme if that design is directed to the achievement of another purpose. Indeed, the centrality of a purpose to the design of a scheme directed to the achievement of another purpose may be the very thing that gives it a quality of subsidiarity and therefore incidentality. 1940 Further, it matters not that the trading decision might otherwise be characterisable as a rational commercial decision. A sole or dominant purpose of achieving a particular outcome may exist within a matrix of commercial parameters without those parameters denying the sole or dominant purpose. Indeed, those commercial parameters may well facilitate the carrying out of the said purpose. 1941 Now Westpac has submitted that dominant purpose in this context connotes a motivating purpose in the sense of engaging in a transaction which would not have been entered into but for the object of setting or maintaining the price. Westpac sought to gain support for a "but for" approach from Mason J's observations in North v Marra Developments at 59. It says that it is not enough for ASIC to prove that Westpac's trading was in part influenced by a perceived benefit in setting or maintaining BBSW and that ASIC must prove either of the following: (a) First, that Westpac would not have traded at all on the alleged contravention dates but for the object of setting or maintaining BBSW, which requires ASIC to prove that the legitimate, commercial reasons for which Group Treasury would ordinarily trade in Prime Bank Bills were so inconsequential on the contravention dates that Westpac would otherwise not have participated in the Bank Bill Market on those days. (b) Second, that Westpac would have bought or sold less Prime Bank Bills than it in fact did on the alleged contravention dates but for the object of setting or maintaining BBSW, such that part of its trading could be identified as having been undertaken for a manipulative purpose. But Westpac says that this possibility can be put to one side because ASIC did not seek to prove such a case. 1942 But in my view Mason J in North v Marra Developments was not intending to set down a "but for" test. His Honour's objective was to explain why the statutory prohibition under discussion in that case was not limited to fictitious or colourable transactions. Mason J approved of the reasoning of Hope and Samuels JJA below, who referred only to the purpose of trading (North v Marra Developments Ltd [1979] 2 NSWLR 887 at 900). In any event, a "but for" test is a test of causation and not of purpose. And even then it only addresses factual causation in the sense of demonstrating a necessary but not sufficient condition for, in this case, trading. For completeness I would also note that although DPP (Cth) v JM cited at [70] Mason J's analysis at 59, when one considers the High Court's analysis at [71] et seq I do not consider that it was endorsing any "but for" test. 1943 But if a "but for" test was required to be applied in this context, I would find on the evidence that the trades in issue on 6 April 2010, 20 May 2010, 1 and 6 December 2010 would not have been undertaken in the particular manner that they were, but for the impugned manipulative purpose.

Connection between purpose and effect in the Bank Bill Market 1944 Let me now deal with the question of the connection between purpose and effect, but confining myself to the Bank Bill Market for the moment. 1945 Generally speaking, ASIC says that the likely effect of the impugned conduct may be demonstrated by proof of a sole or dominant purpose of setting or maintaining price. It says that conduct engaged in with the intention of achieving a particular outcome may properly be inferred to achieve that outcome. And it says that the inference may be drawn more readily where, as here, Group Treasury benefited from the intended effect. 1946 Undaunted by the different market that the High Court was dealing with, ASIC says that there is no reason in principle why the analysis in DPP (Cth) v JM should not be applied to the alleged conduct in the Bank Bill Market in the present proceeding. It says that the analysis in DPP (Cth) v JM is simply an application of the well-known proposition that conduct engaged in with the intention of achieving a particular outcome may properly be inferred to have achieved that outcome. 1947 ASIC also contends that this is a case in which the so-called instinct and judgment of traders is not to be lightly rejected. Indeed it boldly submitted that the traders themselves provide a reliable and expert opinion on the question of whether they achieved what they said they had achieved. Now I agree that the views of traders as to the assessment of their ability to influence the Bank Bill Market are not irrelevant, but the evidentiary status of their opinions should not be overstated. ASIC submits that the contemporaneous communications show that the traders believed that their trading could and did have the intended effect, and that they believed or suspected that participants in the market were acting in the same way and took this into account when conducting their own trading in the market. Now this submission is an oversimplification of the evidence. But in any event, as I have said, the relevance of such evidence is undoubted, but its weight is another matter, whether considered separately or cumulatively with all other evidence. 1948 ASIC also says that the expert evidence supports the drawing of an inference that Westpac's trading being the making and accepting of bids and offers for Prime Bank Bills in the Bank Bill Market during the BBSW Rate Set Window, affected or was likely to affect the rate at which BBSW set. I have discussed this evidence elsewhere, which I found to be underwhelming. But as I have said, I am prepared to accept such a proposition as to likely effect at the lower threshold of a real and not remote chance. 1949 Now ASIC even goes so far as to say that trading in Prime Bank Bills on the Bank Bill Market with the impugned purpose was even more likely to create or maintain an artificial price for trading than the share trading on the ASX considered in DPP (Cth) v JM for the following reasons: (a) First, the Bank Bill Market is a highly concentrated market by financial market standards, that is, more concentrated than the ASX, with a small number of large participants that each account for a substantial proportion of the trading volume, in circumstances where concentration is a form of illiquidity. (b) Second, the closed market aspect of the Bank Bill Market restricts the putative self-correcting mechanism of markets where speculators and arbitrageurs in more open markets can profitably exploit mispricing (temporary price impacts) created by market manipulation and thereby attenuate the impact of a market manipulator. (c) Third, the ASX has and had mechanisms in place to reduce the risk of manipulation (such as random closing times), which the Bank Bill Market lacked. ASIC also says that the mechanism by which the BBSW was set was a relatively crude one by financial market standards. It is said that the fact that BBSW was set during a very short window of trading and theoretically referenced a price around a predetermined clock time was one of the features of the actual BBSW determination mechanism that made it particularly susceptible to market manipulation during the relevant period. (d) Fourth, the rapid pace of quoting and trading during the BBSW Rate Set Window, and the relatively manual nature of the Bank Bill Market, was to be contrasted with highly automated fully electronic markets such as the ASX, in which algorithms could be programmed to automatically react to changes in market prices. It was said that it was difficult for Bank Bill Market participants to react sufficiently quickly to temporary price distortions around 10.00 am and thereby attenuate them. (e) Fifth, as a market underpinning a key reference rate used in external contracts, such as derivatives contracts, there was an additional incentive to manipulate the Bank Bill Market because of the potential to profit from an external contract position. 1950 Generally, ASIC contends that the objective criteria that make a market more susceptible to manipulation were present in the Bank Bill Market during the relevant period. In that context it contends that I should more readily infer that the traders' purpose was more likely to be achieved. Now it will be apparent from other aspects of my reasons that I am prepared to accept that the Bank Bill Market was more susceptible to manipulation for many of the reasons given by ASIC as compared with other securities markets. And in that sense, one might more readily conclude likely effect from purpose. But as I have addressed elsewhere, in my view the likely effect is only established to the real and not remote chance level concerning yields and prices in the Bank Bill Market and BBSW concerning the four contravention dates, namely 6 April 2010, 20 May 2010 and 1 and 6 December 2010. 1951 Let me deal with another matter. ASIC says that it is not necessary to demonstrate by any counterfactual analysis or by reference to objective evidence an effect or likely effect on Traded BBSW Referenced Products. It says this is because Westpac's trading with a sole or dominant purpose of affecting BBSW is in itself sufficient to demonstrate that the yield / price for Prime Bank Bills (and thus BBSW) did not reflect the forces of genuine supply and demand. It says that non-genuineness in that sense derives from the deliberate and improper trading in the Bank Bill Market. It then says that the non-genuineness in relation to BBSW necessarily infects the genuineness of the price for trading in other products affected by BBSW. 1952 But ASIC says that if it has the burden of proving objectively that the transactions in the Bank Bill Market in fact had, or were likely to have had, the effect of creating or maintaining an artificial price for trading in Traded BBSW Referenced Products in their respective markets, this is established by the evidence of the traders, supported also by the evidence of Professor Putnins. I must say that I do not consider the evidence to go anywhere near establishing this. 1953 Now ASIC says that when Westpac engaged in the impugned conduct on each of the contravention dates, it would have been at least likely to be the case that on that day, one or more interest rate swaps and cross-currency swaps would have been the subject of a trade (including an offer or invitation to offer), or traded (including being the subject of an invitation or offer) through BGC Trader or BETSY, or would reset that day, or that BAB Futures contracts would be offered or traded. So, it says that it was at least likely that an effect on the price for trading in the Traded BBSW Referenced Products would result. 1954 Further, ASIC says that if it is necessary for the purpose of s 1041A to show, ex-post, that a Traded BBSW Referenced Product was in fact likely to have been affected on relevant contravention dates, the evidence establishes the following matters in respect of the contravention dates: (a) First, reset dates for interest rate swaps or cross-currency swaps to which Westpac was a counterparty occurred on each of the pleaded contravention dates other than 30 April 2010. (b) Second, setting or resetting dates for interest rate swaps or cross-currency swaps that had been traded through BGC Trader occurred on the following contravention dates: 4 March 2011, 6 June 2011, 9 June 2011, 6 June 2012. I would note that this does not assist ASIC in respect of the four contravention dates that I have found. (c) Third, interest rate swaps or cross-currency swaps were traded on BGC Trader or BETSY on the following contravention dates: 1 March 2011, 4 March 2011, 6 June 2011 and 9 June 2011. I would note that this does not assist ASIC for the same reason. (d) Fourth, BAB Futures contracts were offered or traded on ASX24 on each of the contravention dates. (e) Fifth, expiry dates for BAB Futures contracts occurred within 20 days of the following contravention dates: 10 June 2010, 1 December 2010, 6 December 2010, 1 March 2011, 4 March 2011, 1 June 2011, 6 June 2011, 9 June 2011 and 6 June 2011. 1955 Further, I agree with ASIC and reject the suggestion that if trading is conducted for a genuine commercial purpose, in the sense that the participant genuinely wished to acquire or dispose of the relevant product, no contravention of ss 1041A or 1041B can occur. Such a suggestion is inconsistent with the ratio of ASIC v Soust at [90], which adopted the comments of Mason J in North v Marra Developments (at 59), and which in turn was cited with approval in DPP (Cth) v JM (at [72]). I accept that a transaction that is real and genuine in the sense that it is not fictitious or colourable and is intended to operate according to its terms, may still create or be likely to create an artificial price if one party to the transaction has the sole or dominant purpose of setting or maintaining the price at a particular level. 1956 Let me make some other observations at this point. 1957 First, no part of s 1041A expressly authorises me to substitute and treat as conclusive the subjective motivations of an individual trader for the "effect" of the transaction. 1958 Second, in DPP (Cth) v JM it was made clear that proof of a sole or dominant purpose was not "some separate element of the offence of market manipulation" (at [76]). The subjective motivations of a trader provide one source of information from which I may, in some circumstances, draw inferences as to the likely effect of trading. Accordingly, in DPP (Cth) v JM, the relevance of purpose in the context of the equities market was that the trader's purpose in carrying out a trade was a pointer to the likely effect of the trade (at [72] to [73]). But in DPP (Cth) v JM it was common ground that the relevant transaction had had an effect on the share price (at [36]). As was noted in that case, the case stated stipulated that "had T [the daughter of JM] not offered to buy, and bought, shares at 35 cents in the closing trades of the day, the closing price of the shares would have been 34 cents". 1959 Third, what might be a straightforward proposition in other markets is attended by significant complexity in the Bank Bill Market. A purchase or sale of shares on a listed equities market such as ASX has a direct and observable effect on price. All trades are recorded in real time. On the ASX, there is a clear causal relationship between a bid or offer that is matched by the exchange to produce a trade and the price of the completed trade. And one can tell simply from the course of trading whether any given trade had an impact on the market price or no effect. But no such direct and observable relationship between trading in the Bank Bill Market and BBSW existed during the relevant period. BBSW was not set by reference to executed trades, but by the subjective views of submitters (as I have previously described) of the mid-rate(s) of trading at 10.00 am each day. Accordingly, as Westpac points out, proof only that a participant traded in the Bank Bill Market, even in volume, tells one little about whether that trading had any effect on the bid/offer spread in the Bank Bill Market immediately after the trade, let alone whether it had an effect on the bid/offer spread at 10.00 am. I won't repeat what I have said earlier in my reasons on such matters. 1960 As Westpac correctly contended, this gives rise to two significant forensic obstacles to ASIC's effects case. The first difficulty is that proving that Westpac traded on a particular day, even in volume, of itself does not prove that its trading had, or was likely to have, an effect on the yields at which Prime Bank Bills were trading. The absence of time-stamped trading data prevents identification of when that trading occurred and what the bid/offer spread was immediately before and after each trade. The second difficulty is that again due to the absence of time-stamped trading data, ASIC cannot prove whether Westpac's trading took place before or after 10.00 am and therefore whether it had any impact on the bid/offer spread at 10.00 am and the views of BBSW panellists making submissions to AFMA. But as I have said earlier, I am prepared to assume in favour of ASIC that Westpac's relevant trading occurred at or before 10.00 am in relation to the four contravention dates that I have identified. 1961 Fourth, what is meant by "likely" in the phrase "likely effect"? There are several possibilities. Does it operate at the low threshold of simply demonstrating a real but not remote chance? Or does it mean an effect which is more probable than not? As I have concluded already, if it means the latter then ASIC has not established this on the evidence. But if it means the former, then as I have already said, ASIC has shown such a likely effect in relation to the yields of Prime Bank Bills and BBSW on the four contravention dates (6 April 2010, 20 May 2010 and 1 and 6 December 2010). Now I accept that there is some force in Westpac's contentions that the higher threshold should apply. After all s 1041A is looking at "likely" in terms of an effect on price rather than say a capacity to mislead. But not without some hesitation, I am inclined to accept ASIC's contention that the lower threshold should apply. There is authority concerning ss 1041E and 1041H which supports applying the lower threshold. By parity of reasoning, such a lower threshold should also apply to s 1041B. And if that be correct, then it may be anomalous to give a different construction to "likely" in s 1041A. 1962 But, of course, my conclusions here may not matter. In the present context I have to concern myself not so much with Prime Bank Bill yields and BBSW, but rather the likely effect on prices in separate markets for BAB Futures, interest rate swaps and cross-currency swaps. It is here as I will explain in a moment that insurmountable difficulties arise for ASIC. 1963 Finally, there is one other minor matter that I should address at this point. It has been suggested that the High Court in DPP (Cth) v JM adopted the approach of the dissentient in the Victorian Court of Appeal ((2012) 37 VR 1 at [260]) on the question of effect. But my reading of DPP (Cth) v JM provides little support for that assertion. Let me explain. Warren CJ's approach was to answer questions 1 to 3 in the following terms: Question 1 - For the purpose of s 1041A of the Corporations Act 2001 (Cth), is the price of a share on the ASX which has been created or maintained by a transaction on the ASX that was carried out for the sole or dominant purpose of creating or maintaining a particular price for that share on the ASX an "artificial price"? Answer - Yes, provided that, as a result of the impugned transaction, genuine buyers and sellers altered the price at which they were willing to trade in the shares (as against the price at which they would have been willing to trade but for the impugned transaction). Question 2 - Was the closing price of shares in [X Ltd] on the ASX on 4 July 2006 an "artificial price" within the meaning s 1041A(c) of the Corporations Act 2001 (Cth)? Answer - Only if, as a result of the bid(s) placed by Ms N, genuine buyers and sellers altered the price at which they were willing to trade in the shares on 4 July 2006. Question 3 - Was the price of shares in [X Ltd] on the ASX on 4 July 2006 maintained at a level that was "artificial" within the meaning of s 1041A(d) of the Act? Answer - Only if, as a result of the bid(s) placed by Ms N, genuine buyers and sellers altered the price at which they were willing to trade in the shares on 4 July 2006. [emphasis added] 1964 But the High Court at [74] including footnote 108 (referring to Warren CJ's view) stated: Further, if a transaction is made for the sole or dominant purpose of setting or maintaining a price for listed shares, it is not necessary to proffer some additional proof that the impugned transactions "went on to affect the behaviour of genuine buyers and sellers in the market" (108) in order to demonstrate that the transactions had, or were likely to have, the effect of creating or maintaining an artificial price.

Interim conclusions 1965 I am prepared to accept the following propositions, which should be stated before moving on to the real difficulties in ASIC's case concerning s 1041A. 1966 First, as I have said, I have found that Westpac traded in Prime Bank Bills on 6 April 2010, 20 May 2010, 1 and 6 December 2010 for a dominant manipulative purpose. 1967 Second, at the lower threshold of "likely", such trading for a dominant manipulative purpose had a likely effect on the yields and prices for Prime Bank Bills traded on those occasions such as to maintain or create an artificial price for Prime Bank Bills. But I would note here that ASIC does not expressly allege such an artificial price. Rather, its case concerns an artificial price in other markets for BAB Futures, interest rate swaps and cross-currency swaps. Its plea concerning Prime Bank Bills is only that they were traded at yields "which did not reflect the forces of genuine supply and demand in the Bank Bill Market", by reason of the said dominant manipulative purpose on one side of the actual or potential trades. And I am prepared to find that that was so on the said four contravention dates. 1968 Third, I am also prepared to find that such trading on the said four contravention dates had a likely effect on BBSW, where "likely" is at the lower threshold. 1969 But going beyond these conclusions in ASIC's favour, its case under s 1041A starts to break down at a number of levels. 1970 The first difficulty concerns what I would generally describe as the question of cross-market manipulation. Now s 1041A can be engaged by cross-market manipulation. That is not in doubt. But the problem for ASIC is how it has sought to engage the provision in the present context. It has taken a manipulative purpose for trading in Prime Bank Bills where the purpose is not said to be to manipulate the price of BAB Futures, interest rate swaps or cross-currency swaps. Rather, the purpose is said to be to manipulate Prime Bank Bill yields and then BBSW, a benchmark rate. It is not even close to a plain vanilla cross-market manipulation where, say, you trade for a manipulative purpose in a physical commodities market but where your purpose is to affect prices of associated futures contracts in the futures market. So in that case you might legitimately use the manipulative purpose in the physicals market trading to infer effect in the futures market. The purpose and the intended effect are directly linked. But in the case before me there was no suggestion that the STIRR traders' manipulative purpose in the Bank Bill Market was to affect prices of BAB Futures, interest rate swaps and cross-currency swaps. There is a disconnect between purpose and intended effect. 1971 The second difficulty concerns how pricing under BAB Futures, interest rate swaps and cross-currency swaps is determined and what considerations affect such pricing. The difficulty here for ASIC is that it cannot directly tie in BBSW to the pricing for these instruments. 1972 Let me elaborate.

(d) Cross-market manipulation 1973 Now it should be apparent by now that ASIC does not expressly allege that trading in Prime Bank Bills by Westpac in the Bank Bill Market had the effect, or likely effect, of contravening the Corporations Act by: (a) creating an artificial price for trading in Prime Bank Bills themselves (s 1041A(c)); (b) maintaining the price for trading in Prime Bank Bills at an artificial level (s 1041A(d)); (c) creating a false or misleading appearance of active trading in Prime Bank Bills (s 1041B(1)(a)); or (d) creating a false or misleading appearance with respect to the market for, or price for trading in, Prime Bank Bills (s 1041B(1)(b)). 1974 Moreover, it should also be apparent that ASIC does not allege that Westpac personnel made submissions to AFMA concerning observations as to the best bid/best offer for Prime Bank Bills in certain tenors at the relevant time that were in any way artificial or were otherwise intended to improperly affect the rate at which BBSW set. The suggestion was faintly floated at one stage, but went nowhere. 1975 Rather, the principal case of ASIC is that actual trading in Prime Bank Bills by Westpac traders for the dominant manipulative purpose to influence where BBSW set had some derivative impact on the traded prices of different financial products in different markets, being BAB Futures, interest rate swaps and cross-currency swaps. 1976 So, ASIC's case stripped of all legal and forensic embellishment is that it contends for an approach to ss 1041A and 1041B such that conduct in one market that is not unlawful within that market (Bank Bill Market) becomes unlawful once viewed from the perspective of a different product in a separate market and in circumstances where traders in the separate market(s) (the market(s) for BAB Futures, interest rate swaps and cross-currency swaps) are busily going about their business in those separate markets without any manipulative purpose whatsoever. 1977 Now a major difficulty with ASIC's market misconduct case is that ASIC's evidence does not establish that any Westpac trader traded in Prime Bank Bills with a sole or dominant purpose of trying to affect the price for trading in the Traded BBSW Referenced Products, i.e. the three products just mentioned. 1978 Moreover, ASIC does not allege any manipulative trading by the Westpac personnel who actually traded in the Traded BBSW Referenced Products or who quoted prices for those products to the market(s). 1979 In my view no part of DPP (Cth) v JM directly supports the position that a person's purpose for trading in one instrument, which purpose is not directed to a different instrument in a different market, can be relied upon to engage ss 1041A and 1041B in respect of that different instrument in that different market. ASIC's case relied on the purposes of Westpac's traders on the STIRR Desk in terms of their trading in Prime Bank Bills. But its case did not contend that the relevant purposes included a purpose of affecting the price for trading in other instruments, namely, Traded BBSW Referenced Products. 1980 Now of course I accept that there is nothing in the text or context of s 1041A which precludes trading in one market from being held to contravene the provision by reason of creating, or being likely to create, an artificial price for trading in a financial product in another market. And that must be right if one considers say futures markets. Clearly, a predecessor to s 1041A is s 1259 (as I have explained above). It is not in doubt that s 1259 prohibited the manipulation of futures contract prices by "squeezing" and "cornering" to affect that futures market by manipulating the supply and demand of the underlying physical commodity. Let me elaborate. 1981 Contextually there is little doubt that s 1041A was intended to apply to futures contracts; see DPP (Cth) v JM at [54] and the revised explanatory memorandum to the Financial Services Reform Bill 2001 at [2.75], [2.78], [15.13], and [15.14]. Futures contracts are financial products that necessarily derive their value from the value of some other underlying asset traded in another market such as a commodities market. These matters tell against a construction that requires trading and price effect to take place within the same market. Indeed, the legislature has previously recognised that futures could be manipulated by "squeezing" or "cornering" supply and demand for the underlying asset, and that this was the main form of manipulation to which the provisions were originally intended to apply (see the explanatory memorandum to the Futures Industry Bill 1986 at [285]). And as I have indicated, DPP (Cth) v JM (at [66]) recognised that "cornering" and "squeezing" depend on the separation between the futures market and the market for the underlying commodity the subject of the futures contract. Of course that Court did not suggest that s 1041A would have no or limited application to such circumstances (see at [77]). 1982 Further, s 1041A is applicable to transactions outside the jurisdiction that have the effect of creating an artificial price on a market in the jurisdiction, thus expressly recognising and contemplating that conduct in one market (outside the jurisdiction) might have an effect in another market (in the jurisdiction). 1983 Now I do not deny the force of ASIC's submissions that s 1041A can be engaged by cross-market manipulation, but that does not address the real problem. 1984 ASIC seeks to establish an artificial price for the purpose of s 1041A by proof that Westpac bought and sold Prime Bank Bills in the Bank Bill Market for the sole or dominant purpose of affecting BBSW, that is, that BBSW did not reflect the forces of genuine supply and demand. But BBSW is not itself the price for trading of any Traded BBSW Referenced Product. 1985 More fundamentally, the question posed by s 1041A is whether the price for trading of Traded BBSW Referenced Products was artificial. Now applying the reasoning in DPP (Cth) v JM, an artificial price for trading in Traded BBSW Referenced Products may be proved by demonstrating that trading whether for those Products or even Prime Bank Bills themselves was undertaken for the sole or dominant purpose of setting or maintaining the price for trading in Traded BBSW Referenced Products. But ASIC does not allege and there is no evidence that Westpac had any purpose of setting or maintaining the price for trading in BAB Futures, interest rate swaps or cross-currency swaps. That was not the purpose of STIRR traders in trading Prime Bank Bills. And moreover, that was not the purpose of the traders in BAB Futures, interest rate swaps and cross-currency swaps. 1986 Let me recap and make these points that seem to have been lost in translation in applying DPP (Cth) v JM. 1987 First, the High Court did not say that effect or likely effect to create or maintain an artificial price could only be proved by a sole or dominant manipulative purpose analysis. It could so be proved, but it was not necessary to be proved in this way for any price for trading in any financial product in any financial market. ASIC nevertheless sought principally to put its case in that way. 1988 Second, even if a sole or dominant manipulative purpose analysis was the framework for proof, the requisite effect or likely effect could be controverted by other objective analysis. After all the statutory text and its construction starts and finishes with the question of effect or likely effect, not purpose. 1989 Third, if you are going to use a sole or dominant manipulative purpose analysis, but the purpose is not directed to the price for trading in the financial products that s 1041A is directed to, then you are going to run into difficulties as ASIC has here. DPP (Cth) v JM said nothing about such a scenario. And to even state the scenario is to expose its potential flaws. The High Court's discussion of purpose and likely effect was not decoupled. It was concerned with the same product, being shares traded on the ASX. Now one can have cross-market manipulation as I have explained where say trading in a commodities market is for the purpose of manipulating futures prices. But in that situation you are not decoupling purpose and likely effect. The purpose for trading (albeit in the commodities market) is to manipulate prices in the futures market. The purpose and the likely effect are linked. Contrast that with the case before me where the manipulative purpose for trading Prime Bank Bills is to manipulate yields or BBSW, but is not said to be directed to the price(s) for BAB Futures, interest rate swaps or cross-currency swaps. Now of course ASIC seeks to link the trading in Prime Bank Bills and yields to where BBSW sets, and then to the price(s) for these other financial products or derivative instruments. And there are problems with this as I will come to explain shortly. But to the extent that it is seeking to leverage the manipulative purpose for trading in Prime Bank Bills to effect or likely effect on the pricing under these other derivative instruments, it has significant difficulties. It is moving well away from the fundamental justification for using purpose in the first place to infer effect or likely effect. 1990 The proposition can also be put in another way, and indeed put earnestly and incisively by Mr Darke SC for Westpac. Assume that it is right to say that the question for s 1041A and the determination of "artificial price" is whether the prices for BAB Futures, interest rate swaps and cross-currency swaps were determined by the genuine forces of supply and demand, i.e. an absence of a sole or dominant manipulative purpose on either side of the trade. How could it be otherwise in the present case? No manipulative purpose for trading in a market was ever pressed directed to the trading in and pricing of those other derivative instruments. 1991 Let me now turn to the next difficulty for ASIC on this part of its case.

(e) BAB Futures and swaps - Pricing and Trading 1992 It is convenient at this point to address a number of discrete topics that relate to another problem for ASIC flowing from how BAB Futures, interest rate swaps and cross-currency swaps are priced.

Are BAB Futures and swaps financial products? 1993 Section 763A in Div 3 of Pt 7.1 provides that for the purpose of Ch 7 a "financial product" is: a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (see section 763B); (b) manages financial risk (see section 763C); (c) makes non-cash payments (see section 763D). Section 761A, which sets out the definitions of terms used in Ch 7, provides that a "financial product" has the meaning provided in Div 3. 1994 In my view there is no doubt that interest rate swaps, cross-currency swaps and BAB Futures are financial products for the purpose of Ch 7.

Were BAB Futures traded on a financial market? 1995 There is also no doubt that during the relevant period BAB Futures contracts were traded on a financial market, namely the ASX24. As I have indicated, prior to 1 August 2010, ASX24 was known as the SFE.

Were interest rate swaps and cross-currency swaps traded on a financial market? 1996 ASIC contends that during the relevant period interest rate swaps and cross-currency swaps were traded on "financial markets" through electronic trading facilities. Those facilities were the BGC Trader and BETSY that I have previously described; I will put to one side for the moment whether this was only shown for in or after February 2011. ASIC submits that these trading platforms each provided a facility with a systematic and recurring opportunity to enter into interest rate swaps (both BGC Trader and BETSY) and cross-currency swaps (BGC Trader only) and that each facility was regularly utilised for the making and acceptance of offers or invitations for the acquisition and disposal of financial products generally, including in respect of bonds, credit derivatives and interest rate swaps. 1997 Let me address the statutory provisions in more detail. 1998 Section 761A provides that a "financial market" has the meaning provided in Div 5 of Pt 7.1. Section 767A defines a "financial market" for the purposes of Ch 7 as: (1) … a facility through which: (a) offers to acquire or dispose of financial products are regularly made or accepted; or (b) offers or invitations are regularly made to acquire or dispose of financial products that are intended to result or may reasonably be expected to result, directly or indirectly, in: (i) the making of offers to acquire or dispose of financial products; or (ii) the acceptance of such offers. 1999 The term "facility" is defined in s 762C for the purpose of Div 3 as including: (a) intangible property; or (b) an arrangement or a term of an arrangement (including a term that is implied by law or that is required by law to be included); or (c) a combination of intangible property and an arrangement or term of an arrangement. 2000 But the term "facility" is not defined for the purposes of Div 5. However, as stated in the revised explanatory memorandum to the Financial Services Reform Bill 2001 (Cth) at [7.14]: it is clearly not the intention to regulate as the operator of a financial market a person whose involvement is limited to operating an electronic means of communication or is merely an Internet service provider. 2001 But I agree with ASIC that this is the only restriction on the meaning of "facility" identified in the Corporations Act or explanatory material. Otherwise the term should be construed in accordance with its broad and ordinary meaning. It points to the following definitions in The Australian Oxford Dictionary (2nd ed, Oxford University Press, 2004): 3 (especially in pl) an opportunity, the equipment or the resources for doing something. 4 an establishment set up to fulfil a particular function or provide a particular service. 2002 For completeness, I should also set out The Oxford English Dictionary definition as follows: 6. a. Opportunity, esp. of an unlimited kind, to do something; capability, ability, provision; an instance of this. Also with for, of… b. Frequently in pl. Favourable conditions or circumstances for the easy or easier performance of something… c. orig. U.S. In pl.: the physical means or equipment required for doing something, or the service provided by this; frequently with modifying word, as educational facilities, postal facilities, retail facilities, etc. In sing.: a service or feature of a specified kind; (also) a building or establishment that provides such a service… 2003 ASIC says that there is nothing to suggest that a narrow or technical meaning should be adopted for the purpose of Div 5 of Ch 7. It also says that the expression "facility" does not require any actual transaction to be executed or concluded through or on the relevant facility, nor does it require the offers or invitations made through the facility to be contractual in nature or capable of forming an immediately binding agreement upon acceptance. It has referred to Australian Softwood Forests Pty Ltd v Attorney-General (NSW) ex rel Corporate Affairs Commission (1981) 148 CLR 121 at 134 and 135 per Mason J, albeit in a different context. In my view that case is irrelevant to the present issue. 2004 Now Westpac made a number of points. 2005 Both BETSY and BGC Trader are electronic platforms through which large financial intermediaries could quote prices at which they would consider entering into interest rate swaps. And Westpac accepts that interested counterparties could respond by sending an electronic message of their interest in transacting at a particular price. It says that BGC Trader also permitted quotation of prices for cross-currency swaps and had a volume match function for both interest rate swaps and cross-currency swaps. It says that in both platforms, the intermediary was not bound to enter into a trade at the price quoted but was free to reject any offer even at its quoted price. Finally, it says that trades were settled bilaterally outside the framework of the platforms. 2006 Nonetheless, Westpac contends that both BETSY and BGC Trader are not financial markets within the meaning of s 767A of the Corporations Act, including because participants were not obliged to proceed with trades and all trades were negotiated and settled on a bilateral basis outside the respective platforms. Westpac refers to the evidence of Mr Masnick, who it says explained that they were facilities through which parties could show expressions of interest in the same way that they could through traditional voice brokers. Westpac points out that ASIC does not contend that voice brokering of swaps constituted a financial market. Westpac says that any trades were not "effected on" the platform(s), but were off-market trades, not on-market trades; see the definition of "on-market" in s 9 of the Corporations Act. 2007 Further, Westpac says that only nine interest rate swaps were facilitated through the BETSY platform in the relevant period, and all of those were between January and September 2011. It says that BETSY was not a facility through which offers to acquire or dispose of financial products were regularly made or accepted within the meaning of s 767A of the Corporations Act. It submits that the same can be said of BGC Trader, through which 411 interest rate swaps and cross-currency swaps were facilitated during the relevant period. It says that the volume of swaps traded on BETSY and BGC Trader was negligible in comparison to the size of the market. The Australian swap market had a total turnover during the relevant period of approximately $6 trillion per year. Westpac alone wrote approximately 10,000 swaps per year. 2008 Westpac submits that it is no answer for ASIC to contend that other financial products were regularly traded on BETSY or BGC Trader. It says that ss 1041A and 1041B are each concerned with trading in a financial product on a financial market, and consequently the relevant question for the purposes of those provisions must be whether the asserted financial market is a financial market for the financial product in issue. It says that s 767A makes clear that that will only be so if that financial product is regularly traded on the asserted financial market. Any other approach would distort the operation of ss 1041A and 1041B. Otherwise, for example, those provisions would apply to trading in interest rate swaps even if only a single solitary swap had once been traded on a financial market. It is said that such absurd results cannot have been intended. 2009 Westpac contends that in any event, BGC Trader was not available to Australian participants prior to 14 February 2011 and no swaps were facilitated through BETSY prior to 2011. It says that, consequently, on no view could it be said that interest rate swaps and cross-currency swaps were traded on a financial market operated in the jurisdiction before early 2011. It says therefore that no contravention of ss 1041A or 1041B could be made out by reference to the market for or price for trading in interest rate swaps and cross-currency swaps before that time, which affects 10 of the 16 contravention occasions alleged against Westpac. I might also add that for the contravention dates that I have found (6 April 2010, 20 May 2010, 1 and 6 December 2010), if Westpac's point was good then this would be an additional difficulty for ASIC. 2010 I disagree with most of Westpac's contentions on this aspect of the case. Let me elaborate. 2011 Each of BETSY and BGC Trader were operated under licences and exemptions respectively issued by the relevant Minister permitting the operation of financial markets in the jurisdiction. I accept the description by Mr Deane Gunson, a managing partner of BGC, of the operation of the BGC Trader platform, through which interest rate swaps and cross-currency swaps could be traded by customers in Australia from February 2011. I also accept the description by Mr Nicholas Bean, a Bloomberg employee responsible for the BETSY system in relation to product development, of the operation of the BETSY platform that was made available to customers in Australia for trading interest rate swaps during the relevant period. 2012 Both BGC Trader and BETSY were electronic platforms enabling electronic trading of various financial products including interest rate swaps, and in the case of BGC Trader cross-currency swaps. Participants who used the facilities to make or accept offers or invitations were required to enter into contractual agreements with BGC and Bloomberg respectively. The platforms were subject to codified rules given force under those contractual agreements. Consequently, the trading platforms operated by BGC and Bloomberg were "facilities" for the purposes of s 767A. 2013 Now Westpac has contended that because the volume of swaps traded on BETSY and BGC Trader was so small in comparison to the overall swap market, that they were not facilities through which offers or invitations were regularly made. But s 767A requires that offers or invitations to acquire or dispose of "financial products" generally are regularly made through the facility, not that offers or invitations are regularly made for each type of financial product traded via the facility. 2014 In my view the evidence establishes that a substantial volume of financial products, not just interest rate swaps and cross-currency swaps, were traded through each of BETSY and BGC Trader. In the case of BETSY, tens of thousands of trades worth tens of billions of dollars traded through BETSY during 2010, 2011 and 2012. Further, Bloomberg was at all material times licensed in Australia by the relevant Minister to operate BETSY as a financial market for a range of products, including interest rate derivatives and FX derivatives. 2015 And in the case of BGC Trader, many thousands of trades in financial products traded through the BGC Trader platform over the relevant period, and the trades were worth trillions of dollars. Further, BGC Trader was a financial market for a range of products including interest rate swaps and cross-currency swaps, the operation of which in Australia was exempted by the relevant Minister in 2010 (and again in 2012) from the requirement under Pt 7.2 of the Corporations Act to hold a licence for the operation of that financial market. 2016 Now the term "regularly" is to be construed with regard to its statutory context, including the purpose and object of Ch 7. The term has been construed in other contexts in a manner that supports the proposition that it will be sufficient if it is a proper component of the operation of the platform to facilitate offers to acquire or dispose of the relevant financial product or if the platform characterises a facility through which such offers are made. Although the Corporations Act does not provide guidance as to what a sufficient level of trading to constitute "regularly" would be for the purpose of the provision, the object of Ch 7 (particularly with respect to the promotion of flexibility and innovative services) suggests that some level of repetition, even if infrequent, is sufficient. Moreover, the relevant financial markets in these proceedings had rules in accordance with which offers and invitations could be regularly made and accepted. 2017 Now Westpac has contended that binding transactions are not concluded via the BETSY or BGC Trader platforms, and that this entails that they are not financial markets within the meaning of s 767A. But these contentions are inconsistent with the statutory text, which encompasses facilities through which only invitations that are intended to result or which may reasonably be expected to result directly or indirectly in the making of offers to acquire or dispose of financial products are made. 2018 The rules applicable to the BETSY platform provided that participants must settle the transaction after reaching agreement, and that participants are required to settle or cause to be settled all trades entered via BETSY regardless of whether the participant authorised the individual who entered or effected the trade to do so. The rules also provided that repeated failure by a participant to settle transactions may lead to termination or suspension of the participant's participation in BETSY. 2019 The rules applicable to trading of interest rate swaps through the BGC Trader platform provided that after a trade was executed, the broker would telephone both parties to confirm counterparty approval and settlement fees, and that counterparty approval would be required from customers promptly. 2020 In each case, parties were required to settle transactions entered into on the relevant platform; and there is no evidence before me of parties defaulting on settlement. 2021 Consequently, the trades entered via the BGC Trader and BETSY platforms fell within the first limb being s 767A(1)(a). 2022 Further, irrespective of whether any "issue" or "sale" was concluded on or through the relevant facility, the platforms facilitated the making of invitations intended to or which may reasonably have been expected to lead, directly or indirectly, to offers to dispose of or acquire financial products, within the second limb being s 767A(1)(b). The evidence established that facilitating the making of offers or invitations to enter into swap transactions was a proper function of each of BGC Trader and BETSY in accordance with the rules for trading, and that from time to time offers and invitations were made on the facilities in accordance with those rules. 2023 Mr Masnick of Westpac accepted that bids or offers were able to be made through the BGC Trader platform. This is sufficient under the second limb of s 767A to establish that BGC operated a "financial market" for trading interest rate swaps and cross-currency swaps within the meaning of s 767A. 2024 Mr Masnick also accepted in cross-examination that BETSY allowed participants to request or invite offers to buy or sell financial products including interest rate swaps, and to make bids or offers for the sale or purchase of financial products, including interest rate swaps and cross-currency swaps, in the same way as BGC Trader worked. Accordingly, this is sufficient to establish that BETSY operated a "financial market" for trading interest rate swaps and cross-currency swaps within the meaning of s 767A during the relevant period. 2025 Now I should note that Mr Masnick's evidence was that BGC Trader and BETSY were only available to large financial institutions, only related to a narrow section of the broader market, and only accounted for a small proportion of all trades in interest rate swaps and cross-currency swaps. But none of this precludes a finding that the platforms operated by BGC Trader or BETSY were "financial markets". The definition in s 767A does not require the relevant facility to account for some minimum proportion of all trading in financial products or a particular type of financial product. 2026 In summary, I accept ASIC's submissions that interest rate swaps and cross-currency swaps were relevantly traded during the relevant period on financial markets as contemplated by s 1041A, and certainly in and after 2011. As to the contravention dates that I have found, namely, 6 April 2010, 20 May 2010, 1 and 6 December 2010 I will for present purposes assume the same conclusion in ASIC's favour on the basis of the non-electronic trading that could be undertaken through BGC prior to 2011 using voice brokering services and the general capacity to trade interest rate swaps through BETSY prior to 2011.

The "price for trading" in Traded BBSW Referenced Products - General 2027 The expression "price for trading" is not defined in the Corporations Act. I accept that it is to be construed in accordance with the main object of Ch 7 of the Corporations Act, which as s 760A states, is to promote: (a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and (b) fairness, honesty and professionalism by those who provide financial services; and (c) fair, orderly and transparent markets for financial products; and (d) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities. 2028 Now Ch 7 was inserted into the Corporations Act by the Financial Services Reform Act 2001 (Cth). In International Litigation Partners Pte Ltd v Chameleon Mining NL (receivers and managers appointed) (2012) 246 CLR 455 at [5], it was observed that the legislative scheme implemented by the Financial Services Reform Act created rights and liabilities by means of criteria reflecting "fluid market and economic usage" rather than any ascertainable and static legal meaning. It is therefore unsurprising that the term "price" and the expression "price for trading" are not defined. In my view a static, narrow or confined definition of either expression would not be consistent with the relevant legislative scheme. Rather, adapting and adopting what was said of the terms "trade" and "commerce" albeit in a different context (Re Ku-ring-gai Co-Operative Building Society (No 12) Ltd (1978) 22 ALR 621; [1978] FCA 107 at 648 and 649 per Deane J), in my view the particular instances that may fall within the expressions "price" and "price for trading" will depend upon the varying and evolving phases of development of commerce and commercial interactions. They are terms of wide import, and are not terms of art. 2029 ASIC refers to the following definitions of the term "price" in The Australian Oxford Dictionary (2nd ed, Oxford University Press, 2004): 1 a the amount of money or goods for which a thing is bought or sold. b value or worth … 2 what is or must be given, done, sacrificed, etc., to obtain or achieve something. 2030 I should also set out at this point relevant definitions from The Oxford English Dictionary: 8. a. Payment of money for the purchase of something… b. The amount of money (or a material equivalent) expected, required, or given in payment for a commodity or service… c. ... The actual cost of acquiring or producing something calculated in terms of a specific measure; the value of a commodity or service regarded or estimated in relation to some quantifiable unit of comparison; the exchange value of something (esp. labour) expressed in monetary terms. 2031 Now generally speaking I accept that the meaning of "price" is not necessarily limited to an amount of money quantifiable up front at the time of entry into of the traded product. There is no reason to import any narrower temporal limitation where the definition of the term does not require it. In my view the legislature intended that products without a known upfront price could fall within the scope of "financial products" and, accordingly, within the scope of ss 1041A and 1041B. Now in this context ASIC also referred to the revised explanatory memorandum to the Financial Services Reform Bill 2001 (Cth) at [14.81], but I note that that reference is in relation to the scope of PDS provisions and not market manipulation provisions. In any event I accept that a broad and flexible approach to "price" is consistent with the legislative intention that the market misconduct provisions cover all financial products that may be traded on a financial market (revised explanatory memorandum to the Financial Services Reform Bill 2001 (Cth) at [2.78]). 2032 Further, I also accept that the word "trading" in the composite expression "price for trading" may in some cases be construed as encompassing not only the instant of entry into of a transaction, but the dealings of parties from an invitation or offer and acceptance through to the making of payments or delivery of a product. 2033 Further and generally, the meaning of "price" for the purposes of Ch 7 may be broad enough to accommodate the generally accepted proposition that a price may be "specified by reference to some standard well known to the parties, from which a price may be ascertained" (Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 183 per Toohey J).

The price for trading in interest rate swaps and cross-currency swaps 2034 ASIC submits that the price for trading in a swap encompasses the payments made, or value derived, by each party to the swap throughout the duration of the arrangement, and includes the cash flows quantified on each reset date and paid on each specified payment date. 2035 Specifically in relation to interest rate swaps, ASIC points to the following matters: (a) The parties to the swap transaction agree to exchange cash flows, one referable to a fixed rate and the other to the BBSW floating rate, based on a notional amount for a set period. (b) There is no exchange of or payment by reference to the notional amount upon entry. The payments are made at regular intervals by reference to BBSW on reset dates. (c) The notional payments on payment dates are set off against one another, so that only one party in fact makes a payment on a payment date. (d) It is possible that it will only be the party agreeing to make payments on the floating BBSW side that will make any payments at all under the interest rate swap. 2036 ASIC says that there is no reason to give a narrow or limited meaning to the expression "price for trading". It says that if the price for trading were found to be only the amount paid for the "fixed leg" of an interest rate swap, it is possible that no price would be paid at all. 2037 Further, ASIC submits that the analysis is similar for cross-currency swaps. It says that although the parties to cross-currency swaps generally exchange the principal amount upon entry, they then exchange it back again on expiry or maturity. Further, ASIC says that it is common for cross-currency swaps to have floating legs on both sides of the swap. In respect of these products, it says that the price for trading cannot be determined by reference to any "fixed leg". 2038 ASIC submits that interest rate swaps and cross-currency swaps each commonly reference a benchmark, namely the BBSW, and that the BBSW is directly integrated into the form of the contracts for interest rate swaps and cross-currency swaps. ASIC referred me to a journal article by Andrew Verstein, who wrote: "[w]hen legal documents reference a benchmark, the benchmark does more than inform about a price, it constitutes the price" (emphasis in the original) and that the "[c]ontractual stipulation collapses the distinction between the price proxy and the price itself" (Verstein A, "Benchmark Manipulation" (2015) 56 Boston College Law Review 215 at 228 and fn 75). I must say that such academic statements are at too high a level of abstraction to be immediately useful to me in the present context; I need to consider the precise instruments and the legal and commercial concept of "price" in a specific statutory and commercial setting. 2039 ASIC submits that interest rate swaps and cross-currency swaps regularly referenced or were influenced by or derived from BBSW. Further, it says that the obligations of the party to an interest rate swap paying an amount calculated by reference to a floating AUD interest rate were typically referenced to the BBSW, and that the obligations of the party to a cross-currency swap paying amounts calculated by reference to a floating AUD interest rate were typically referenced to the BBSW. 2040 ASIC says that in respect of a swap where one leg is fixed and the floating leg references BBSW, Mr Masnick agreed that even the fixed leg of the swap will be influenced by market expectations as to future settings in BBSW, because the pricing or swap yield curve is built by reference to BAB Futures yields. 2041 ASIC also submits that in the case of cross-currency swaps with two floating legs, even if the meaning of "price for trading" is limited to the margin negotiated to be paid above BBSW, the margin is influenced by both current and future expectations as to BBSW. It says that Mr Masnick's evidence was that the "price" for a swap with two floating legs is the "margin of one floating rate against the foreign currency floating rate". It says that the margin may be over BBSW or over the foreign currency interest rate, and that in the example that Mr Masnick gave me his evidence was that the margin was an amount above BBSW. Accordingly, ASIC says that even if the price for trading of a floating/floating cross-currency swap is limited to the margin negotiated by reference to and payable above BBSW, it is necessarily influenced by both current BBSW, because the margin is determined as an amount above this, as well as future expectations as to BBSW, for the purpose of negotiating the margin. I must say that these last propositions involve various non-sequiturs. And the fact that a margin is added does not mean that the "price" is BBSW. What is negotiated is the margin. Further, the submission that the margin is based, inter-alia, on future BBSW is a slippery proposition not directly supported by the evidence. 2042 Generally speaking I reject ASIC's submissions on this aspect of the case. I would refer to and repeat what I said at the outset of these reasons concerning these instruments and the mechanics of their negotiation and operation. 2043 Now there is no doubt that payment obligations under both products over the life of the swaps reference BBSW. The floating rate leg of an interest rate swap and the AUD leg of a cross-currency swap will invariably reference BBSW of some tenor. But I agree with Westpac that payments due under a swap over its life are not individually or in aggregate the "price for trading" in the swap. Indeed ASIC's evidence to some extent established that the "price" of an interest rate swap as quoted on both BETSY and BGC Trader is the fixed rate on the fixed rate leg, and that the "price" of a cross-currency swap as quoted on BGC Trader is the fixed margin over BBSW on the AUD leg. These were the "prices" at which parties posted bids and offers in respect of such trades. This in essence is what parties were negotiating over. 2044 Further, Mr Masnick agreed that the price for trading of an interest rate swap was the fixed rate leg of the swap. As he said, in the marketplace the traded price of an interest rate swap is the fixed rate. And once an interest rate swap is traded, everything else that subsequently happens in terms of exchanging cash flows is formulaic. It is the fixed rate of the swap, which is how they are quoted by brokers, which is the price for trading of an interest rate swap. 2045 Further, the market price of a cross-currency swap was the margin over the AUD floating interest rate leg, assuming that each side had a floating interest rate; if not, the price would be referable to the fixed interest rate. Mr Masnick rejected the suggestion that the money paid from one side to the other over the life of a swap was its "price". He observed that no market practitioner would ever consider that to be the price of a cross-currency swap. I agree. ASIC's proposition is artificial to say the least. 2046 Further, in my view Mr Masnick's evidence was consistent with the definition of "trade" in s 9 of the Corporations Act. Although expressed non-exhaustively, it connotes the making of offers to dispose of, acquire or exchange financial products. The relevant "prices" are amounts which are not calculated by reference to, or derived from, BBSW, nor are they affected or influenced by daily movements in BBSW. The fixed rate leg of an interest rate swap is determined by reference to the swap yield curve and a margin. The fixed margin on a cross-currency swap is determined by reference to observed market rates for cross-currency swaps, particular flows within the issuer's trading book and a profit margin and credit spread. I would refer back to my discussion close to the outset of these reasons. 2047 In my view, ASIC fails on this aspect of the case.

The price for trading in BAB Futures 2048 ASIC submits that the price for trading in BAB Futures is the yield or rate at which the contract is traded or may be traded on ASX24 up to and including the day of expiry, and includes the Daily Settlement Price. It says that the price is reassessed daily and sometimes more frequently. Moreover, it says that as Mr Roden deposed, the "price/yield [is] determined on expiry of the contract", unless it is traded before then. 2049 ASIC contends that trading in BAB Futures contracts involves maintaining a margin account. An adjustment is made to the margin account on each day that a BAB Futures contract is held to reflect the change in the BAB Futures contract price, based on where other BAB Futures contracts with the same expiry date are trading. ASIC says that this daily adjustment reflects traded and/or quoted prices and is referred to as the Daily Settlement Price. It says that the Daily Settlement Price was during the relevant period determined under the applicable exchange Operating Rules and Procedures as follows: (a) from 6 April 2010 until about 31 July 2010, pursuant to rule 1.9 "Daily Settlement Price" of the SFE Operating Rules; and (b) from about 1 August 2010 until 6 June 2012, pursuant to item [2500] "Determination of Daily Settlement Price" in the ASX24 Operating Rules Procedures. 2050 It says that the Daily Settlement Price on a final trading day (prior to expiry) is referred to as the "Expiry Settlement Price". 2051 ASIC submits that Westpac opened its case on the basis that BBSW does have an indirect influence on the BAB Futures traded price, and that it did so by reference to an email that Mr Roden had sent to AFMA during the relevant period, in which Mr Roden recorded that his biggest concern about scrutiny is around futures close out time, as BBSW does have an indirect influence on the futures traded price. 2052 ASIC further says that Mr Roden noted in a separate email to AFMA that the BAB Futures contract is a direct representation of 3 month BBSW. Further ASIC says that his evidence was that both the price of a BAB Futures contract and BBSW are intended to represent the price of a 3 month Prime Bank Bill on the close out day. But I would note for the moment that this is not an admission of a causal relationship. 2053 ASIC also says that Mr Masnick gave evidence that typically BAB Futures are the tool used to hedge rate set risk and that in his view BAB Futures became more useful in this respect closer to expiry of the BAB Futures contract as the two, that is, BBSW and the price of BAB Futures contracts, will converge. As ASIC correctly points out, Mr Masnick's evidence was that: (a) "[a]t any point in time prior to the Close Out Date, the BAB Futures rate should represent the market's consensus view of the likely yield of a Prime Bank Bill at the Close Out Date"; (b) on the Close Out Date, "the rate for three month Bank Bills and the rate for BAB Futures are likely to converge"; (c) "the BAB Future rate and the rate of the underlying asset (that is, a three month Prime Bank Bill) usually start to converge in the days leading up to the Close Out Date"; (d) "the BAB Futures rate is the market's assessment of the rate of Bank Bills at a future date, that is, the Close Out Date"; and (e) the most significant factors that influence the rate at which BAB Futures trade include the market's perception of what the level of BBSW will be at the date of the BAB Futures expiry. 2054 ASIC submits that in ASC v Nomura the "price for dealing" in a futures contract on the SFE was held to be the "cash settlement price". It says that Sackville J held that transactions on the ASX affecting the closing price of securities included in the All Ords index affected the cash settlement price for SPI Contracts. In the present case, it submits that the price of Prime Bank Bills and/or BBSW affected the closing price of the BAB Futures contracts in the same way, and there is no reason to apply any narrower meaning to "price for trading," or to reach a different conclusion as to the influence of the price of Prime Bank Bills and/or BBSW on the price for BAB Futures. Alternatively, ASIC submits that if the "price for trading" in BAB Futures is determined as at the moment of entry into a BAB Futures contract, the BBSW is a principal consideration taken into account by traders, and the BBSW therefore influences the "price for trading", even so narrowly defined. 2055 I do not accept ASIC's submissions. At this point let me also refer back to and incorporate in the present discussion what I said close to the outset of my reasons concerning BAB Futures. 2056 Now as I have said, there is no issue that BAB Futures are traded on a financial market within the jurisdiction. But the issue is whether the "price for trading" in BAB Futures was calculated, in whole or in part, by reference to, influenced by or derived from, BBSW or the price at which Prime Bank Bills were trading in the Bank Bill Market. 2057 Now let it be accepted that the "price for trading" in BAB Futures is the price at which BAB Futures contracts were traded on the ASX24, that is, the price at which BAB Futures contracts could be bought or sold on the exchange. 2058 Let it also be accepted that there is an obligation of parties to a BAB Futures contract, following entry into the contract, to maintain a margin account. The required margin that a party is required to hold is adjusted as the value of the futures contract changes over the life of the contract. The daily adjustment in the amount of margin a party is required to maintain in its margin account is set by reference to the "Daily Settlement Price". This is the end of day price of the futures contract on the exchange at 4.30 pm each day. But it must be pointed out that its only significance is to determine the amount of margin the parties to a futures contract are required to hold in their margin accounts. Now at this point I would note that the assertion that the price for trading of BAB Futures includes the "Daily Settlement Price", does not advance ASIC's case. The "Daily Settlement Price" is not determined by reference to BBSW. It is simply the end of day price on the futures exchange. BBSW or the yield at which Prime Bank Bills trade at or around 10.00 am on a particular day does not determine that end of day futures price. 2059 Now ASIC alleges that the price at which parties transacted in BAB Futures was affected by the level of BBSW or the price at which Prime Bank Bills traded in the Bank Bill Market. 2060 Significantly ASIC led evidence from Dr Duarte-Silva who purported to identify a statistically significant correlation in the 20 days leading up to each BAB Futures expiry date between changes in Prime Bank Bill yields and changes in BAB Futures yields, but ASIC now no longer relies on Dr Duarte-Silva's evidence. I am inclined to agree with Westpac that absent any expert evidence substantiating the claimed causal relationship between changes in Prime Bank Bill yields and changes in BAB Futures yields, ASIC has failed to prove that the price for trading of BAB Futures was in a relevant sense affected by changes in BBSW arising from trading in the Bank Bill Market. 2061 The state of the evidence before me is that the BAB Futures price was not influenced by daily changes in BBSW. This is because the BAB Futures price reflected the market's expectation of where BBSW would be on the expiry date. In other words it was not influenced by that day's BBSW but where it would be in the future. Further, although theoretically BBSW and the BAB Futures price should converge on the expiry day, in practice that often did not happen. The BAB Futures price close to expiry was influenced by inter-alia supply and demand impacts of parties closing out their futures positions and other matters. I have previously discussed the question of convergence. 2062 Let me dwell for a moment on ASIC's evidence which has now been abandoned. In a sense it demonstrates what ASIC attempted to prove but could not prove. 2063 Dr Duarte-Silva claimed that during the relevant period, changes in the yield of Prime Bank Bills affected the prices of BAB Futures that were relatively close to expiration, and that this effect persisted until at least 10.30 am on the relevant trading day. Dr Duarte-Silva claimed that because each BAB Futures contract delivered a Prime Bank Bill on expiration, it followed that the value and price of a BAB Futures contract was directly related to the value of Prime Bank Bills on the expiration date. Dr Duarte-Silva claimed that different Prime Bank Bill yields should imply different prices of BAB Futures and that the Prime Bank Bill yield would be most predictive of the BAB Futures yield as the contract got closer to its expiration date. 2064 To determine whether changes in the Prime Bank Bill yield had an effect on BAB Futures yields, Dr Duarte-Silva conducted an empirical analysis of the ratio of the daily change in the BAB Futures yield over the daily change in Prime Bank Bill yields; in essence, the numerator was the daily change in the BAB Futures yield and the denominator was the daily change in Prime Bank Bill yields. The window of change in Prime Bank Bill yields was explained by Dr Duarte-Silva in the following terms: I measure[d] each date's change in the PBB Yield as the change between the PBB Yield at the latest point before the BBSW Window for which I have data and the PBB Yield at 10 am ("Change in PBB Yield"). The PBB Yield at the latest point before the BBSW Window for which I have data is the closing PBB Yield per Bloomberg at 5 pm in the New York time zone, which equates to 7 am to 9 am in Australian Eastern time, depending on the date. The 10:00 am PBB Yield is approximated by that day's BBSW. The measurement of each date's change in the BAB Futures yield was measured in the period immediately after the BBSW Rate Set Window. Dr Duarte-Silva used two alternative periods, the first from 10.05 am to 10.15 am, and the second from 10.05 am to 10.30 am. 2065 Dr Duarte-Silva claimed that the ratio provided information of the magnitude and direction of the BAB Futures yield in response to a 1 basis point movement in Prime Bank Bill yields. A larger ratio implied a larger reaction of the BAB Futures yield and a zero ratio implied no reaction. A positive ratio also meant that the movements of the yields were in the same direction. That is, the BAB Futures yield increased after the Prime Bank Bill yield increased or the BAB Futures yield decreased after the Prime Bank Bill yield decreased. The ratio would only be negative if Prime Bank Bill yields moved in one direction and subsequently the BAB Futures yield moved in the opposite direction. 2066 Furthermore, Dr Duarte-Silva claimed that expectations of the yield in the Prime Bank Bill delivered at each BAB Futures expiration should be more closely tied to a given day's Prime Bank Bill yield closer to the futures expiration date. Accordingly, Dr Duarte-Silva focused on trading dates occurring within 20 days of the BAB Futures expiry dates. 2067 Using the change in the futures yield between 10.05 am and 10.15 am, Dr Duarte-Silva's results indicated an average ratio of the yield changes of 0.17, suggesting that on average the BAB Futures yield moved in the same direction as the Prime Bank Bill yields. Furthermore, Dr Duarte-Silva stated that the ratio had a t-statistic of 2.10 (p-value of 2 per cent). Dr Duarte-Silva concluded that it was unlikely that the average ratio of yield changes in the relevant period was less than or equal to zero. 2068 Dr Duarte-Silva concluded that changes in the Prime Bank Bill yield had an effect on BAB Futures yields, and thereby prices, during the relevant period. Dr Duarte-Silva also claimed that the data used in which the change in the Prime Bank Bill yield included many minutes and sometimes hours of changes in Prime Bank Bill yields prior to the BBSW Rate Set Window introduced noise and lower statistical significance than using the change in the Prime Bank Bill yield solely in the BBSW Rate Set Window. Dr Duarte-Silva expected the relationship between changes in the Prime Bank Bill yield in the BBSW Rate Set Window and subsequent changes in BAB Futures yields to be more statistically significant than the reported results. 2069 Dr Duarte-Silva claimed that on dates with more than 20 days to the futures expiration, the relationship between Prime Bank Bill yields and BAB Futures yields became too noisy to statistically detect its significance. Dr Duarte-Silva claimed that this was consistent with the notion that the relationship was stronger, the closer the BAB Futures were to expiration. 2070 To examine whether the effect persisted, Dr Duarte-Silva examined the ratio using the change in the futures price between 10.05 am and 10.30 am. Dr Duarte-Silva found that the ratio was still positive (0.13) and had a p-value of 9 per cent. Dr Duarte-Silva concluded that changes in the Prime Bank Bill yield had an effect on BAB Futures yields, and thereby prices, in the relevant period, which effect persisted until at least 30 minutes after the BBSW Rate Set Window. 2071 Dr Duarte-Silva then repeated the analysis using the change in the futures price between 10.05 and 10.30 am, but excluding alleged contravention dates. Dr Duarte-Silva found an average ratio of 0.18 with a p-value of 3 per cent, and concluded that it was unlikely that this ratio was less than or equal to zero. 2072 Dr Duarte-Silva also claimed to show that the ratio of yield changes between Prime Bank Bills and BAB Futures on each of the relevant contravention dates was not statistically different to the relevant period's average ratio. If the average ratio was not statistically distinguishable from the ratio on a given date, then Dr Duarte-Silva inferred that the relationship was not altered on that date. 2073 Further, Dr Duarte-Silva found that on dates within 20 days of the expiration of the futures contract, the p-value was above 10 per cent on all of the alleged contravention dates, regardless of whether the change in futures price was measured between 10.05 am and 10.15 am or 10.05 am and 10.30 am. Dr Duarte-Silva concluded that there was no evidence that the relationship between BAB Futures yields and Prime Bank Bill yields was altered on contravention dates. 2074 But during the concurrent evidence session it became apparent that there were significant flaws in Dr Duarte-Silva's analysis. 2075 Given that ASIC has now abandoned its reliance on his evidence, I do not need to descend further into the detail save to say that I am comfortable in putting to one side his evidence by reason of the following matters. 2076 First, Dr Duarte-Silva inappropriately used an arithmetic average ratio. This masked variation in the daily ratio between Prime Bank Bill yield changes and BAB Futures yield changes. Moreover, the ratio of yield changes on most trading days was zero or negative. 2077 Second, his analysis was flawed because he excluded days when the change in Prime Bank Bill yields was zero, thereby causing the relevant ratio to be undefined. 2078 Third, the statistical significance of his results was reduced when one accounted for serial correlation. Serial correlation occurs when today's error term, i.e. the difference between the actual value of the dependent variable (the actual ratio between the change in the BAB Futures yield and the change in the 3 month Prime Bank Bill yield, in this case) and the value predicted by the model (the average ratio between the change in the futures yield and the change in the 3 month Prime Bank Bill yield, in this case), is correlated with yesterday's error term, or even earlier error terms. 2079 Fourth, the statistical significance of his results was reduced by the exclusion of the ratio on each futures expiry date. BAB Futures were traded until noon on the futures expiry date during the relevant period. 2080 Fifth, Dr Duarte-Silva's use of a one-sided significance test (as opposed to a two-sided significance test) and his assumption that the relevant ratio was expected to be positive was problematic. For example, arbitrage could produce a negative ratio. 2081 Sixth, Dr Duarte-Silva's selection of the intervals of 10.05 am to 10.15 am, and 10.05 am to 10.30 am were arbitrary and not sufficiently supported. 2082 Seventh, at best Dr Duarte-Silva's analysis was only capable of establishing a correlation between changes in Prime Bank Bill yields and BAB Futures yields, rather than establishing causation such that the former caused the latter. Indeed, reverse causality may not have been ruled out i.e. the latter influencing the former. After all, BAB Futures were more liquid and the volume traded was at least an order of magnitude above the volume of Prime Bank Bills traded. 2083 Eighth, given that on many occasions the ratios were the same on the contravention dates as for the non-contravention dates, the analysis was neutral as to whether manipulation had occurred or been demonstrated. 2084 I do not need to elaborate further. Indeed the failure of this analysis perhaps demonstrates the converse position, that is, that movements on a particular day in yields and BBSW do not affect prices for BAB Futures or if they do it is only in respect of a small window when the BAB Futures are very close to expiry. Even then I would be speculating. Intuition is one thing, but the evidence does not permit me to be comfortably satisfied in accepting ASIC's case on this aspect.

(f) Conclusions - s 1041A 2085 Let me draw together some conclusions at this point. 2086 First, as I have already said, I am satisfied that Westpac traded in Prime Bank Bills on 6 April 2010, 20 May 2010, 1 and 6 December 2010 for a dominant manipulative purpose. 2087 Second, I am satisfied that such trading had a likely effect on yields and BBSW on those contravention dates, but where "likely" means a real and not remote chance. 2088 Third, notwithstanding the first and second propositions, I am not satisfied that any case has been shown that Westpac's trading in Prime Bank Bills on those four contravention dates had the effect or likely effect contemplated by s 1041A in relation to the price for trading in BAB Futures, interest rate swaps or cross-currency swaps. I am not so satisfied for two key reasons. The first reason is because the dominant manipulative purpose that I have found was not directed to the pricing in these other derivative products. Accordingly it is not feasible to infer an effect or likely effect on the pricing of those derivative products from the purpose that I have found. Moreover, there is no other sufficient and objective evidence that in my view fills that gap. The second reason is that when one understands the way BAB Futures, interest rate swaps and cross-currency swaps are priced and traded, to say that Westpac's trading in Prime Bank Bills may have had a likely effect on yields and BBSW goes nowhere close to establishing a likely effect on the pricing of those derivative instruments.

(g) Likely false or misleading appearance with respect to market or price in Traded BBSW Referenced Products - s 1041B 2089 In my view s 1041B is of broader scope than s 1041A. Section 1041B(1)(b) is directed to any act or omission that "has the effect or is likely to have the effect of creating, or causing the creation of" either a "false or misleading appearance with respect to the market for" or a false or misleading appearance with respect to the "price for trading in", financial products traded on a financial market operated in the jurisdiction. And the prohibition is not limited to any particular kind or type of conduct such as taking part in a transaction as is the case for s 1041A. 2090 The provision is also forward looking. It provides that a person must not do, or omit to do, an act "if that act or omission … is likely to have the effect of creating, or causing the creation of, a false or misleading appearance". And whether an act or omission is likely to have such an effect is to be assessed ex ante, namely, as at the time of the relevant act or omission. 2091 Moreover, s 1041B is also not limited to conduct in the actual financial market on which the relevant financial product is traded. In this respect, similar points to what I have said concerning s 1041A can also be made. 2092 Further, the two limbs of s 1041B(1)(b) are disjunctive. One limb refers to the relevant market. The other limb refers to the relevant price for trading. Accordingly, it is sufficient for the act or omission to have or be likely to have the effect of creating or causing the creation of a false or misleading appearance with respect to the financial market for a financial product. An actual price effect or even a likely price effect is not a necessary element for a contravention of s 1041B. 2093 Now ASIC says that s 1041A, which looks to an effect or likely effect on "price", is to be contrasted with s 1041B, which looks to an effect or likely effect on "appearance". It says that s 1041B, rather than requiring transactions with an actual or likely effect on the price for trading in financial products on financial markets, instead directs attention to acts or omissions that have or are likely to have the effect of creating a false or misleading appearance with respect to the market for or the price for trading in financial products. It says that an act or omission, in this case the trading by Westpac with the alleged purpose, may have the effect of creating or causing the creation of a false or misleading appearance even if the price for trading in the relevant financial products was not consequentially an artificial price. ASIC has prayed in aid my preliminary observations in Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited [2017] FCA 459 at [71] as follows: It is to be noted that s 1041B(1)(b) has two aspects being either "a false or misleading appearance … with respect to the market for …" or "a false or misleading appearance … with respect to … the price for trading in …". This second aspect has some resonance with the themes in s 1041A, although I accept that it is different. For example, it may be said that s 1041A looks at effect or likely effect. Contrastingly, it may be said that s 1041B looks at appearance. Arguably, effect or likely effect on price may affect appearance. But arguably appearance may not require effect or likely effect on price to be demonstrated. Further, "price" in s 1041B(1)(b) arguably differs from the concept of "artificial price" in s 1041A. In other words, one could say that ASIC's new case under s 1041B(1)(b) might succeed even if it failed on its case under s 1041A seeking to establish an "artificial price". An act or omission, in this case the alleged manipulation by the Banks, arguably could have the effect of creating or causing the creation of a false or misleading appearance even if the price for trading in the relevant financial products was not an "artificial price". Further and in any event, the first aspect of s 1041B(1)(b), namely "false or misleading appearance … with respect to the market for …" is arguably a different and broader concept than s 1041A. Now these questions are all matters for trial… 2094 Accordingly, ASIC's case under s 1041B does not depend upon any contention that Westpac created or maintained an artificial price for trading in BAB Futures, interest rate swaps and cross-currency swaps being what I have defined as the Traded BBSW Referenced Products. 2095 Now as I have already indicated, a predecessor provision (s 70 of the Securities Industry Act 1970 (NSW)) was considered in North v Marra Developments. I have previously extracted Mason J's description of the purpose of the provision (at 59): The section seeks to ensure that the market reflects the forces of genuine supply and demand. By "genuine supply and demand" I exclude buyers and sellers whose transactions are undertaken for the sole or primary purpose of setting or maintaining the market price. 2096 Having regard to that purpose, his Honour held that the provision prohibited more than "fictitious or colourable transactions". Further, his Honour described the false or misleading appearance that would result as follows (at 59): The false or misleading appearance is that the market, in the absence of any disclosure that a market support operation is on foot, appears to be real or genuine, there being no overt sign of market support or manipulation. 2097 Further, he observed that an actual effect, or even appearance, is not a necessary condition for contravention (at 59): In passing I note that it is enough to breach the section that the activities are calculated to create a false or misleading appearance. It is not necessary that they do in fact create that appearance. 2098 Further, in ASC v Nomura, Sackville J said at 395: As Mason J said in North v Marra … the object "is to protect the market for securities against activities which will result in artificial or managed manipulation". His Honour did not refer to the market for a particular security. Mason CJ also emphasised that s 998 seeks to ensure that "the market" reflects the forces of genuine supply and demand. As the present case illustrates, a trader may engage in conduct intended or likely to bring about an artificial or managed manipulation of the market (in the form of misleading appearances of the kind identified in s 998(1)), yet it may not be possible to identify precisely which securities within a broader class will be the subject of the manipulation. (emphasis in the original) 2099 Now ASIC says that the relevant "act" for the purposes of s 1041B(1) engaged in by Westpac was the act of trading with the impugned sole or dominant purpose on the contravention dates and from time to time in the relevant period. It says that the trading included the making and acceptances of relevant bids and offers. ASIC also contends that the relevant "omission", being throughout the relevant period, was Westpac's omission to disclose that it had traded with such a purpose, or that it would or might do so. It is said that this was a continuing omission throughout the relevant period. Generally, it says that these acts and omissions created or were likely to create a false or misleading appearance that the price/yield of Prime Bank Bills and thus the BBSW was genuine, independent and transparent and free from manipulation. Now at this point I would note that I have only found for ASIC on the four contravention dates that I have identified. At best its case is limited to those dates in terms of the trading that occurred on those dates and the omission to disclose such trading. 2100 Further, ASIC submits that the payment obligations under the interest rate swaps and cross-currency swaps referenced the BBSW, and that the price of and/or market for BAB Futures were affected by yields of Prime Bank Bills and BBSW. Accordingly, it is said that the impugned acts and omissions had the following effect or likely effect. 2101 First, they had such an effect or likely effect by creating a false or misleading appearance with respect to the price for trading in Traded BBSW Referenced Products, in that the Traded BBSW Referenced Products appeared to be unaffected by manipulation or likely manipulation of the BBSW. But as I have indicated above, I have not accepted ASIC's case on a pricing link. Accordingly, ASIC's enthymematic premise for this assertion fails. 2102 Second, ASIC says that such impugned acts and omissions had such an effect or likely effect by creating a false or misleading appearance with respect to the markets for: (a) interest rate swaps and cross-currency swaps, in that each appeared to be a market for products with payment obligations set by reference to an independent, genuine reference rate, but was in fact a market in which payment obligations on the products were set by reference to a rate that was the subject of manipulation or likely or intended manipulation; and/or (b) BAB Futures, in that it appeared to be a market for products unaffected by manipulation (or likely manipulation), but was in fact a market for products affected by manipulation or likely or intended manipulation of the price of Prime Bank Bills and/or the BBSW. 2103 Further, ASIC submits that the expression "misleading" has broad scope, and that it encompasses a tendency to lead into error and an insufficiency of information that permits a reasonably open but erroneous conclusion to be drawn. It says that it is not necessary to demonstrate actual deception. I agree with these propositions 2104 I also accept that the concept of "appearance" should be interpreted broadly. Indeed, The Oxford English Dictionary defines "appearance" in the following terms: 1. The action of coming forward into view or becoming visible. … 4. a. The action of coming before the world or the public in any character… 5. Occurrence so as to meet the eye in a document. 6. The action of appearing conspicuously; display, show, parade. 7. Clear manifestation to the sight or understanding; disclosure, detection… 8. The action or state of appearing or seeming to be (to eyes or mind); semblance; looking like... 9. Semblance of truth or certainty; likelihood, probability; verisimilitude... 10. subjectively: Perception, idea, notion of what a thing appears to be… 11. a. The state or form in which a person or thing appears; apparent form, look, aspect. b. pl. The general aspect of circumstances or events; the 'look' of things. 12. a. esp. as distinguished from reality: Outward look or show. b. to save or keep up appearances: to maintain artificially the outward signs, so as to conceal the absence of the realities which they are assumed to represent… 13. Illusive seeming or semblance; concr. an illusion. Obs. 14. a. concr. That which appears; an object meeting the view; esp. a natural occurrence presenting itself to observation; a phenomenon. b. That which appears without being material; a phantom or apparition. 2105 Further, I accept that it is not necessary for ASIC to prove that Westpac's conduct in fact created a false or misleading appearance with respect to the market for or the price for trading in Traded BBSW Referenced Products. In my view it is sufficient to establish that this was likely in the sense that there was a "real or not remote chance" or possibility. As I have already indicated, this is the test of likelihood applied to s 1041E (see Casaclang v WealthSure Pty Ltd (2015) 238 FCR 55 at [257]), and it is consistent with authorities which provide that conduct is likely to mislead if it has a capacity or tendency to mislead. In this respect, I would differ from what was said on this aspect by Sackville J in ASC v Nomura who was concerned that a lower threshold might mean that "a trader who neither creates nor intends to create a misleading appearance, commits a criminal offence if his or her conduct merely creates a real chance of a misleading appearance" (at 396). In terms of the legislative provisions that I am considering, such reasoning does not persuade me to adopt a view of "likely" that differs as between any of ss 1041A, 1041B, 1041E and 1041H. Further, I am dealing with a civil penalty proceeding. And moreover, if there could be any criminal consequences, there is sufficient protection in that context by importing the fault element that would be applied under Ch 2 of the Criminal Code. 2106 Further, ASIC says that the prohibition in s 1041B extends to conduct comprising an act or omission that has or is likely to have the effect of creating, or causing the creation of, a false or misleading appearance "with respect to" the market for, or the price for trading in, financial products. It submits that whilst there must be some degree of connection between the "false or misleading appearance" and the market, or price for trading, the expression "with respect to" is a phrase of wide ambit. I agree. 2107 Now ASIC says that during the relevant period the BBSW was a key reference rate and benchmark rate in the financial markets in Australia, the independence and transparency of which was important in ensuring the efficiency, integrity and good operation of those markets. BBSW was widely used as a benchmark or reference interest rate for financial products including interest rate and cross-currency swaps. So much is not in issue. Further, the unchallenged evidence from counterparties was that they understood the BBSW, by reference to which the payment obligations for interest rate swaps and cross-currency swaps were set, to be an independent reference rate free from manipulation and risk of manipulation. So much is also not in issue. 2108 ASIC submits that Westpac did not disclose in the relevant derivatives markets that it could or did or intended to trade for the purpose of influencing the BBSW and/or which resulted in yields of Prime Bank Bills (and therefore BBSW) which did not reflect the forces of genuine supply or demand. Accordingly, ASIC says that such markets proceeded upon the impression that the BBSW rate was an independent rate in that it was a rate that was determined by the market(s) independent of say Westpac. 2109 ASIC says that the appearance of the BBSW as an independent rate, unaffected by manipulation, was rendered false or misleading or likely to have been rendered false or misleading by Westpac engaging in the alleged conduct, that is, by trading with the intention of influencing the BBSW and by its failure to disclose that it did, could or intended to engage in such conduct. 2110 ASIC submits that as Westpac's interest rate swaps and cross-currency swaps disclosure documents stated and as Westpac agrees, the payment obligations that were required to be made pursuant to these products referenced BBSW. 2111 ASIC also says that the product that was deliverable under a BAB Futures contract was a Prime Bank Bill, and that the yield/price of Prime Bank Bill to be delivered under a BAB Futures contract (and thus BBSW) was necessarily an aspect of the market for BAB Futures contracts. 2112 ASIC contends that another aspect of the market was the relationship between BBSW and BAB Futures, from which a view could be formed as to the price/yield of BAB Futures. It submits that this was monitored closely by market participants because that relationship and any arbitrage opportunities were often the determinant of whether participants bought or sold or held BAB Futures contracts. 2113 Further, ASIC submits that traders in the Bank Bill Market knew that trading to influence BBSW and/or which resulted in yields and BBSW that did not reflect genuine supply and demand, could affect the relationship between BAB Futures and BBSW. For example it points to the following matters: (a) Mr Roden recognised that "shenanigans" in the Bank Bill Market could cause BBSW to not be "in line" with futures: he told a representative of the RBA that he didn't think the conduct in the market was "really shenanigans" because BBSW was "in line with the futures" [Transcript of phone call between Mr Roden and Mr Boge (RBA), 9 June 2010] (b) Mr Brizuela (of NAB) said that an indicator or flag that he considered might confirm that NAB was trading to try to achieve a favourable level for BBSW included where the bank bill rate moved out of line with BAB Futures. (c) Mr Page of NAB said that on occasion he observed trading and unusual movements in BBSW during the BBSW Rate Set Window for Prime Bank Bills traded by NAB relative to the rates for other products which should correlate with Prime Bank Bills such as BAB Futures. (d) Mr Howarth (a NAB trader) observed in an internal NAB email of 6 March 2012 that Prime Bank Bills delivered into the rateset by Westpac, which it had purchased from NAB the previous day, was mostly "NON-deliverable and that should hold the future up a bit". (e) Mr Johnson of NAB in an internal email he sent on 14 January 2009 said "even though it is the end of the earlies we hope to get it down to 10 over strip". He meant that NAB intended to purchase Prime Bank Bills to attempt to influence the 6 month BBSW rate set down to push the rate to a spread of only 10 basis points to the BAB Futures strip. 2114 Further, in relation to the other limb of s 1041B(1)(b) ASIC contends that Westpac's acts and/or omissions had the effect or likely effect of creating or causing to be created, an appearance that: (a) the value of a BAB Futures contract up to expiry; (b) the product that was deliverable pursuant to a BAB Futures contract and the payment required to be made in the event of non-delivery; (c) the relationship between BAB Futures and BBSW; (d) payment obligations under or pursuant to a swap referencing BBSW; and/or (e) the price for trading in Traded BBSW Referenced Products, were unaffected by Westpac's trading or likely trading for the purpose of influencing BBSW and/or by the resulting yields and therefore BBSW. 2115 ASIC says that such an appearance was false or misleading because in fact Westpac had or intended to trade with the impugned purpose, with the result that yields and BBSW had not, or might not have, reflected the forces of genuine supply and demand, and the counterparties did not know that. 2116 Now I would reject ASIC's case at a number of levels. 2117 First, as Westpac submits, the case so framed is not classically an allegation of false trading and market rigging (the usual subject matter of s 1041B) but rather principally, although not completely, a non-disclosure claim. And such a claim posits no direct conduct of Westpac interfering with the orderly conduct of the markets for Traded BBSW Reference Products. Rather, as Westpac points out, the only conduct said to create a misleading appearance with respect to the market for Traded BBSW Reference Products is Westpac's manipulative trading in Prime Bank Bills and its failure to disclose such conduct occurring in an entirely different market, which might have borne upon a third party's decision to acquire a Traded BBSW Referenced Product. 2118 I agree with Westpac that if such a claim could be advanced under s 1041B, there is no reason why any misleading or deceptive conduct claim affecting traded financial products (for example, claims based on allegedly misleading market disclosure) could not be run as a s 1041B claim. In my view that is unlikely to have been the intended scope of the section. 2119 Second, as Westpac correctly submits, Mason J in North v Marra Developments stated that it was not easy to translate the generality of the language in section 70 of the Securities Industry Act 1970 (NSW) (a predecessor of s 1041B) to a specific prohibition on injurious activity. Mason J explained that the language should be construed by reference to the object of the section, which he identified as follows (at 59): It seems to me that the object of the section is to protect the market for securities against activities which will result in artificial or managed manipulation. The section seeks to ensure that the market reflects the forces of genuine supply and demand. 2120 Further, another predecessor to s 1041B, s 998 of the Corporations Law, aimed to preserve the integrity of the share market. But markets can suffer from imperfections, including asymmetry of information, without such imperfections destroying their integrity. I agree with Westpac that the object of s 1041B is to preserve the integrity of financial markets, not to proscribe all conduct which may affect the information known to market participants. 2121 Third, as to ASIC's contention that the words "market for" in s 1041B are broad enough to embrace any conduct which may affect information known to market participants, I would reject this. The "market for" BAB Futures, interest rate and cross-currency swaps is the market for the acquisition or disposal of such products (s 767A of the Corporations Act). Although the concept may extend beyond price to matters such as volume offered or bid or whether reported trades were fictitious, I do not consider that s 1041B was intended to proscribe any non-disclosure of information which may be material to the value of a traded financial product or an investor's decision whether to acquire or dispose of it. 2122 Fourth, at this point let me address ASIC's pleaded case concerning s 1041B. It has relevantly pleaded at [104A] to [104C] of the third further amended statement of claim the following: [104A] Westpac did not, prior to or at any time in the Relevant Period, inform participants in the financial markets for Traded BBSW Referenced Products of: a. its entering into the transactions pleaded in paragraphs 67, 74, 82, 90 and 96 above with the purposes pleaded in subparagraphs 69(a), 76(a), 85(a), 93(a) and 99(a) above; or b. Westpac's Rate Set Trading Practice. [104B] Westpac's conduct in: a. entering into the transactions pleaded in paragraphs 67, 74, 82, 90 and 96 above with the purposes pleaded in subparagraphs 69(a), 76(a), 85(a), 93(a) and 99(a) above; and/or b. omitting to inform participants in the financial markets for Traded BBSW Referenced Products of the matters referred to in subparagraphs 104A(a) and 104A(b) above had the effect or was likely to have the effect of creating, or causing the creation of, a false or misleading appearance with respect to the market for, and/or the price for trading in, the Traded BBSW Referenced Products. Particulars The particulars to paragraph 33 are repeated. The false or misleading appearance was that the market for, and/or the price for trading in, the Traded BBSW Referenced Products appeared unaffected by manipulation or likely manipulation of the BBSW or of the price for such products, there being no indication of such manipulation or likely manipulation. [104C] By reason of the matters pleaded in paragraphs 65 to 103, 104A and 104B above, Westpac contravened s 1041B of the Corporations Act: a. on the dates pleaded in paragraphs 67, 74, 82, 90 and 96 above; and / or b. on each Sydney business day during the Relevant Period. 2123 As will be apparent from what I have already said, I have not found that Westpac engaged in the Rate Set Trading Practice. Further, I have only found that on four contravention dates Westpac traded for a dominant manipulative purpose. And even then I have only found a likely effect on relevant yields and BBSW at the lower level of a real but not a remote chance. 2124 Accordingly, in terms of ASIC's pleaded case referable to the findings that I have made, it amounts to saying that there was a contravention of s 1041B in relation to other markets by reason of the fact of such trading on the four contravention dates with the non-disclosure of such a dominant manipulative purpose on those four occasions and where such trading only produced a likely effect on yields and BBSW at the lower level of a real and not remote chance. In my view its case under s 1041B is not made out on that tenuous foundation. Moreover, and after all, s 1041B concerns the effect or likely effect of creating a false or misleading appearance with respect to the market for or price for trading in BAB Futures, interest rate swaps and cross-currency swaps. Even if the bar for "likely effect" is low and the words "with respect to" are of broad ambit, in my view ASIC has not made out its case, even before one gets to other problems, for example, that the trading in these other markets and the relevant pricing is not done by reference to the BBSW, as I have explained earlier when dealing with s 1041A. 2125 Fifth, as should also be apparent from what I have said earlier, there is no case established that the pricing and trading of interest rate swaps, cross-currency swaps and BAB Futures in those derivative markets was anything other than pursuant to the genuine forces of supply and demand in those markets. 2126 In summary, ASIC's case also fails under s 1041B. By the conduct that I have found on the four contravention dates in the Bank Bill Market coupled (or not) with the non-disclosure of any dominant manipulative purpose on those dates, it could not reasonably be said that that was likely to have the effect of creating or causing the creation of a false or misleading appearance as to the price for trading or the separate market(s) concerning the derivative instruments, namely, interest rate swaps, cross-currency swaps and BAB Futures.

(a) Overview of ASIC's claims 2127 ASIC alleges that Westpac contravened s 12CA, s 12CB (for post-1 January 2012 conduct) and s 12CC (for pre-1 January 2012 conduct) of the ASIC Act and seeks pecuniary penalties accordingly. But as s 12GBA only came into force on 15 April 2010, a civil penalty cannot be imposed specifically for Westpac's trading on 6 April 2010, although such conduct may be relevant for other claims. I would also note at the outset that ASIC did not plead or pursue any case of attempted unconscionable conduct against Westpac of the type it ultimately pursued against other Banks in other analogous proceedings. 2128 The alleged contravening conduct has been categorised by ASIC in two ways. 2129 First, ASIC says that Westpac entered into or carried out obligations in relation to BBSW Referenced Products while also carrying out its Rate Set Trading Practice on the dates of each of the sale and purchase contraventions and from time to time throughout the relevant period as part of a system of conduct or pattern of behaviour (the Impugned Conduct). I would note at this point that the BBSW Referenced Products are a broader set of financial instruments than the three products that I defined as Traded BBSW Referenced Products for the purposes of my discussion concerning ss 1041A and 1041B. 2130 Second, ASIC says that Westpac entered into BBSW Referenced Products knowing or believing that it had engaged and was likely to continue to engage in the Rate Set Trading Practice, and that doing so would be likely to or would cause loss to counterparties to the relevant products, without disclosing this practice to the relevant counterparties (the Risk Exposure Conduct). 2131 There are three categories of relevant counterparties to consider in assessing ASIC's claims. It is convenient to use ASIC's categories for the moment. 2132 The first category embraces counterparties to Westpac on BBSW Referenced Products in respect of which a payment was required to be made by reference to the BBSW on a sale contravention date or purchase contravention date or on a day during the relevant period, such that the counterparty had an exposure opposite to Group Treasury's BBSW Rate Set Exposure on that date. These counterparties were said to be comprised of both listed companies and counterparties that were non-listed companies or individuals and included counterparties that were not participants in the Bank Bill Market. As ASIC has done, it is convenient to define this category as "Affected Counterparties". 2133 The second category embraces counterparties to inter-alia other banks not including Westpac on BBSW Referenced Products in respect of which a payment was required to be made by reference to the BBSW on a sale contravention date or purchase contravention date or on a day during the relevant period, such that the counterparty had an exposure opposite to Group Treasury's BBSW Rate Set Exposure on that date. Such counterparties were said to include non-listed companies and individuals and to include counterparties that were not participants in the Bank Bill Market. As ASIC has done, it is convenient to define this category as "Other Affected Counterparties". I would say at this point that ASIC's case concerning Other Affected Counterparties fails at inception. I do not consider that claims concerning unconscionable conduct under the unwritten law or under statute can extend to persons with whom Westpac had no relationship howsoever that relationship be described. 2134 The third category embraces counterparties to Westpac comprised of listed and non-listed companies and individuals (not including Prime Banks) on BBSW Referenced Products entered into during the relevant period irrespective of whether they relate to a sale contravention date or purchase contravention date. As ASIC has done, it is convenient to define this category as "At Risk Counterparties". 2135 In respect of each sale contravention date and purchase contravention date, ASIC has alleged that Westpac engaged in the Impugned Conduct and thereby breached: (a) section 12CA (unconscionable conduct within the meaning of the unwritten law) in relation to Affected Counterparties that were listed public companies; and (b) sections 12CB or 12CC (statutory unconscionable conduct) in relation to Affected Counterparties and Other Affected Counterparties that were not listed public companies. 2136 Further, in respect of the relevant period generally, ASIC has alleged that Westpac engaged in the Impugned Conduct comprising a system of conduct or pattern of behaviour, and thereby breached ss 12CB or 12CC. 2137 Generally, ASIC has said that in relation to the Impugned Conduct it was unconscionable for Westpac to engage in the Rate Set Trading Practice on particular dates, as doing so would or might affect payment obligations on BBSW Referenced Products to Westpac's actual or possible advantage and to the detriment of the Affected Counterparties and Other Affected Counterparties. 2138 Further, in respect of the relevant period generally, ASIC has alleged that Westpac engaged in the Risk Exposure Conduct in circumstances that included the existence and non-disclosure of the Rate Set Trading Practice coupled with Westpac's knowledge that such practice was not known to the At Risk Counterparties, and thereby breached: (a) section 12CA in relation to the At Risk Counterparties that were listed public companies; and (b) sections 12CB or 12CC in relation to the At Risk Counterparties that were not listed public companies. 2139 Generally, ASIC has said in relation to the Risk Exposure Conduct that it was unconscionable for Westpac to enter into BBSW Referenced Products with the At Risk Counterparties, knowing that it would or might engage in the Rate Set Trading Practice to the actual or possible detriment of those counterparties without disclosing the same.

Aspects of the formulation of ASIC's claims 2140 Now it is convenient to note several matters at this point. 2141 First, ASIC has made a claim in relation to the Impugned Conduct. But as I have said, its unconscionable conduct claim in relation to the Impugned Conduct is not limited to conduct vis-à-vis Westpac's own counterparties. The unconscionability claim in relation to the Impugned Conduct is also made in relation to parties to BBSW Referenced Products not involving Westpac; these are the Other Affected Counterparties. So, ASIC alleges inter-alia that by engaging in the Rate Set Trading Practice, Westpac unconscionably took advantage of its position in the Bank Bill Market to the disadvantage of not only its own customers but also customers of other financial institutions who entered into BBSW Referenced Products with those other institutions. As I have said, in my view such a case is not maintainable against the Other Affected Counterparties. 2142 Second, ASIC alleges that Westpac engaged in unconscionable conduct within the meaning of the unwritten law in contravention of s 12CA of the ASIC Act and in all the circumstances in contravention of ss 12CB or 12CC of the ASIC Act by entering into BBSW Referenced Products each day with counterparties, knowing or believing that Westpac was likely to continue to engage in the Rate Set Trading Practice, that counterparties would or were likely to be detrimentally affected by that practice, and without informing those counterparties that Westpac had or would engage in that practice. I have referred to this as the Risk Exposure Conduct, but it is limited to conduct in relation to Westpac's own counterparties. 2143 Now the difference in these two formulations lies in the identification of the conduct alleged to be unconscionable. In relation to the Impugned Conduct, the conduct is Westpac's trading in the Bank Bill Market. But in relation to the Risk Exposure Conduct, the conduct is the entry into of BBSW Referenced Products with counterparties. 2144 Now to a large extent both formulations of the unconscionable conduct case are premised on establishing that Westpac engaged in the Rate Set Trading Practice. But as I have found, I do not accept that Westpac engaged in such a practice. I will address later the question of any unconscionable conduct concerning the four specific contravention dates that I have previously identified, namely, 6 April 2010, 20 May 2010, 1 and 6 December 2010. And I would note at this point that I have only found conduct on the four trading days that may have had a likely effect on yields and BBSW at the lower threshold of likely in terms of a real but not remote chance.

Attribution of conduct and knowledge - threshold question 2145 Before proceeding further, there is another question that I should deal with. 2146 Westpac says that both formulations of ASIC's unconscionable conduct claims rely upon an aggregation and attribution of knowledge of individuals across different divisions of Westpac, which Westpac contends are separated by an information barrier or Chinese wall. 2147 Westpac points out that the Rate Set Trading Practice was allegedly engaged in by the STIRR desk, which is part of Group Treasury. But the rate set exposure information to which STIRR traders had access, and which ASIC alleges STIRR traders used for the purpose of trading in the Bank Bill Market for the purpose of setting BBSW to benefit that exposure, was Group Treasury's BBSW Rate Set Exposure. But Westpac says that this did not include the BBSW Rate Set Exposure of Financial Markets. 2148 So Westpac contends that on the first formulation concerning the Impugned Conduct, when STIRR traded in the Bank Bill Market it had no knowledge of the BBSW Rate Set Exposure of Financial Markets arising from swaps and other BBSW Referenced Products issued by Financial Markets to Westpac's customers. STIRR only had knowledge of Group Treasury's BBSW Rate Set Exposure, not the rate set exposure of Financial Markets to Westpac's customers. 2149 Westpac also contends that on the second formulation concerning the Risk Exposure Conduct, ASIC does not allege that when dealers in Financial Markets entered into swaps and other BBSW Referenced Products with customers they had knowledge of the Rate Set Trading Practice allegedly engaged in by the STIRR desk. 2150 Therefore, so Westpac contends, both formulations of ASIC's unconscionable conduct claims depend upon fixing one part of Westpac with knowledge held only by another. Westpac says that this is impermissible in law. It says that the doctrine of aggregated corporate knowledge cannot be applied to reach a conclusion that a corporation has engaged in statutory unconscionability (Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421 at [62] to [67] and [89] to [149]). But I agree with ASIC that in Commonwealth Bank of Australia v Kojic, the Full Court emphasised that the ultimate question must be whether Westpac's conduct can be said to be unconscionable (at [65] and [112]), notwithstanding that it was noted that it is difficult to see how a corporation could have acted unconscionably if no single officer or employee did so (at [112]). But it seems to me that the following matters are relevant. 2151 First, STIRR employees were aware that their trading could affect the BBSW and that a large number of derivative products were reset off the BBSW. 2152 Second, unlike Commonwealth Bank of Australia v Kojic, ASIC's case does not turn upon the knowledge of a particular customer's circumstances. Rather it concerns knowledge of the Rate Set Trading Practice of Westpac, knowledge of the potential harm to counterparties, and the taking of no steps to either stop the conduct or warn the counterparties. 2153 Third, the concern identified in Commonwealth Bank of Australia v Kojic, was whether a corporation could be held liable for unconscionable conduct in circumstances where none of its individual employees acted unconscionably. But I agree with ASIC that its case does not require the aggregation of the knowledge of a number of persons individually unaware of fraud, or facts which ought to disclose it, to create a notional person with a dishonest intent. Rather ASIC says that STIRR employees had the knowledge and engaged in conduct sufficient for STIRR alone to be said to have acted unconscionably for the purposes of the Impugned Conduct case. I agree with that proposition concerning the four contravention dates in question. 2154 I should say at this point that I do not need to trouble myself too much with these questions. I have found against ASIC concerning the Rate Set Trading Practice. Accordingly its case concerning the Risk Exposure Conduct fails, with only some parts of the Impugned Conduct to be considered relating to the four contravention dates.

(b) Counterparty evidence 2155 ASIC led evidence from Affected Counterparties to relevant BBSW Referenced Products. Specifically, ASIC filed affidavits from nine Affected Counterparties, one of which was a listed public company and one of which was a wholly owned subsidiary of a listed public company. The deponents were not cross-examined. 2156 In my view the Affected Counterparties' evidence establishes the following propositions. First, those counterparties entered into BBSW Referenced Products for the purpose of trade or commerce. Second, those counterparties were unaware, if it be the case, that during the relevant period the BBSW was capable of being manipulated or influenced by Westpac to its actual or likely advantage. Third, those counterparties were unaware, if it be the case, that Westpac had engaged or might engage in trading directed at influencing the BBSW. Fourth, although some of the deponents had financial experience, many were commercially unsophisticated and had a limited understanding of the BBSW. But most understood BBSW to be an objective reference rate set by independent market forces. Fifth, many deponents reposed trust in Westpac to deal fairly with them in respect of the relevant BBSW Referenced Product(s) entered into between them and Westpac. Sixth, Westpac did not disclose to any of those counterparties that it had engaged or might engage in trading directed at influencing the BBSW to its advantage. Of course, Westpac denies such trading. Unsurprisingly therefore, it agrees that it did not disclose a non-existent practice. Seventh, some of the deponents considered conduct directed at influencing the BBSW to be unfair and contrary to the trust that they had reposed in Westpac. 2157 Generally speaking, I am prepared to accept that the number and diversity of this counterparty evidence justifies the inference that their evidence is representative of Affected Counterparties. I also agree with ASIC that there is no basis for saying that the counterparties for which direct evidence has been led had any greater degree of knowledge or understanding about the BBSW or any more favourable a sentiment towards the conduct of Westpac directed at influencing the BBSW to its advantage than any other counterparty in respect of which evidence has not been led.

(c) Terms of BBSW Referenced Products entered into with Counterparties 2158 Westpac's documentation for BBSW Referenced Products reveals that it disclosed very little about the BBSW or Westpac's role in trading in the Bank Bill Market and making submissions to AFMA to set the BBSW. But the documentation shows that Westpac made some limited disclosure about the BBSW to members of the public and to counterparties. 2159 For example, in evidence were several iterations of Westpac's product disclosure statement (PDS) for its coupon select deposit product. The PDS dated 3 May 2011 described the BBSW as follows: BBSW is widely used as an interest rate reference rate by investment banks, fund managers and retail banks in Australia. It refers to a daily calculation of the yields on bank bills of various maturities, and is based on the average mid-price of a select number of Australian bank bill market makers. 2160 The PDS warned that "[i]t is important to understand that BBSW is NOT the Reserve Bank of Australia ('RBA') Cash Rate. BBSW does not necessarily reflect nor follow movements in the RBA Cash Rate but generally trends in a consistent manner". I agree with ASIC that these disclosures fall short of any disclosure of the vulnerability of the BBSW to manipulation. 2161 There were other examples referred to in the evidence. In relation to interest rate swaps and cross-currency swaps, the product confirmations that set out the relevant terms and conditions referred to the floating rate component of the product as BBSW or BBSY, but they contained no detailed disclosures relating to the BBSW or interest rate risk. Further, the underlying ISDA definitions applicable to those products only provided general information regarding the BBSW/BBSY.

(d) Legal principles - ss 12CB and 12CC of the ASIC Act 2162 It is convenient to first consider the principles applicable to ss 12CB and 12CC as s 12CA does not apply if ss 12CB or 12CC apply (s 12CA(2)). During that part of the relevant period before 1 January 2012, s 12CC(1) of the ASIC Act provided: A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services (see subsection (6)) to another person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services (see subsection (7)) from another person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. 2163 Section 12CC(2) then set out a non-exhaustive list of factors to which a court could have regard in determining whether s 12CC(1) had been contravened in connection with a supply of financial services. Section 12CC(3) set out a substantially identical list of factors to which a court could have regard in determining whether s 12CC(1) had been contravened in connection with an acquisition of financial services. Section 12CC(6) and (7) provided that the references in s 12CC(1) to supplies and acquisitions of financial services were limited to supplies or acquisitions that were or would be for the purpose of trade or commerce. 2164 The elements of a contravention of s 12CC as it then stood from the beginning of the relevant period up to 1 January 2012 can be identified as the following: (a) a person engages in conduct in trade or commerce; (b) the conduct is in connection with: (ii) the supply or possible supply of financial services to another person; or (ii) the acquisition or possible acquisition of financial services from another person; (c) that other person is not a listed public company; (d) the relevant supply or acquisition is or would be for the purpose of trade or commerce; (e) the conduct is unconscionable in all the circumstances. 2165 During that part of the relevant period following 1 January 2012, s 12CB provided: (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. … (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour. 2166 Section 12CC(1) and (2) as then amended then set out substantially identical lists of non-exhaustive factors to which a court could have regard in determining whether s 12CB had been contravened. These factors were essentially the same as those in s 12CC(2) and (3) as in force immediately prior to 1 January 2012. 2167 The elements of a contravention of s 12CB as it stood from 1 January 2012 to the end of the relevant period can be identified as the following: (a) a person engages in conduct in trade or commerce; (b) the conduct is in connection with: (i) the supply or possible supply of financial services to another person; or (ii) the acquisition or possible acquisition of financial services from another person; (c) that other person is not a listed public company; and (d) the conduct is unconscionable in all the circumstances. 2168 It is appropriate at this point to say something further concerning the relevant elements.

Conduct in trade or commerce 2169 The expression "trade or commerce" is defined in s 12BA to mean "trade or commerce within Australia or between Australia and places outside Australia". The same definition is found in s 4(1) of the Competition and Consumer Act 2010 (Cth) (and s 4(1) of the former Trade Practices Act 1974 (Cth)). It is not in doubt that the terms "trade" and "commerce" are of the widest import and that conduct need not be undertaken with a dominant objective of profit making, but need only bear a trading or commercial character.

Conduct in connection with supply or acquisition of financial services 2170 In my view all categories of BBSW Referenced Products are financial products for the purposes of the ASIC Act. Further, in my view the transactions constituting the BBSW Referenced Products entered into between Westpac on the one hand, and Affected Counterparties on the other hand, amounted to the supply or acquisition of a financial service for the purposes of ss 12CB and 12CC. 2171 Section 12BA(1) provides that "financial service has the meaning given by section 12BAB". Relevantly, s 12BAB(1)(b) provides that "a person provides a financial service if they … deal in a financial product". Section 12BAB(7) provides that: For the purposes of this section, the following conduct constitutes dealing in a financial product: (a) applying for or acquiring a financial product; (b) issuing a financial product; (c) in relation to securities or managed investment interests-underwriting the securities or interests; (d) varying a financial product; (e) disposing of a financial product. 2172 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".

Other person not a listed public company 2173 For the purposes of ss 12CB and 12CC, the term "listed public company" bears the same meaning as under the Income Tax Assessment Act 1997 (Cth) (ASIC Act, s 12CB(5) (post 1 January 2012); s 12CC(11) (as it stood prior to 1 January 2012)). Subject to irrelevant exceptions for present purposes, the term refers to a company whose shares, other than shares carrying a right to a fixed rate of dividend, are listed for quotation in the official list of an approved stock exchange; see s 995-1 of the Income Tax Assessment Act 1997 (Cth).

Supply or acquisition for purpose of trade or commerce 2174 The requirement that the relevant supply or acquisition of financial services be for the purpose of trade or commerce is unique to s 12CC. Section 12CB as in force from 1 January 2012 does not have this requirement. The meaning and scope of "trade or commerce" in this context is the same as in the context of the expression "in trade or commerce". The principles referred to above in relation to "trade or commerce" apply save that in this context, a "transaction is entered 'for the purpose of trade or commerce' when it is entered to enable some further activity, that has itself a trading or commercial character, to be engaged in" (Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 at [188] per Campbell JA). 2175 Now in this context, Westpac has contended that investments made by private individuals, other than as part of an investment business, are not transactions entered into for the purpose of trade or commerce: Kowalczuk v Accom Finance Pty Ltd at [188]; Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at [46] to [50] per Tamberlin, Finn and Conti JJ. Westpac has contended that ASIC has not proved that each of the relevant counterparties entered into BBSW Referenced Products to enable some further activity that has itself a trading or commercial character. I would reject such a contention. It has an air of unreality to it.

Conduct unconscionable in all the circumstances 2176 The statutory concept of unconscionable conduct under ss 12CB or 12CC is substantially broader and more flexible than that under s 12CA. It is not constrained by concepts of unconscionability developed in equity. Accordingly, conduct might contravene ss 12CB or 12CC even though it would not contravene s 12CA. Accordingly, in applying ss 12CB or 12CC it is not necessary to establish that a party operated under a special disability or disadvantage or that there has been a taking of advantage of such a special disability or disadvantage. 2177 ASIC referred to my decision in Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liquidation) (No 2) [2017] FCA 709 at [60] to [63] and also Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [296]. In ACCC v Get Qualified Australia Pty Ltd (in liquidation) (No 2) I applied Paciocco and summarised the principles that were applicable to the cognate provisions in the Australian Consumer Law, in terms that are equally applicable to ss 12CB or 12CC (and which neither party disputed before me), as follows: First, "unconscionability" means something not done in good conscience or conduct against conscience by reference to the norms of society. But that is to be understood and applied in the context of trade or commerce, but including consumer protection objectives directed at the requirements of honest and fair conduct free of deception. But one must be careful in using the phrase "norms of society" to ensure that the identification thereof is not interlarded with some distorted subjective view of social philosophy. It is fraught with risk to move beyond the explicit and implicit norms enshrined in and bounded by the statutory language of ss 21 and 22 construed in context, being trade or commerce, notwithstanding the apparent breadth of s 21(4) and the non-limiting prefatory words of s 22(1). Moreover, the evaluation of unconscionability must not be decontextualised from the particular case under consideration. Second and relatedly, in order to determine whether conduct is unconscionable, it is necessary to look at all the conduct, by "[s]tanding back and looking at the whole episode". Third, as the norms of society include statutory prohibitions on deceptive conduct … deceptive practices … can form part of the "whole episode", for the purpose of assessing whether, in all the circumstances, the conduct in question is unconscionable. Fourth, s 22(1) of the ACL sets out a non-exhaustive list of factors to which the Court may have regard for the purpose of determining whether a person has contravened s 21. The matters enumerated assist in understanding the scope of the meaning of unconscionable conduct, but the presence of one or more matters contained in s 22(1) (or indeed their absence) is not necessarily determinative. (citations omitted) 2178 In elaboration, I would also accept the following: (a) First, ASIC need not show a high level of moral obloquy before I can make a finding of unconscionability against Westpac. Unconscionable conduct does not necessarily involve any element of dishonesty. (b) Second, the focus is substantially on the conduct of the alleged contravener. So, it is unnecessary to show that any person has suffered loss as a result of the conduct. Indeed s 12CB(4)(b) expressly provides that a particular individual does not necessarily need to be identified as having been disadvantaged by the alleged conduct or behaviour. But, the existence of a counterparty in a position of vulnerability is a relevant factor in the assessment of unconscionability. (c) Third and generally, ss 12CB and 12CC provide no occasion to dwell upon any meta-themes or top-down social theories that either in their expression or in their application merely magnify uncertainty. I must apply ss 12CB and 12CC in the hard-edged commercial context of conduct engaged in and transactions entered into in the finance industry between sophisticated players, albeit where information asymmetry may be used by one participant at the expense of another to conceal, inject or shift risk to its advantage.

System of conduct or pattern of behaviour 2179 As I have just indicated, it is expressly provided in s 12CB(4)(b) that s 12CB is capable of applying to a system of conduct or pattern of behaviour, irrespective of whether any individual is identified as having been disadvantaged by the conduct or behaviour. Now there was no equivalent statutory provision in the ASIC Act before 1 January 2012, but I accept that s 12CB(4)(b) reflects the position of the then case law. Accordingly, a contravention of either ss 12CB or 12CC may arise not only in respect of discrete actions or transactions on specific days, but also in respect of a sustained practice over the course of a longer period. 2180 In Australian Competition and Consumer Commission v Unique International College [2017] FCA 727 at [757] Perram J said that the phrase a "system of conduct or pattern of behaviour" may cover many situations, including "where an internal process is deliberately adopted" and where "a process emerges without necessarily ever having been expressly articulated". 2181 Further, the principles applicable to the establishment of contraventions on the basis of a system of conduct in the context of the unconscionable conduct provisions of the Australian Consumer Law were summarised in ACCC v Get Qualified Australia Pty Ltd (in liquidation) (No 2) as follows. Proof of examples of similar unconscionable conduct across individual cases may be used to demonstrate the features of an overall system or pattern of unconscionable conduct. Further, evidence of the incidents comprising the alleged system or pattern may be varied and even individually insubstantial, but a systematic pattern of behaviour may successfully be established from an accumulation of individually minor incidents. There is no basis for any different approach being adopted in respect of the unconscionable conduct provisions of the ASIC Act. 2182 Now at the end of the day I do not need to take these matters further as I have found against ASIC concerning the Rate Set Trading Practice.

(e) Impugned Conduct on sale contravention and purchase contravention dates - contravention of ss 12CB and 12CC 2183 ASIC has submitted that each of the relevant elements have been made out in relation to the Impugned Conduct. 2184 First, ASIC submits that the Impugned Conduct occurred on the specific sale contravention and purchase contravention dates, consisting of engaging in the Rate Set Trading Practice. But as I have said, I have rejected ASIC's Rate Set Trading Practice allegation but do accept that the Impugned Conduct was engaged in on four occasions. I would note at this point that notwithstanding the infelicity in ASIC's pleading I consider that it has in substance also pursued a case against Westpac concerning the Impugned Conduct on specific contravention dates even if it has not made out its systemic practice plea of a Rate Set Trading Practice as such. 2185 Second, ASIC submits that the alleged conduct was "in trade or commerce" and points to the fact that Westpac has admitted that trading in the Bank Bill Market on each sale and purchase contravention date was conduct in trade or commerce. I would say now that I have little doubt that the conduct on the four occasions was "in trade or commerce". 2186 Third, ASIC says that the Impugned Conduct was conduct in connection with the supply or acquisition of the financial services provided through the affected products. In my view, the Impugned Conduct on the four occasions was in connection with such supply or acquisition of financial services for either or both of two reasons. It had the possible effect of causing the payment obligations attaching to the financial services to be different than they otherwise would have been, to Westpac's advantage and the relevant Affected Counterparty's detriment. Moreover, possible effect or likely effect at the lower threshold of a real and not remote chance is enough to establish the relevant connection. Further, as I have found, the conduct on the four occasions was engaged in for the purpose of influencing the BBSW of the relevant tenor and date. 2187 As I have indicated, I agree with ASIC that the expression "in connection with" in ss 12CB and 12CC is not to be approached narrowly or restrictively. I accept that the connection here is direct and substantial, and that the conduct on the said four occasions can readily be said to go with or be involved in the relevant supply or acquisition of financial services. The BBSW Referenced Products provide for and regulate flows of money from one counterparty to the other, and conduct affecting or calculated to affect the amount to be paid directly affects these financial services. 2188 Fourth, ASIC's claims under ss 12CB and 12CC are limited to Westpac's conduct as it relates to counterparties other than listed public companies. 2189 Fifth, the requirement of supply or acquisition for the purpose of trade or commerce applies only in respect of claims under s 12CC (as it stood prior to 1 January 2012) and not claims under s 12CB (from 1 January 2012 onwards). As indicated, the counterparty evidence is to the effect that the relevant counterparties entered into their affected products for the purpose of trade or commerce. I am prepared to infer that the same position obtains generally in respect of at least the Affected Counterparties. I should also note at this point that although the counterparty evidence filed was not specifically directed to counterparties concerning instruments to which Group Treasury was a "party", nevertheless as I have indicated I consider it appropriate to extrapolate the specific counterparty evidence to the broader set of Affected Counterparties. 2190 Sixth, I agree with ASIC that in the present case Affected Counterparties were unaware that the BBSW was capable of being manipulated. Indeed, Professor Stulz opined that the risk of manipulation of traded benchmarks did not emerge publicly until after the relevant period. I will elaborate on his evidence in another context later. Further, Affected Counterparties were unaware that Westpac had engaged or might engage in trading directed at influencing the BBSW. Further, Westpac failed to disclose to the Affected Counterparties that it had engaged in such trading on the said four occasions. Further, Affected Counterparties expected the BBSW to be determined by and reflect genuine market forces of supply and demand, and Westpac was aware of this. Further, ASIC says that whatever the effect of trading engaged in for the sole or dominant purpose of influencing where the BBSW sets, that is, leaving to one side for the moment the question about likely effect, trading for such an improper purpose in the Bank Bill Market is, of itself, unconscionable. I agree. Further, Westpac had the capacity to trade so as to influence, or likely influence, the BBSW to its advantage. Further, Affected Counterparties were unable to trade in the Bank Bill Market so as to counteract or protect against trading by Westpac directed at influencing the BBSW. Further, Affected Counterparties were exposed to loss or detriment in respect of their relevant BBSW Referenced Products by reason of the conduct on the four occasions. 2191 All of these matters in my view support the conclusion that Westpac engaged in unconscionable conduct on the said four occasions. 2192 Further, there are some additional considerations to take into account. 2193 First, AFMA's Code of Ethics was an "applicable industry code" for the purpose of s 12CC of the ASIC Act. It should be noted that the definition of "applicable industry code" for the purposes of s 12CC includes a voluntary industry code (see s 12CC(3) (post 1 January 2012) and s 12CC(11) (before 1 January 2012)). As a member of AFMA, Westpac agreed to abide by the AFMA Code of Ethics. The AFMA Code of Ethics required it not to carry out trading that would interfere with the normal supply and demand factors in the market for a financial product, had the potential to create artificial markets for prices, or was not based on a genuine trading or commercial intention. Contrary to this requirement, Westpac did carry out such trading on four of the contravention dates. 2194 Second, s 12CC directs attention to the extent to which Westpac "acted in good faith". The significance of good faith was also recognised by the Full Federal Court in Paciocco, in which it was said that the values and norms underlying ss 12CB and 12CC include a rejection of trickery or sharp practice. The content of the concept of good faith (as expressly referred to in s 12CC) was there identified as including "an obligation … not to act to undermine the bargain entered or the substance of the contractual benefit bargained for" and "an obligation to act reasonably and with fair dealing having regard to the interests of the parties … and to the provisions, aims and purposes of the contract, objectively ascertained" (at [288]). So expressed, it is apparent that the concept of good faith is directly inconsistent with the Impugned Conduct to the extent that it was carried out on the said four occasions. The purpose of the Impugned Conduct on those occasions was to influence the BBSW to Westpac's advantage and therefore necessarily to the disadvantage of counterparties with opposite exposures on affected products on those dates. I agree with ASIC that having regard to the nature of the BBSW as a market reference rate and the Affected Counterparties' understanding of the BBSW as I have previously discussed, the "bargain" associated with the affected products was one founded on the BBSW being free from manipulation by Westpac, and the substance of the contractual benefit bargained for was the calculation of payment obligations under the various BBSW Referenced Products by reference to a rate free of such manipulation. In my view, Westpac in seeking to influence the BBSW on the said four occasions to its advantage was acting to undermine both. 2195 Third, the Impugned Conduct on the said four occasions ran contrary to the norms of well-regulated financial markets underlying the Corporations legislation. Those values and norms recognised by the text, structure and context of the Corporations Act include the value of financial markets operating free of artificiality and manipulation. 2196 Fourth, Westpac had obligations to support the Bank Bill Market as a Prime Bank, BBSW panellist and member of relevant AFMA committees. Its conduct on the four occasions ran counter to those obligations. 2197 Now Westpac has contended that the formulation of ASIC's unconscionable conduct claims, which relies on Westpac's trading as the unconscionable conduct, does not exhibit the statutorily required nexus. It says that the mere fact, if it be proved, that its conduct may have had an impact on BBSW which may in turn have affected payment obligations under BBSW Referenced Products already issued is not conduct in connection with the supply or acquisition of those BBSW Referenced Products. The products allegedly affected by the conduct were supplied and acquired prior to, and independently of, the impugned conduct. In my view, that is not a disqualifying circumstance. 2198 Further, Westpac contends that unconscionable conduct involves more than wrongdoing. It is said that at its heart it involves dealings or a relationship between parties in which one party conducts itself in a manner judged to be unconscionable insofar as the other or others are concerned. Westpac contends that whatever be the outer limits of the conduct which may attract the statutory proscription in ss 12CB and 12CC, to be unconscionable the conduct must take place in the context of dealings of some description between the party engaging in the conduct and the party or parties affected. Section 12CC speaks of "supplier" and "service recipient" and the enumerated factors concern the relationship between them. Westpac says that it is well settled that, in order for the statutory provision to apply, the supply or acquisition of financial services must be one by the person alleged to have engaged in unconscionable conduct. Now let all of this be accepted. I do not consider that any of these points avail Westpac to negate ASIC's unconscionability case concerning the four contravention dates. 2199 In summary, in my view Westpac engaged in unconscionable conduct on the said four contravention dates in relation to Affected Counterparties. Its conduct had a real and not remote chance of prejudicing such counterparties. But it is not necessary to prove that any person with whom it had a commercial relationship actually suffered harm.

(f) Impugned Conduct as a system of conduct - contravention of ss 12CB and 12CC 2200 In addition to the claims in relation to specific contravention dates, ASIC also claims that the Impugned Conduct contravened ss 12CB and 12CC as a system of conduct or pattern of behaviour. As I have said, s 12CB(4)(b) provides that s 12CB is capable of applying to a system of conduct or pattern of behaviour. The same position obtained under s 12CC as the relevant authorities establish. ASIC says that the Impugned Conduct constituted a "system of conduct" or "pattern of behaviour" in the necessary sense. 2201 It says that the evidence establishes implementation of a system on at least the 16 sale contravention or purchase contravention dates. Further, it says that the evidence of internal Westpac communications discussed earlier reveals a regular and shared understanding of the system. Further, ASIC says that the fact that there are less pleaded contravention dates merely reflects the fact that there are less incriminating communications on account of Westpac centralising all the power to effect the Rate Set Trading Practice in STIRR, and in particular in Mr Roden, and on account of the poor preservation of call records. I must say that on the evidence, ASIC's submission was ambitious to say the least. 2202 ASIC says that the contravention dates illustrate that the system of conduct or pattern of behaviour was implemented by Westpac, but that system or pattern is not limited to those contravention dates. Further, it says that communications predating the relevant period evidence that this system or pattern is longstanding and predates the relevant period. 2203 Further, ASIC says that the analysis of the individual elements of contraventions of ss 12CB and 12CC mirrors that in respect of the claims relating to the Impugned Conduct on each of the sale contravention dates and purchase contravention dates. But the nature of the Impugned Conduct as a system of conduct or pattern of behaviour is a circumstance that further bolsters the conclusion that it was unconscionable in all the circumstances. It says that it indicates that the Impugned Conduct was not just isolated aberrant occurrences, but rather an established systemic practice. So, it says that the Impugned Conduct may be seen to be a contumelious violation of and disregard for the values and norms underlying ss 12CB and 12CC. 2204 I reject this part of ASIC's case. As I say, I have found against ASIC on its Rate Set Trading Practice and have only found a dominant manipulative purpose on the four contravention dates that I have identified. This is nowhere close to establishing any system-based case. But if I am wrong in rejecting ASIC's case of the Rate Set Trading Practice, then I would have found in favour of ASIC under this head of a "system of conduct".

(g) Risk Exposure Conduct - contravention of ss 12CB and 12CC over relevant period 2205 The Risk Exposure Conduct alleged is Westpac entering into BBSW Referenced Products with At Risk Counterparties on each Sydney business day in the relevant period, being products in relation to which a payment referenced to BBSW was required to made between Westpac and the At Risk Counterparty, whether on that day or a subsequent day. Now although the Risk Exposure Conduct is pleaded as having occurred in the context of Westpac knowing or believing various matters, the alleged conduct itself is limited to its entry into of the relevant BBSW Referenced Products. Let me address various elements of these asserted contraventions, assuming for the sake of the argument for the moment that there was such Risk Exposure Conduct. 2206 First, Westpac admits that on each Sydney business day during the relevant period it was a party to BBSW Referenced Products, but it has made no admission about entering into BBSW Referenced Products on each Sydney business day. It admits, however, that "it knew or believed that it was likely that it would [do so]". For present purposes, I accept ASIC's position that Westpac did so enter. 2207 Second, as to whether the Risk Exposure Conduct was conduct "in trade or commerce", Westpac has admitted that "it issued, acquired or varied" the BBSW Referenced Products in trade or commerce, but has otherwise denied this element. But I agree with ASIC that this admission is sufficient to establish this element if the Risk Exposure Conduct was made out. But in any event, such dealings were in trade or commerce. Westpac entered into financial products with counterparties as part of its business operations as a bank, which is conduct in trade or commerce. 2208 Third, if the Risk Exposure Conduct occurred, it was conduct in connection with the supply or acquisition of financial services constituted by the transactions by which Westpac and the At Risk Counterparties entered into the relevant BBSW Referenced Products. It is admitted by Westpac that those transactions constituted the supply or acquisition of financial services within the meaning of ss 12CB and 12CC. In any event, the Risk Exposure Conduct (if made out) has a direct connection with the supply or acquisition of financial services in question as it consists of Westpac's entry into the very transactions by which the financial services were supplied or acquired. This is sufficient to satisfy the relevant connection. 2209 Fourth, and appropriately, ASIC's claims under ss 12CB and 12CC are limited to Westpac's conduct as it relates to counterparties other than listed public companies. 2210 Fifth, as to the claims under s 12CC (as it stood prior to 1 January 2012) and not claims under s 12CB (from 1 January 2012 onwards), the requirement of the supply or acquisition for the purpose of trade or commerce is satisfied for the same reasons as previously set out in relation to the Impugned Conduct. The natural inference from the counterparty evidence as to the purpose for which counterparties entered into their BBSW Referenced Products with Westpac applies equally to the Affected Counterparties and the At Risk Counterparties. There is no reason to conclude that there is any difference between the two categories of counterparty in this respect. 2211 But the real problem with ASIC's case on this aspect is that it is predicated upon my finding the Rate Set Trading Practice. But I have rejected ASIC's case on this aspect. Accordingly, ASIC fails on the unconscionability claims based upon the Risk Exposure Conduct. But again, if I am found to be incorrect in rejecting ASIC's plea of a Rate Set Trading Practice, then I would have found in favour of ASIC on its plea of the Risk Exposure Conduct for the reasons essentially that ASIC submitted.

(h) Legal principles - s 12CA 2212 Section 12CA in its terms throughout the relevant period provided that: (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB. 2213 Section 12CA incorporates the unwritten law of unconscionability. The unwritten law relevantly includes the equitable principles of unconscionable conduct. Those principles operate to set aside a transaction where "one [person] by reason of some condition [or] circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created" (Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 462 per Mason J). 2214 The elements of a contravention of s 12CA may relevantly be identified as the following: (a) a person engages in conduct in trade or commerce; (b) the conduct is in relation to financial services; (c) another person is operating under a special disability or disadvantage vis-à-vis the first person; (d) the conduct amounts to an unfair or unconscientious taking of advantage of the relevant special disability or disadvantage; and (e) the conduct is not prohibited by s 12CB. 2215 Let me elaborate on some of these elements in terms of principle. 2216 As to the requirement of conduct "in trade or commerce" under s 12CA, it is the same as that under ss 12CB and 12CC and accordingly I need say nothing further. As to the meaning of "financial services" under s 12CA, it is the same as that under ss 12CB and 12CC and I need say nothing further. But as to the requirement that conduct be "in relation to financial services", an analogous requirement (s 1041H) was considered in Australian Securities and Investments Commission v Narain (2008) 169 FCR 211. It was observed that the expression "in relation to" is "extremely wide" and "its meaning will be determined by the context" (at [68]). It was held that the degree of relationship required for the purposes of s 1041H was "at the lower end of the spectrum so that an indirect or less than substantial connection is sufficient" (at [76]). This was on the basis that s 1041H was a provision proscribing misleading or deceptive conduct, a concept "which embraces all of the circumstances in which the conduct takes place" (at [80]). Now the Corporations Act and the ASIC Act are integral components of what the former defines as the "Corporations legislation" (s 9). Moreover, the concept of unconscionable conduct under s 12CA similarly requires a consideration of all of the circumstances. Further, the statutory context of s 12CA is similar to s 1041H. Both provisions are directed at prohibiting misconduct directed at markets and consumers in the sphere of financial services. Section 1041H appears in Pt 7.10 of the Corporations Act, which deals with market misconduct and other prohibited conduct relating to financial products and financial services. Section 12CA appears in Pt 2 of the ASIC Act, which deals with consumer protection in relation to financial services. There are parallels between these respective statutory regimes. For example, compare ss 1041H and 1041I of the Corporations Act with ss 12DA and 12GF of the ASIC Act. In my view, the approach taken in ASIC v Narain is also applicable to s 12CA. The test for whether conduct is "in relation to financial services" is relatively undemanding and may be satisfied by an indirect or less than substantial connection. 2217 I agree with ASIC that nothing in s 12CA suggests or demands that the conduct impugned as unconscionable occur prior to or contemporaneous with the provision of the relevant financial services. Indeed, s 12BA(2) defines "conduct" broadly and inclusively, and in a way that encompasses both the entry into of dealings and their subsequent giving of effect. Any such suggested temporal limitations are artificial. They are not to be implied into remedial provisions such as s 12CA without a clear textual, contextual or purposive foundation. 2218 Let me turn to another and central aspect of the unwritten law and the necessity to demonstrate a special disadvantage. 2219 The special disadvantage or disability must be "one which seriously affects the ability of the innocent [person] to make a judgment as to his own best interests"; see Commercial Bank of Australia Limited v Amadio at 462, Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Limited (2003) 214 CLR 51 at [12] per Gleeson CJ, [55] per Gummow and Hayne JJ and Thorne v Kennedy (2017) 250 ALR 1; [2017] HCA 49 at [38] per Kiefel CJ, Bell, Gageler, Keane and Edelman JJ. 2220 Now although there are several established categories of special disadvantage or disability, the categories are not closed. A special disadvantage or disability may arise not only from a person's inherent or constitutional characteristics such as age, illness or lack of education, but also from the specific or situational features of the relationship between parties to a transaction. 2221 Moreover, although the existence of a special disadvantage or disability is an essential ingredient of unconscionable conduct in equity and thus s 12CA, it must not be analysed in isolation. It "must be considered as part of the broader question, which is whether the impugned transactions were procured by [Westpac's] taking advantage of an inability on the [counterparty's] part to make worthwhile decisions in his own interests, which inability was sufficiently evident to [Westpac's] employees to render their conduct exploitative" (Kakavas v Crown Melbourne Limited (2013) 250 CLR 392 at [124]). 2222 Further, the issue of special disadvantage is not to be approached on the basis of preconceived forms of disadvantage or vulnerability or any simplistic test of whether any of these forms correspond neatly to the instant case. A thorough examination of all of the factual circumstances of the case is required. A person that is ordinarily competent and capable of judging his own interests may nonetheless operate under a special disadvantage or disability in the context of a particular transaction or relationship, having regard to the relative positions of the parties. For this reason it may be of limited utility to classify or characterise in the abstract a person as either commercially sophisticated or commercially naïve. Such a characterisation may proceed from too great a level of generality to resolve the question of whether a particular person operated under a special disadvantage in the precise circumstances of a specific case, taking into account any asymmetry in power or information possessed. Let me elaborate on this latter aspect. 2223 One circumstance that may inform the assessment of whether a special disadvantage exists is information asymmetry between parties to a transaction. Now a person's mere commercial inexperience or unawareness of a matter relevant to his interests under a transaction does not of itself constitute a special disadvantage, particularly where the information in question could readily have been obtained by the person asserting a special disadvantage. But ignorance of an important matter may be sufficient to establish a special disadvantage where it seriously affects a person's ability to make a judgment as to his own best interests and where the knowledge in question was not readily available through reasonable diligence in a practical rather than theoretical sense. 2224 Let me turn to another matter. 2225 In order to demonstrate that particular conduct amounts to the taking of advantage of a special disadvantage or disability, the party engaging in the conduct must have had some awareness of the other person's special disadvantage or disability. The special disadvantage or disability must be sufficiently evident to render the conduct exploitative or unfair. Wilful ignorance will be equated with knowledge. 2226 Further, it will commonly be the case that the party operating under the special disadvantage will have suffered some form of loss or detriment as a result of the conduct which is impugned as unconscionable, but loss or detriment is not a necessary condition for a finding of contravention under s 12CA. In any event, if detriment is to be considered, a broad practical approach is to be adopted in identifying it. There is no reason why exposing a person to the risk of actual detriment is not enough for present purposes. 2227 Finally, it is important to note that s 12CB embodies a statutory concept of unconscionable conduct. And that concept is significantly broader than unconscionable conduct within the meaning of the unwritten law. But subject to threshold requirements, conduct that is unconscionable within the meaning of the unwritten law will be also unconscionable in the sense required by s 12CB. Accordingly, the only respects in which s 12CA reaches beyond ss 12CB and 12CC are those associated with the threshold requirements in ss 12CB and 12CC. For present purposes, the critical threshold requirement is that the application of ss 12CB and 12CC is limited to circumstances involving financial services supplied to or acquired from persons that are not listed public companies. It follows that any conduct relating to the provision of financial services to a listed public company necessarily falls outside the scope of ss 12CB and 12CC. Such conduct will therefore satisfy the requirement arising from s 12CA(2) that the conduct not be prohibited by s 12CB.

(i) Impugned Conduct on specific sale contravention and purchase contravention dates - contravention of s 12CA 2228 Let me now turn to the application of relevant principles. ASIC's claims under s 12CA in respect of the Impugned Conduct are confined to Affected Counterparties that are listed public companies. Insofar as the Impugned Conduct relates to those counterparties it falls within s 12CA, as it is not prohibited by ss 12CB and 12CC as those provision are limited in their application to conduct in connection with the supply or acquisition of financial services to or from entities that are not listed public companies. 2229 First, the Impugned Conduct on the said four occasions is conduct "in trade or commerce". 2230 Second, the transactions constituting the relevant affected products amounted to financial services within the meaning of s 12CA. 2231 Third, the requirement that conduct be "in relation to" financial services is met. The relation is direct and substantial for the reasons explained above in respect of the "in connection with" requirement of ss 12CB and 12CC. 2232 Fourth, as I have indicated, in order to establish a contravention of s 12CA through the Impugned Conduct on a particular date, a necessary element is the existence of an Affected Counterparty operating under a special disadvantage or disability on that date. As this claim is limited to counterparties that are listed public companies, the relevant Affected Counterparty must also be a listed public company. 2233 Mr Rice gave evidence on behalf of Origin Energy Limited. Mr Lake gave evidence on behalf of Mirvac REIT Management Limited. Although these counterparties were substantial entities with dedicated financial officers, Mr Rice understood the BBSW to be an independent reference rate. Mr Rice and Mr Lake were unaware that the BBSW was capable of being manipulated, and unaware that Westpac had engaged or might engage in the Rate Set Trading Practice or other trading directed at influencing the BBSW to its advantage. And Mr Rice and Mr Lake were not told by Westpac that it had engaged or might engage in such a practice or such trading. 2234 ASIC has contended that each of Origin and Mirvac was operating under the necessary special disadvantage or disability in respect of their dealings with Westpac in relation to the relevant BBSW Referenced Products. It says that the special disadvantage or disability arose by reason of the matters stated in the previous paragraph, combined with Westpac's capacity to influence (or likely influence) the BBSW to its advantage and the absence of any corresponding capacity of Origin or Mirvac to trade in the Bank Bill Market so as to counteract or protect against trading by Westpac directed at influencing the BBSW. 2235 ASIC has contended that this special disadvantage or disability is of a situational character rather than a constitutional character. Although Origin and Mirvac are unlikely to be inherently vulnerable across all of their commercial dealings, it is said that a party that is ordinarily capable of judging its own interests may nevertheless be at a special disadvantage in the context of a particular transaction or relationship. ASIC contends that the general commercial sophistication of Mirvac and Origin is of little significance on account of the aforesaid. 2236 ASIC contends that Mirvac's and Origin's lack of awareness of Westpac's manipulative trading and of the susceptibility of the BBSW to manipulation is of some significance to the question of special disadvantage. An informational disparity between transacting parties may inform that question where it seriously affects a person's ability to make a judgment as to his own best interests. In the present circumstances, the relevant information reveals the substantial possibility that the effective terms of the BBSW Referenced Products entered into with Westpac would be artificially skewed to Westpac's advantage and Mirvac's and Origin's disadvantage. 2237 ASIC says that the informational disparity here goes far beyond mere commercial inexperience or unawareness of a matter relevant to a person's interests. If Mirvac and Origin had merely been unaware of the extent of natural fluctuations in the BBSW from the genuine forces of supply and demand, this would be unlikely to amount to a special disadvantage. But it is said that in this case the critical matters of which they were unaware were matters which could not plausibly have been discovered by any inquiry or other practical measure on their part, ran directly contrary to their understanding of the BBSW as an independent market reference rate, and existed by reason of Westpac's deliberate actions in implementing the Rate Set Trading Practice which actions were not disclosed. 2238 ASIC says that beyond Mirvac and Origin, it should be inferred that all Affected Counterparties (including those that were listed public companies) similarly operated under a special disability or disadvantage in their dealings with Westpac in respect of affected products. 2239 I reject ASIC's claims under this head, essentially for the reasons submitted by Westpac. 2240 ASIC's unconscionable conduct claims do not conform to the equitable doctrine. It is not alleged that the enforcement of legal rights is unconscionable. Rather, it is alleged that Westpac's trading in the Bank Bill Market or entry into BBSW Referenced Products was unconscionable. 2241 Further, counterparties to BBSW Referenced Products did not suffer from any special disadvantage or disability seriously affecting their ability to make a judgment in their own best interests. The so-called special disability or disadvantage on which ASIC relies is information asymmetry. That is, those counterparties were not aware that Westpac might engage in potentially manipulative trading or that the Bank Bill Market or BBSW was potentially susceptible to manipulation. But this is not a special disability or disadvantage of the kind to which the equitable doctrine applies. Parties in commercial dealings will usually have different levels of information and differing levels of bargaining power. Parties to commercial dealings are not generally speaking required to disclose to the other party all matters known to them which may bear upon the desirability of entering into the agreement between them. A failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. Further, just as inequality of bargaining power is not sufficient to give rise to a special disability (ACCC v C G Berbatis Holdings Pty Limited at [11]), so too is an inequality of information. 2242 Further, some of the authorities relied upon by ASIC are readily distinguishable. Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380 concerned unsophisticated borrowers who were ignorant of the complex terms of the Consumer Credit Code (NSW). Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 concerned an agent that had deceived its clients as to the nature of foreign exchange transactions it was undertaking on their behalf. Neither case supports the view that inequality of information is sufficient to give rise to a special disability in the present circumstances. 2243 In my view ASIC's case under this head fails for this reason alone. But if I am wrong, I agree with ASIC that the Impugned Conduct on four occasions amounted to Westpac unconscionably taking advantage of the special disadvantage or disability of those Affected Counterparties who had an opposite exposure to Westpac on affected products on those dates. This unconscionable taking of advantage arises by reason of: (a) the Impugned Conduct having the likely effect (at the lower level) of: (i) increasing the amount of a payment required to be made by the relevant Affected Counterparty to Westpac; or (ii) decreasing the amount of a payment required to be made by Westpac to the relevant Affected Counterparty and therefore potentially causing loss or detriment to the relevant Affected Counterparty in respect of the relevant affected product; and (b) that special disadvantage being sufficiently evident to Westpac. 2244 The special disadvantage of the Affected Counterparties was sufficiently evident to Westpac to render its conduct unconscionable. Westpac expected those counterparties to understand the BBSW to be a key financial market reference or benchmark rate. It therefore must have expected those counterparties to assume that the BBSW was determined by and to reflect genuine market forces of supply and demand. It was aware that the practice and the susceptibility of the BBSW to manipulation through such a practice was not common knowledge. And all in circumstances where it did not disclose the dominant manipulative purpose on the said four occasions.

(j) Risk Exposure Conduct - contravention of s 12CA over relevant period 2245 This part of the case also fails on the special disadvantage question. But let me set out some of ASIC's other contentions in case I am wrong. 2246 ASIC submits that the Risk Exposure Conduct amounted to the taking of advantage of the At Risk Counterparties' special disadvantage by reason of: (a) the Risk Exposure Conduct exposing the At Risk Counterparties to the risk that the Rate Set Trading Practice would be implemented by Westpac on a day on which the relevant At Risk Counterparty had an opposite exposure to Group Treasury's BBSW Rate Set Exposure, with the effect or likely effect of causing the At Risk Counterparty loss or detriment in respect of the relevant BBSW Referenced Product; (b) Westpac knowing of the risk to which At Risk Counterparties would be exposed in entering into the relevant BBSW Referenced Products, and failing to disclose that risk; and (c) the special disability or disadvantage of the relevant At Risk Counterparty being sufficiently evident to Westpac. 2247 ASIC's analysis of Westpac's awareness of the special disadvantage of the At Risk Counterparties mirrors that in relation to Affected Counterparties. 2248 ASIC says that Westpac's knowledge of the risk to At Risk Counterparties, based on the likelihood that it would continue to engage in the Rate Set Trading Practice from time to time, is established from the evidence as to the Rate Set Trading Practice 2249 As to the effect of the Risk Exposure Conduct in exposing At Risk Counterparties to the risk of loss from the Rate Set Trading Practice, ASIC submits that this exposure to risk is sufficient to constitute a taking of advantage, even in the absence of a concrete financial loss eventuating. It says that the fortuitous circumstance from the At Risk Counterparty's perspective that the Rate Set Trading Practice was implemented only on days other than those on which the At Risk Counterparty had a BBSW exposure does not in any way stand to Westpac's credit or lessen the exploitative and unconscientious nature of the Risk Exposure Conduct. 2250 For these reasons, ASIC says that it follows that the Risk Exposure Conduct amounted to the taking of advantage of the At Risk Counterparties' special disadvantage, in the same manner as the Impugned Conduct amounted to the taking of advantage of the Affected Counterparties' special disadvantage. 2251 Further, although ASIC's claim under s 12CA in respect of the Risk Exposure Conduct, as pleaded, is not formulated specifically by reference to At Risk Counterparties that are listed public companies, ASIC accepts that in practical terms it will likely be so limited provided that the Risk Exposure Conduct contravenes ss 12CB or 12CC in respect of non-listed At Risk Counterparties, as ASIC contends. 2252 The element of conduct not being prohibited by s 12CB is necessarily satisfied in respect of the Risk Exposure Conduct as it relates to listed public companies (i.e. the entry into relevant BBSW Referenced Products with At Risk Counterparties that are listed public companies), due to the limitation on the application of ss 12CB and 12CC. 2253 For reasons that should also be apparent, these other arguments also fail through the lack of a foundation. I have rejected ASIC's case concerning the existence of a Rate Set Trading Practice.

MISLEADING OR DECEPTIVE CONDUCT 2254 ASIC says that Westpac engaged in misleading or deceptive conduct contrary to s 1041H of the Corporations Act and s 12DA of the ASIC Act, made false or misleading representations about the BBSW Referenced Products contrary to s 12DB of the ASIC Act and engaged in conduct that was liable to mislead the public contrary to s 12DF of the ASIC Act. It is convenient to deal with each of these claims in turn. 2255 Now, unlike some of ASIC's claims relating to unconscionable conduct, its claims relating to misleading or deceptive conduct all presuppose the existence of the Rate Set Trading Practice. But I have found that there was no such concerted pattern of conduct. Accordingly, these claims of misleading or deceptive conduct go nowhere. But I will nonetheless consider the parties' submissions on this aspect in case I am wrong on that central question.

(a) Misleading or deceptive conduct - section 1041H of the Corporations Act and section 12DA of the ASIC Act 2256 Section 1041H(1) of the Corporations Act provides: A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. 2257 Section 12DA(1) of the ASIC Act is in similar terms: A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. 2258 ASIC says inter-alia that Westpac's counterparties were entitled to be informed, or had a reasonable expectation of being informed of the Rate Set Trading Practice. It says that by Westpac's silence, counterparties erroneously believed, or were likely to erroneously believe, that the BBSW was not affected by trading by Westpac for the deliberate purpose of affecting the BBSW. Accordingly, it is said that Westpac engaged in misleading or deceptive conduct.

Some principles 2259 Let me say the following concerning the elements of s 1041H. 2260 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)). 2261 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. 2262 More generally, the relevant principles are largely the same as those which apply to s 18 of the Australian Consumer Law. In Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liquidation) (No 2) [2017] FCA 709 at [25] to [42], I summarised the relevant principles in the following terms which no party in the present proceeding contested. 2263 First, there is no meaningful difference between the words and phrases "misleading or deceptive", "mislead or deceive" or "false or misleading". 2264 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. 2265 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? 2266 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. 2267 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. 2268 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. 2269 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. 2270 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. 2271 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) 169 ALR 1; [1999] FCA 1821 at [51] (per French, Heerey and Lindgren JJ): The characterisation of conduct as "misleading or deceptive or likely to mislead or deceive" involves a judgment of a notional cause and effect relationship between the conduct and the putative consumer's state of mind. Implicit in that judgment is a selection process which can reject some causal connections, which, although theoretically open, are too tenuous or impose responsibility otherwise than in accordance with the policy of the legislation. 2272 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. 2273 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. 2274 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. 2275 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) 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. 2276 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. 2277 Twelfth, terms or conditions of particular offers that have significant advantage for the alleged wrong-doer and disadvantage for the consumer require due notice. 2278 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. 2279 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) 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. 2280 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": Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41 per Gummow J quoting Kimberely NZI Finance Ltd v Toreo Pty Ltd [1989] ATPR 46-054 at 15,195; [1989] FCA 400 (per French J). As French CJ and Kiefel J explained in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at [20]: In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52. (footnotes omitted) 2281 The test "requires close analysis of all the circumstances" (at [91] per Heydon, Crennan and Bell JJ). 2282 Let me make the following additional points concerning the relevant elements of s 12DA of the ASIC Act. 2283 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. 2284 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. 2285 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. 2286 Fourth, the same principles which apply under s 1041H of the Corporations Act apply under s 12DA of the ASIC Act.

Application of section 1041H and section 12DA 2287 In the application of the above principles, let me make the following observations. 2288 First, the conduct which ASIC asserts is the omission by Westpac to inform Affected Counterparties and At Risk Counterparties of the Rate Set Trading Practice, the Impugned Conduct and/or the Risk Exposure Conduct. Now I have not found in favour of ASIC on the Rate Set Trading Practice. Therefore the first and third subject matters are not made out. Moreover, as to the second subject matter, namely, the Impugned Conduct, I have only found this on four occasions. In my view and in context, that is too flimsy a foundation for ASIC on this part of the case. But let me put these difficulties to one side for the moment. Now there is little doubt that an omission can constitute or be part of misleading or deceptive conduct. So much is expressly provided for in s 12BA(2)(a) of the ASIC Act, which provides that "a reference to engaging in conduct is a reference to doing or refusing to do any act", and s 12BA(2)(c), which provides that "a reference to refusing to do an act includes a reference to … refraining (otherwise than inadvertently) from doing that act". And I am prepared to accept in ASIC's favour that Westpac's omission to disclose its conduct (if otherwise made out) was not inadvertent. 2289 Second, for the purposes of s 1041H, the conduct must occur in Australia, but there is no suggestion that Westpac's conduct occurred outside of Australia. Trading in the Bank Bill Market, the entry into of BBSW Referenced Products and relevantly the asserted omission (if there was one) took place within Australia. 2290 Third, for the purposes of s 12DA, the conduct must also be in trade or commerce. But trading in the Bank Bill Market on the contravention dates was conduct in trade or commerce. Further, the BBSW Referenced Products were entered into in trade or commerce. Moreover, counterparties entered into the BBSW Referenced Products in trade or commerce. And by definition, the asserted omission can also be taken to have been in trade or commerce. 2291 Fourth, the asserted conduct was clearly in relation to financial products or financial services. On ASIC's case, what Westpac omitted to do was to inform counterparties to financial products or financial services about conduct which would or might have an effect on the obligations of those counterparties in accordance with their terms and conditions. And the BBSW Referenced Products are financial products for the purposes of the ASIC Act and, with the exception of commercial loans and Bank Bills, financial products for the purposes of Ch 7 of the Corporations Act. 2292 Fifth, as to whether the conduct was misleading or deceptive, ASIC has submitted the following. 2293 ASIC says that Westpac's omission to disclose was misleading or deceptive or likely to mislead or deceive because Affected Counterparties and At Risk Counterparties were entitled to be informed, or had a reasonable expectation of being informed, of the Rate Set Trading Practice, Impugned Conduct and/or the Risk Exposure Conduct. It contends that such an entitlement or expectation arose from the following circumstances. 2294 It is said that Westpac had obligations to the Bank Bill Market as a Prime Bank and BBSW panellist, and as a member of AFMA, particularly in relation to the NTI Committee and BBSW Committee. AFMA's Code of Ethics and Code of Conduct [2.3] required members to "conduct their trading activities in a fair and orderly manner and maintain the integrity of financial markets". Further, the NTI Committee was responsible for maintaining the conventions for trading in the Bank Bill Market and the implementation of the rules governing the list of Prime Banks. Further, the BBSW Committee was responsible for the overall management of the BBSW, rates directly related to the BBSW, the procedure for setting and publishing the BBSW, and the resolution of any disputes among AFMA members involving the BBSW and the rate set mechanism. Accordingly, ASIC says that Westpac was in a position to know what was occurring in the Bank Bill Market. Further, ASIC says that as a result of its special status and involvement in the BBSW and the Bank Bill Market, Westpac had an overarching responsibility to disclose conduct relating to the setting of the BBSW. 2295 Further, ASIC says that as and when Westpac entered into BBSW Referenced Products with Affected Counterparties and At Risk Counterparties, it had every opportunity to disclose the relevant conduct to these counterparties. It is said that at the time of entry into the product and on each occasion when the product reset Westpac had such an opportunity to disclose. 2296 Now ASIC had to accept that communications with counterparties frequently identified the BBSW or BBSY as a determinant of the applicable payment obligations and set out other aspects of the operation of the BBSW Referenced Products in detail, but it said that none of the communications contained any disclosures as to the Rate Set Trading Practice, Impugned Conduct or Risk Exposure Conduct. Similarly, ASIC contended that the terms and conditions documentation provided to counterparties for the various BBSW Referenced Products lacked any meaningful disclosure. 2297 Generally, ASIC says that for Westpac to remain silent was misleading or deceptive in the context of what it otherwise knew, said and did. Now I would agree with ASIC if its foundation was established concerning the Rate Set Trading Practice. But it has not been so established. And as I say, the four contravention dates conduct is too flimsy a foundation. 2298 Further, ASIC says that the Affected Counterparties and the At Risk Counterparties were not aware that Westpac had engaged in or might engage in the relevant conduct. So much in my view may be accepted if the conduct had otherwise been established. ASIC says that this lack of awareness was known or expected by Westpac, which also knew or ought to have known that Affected Counterparties and At Risk Counterparties had certain expectations about the independence and genuineness of the BBSW, which Westpac's conduct is said to have falsified. So, it is said that Westpac knew that counterparties were operating or likely to be operating under a misapprehension. Now I accept that "the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business" is relevant to assessing whether conduct is misleading or deceptive (Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited at [20] per French CJ and Kiefel J). And I also accept that a prevailing assumption at the time was that traded reference rates were not susceptible to manipulation. But ASIC says that Westpac knew that to be false. ASIC says that for Westpac to enter into and continue with the products without disclosing its conduct to counterparties constituted misleading or deceptive conduct. 2299 Further, it says that Westpac's conduct had or was likely to have an adverse effect on Affected Counterparties and At Risk Counterparties and that Westpac knew that it might have that effect. I would accept this if the foundation had been established. But it has not been. 2300 In summary, ASIC says that given that Affected Counterparties and At Risk Counterparties had the above expectations about the BBSW, and given that Westpac engaged in the Rate Set Trading Practice, the Impugned Conduct and the Risk Exposure Conduct with the knowledge alleged, it necessarily follows that Westpac engaged in misleading or deceptive conduct. 2301 Now as I have indicated, I would reject ASIC's case on this aspect for the following reasons. 2302 First, the various formulations of the misleading or deceptive conduct case are in substance premised on establishing that Westpac engaged in the Rate Set Trading Practice. But in my view, ASIC has not established that there was such a practice. 2303 Second, I do not consider that Westpac impliedly represented to counterparties that the BBSW Referenced Product offered to them had a price determined by reference to a benchmark rate which was genuinely, independently and transparently determined. Westpac made no representation, express or implied, as to how BBSW was set. 2304 Third, it may be accepted that a party's silence may amount to misleading or deceptive conduct if there is a duty to reveal relevant facts or if the circumstances are such that another person is entitled to believe that a relevant matter affecting him or her, if it existed, would be communicated. But in my view Westpac did not foster any assumption by counterparties to BBSW Referenced Products as to how BBSW was determined. All it did was to enter into products with counterparties which referenced BBSW. I agree with Westpac that counterparties could not reasonably expect to be informed about the derivation of BBSW and the workings of the Bank Bill Market simply because their particular agreement referenced BBSW.

(b) Conduct liable to mislead the public - section 12DF of the ASIC Act 2305 Section 12DF(1) of the ASIC Act provides: A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services. 2306 ASIC alleges that Westpac failed to disclose its Rate Set Trading Practice, Impugned Conduct and/or Risk Exposure Conduct to those to whom they offered BBSW Referenced Products, which non-disclosure constituted conduct liable to mislead the public about the nature, characteristics and suitability for their purpose of those products. 2307 Now in relation to the applicable principles, the following may be noted. 2308 First, the same principles apply to the element of conduct in trade or commerce as have been considered earlier in relation to ss 12CB and 12CC of the ASIC Act. 2309 Second, the expression "liable to mislead the public" is in one sense narrower than the expression "likely to mislead or deceive". The difference may be explained in part by the different language employed in the two sections and in part by the consequences of a contravention (Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 4) [2013] ATPR 42-448; [2013] FCA 665 at [79] per Tracey J). What needs to be shown is "an actual probability that the public would be misled" (Trade Practices Commission v J & R Enterprises Pty Ltd (1991) 99 ALR 325 at 339; [1991] FCA 23 per O'Loughlin J). Otherwise, the same principles apply as in the context of statutory proscriptions employing "likely to mislead or deceive". 2310 Third, reference to the public is not to the world at large or the whole community. It has been said that there will be a sufficient approach, engagement or reference (if you like) to the public if, taking approach as an example, the approach is general and at random and the number of people who are approached is sufficiently large (Trade Practices Commission v J & R Enterprises Pty Ltd at 347 and 348). 2311 Fourth, the references to "nature", "characteristics" and "suitability for their purpose" in s 12DF have comparators with the language of s 55 of the Trade Practices Act and now s 33 of the Australian Consumer Law. It seems to be accepted that no narrow or technical meaning should be attributed to those terms in that context. Given that s 12DF of the ASIC Act has a similar purpose and similar language to s 33 of the Australian Consumer Law, no different approach should be taken.

Application of section 12DF 2312 ASIC contends that Westpac has engaged in conduct, namely omitted to disclose its deliberate trading in the Bank Bill Market so as to influence the BBSW, which silence was liable to mislead. It says that evidence of individuals actually being misled is not necessary, a proposition with which I agree. But in any event it says that the counterparty evidence demonstrates that the Affected Counterparties and At Risk Counterparties believed that the BBSW was independent in the absence of disclosure from Westpac. It says that had they been informed, some counterparties may have escalated the issue or invested elsewhere. 2313 ASIC contends that it may be inferred that Westpac was generally willing to enter into BBSW Referenced Products with any person willing to do so on mutually agreeable terms. It is said that that is a core aspect of its business. It says that this inference is supported by the counterparty evidence, which reveals the existence of Affected Counterparties with a wide range of backgrounds and circumstances and no special pre-existing connection with Westpac. It says that there is nothing to suggest that Westpac restricted the availability of BBSW Referenced Products to a very specific class of persons and that the counterparty data provided reveals that there was a very large number of counterparties who held a BBSW Referenced Product during the Relevant Period. So, it says that such products were not just offered to a specific and narrow class of persons. Accordingly, the element of "the public" within the meaning of s 12DF has been satisfied. 2314 Further, ASIC says that the BBSW is an aspect of the "nature" and one of the defining "characteristics", of the BBSW Referenced Products (save for Bank Bills themselves). It says that the rate at which the BBSW was set on reset days determined the amount of and identity of the party required to make a payment in accordance with the terms and conditions of the relevant product. It says that the content of the parties' respective payment obligations was central to the operation of the BBSW Referenced Products. Accordingly, it says that whether the BBSW was in fact independent and genuinely set goes to the suitability of the BBSW Referenced Products for their purpose. It says that it is not to be supposed that counterparties entered into these products for a purpose compatible with Westpac having the capacity and intention of artificially altering the associated payment obligations to the counterparties' financial detriment. 2315 I would reject ASIC's case under this head. 2316 First, as I have already said, the expression "liable to mislead the public" requires proof of "an actual probability that the public would be misled" by the impugned conduct. In my view that requirement has not been met here. 2317 Second, this claim also fails through lack of a foundation concerning the Rate Set Trading Practice, with the four contravention dates that I have found being too flimsy a foundation.

(c) Misrepresentation - section 12DB of the ASIC Act 2318 Section 12DB(1) of the ASIC Act relevantly provides: A person must not, in trade or commerce, 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: (a) make a false or misleading representation that services are of a particular standard, quality, value or grade; or … (e) make a false or misleading representation that services have sponsorship, approval, performance characteristics, uses or benefits; or … (g) make a false or misleading representation with respect to the price of services; or … 2319 I should note at this point that the form of the relevant subparagraphs in the version of s 12DB(1) applicable up to 31 December 2010 was different and expressed in the following terms: A person must not, in trade or commerce, 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: (a) falsely represent that services are of a particular standard, quality, value or grade; or … (c) represent that services have sponsorship, approval, performance characteristics, uses or benefits they do not have; or … (e) make a false or misleading representation with respect to the price of services; or … 2320 For present purposes, I do not consider that anything turns on the differences and will focus my attention on the post 31 December 2010 version. 2321 ASIC's claim is that Westpac represented that the BBSW Referenced Products were referable to a genuine, independent and transparent reference or benchmark rate, and that their reference to this rate was part of the standard, quality, value or grade, performance characteristics or price of those products. 2322 Let me say the following concerning some of the relevant elements that I have not already addressed elsewhere in relation to analogous elements of other related provisions. 2323 First, as to the requirement that there be a representation, a representation is a statement that can be made orally or in writing, but it can also arise by implication from what is or is not said or written or from conduct. So, a representation may be implied or arise from silence. 2324 Second, the meaning of the expression "in connection with" has been explained by me above in relation to ss 12CB and 12CC. The same principles apply. 2325 Third, in relation to s 12DB(1)(a), the following may be said: (a) The term "particular" in s 12DB(1)(a) requires that the quality, standard, value or grade be indicated or certain. (b) Further, the term "standard" is narrower than the term "quality" and means "a definite level of excellence, attainment, wealth or the like, or a definite degree of any quality, viewed as a prescribed object of endeavour or as the measure of what is adequate for some purpose" (Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562 at 577; Gardam v George Wills & Co Ltd (1988) 82 ALR 415 at 423; [1988] FCA 289). (c) Further, the term "quality" means "an attribute, property, special feature" or the "nature, kind or character (of something)" (Given v C V Holland (Holdings) Pty Ltd (1977) 15 ALR 439 at 442; [1977] FCA 33). A wide meaning has been given to this term, which "extends beyond the degree or grade of excellence which a thing can be said upon physical examination to possess in comparison with others of a similar kind, and which includes the virtues, attributes, properties and special feature of the thing" (Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd at 577). 2326 Fourth, in relation to s 12DB(1)(e), a broad interpretation of "performance characteristics" has generally been adopted in the authorities. 2327 Fifth, in relation to s 12DB(1)(g), the term "price" includes "a charge of any description" (s 12BA). Further, as I have already indicated, price may be "specified by reference to some standard well known to the parties, from which a price may be ascertained" (Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 183 per Toohey J).

Application of section 12DB 2328 Let me make the following observations on some aspects. 2329 ASIC submits that Westpac impliedly or by silence represented that BBSW Referenced Products had a price determined by reference to a key financial market reference or benchmark rate which was genuinely, independently and transparently determined. It says that counterparties had a reasonable expectation of being informed if this was not the case, yet Westpac made no such disclosure. It is said that in these circumstances the representation may be identified through implication or as constituted by silence. 2330 Further, ASIC submits that a representation that BBSW Referenced Products would reference a genuine, independent and transparent rate is a representation on each of the matters in paragraphs (a), (e) and (g) of s 12DB(1). It says that such a representation is ultimately about how the product would operate in terms of who would pay what and how much. It says that that representation pertains to the particular standard or quality of the product, its performance characteristics or benefits, or its price. 2331 Further, ASIC submits that given that Westpac engaged in or was likely to engage in the Rate Set Trading Practice or Impugned Conduct, it follows that its representation that the BBSW was independent and genuine was false or misleading. 2332 I would reject this part of ASIC's claims. 2333 First, I do not consider that Westpac made any such representation. 2334 Second, the foundation for the claim in any event fails as I have found against ASIC concerning the Rate Set Trading Practice.

FINANCIAL SERVICES LICENSEE OBLIGATIONS 2335 ASIC claims that Westpac contravened s 912A(1)(a), (aa), (c), (ca) and (f) of the Corporations Act. Section 912A(1) provided during the relevant period (emphasis added): A financial services licensee must: (a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and (aa) have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and (b) comply with the conditions on the licence; and (c) comply with the financial services laws; and (ca) take reasonable steps to ensure that its representatives comply with the financial services laws; and (d) unless the licensee is a body regulated by APRA--have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and (e) maintain the competence to provide those financial services; and (f) ensure that its representatives are adequately trained, and are competent, to provide those financial services; and (g) if those financial services are provided to persons as retail clients--have a dispute resolution system complying with subsection (2); and (h) unless the licensee is a body regulated by APRA--have adequate risk management systems; and (j) comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph. 2336 The BBSW Referenced Products were "financial products" and Westpac's dealings in those products constituted the provision of "financial services". 2337 Let me make the following preliminary observations at this point. 2338 Westpac had many written policies in place during the relevant period including the following: (a) Westpac's Code of Conduct, which applied to all Westpac group employees and contractors; (b) Westpac's Risk Governance Framework, which applied to Westpac and its subsidiaries; it established the "three lines of defence"; (c) Dealing Room Policies for Traded Risk - Market Risk Management; (d) Dealing Room Policies for Risk in Financial Markets and Treasury; (e) Market Risk Management Framework; (f) Liquidity Risk Management Framework; (g) Trading Book Policy Statement; (h) Interest Rate Risk in the Banking Book - Summary of Key Methodologies; (i) WIB Chinese Walls and Physical Access Controls; and (j) Conflicts of Interest Policy. 2339 AFMA's Code of Ethics also set out the minimum standards, principles and rules of behaviour applicable to AFMA members in the conduct of their business. 2340 As to the above relevant policies and procedures, the following may be noted. 2341 First, during the relevant period Westpac did not have any policies or procedures specifically on trading in the Bank Bill Market or making submissions to AFMA as to Westpac's view of the mid-rate of the yield for Prime Bank Bills. Such policies only came onto the books in July 2012 (about monitoring submissions), December 2013 (regarding benchmarks generally) and February 2014 (regarding general trader conduct in the Bank Bill Market). During the relevant period, it was only the AFMA Code of Ethics that was the applicable written policy. 2342 Second, Westpac's suite of policies applied to STIRR and Group Treasury employees. 2343 Third, Westpac's generally applicable policies did not prescribe how STIRR employees should behave, or how they should conduct their trading, in the Bank Bill Market. I agree with ASIC that at most such policies exhorted them not to engage in market misconduct described at a "high level of generality" and in "ultimately legal language" to use ASIC's not unfair descriptions. 2344 Fourth, I also agree with ASIC that there is little material in evidence about how these policies were implemented or applied. And I accept that Westpac was in the superior position to have put on material going to the implementation of these policies, but failed to do so to any significant extent. If and to the extent that any Jones v Dunkel inference was available to be drawn against Westpac in relation to this aspect of the case, I have drawn such an inference against it. I would also note at this point that although ASIC submitted that I should draw appropriate Jones v Dunkel inferences against Westpac on other parts of the case more generally, I consider those submissions to lack substance save as to the non-calling of Mr Parker. 2345 Fifth, it is well apparent that although Westpac's corporate governance structure had limits on certain kinds of risk, but there were no hard limits on Prime Bank Bill trading or on BBSW Rate Set Exposure. 2346 Sixth, I also agree with ASIC that there was little detailed evidence about the training received by STIRR and Group Treasury employees in relation to trading in the Bank Bill Market. But I do accept that Group Treasury employees generally undertook training from AFMA, including completion of a Diploma of Financial Services. Further, it appears that in relation to Ms Johnston, her course included a section on market manipulation but at a high level of generality. But more generally it would appear that STIRR employees primarily learnt about trading in the Prime Bank Bill market on the job from more experienced employees such as Mr Roden.

(a) Section 912A(1)(a) 2347 The meaning of the "efficiently, honestly and fairly" standard in s 912A(1)(a) is not in doubt. The parties accepted the following principles confirmed in Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (in liq) (2012) 88 ACSR 206; [2012] FCA 414 at [69] per Foster J: (a) The words "efficiently, honestly and fairly" must be read as a compendious indication meaning a person who goes 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. (b) 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. (c) 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. (d) 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 the commercial sense. (e) 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. 2348 I accepted these principles in Australian Securities and Investments Commission v Avestra Asset Management Limited (in liq) (2017) 348 ALR 525; [2017] FCA 497 at [191], and see also Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023 at [674] per Edelman J. 2349 Those principles are consistent with the express object of Ch 7 of the Corporations Act set out in s 760A as follows: The main object of this Chapter is to promote: (a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and (b) fairness, honesty and professionalism by those who provide financial services; and (c) fair, orderly and transparent markets for financial products; and (d) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities. 2350 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. 2351 Further, conduct that has not been consonant with the "efficiently, honestly and fairly" standard in s 912A(1)(a) and its statutory predecessors has been for example: (a) "churning", being trading on a client's account with the predominant motivation of generating brokerage commissions (ASIC v Camelot Derivatives Pty Ltd (in liq)); and (b) a financial dealer advising on the purchase of shares in a public company which was to purchase the assets of the dealer such that its interests and those of its clients conflicted (R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93; [1989] SASC 1941 per Bollen J). 2352 ASIC contends that if Westpac engaged in the Rate Set Trading Practice, it is inevitable that it will have breached s 912A(1)(a). I agree. Now of course that foundation has not been made out. But in my view its conduct on the four contravention dates that I have identified is also a sufficient foundation to make out this aspect of the case. I agree with ASIC that such trading on the said four occasions is contrary to the statutory standard that all things be done to ensure that financial services are provided efficiently and fairly. 2353 First, as ASIC says, the purpose of the BBSW was to provide a regular pricing indicator for bank securities, which served as an interest rate benchmark for many transactions in the wider economy. Achievement of that purpose was of central importance to Australian financial markets, given the range of financial products referencing the BBSW. As ASIC points out, in a survey conducted by APRA, ASIC and RBA in July 2012 (and published in October 2012 in "Report on the Australian OTC Derivatives Market"), the regulators noted: The dealers surveyed by the regulators in July 2012 reported that they indexed most Australian dollar-denominated single-currency interest rate derivatives to the bank bill swap rate (BBSW) or bank bill swap bid rate (BBSY). 2354 Moreover, it should be obvious that it is of the nature of a benchmark rate that it is systemically important. Such a benchmark ought to have facilitated confident and informed decision making by the provision of fair, orderly and transparent market setting of the benchmark. Trading for the purpose of moving the rate was not conducive to the integrity of the benchmark and thus the efficiency objective which justifies its existence. 2355 Second, as the evidence clearly discloses, Westpac employees were aware of the significance of the BBSW. 2356 Third, and as I have also accepted, Westpac employees suspected that others were trading to influence the BBSW, and were aware of speculation about Westpac doing the same. 2357 Fourth, Westpac's employees' conduct on the said four occasions was deliberate. And on the other side of the relevant book(s) was always a set of counterparties put at risk as a result of this conduct. None of Westpac's conduct on the said four contravention dates could be described as fair. 2358 Fifth, as ASIC points out, Westpac invested Mr Roden and STIRR with significant discretion in constructing its BBSW Rate Set Exposures and in trading Prime Bank Bills. Mr Zuber said that "I placed no constraints on the STIRR desk around holding any minimum or maximum amounts and did not direct the timing of when Prime Bank Bills should be bought or sold". As ASIC points out, there were no direct limits on BBSW Rate Set Exposures, and no explicit policy on bank bill trading. There were only generic policies encouraging employees to refrain from breaches of corporate and other laws, and some form of information barrier (I will discuss this later). ASIC says that accordingly Westpac maximised the efficiency of Group Treasury to transact in the Bank Bill Market to its own advantage. It is said that this was an exemplar of a relevant lack of efficiency in the provision of financial services and products to customers. I am inclined to agree if one views efficiency also from the perspective of counterparties. 2359 Sixth, ASIC says (and I agree) that although Westpac had policies which required that monitoring, including telephone monitoring, was to be undertaken during the relevant period, there were no records that demonstrate that monitoring actually took place. It says that it was within Westpac's power to produce such evidence. Professor Stulz for Westpac said that there was daily monitoring of liquidity and trading risk, but he conceded that the policy documents dealing with that monitoring were silent on conduct or operational risk. Professor Stulz also said that the Group Risk function within Westpac (headed by the Chief Risk Officer) was monitoring the conduct of traders, but the only evidence he cited was an assumption provided to him by Westpac. 2360 I have rejected ASIC's case as to the existence of the Rate Set Trading Practice. Therefore, to the extent that the asserted breach of s 912A(1)(a) has as its foundation the existence of that practice, its implementation or a failure to disclose it, ASIC's claims fails. But there are other dimensions to the s 912A(1)(a) claim that in my view ASIC has made out concerning a lack of both fairness and efficiency reflected in: (a) the conduct on the said four contravention dates; (b) a lack of monitoring; and (c) a lack of an explicit policy on Prime Bank Bill trading.

(b) Section 912A(1)(aa) 2361 ASIC has contended that s 912A(1)(aa) was contravened. Section 912(1)(aa) refers to arrangements for the management of conflicts of interest. However, before proceeding further it is necessary for me to deal with a pleading point.

ASIC's application to amend its allegation of conflict of interest 2362 On 19 December 2017, ASIC served a proposed third further amended statement of claim which sought to amend the allegation of conflict of interest in [130A]. Westpac opposed the proposed amendment. I would note that the pleaded case at all times until the close of final addresses was that a conflict of interest arose as between two sets of interests: (a) First, Westpac's interest in managing its BBSW Rate Set Exposure and the incentives pleaded at [61] of the then second further amended statement of claim. The then [61] alleged that Westpac had an incentive to act so as to alter the level at which BBSW set so that it did not reflect the forces of genuine supply and demand, i.e. that Westpac had an incentive to manipulate BBSW. (b) Second, the interests of Affected Counterparties (Westpac's Counterparties) and the At Risk Counterparties in respect of the financial services provided by Westpac and referred to in [105] and [127A] of the then second further amended statement of claim. 2363 So, the pleaded conflict was between Westpac's interest in manipulating BBSW and the counterparties' interest in payments under BBSW Referenced Products that were calculated by reference to BBSW. 2364 The amendment to [130A] sought to replace the pleaded conflict with a different conflict of interest, namely, one between Westpac's interest in buying and selling Prime Bank Bills in the Bank Bill Market and its involvement in influencing the setting of BBSW as a BBSW panellist on the one hand, and Westpac's exposure to and interest in BBSW Referenced Products on the other hand. 2365 Now the differences between the then pleaded and proposed amended conflicts were the following: (a) The then pleaded conflict was a conflict between the interests of opposing parties, namely, Westpac and its counterparties to BBSW Referenced Products. Contrastingly, the proposed amended conflict was between competing interests of Westpac; and (b) The then pleaded conflict depended on Westpac's interest in manipulating BBSW. Contrastingly, the proposed amended conflict did not necessarily depend on any such interest of Westpac. 2366 Westpac contended that it would be significantly prejudiced if the amendment were permitted. It said that it had conducted its defence at trial on the basis of the pleaded case. In particular, Westpac cross-examined ASIC's expert Professor Justin O'Brien (I will elaborate on his background later) on the basis of the pleaded case in relation to the allegation of conflict of interest. The conflict of interest about which Professor O'Brien was cross-examined, and about which he was giving his evidence, was identified in terms of the conflict pleaded in the then pleading, namely, the alleged conflict between Westpac's interest in manipulating BBSW and the interests of counterparties with an opposite exposure. 2367 Professor O'Brien was cross-examined on the basis that one of the interests alleged to be in conflict was Westpac's interest in manipulating BBSW. And he appeared to accept that no conflict of interest arose where one of the opposing interests involved acting illegally. He accepted that what "we're really talking about" is an operational risk rather than a conflict of interest between Westpac's interest and those of counterparties. Professor O'Brien was cross-examined on the basis that the other interest said to be in conflict with Westpac's interest in manipulating BBSW was the interests of counterparties. But he appeared to agree that there would be no conflict between the interests of counterparties and Westpac's interests provided Westpac's trading was lawful. 2368 Westpac contended that it would have approached Professor O'Brien's cross-examination very differently had ASIC amended [130A] at an earlier time. Westpac said that it did not cross-examine Professor O'Brien on the basis of the conflict of interest alleged in the amendment to [130A]. 2369 Westpac said that it was no answer to this "very clear forensic prejudice" for ASIC to say that it opened its case on a broader basis than its case as pleaded in [130A]. In its opening address, Westpac took the point that ASIC's opening submission mischaracterised the conflict of interest as pleaded: My learned friend submitted that conflict of interest that's alleged against Westpac was one that had been identified by AFMA. In our submission, that's not correct. The conflict that's pleaded, and I don't think my learned friend wishes to move away from this, but the conflict which is pleaded at 130A of the statement of claim. (emphasis added) 2370 The nature of the pleaded case was then identified by counsel for Westpac, following which Westpac's position was put in the following terms: So it's not the conflict that our learned friends allege. Your Honour, I mentioned pleading points a few times now. I don't want to get bogged down in them, but I wish to make it clear we are here to meet the pleaded case, and only that case, but otherwise your Honour those are our submissions in opening. 2371 Westpac said that ASIC was squarely on notice that Westpac took issue with ASIC's characterisation in opening of its conflict of interest case, that it departed from the pleaded case in [130A], and that Westpac would be conducting the trial on the basis of the pleaded case, not the case as put in opening submissions. Westpac said that ASIC made no application to amend [130A] until after the conclusion of closing addresses. It said that no explanation has been proffered for the failure to bring forth the amendment promptly upon Westpac's position being made clear in opening and that in the absence of any amendment Westpac made forensic decisions based on the pleaded case in [130A]. It contended that leave to amend should therefore be refused. 2372 On 22 December 2017 I allowed the amendment and rejected Westpac's objections to the leave sought by ASIC. Let me explain my reasons. 2373 First, the amendment to [130A] reflected the conflict which ASIC had advanced prior to and throughout the trial, in written and oral opening submissions and in closing submissions. 2374 Second, although Westpac claimed that it would be prejudiced by the amendment because it cross-examined Professor O'Brien on the basis of the pleaded conflict, there is no substantial prejudice. The identification of any conflict is really a legal question for me based on the primary facts including uncontroversial documents and unchallenged lay evidence of counterparties. Moreover, expert evidence on the point is unnecessary. Indeed, ASIC did not lead any expert evidence in chief. 2375 Third, in any event, Professor Stulz had an opportunity to respond to Professor O'Brien's expert report on conflicts, both by way of a reply report and in joint session. 2376 Fourth, if there has been prejudice to Westpac, I have been able to deal with this in some respects by preventing ASIC from relying upon various portions of the report of Professor O'Brien as a condition of leave, such portions being: (a) the first two sentences of Professor O'Brien's executive summary in answer to question 2 (page 9); and (b) paragraphs 36 to 40. 2377 In those circumstances, on 22 December 2017 I granted leave to ASIC to amend and made the following orders: 1. Subject to order 2, the plaintiff is granted leave to file and serve forthwith: (a) a Third Further Amended Statement of Claim; and (b) Further Amended Schedules H and I in the form submitted to chambers on 21 December 2017. 2. Order 1(a) is conditional upon the plaintiff not relying upon parts of Professor O'Brien's report, viz, the first two sentences of the executive summary in answer to question 2 (page 9) and paragraphs 36 to 40 thereof. 3. Within 28 days of the date hereof, the defendant file and serve any Amended Defence consequential upon the plaintiff's amendments (if necessary). 4. The plaintiff pay the defendant's costs thrown away by reason of the amendment.

ASIC's original and modified cases 2378 Having dealt with the pleading point, I can now turn to the substance of ASIC's allegations. 2379 Let me first deal with the conflict of interest case that ASIC originally pleaded, in case I am considered to be wrong on allowing the pleading amendment. 2380 First, as Professor O'Brien accepted in his evidence, no conflict of interest arises if Westpac's trading was lawful. To the extent that there was a possibility of unlawful trading in the Bank Bill Market, that was an operational risk to be managed, but did not itself give rise to a conflict of interest. ASIC has failed thus to establish that there was any conflict of interest in the terms originally pleaded. 2381 Second, to the extent that there is any conflict, it was one that arose between Westpac and counterparties with whom Westpac traded BBSW Referenced Products. That conflict was inherent in the fact that Westpac and its counterparties were in contractual relations where their interests were opposed. If BBSW moved, one party would benefit and the other would be detrimentally affected. 2382 Third, as Westpac correctly points out, this gives rise to the question of what adequate arrangements were required to avoid the asserted conflict. Both Professor O'Brien and Professor Stulz identified that implementing a Chinese wall between the part of Westpac trading in Prime Bank Bills and the part of Westpac trading with counterparties was an appropriate way of managing any purported conflict. But the evidence establishes that during the relevant period, Westpac had a form of information barrier between Treasury and Financial Markets. Now in my view this was an appropriate and adequate way to manage the purported conflict, although there were some deficiencies in the information barrier. There were isolated examples of communications in contravention of the Chinese wall. Of course I accept that a risk management tool does not need to be 100% effective in order to be an adequate tool for managing risk. But it seems to me that more could have been done. I will elaborate on this in a moment. 2383 Let me now deal with the amended conflict of interest case. 2384 ASIC has contended that Westpac had a conflict of interest when trading in the Bank Bill Market in the BBSW Rate Set Window. On the one hand, it had an interest amounting to an obligation in certain respects to buy and sell Prime Bank Bills in the Bank Bill Market and to contribute to the setting of the BBSW as a Prime Bank, BBSW panellist and AFMA member. On the other hand, it had exposure to and an interest in BBSW Referenced Products, the financial obligations of which reset by reference to the BBSW. Accordingly, Westpac could achieve a favourable and concrete financial benefit pursuant to these BBSW Referenced Products if its trading in the Bank Bill Market caused the BBSW to move in the appropriate direction. 2385 ASIC contends that this actual or potential conflict is self-evident. But in any event it says that it is also supported by the following matters. 2386 First, both Professor Stulz and Professor O'Brien expressed the view that there is at least a potential conflict of interest of the kind described. 2387 Second, AFMA recognised a potential conflict of the kind described. The Board Briefing Paper entitled "Bank Bill Swap (BBSW) Reference Rates" dated 24 April 2012 (for the meeting of the Market Governance Committee of AFMA on 8 June 2012) stated that "BBSW panellists must manage a conflict of interest in situations where they are issuers of Prime Bank paper or where they have a derivatives position that may be dependent on BBSW". BBSW panellists had a potential conflict of interest in preparing submissions, in that they might be interested to make a submission favourable to their derivative position. In this respect ASIC says that there is no difference in principle between submitters and traders. 2388 Third, Westpac itself recognised, albeit after the relevant period, the existence of this conflict of interest in its "Terms of Business for Professional Clients and Eligible Counterparties" of December 2015 and applicable to its London office. That document disclosed to customers that Westpac's "trading activity" could "affect market prices and your final execution prices, potentially against your interests" of "benchmark orders" where the price is determined by reference to a benchmark rate. 2389 Fourth, ASIC says that Westpac's information barrier between Group Treasury and Financial Markets was itself an implicit recognition of the potential conflict of interest between participating in the Bank Bill Market on the one hand, and trading BBSW Referenced Products on the other hand. Mr Zuber also explained that the confidentiality barrier between Group Treasury and Financial Markets was to preclude the sharing of information which could give rise to any conflict of interest. 2390 Finally, ASIC has also pointed out that this conflict existed whether or not Westpac engaged in the Rate Set Trading Practice, which I have found it did not. It says that for Westpac to engage in such a practice was to succumb to the conflict, but the conflict pre-existed the conduct and was independent of whether it occurred. 2391 Now stripped back, the alleged conflict of interest is between: (a) on the one hand, Westpac's: (i) interest in buying and selling Prime Bank Bills in the Bank Bill Market; and (ii) involvement in setting the BBSW as a BBSW panellist; and (b) on the other hand, Westpac's exposure to and interest in BBSW Referenced Products. 2392 Westpac says that insofar as the alleged conflict is between elements (a)(i) and (b), it is misconceived. There was and could have been no conflict between Westpac's interest in buying and selling Prime Bank Bills on its own behalf and for its own benefit, and Westpac's exposure to and interest in BBSW Referenced Products. Indeed, there was a convergence rather than a conflict between these interests because Westpac could buy and sell Prime Bank Bills in order to hedge or offset its rate set exposure arising from BBSW Referenced Products. I must say that I agree with that proposition. 2393 Further, so far as elements (a)(i) and (b) are concerned, Westpac was in no different position from any other participant in the Bank Bill Market, all of whom could also have been expected to trade in BBSW Referenced Products. I agree with Westpac that I do not consider that it can seriously be suggested that every Bank Bill Market participant had a conflict between trading in Prime Bank Bills in its own interests and for its own benefit, and its exposure to and interest in BBSW Referenced Products. 2394 Now ASIC also suggested that element (a)(i) above encompassed Westpac's obligation as a Prime Bank to provide price or liquidity support for Prime Bank Bills in the Bank Bill Market. But even if that is so, it does not establish any conflict which Westpac should have taken additional steps to manage during the relevant period. ASIC has not demonstrated that Westpac did not provide price support for Prime Bank Bills because of its exposure to or interest in BBSW Referenced Products. As Westpac points out, such a proposition was not put to any Westpac witness that there was any risk of that occurring. Further, there is no evidence that any risk of such conduct was identified by AFMA or any market participant during the relevant period. 2395 Further, insofar as the alleged conflict is said to have been between elements (a)(ii) and (b) above, there is again as Westpac points out no evidence that any conflict between, on the one hand, Westpac's involvement in setting the BBSW as a BBSW panellist (i.e. the making of BBSW submissions) and, on the other, its exposure to and interest in BBSW Referenced Products, was one which Westpac should have taken additional steps to manage during the relevant period. ASIC neither alleged nor established that Westpac manipulated its BBSW submissions to benefit its BBSW Rate Set Exposure. 2396 Further, and I will elaborate on this later, while the risk of BBSW submissions being manipulated is one that was identified in general terms after the relevant period by AFMA in the relevant briefing paper, this risk appears not to have been specifically identified during the relevant period. This risk was specifically identified following the LIBOR scandal. Westpac implemented a policy to address this risk at about the same time; see its July 2012 policy "Monitoring of WBC Rates Contribution to the AFMA 10am BBSW Rateset". Moreover, there was little reason during the relevant period for Westpac to consider that any of its small number of STIRR desk traders might manipulate Westpac's BBSW submissions in order to benefit its BBSW Rate Set Exposure. Indeed, early in the relevant period Ms Johnston commenced taking snapshots of the Bloomberg screen showing the yields at which Prime Bank Bills were trading at 10.00 am each day in order to check that Westpac's and other panellists' submissions reflected those yields.

Information barrier between Group Treasury and Financial Markets 2397 It is now appropriate to elaborate in more detail on the question of conflict of interest that was recognised within Westpac and dealt with by it in terms of structural separation and the erection of a Chinese wall. I raised earlier in my reasons the question of the structural separation of Group Treasury and Financial Markets. Let me discuss the implementation and effectiveness of the information barrier between the two divisions. 2398 Financial Markets had books which from time to time dealt in certain BBSW Referenced Products and BAB Futures. Further, it included a foreign exchange desk which from time to time dealt in FRAs, interest rate swaps, BAB Futures and cross-currency swaps. Financial Markets did not buy or sell Bank Bills in the Bank Bill Market, but it did have exposure to BBSW rate set risk and had its own BBSW Rate Set Exposure, which it managed by trading in derivatives including BAB Futures and FRAs. 2399 Since 2001 at least, Westpac's balance sheet and associated risk, that is, the risk in relation to the assets and liabilities held as part of its banking operations and managed by Group Treasury, had been separate from the trading books that captured the transactions entered into on behalf of customers and the risk associated with those positions. The customer positions were managed by Financial Markets, and the associated customer risk and information concerning those matters was kept separate from Group Treasury. 2400 There was an information barrier between Financial Markets and Group Treasury. The information barrier was implemented so that Group Treasury could independently manage Westpac's affairs. As such, Group Treasury was not to interact with Westpac's customers and traded only on the Bank's behalf. Westpac's witnesses gave evidence about the existence of this information barrier between Group Treasury and Financial Markets. But this information barrier was not to be found in the specific written policy on Chinese walls, which policy Westpac had in place in some form before and throughout the relevant period. 2401 Now as to this information barrier, ASIC has made the following submissions: (a) First, the barrier was deficient because it was not reduced to writing. (b) Second, there is no evidence to suggest that the barrier was effectively monitored or breaches disciplined. (c) Third, the information barrier did not prevent some interaction between Group Treasury and Financial Markets in relation to trading Prime Bank Bills in the Bank Bill Market and the BBSW rate set. (d) Fourth, on occasion Westpac's traders had been informed of Financial Markets' position with respect to exposure to products which referenced BBSW including prior to Westpac trading in the BBSW Rate Set Window. 2402 It is necessary to say something about the evidence on this aspect although for my part I would say now that accepting that the barrier was not perfect, any deficiencies do not rise to the level of establishing any breach of s 912A(1)(aa), although any such deficiencies may expose Westpac to criticism under s 912A(1)(f) as I refer to later.

Description of the information barrier by Westpac witnesses 2403 Westpac's witnesses were broadly consistent in their evidence regarding the existence and implementation of the information barrier. 2404 Mr Masnick of Financial Markets referred to "a rigorous confidentiality barrier in place between Group Treasury and Financial Markets". He emphasised that this information barrier "[w]as in place and is still in place" and elaborated as follows: So the confidentiality barrier refers to the sharing of risk and positions in our relevant books. The way we considered Treasury was as a customer. So it would not surprise that there were numerous communications between people working in my group and people in Treasury, the same they would talk to other market participants, but it was done at an arm length's basis with no sharing of - particularly from the Treasury side, being the customer, of what their positions were or what their actions were likely to be in the marketplace. 2405 Mr Conway, who also had experience in Financial Markets, described the information barrier as follows: When I worked in Financial Markets I was not aware of, and could not access, any information regarding Group Treasury's trading activities, risk positions or trading strategies due to the confidentiality barrier in place between Financial Markets and Group Treasury. That confidentiality barrier included: (a) physical separation between the two teams, being approximately 50 meters apart on a large trading floor; (b) quarantining of Group Treasury's systems and records so that Financial Markets could not access any information regarding Group Treasury's trading activities, risk positions or trading strategies. As such, Financial Markets had no visibility at all of Group Treasury's trading, including trading in Prime Bank Bills in the BBSW Rate Set Window; and (c) strict confidentiality obligations being placed on members of Group Treasury, so that staff did not discuss their activities with anyone outside of Group Treasury. 2406 Mr Conway added: Financial Markets traders would be able to see disclosed bids and offers in the Bank Bill Market through the broker screens, and would be able to see where BBSW set each day, but could not see or observe Westpac's trading in the Bank Bill Market, including during the BBSW Rate Set Window. The bids and offers shown on the broker screens did not disclose the identity of the party making the bid or offer. 2407 Mr Duignan, who initially worked in Financial Markets, also referred to a confidentiality barrier between Group Treasury and Financial Markets. 2408 Mr Zuber described the information barrier in the following terms: Since at least around 2001, Westpac's balance sheet and associated risk, i.e. the risk in relation to the assets and liabilities it holds in its own name as part of its banking operations (as managed by Group Treasury) has been completely separated from the trading books that capture the transactions the Bank enters into on behalf of customers and the risk associated with those positions. The customer positions managed by Westpac's Financial Markets division (FM), the associated customer risk, and the information concerning those matters is kept wholly separate from Group Treasury by a strictly enforced information barrier. 2409 He further elaborated as follows: … throughout the Relevant Period there was a structural separation and confidentiality barrier between Financial Markets and Group Treasury. While not reduced to writing that I am aware of, the confidentiality barrier was an important and often discussed aspect of the relationship between the Financial Markets and Group Treasury areas of the business and I caused all relevant Group Treasury staff to be informed of it when they commenced. The confidentiality barrier was implemented structurally through reporting lines and management and operationally through the separation of relevant systems. This is the structural separation between Group Treasury and Financial Markets to which I refer. Financial Markets employees could not access trading data of the Group Treasury function and vice versa. That confidentiality barrier did not prohibit contact between employees in those divisions but did preclude the sharing of trading information which could give rise to any conflict of interest between the Bank's position and the position of the customers of Financial Markets. 2410 In cross-examination, Mr Zuber said that the barrier did not stop "talk about general themes in the marketplace so it wasn't that we didn't discuss market themes, it wasn't that we didn't discuss market ideas but we didn't share positions, information on clients an[d] things like that". He also agreed that there was to be no sharing of specific information about "what you were specifically doing or what a particular position might be". 2411 Mr Roden referred to the information barrier in the following terms: As Mr Parker was in the FM team, which was separated by an information barrier from Treasury, it was not my practice to: (a) provide Mr Parker with information about Westpac's trading strategy in the BBSW Rate Set Window or about its holdings and management of Prime Bank Bills where that information was not otherwise publicly available; (b) discuss in detail my views regarding the trading that Westpac had conducted during the BBSW Rate Set Window. 2412 He further elaborated as follows: Mr Parker was in the FM team at Westpac which was separated from Treasury by an information barrier. As a result, Mr Parker did not have any visibility of Westpac Treasury's trading in the Bank Bill Market and I did not share with him Westpac's strategy for, or intentions when, trading in the Bank Bill Market. 2413 Ms Johnston referred to an information barrier and described it in the following terms: Group Treasury (including STIRR) did not have access to or knowledge of any rate set exposure arising in the FM area of the Bank. That is because FM and Group Treasury were structurally separated by a confidentiality barrier to prevent the Bank from dealing on its own behalf (through Group Treasury) with knowledge of its customers activities (in FM) and vice versa. Unlike Group Treasury, FM dealt directly with customers of the Bank and had rate set exposures arising from trading with its customers. The FM rate set exposure was completely siloed from Group Treasury, and I have never known what that exposure is as I have only worked in Group Treasury. 2414 She further elaborated: … I was aware that barrier placed a restriction on my ability to discuss certain matters with individuals who were not employed within Group Treasury, but that confidentiality barrier did not prohibit all contact between employees of the respective divisions. At all times, I understood that it was not appropriate to provide information about Group Treasury's specific trading positions or other price sensitive information to individuals outside Group Treasury, including but not limited to employees of Financial Markets. The confidentiality barrier did not prevent discussions with employees outside of Group Treasury about general market activity or my observations or speculation regarding what had happened, or might happen to BBSW. 2415 Mr Stokes referred to a confidentiality barrier between Group Treasury and Financial Markets, in the context of a Bloomberg chat on 24 November 2009 with Mr Joshua Masters from Financial Markets. He said that because of this barrier: (i) I did not, and would never, give him [Mr Masters] any information about Group Treasury's rate set exposure or proposed trading (even if I was aware of what it was, which I may well not have been); and (ii) Group Treasury did not receive, and could not access, any information regarding the rate set exposure of trading books in Financial Markets. Any rate set exposure from Financial Markets was irrelevant to STIRR and did not form part of Group Treasury's rate set exposure.

Asserted breaches of the information barrier 2416 ASIC contends that notwithstanding the existence of an information barrier of some kind, there was frequent communication between Group Treasury and Financial Markets. It pointed out that Mr Stokes said in cross-examination that employees of Financial Markets would ask his views about the rate set from time to time throughout his time in Group Treasury. He said that Financial Markets employees could come into Group Treasury and ask for the views of other Group Treasury employees. In particular, he said during cross-examination: In the relevant period, so here I'm talking about between - from 2010 to June 2012, Mr Stokes, at this time you were on the ALM desk, not the STIRR desk, did employees of Financial Markets seek your views about the rate set prior to 10.00 am? - Yes, they would have. Yes, they would. And do you know if employees of Financial Markets would also seek the views of other people in Group Treasury about the rate set that was about to take place? - They could have, yes. They might seek - well, they would seek your views about where the BBSW might set? - That's right, yes. 2417 ASIC have taken me to a number of communications between Mr Parker, a trader in Financial Markets and several different Group Treasury members. Let me deal with them in turn. Now Mr Parker was not called to give evidence by Westpac and I accept that an appropriate Jones v Dunkel inference may be drawn. But at the end of the day such an inference does not substantially assist ASIC beyond the evidence that it is now appropriate to discuss. 2418 On 2 June 2008, Mr Parker told Mr Roden in a Bloomberg chat "I can't add anything - I didn't have any big sets with them today...not much at all, just long 1mth&2mth v short 3mth....". Now Mr Roden accepted that Mr Parker "probably shouldn't" have disclosed that information to him, but went on to say "but to be frank, I think this is pretty broad, and general, and, to me, it's probably pretty meaningless", "Some of this is past tense, is what I can see" and "I can only assume from this that the information he's talking here is completely useless to me … And, to be honest, probably to everyone." 2419 I agree with Westpac that in light of the qualified manner in which Mr Roden accepted that this was a communication that "probably" should not have occurred, it provides no substantial support for ASIC's submissions in relation to the inadequacies of the information barrier to the degree that ASIC has asserted. 2420 On 4 June 2008, Mr Parker asked Mr Roden in a Bloomberg chat whether there was "[a]nything significant about today's rate set ???". Now Mr Roden accepted in cross-examination that Mr Parker should not have asked whether there was anything significant about the rate set that day, but he went on to qualify that answer by saying "I don't really know, but I assume he's asking for some colour here…". 2421 I agree with Westpac that when considered in context, Mr Roden made no substantial concession that the communication was inappropriate. In any event, no information was exchanged because Mr Roden did not respond to Mr Parker's question. I do not think that this communication reveals any substantial deficiencies in the information barrier between Group Treasury and Financial Markets. 2422 On 6 June 2008, Mr Roden told Mr Parker in a Bloomberg chat that he had an $8 billion pay set: "... i already have an 8 bill pay, so its just a rounding error". Mr Roden in cross-examination agreed that if the information was about a future rate set then this disclosure would be inappropriate. Mr Roden accepted that whether or not this communication was appropriate depended on whether it was future tense or past tense. But he did not accept that it was future tense. I am inclined to accept his evidence. Accordingly there is little basis to infer that the communication involved inappropriate disclosure of a rate set position. 2423 On 12 June 2008, Mr Parker and Mr Roden exchanged Bloomberg chat messages in which Mr Parker disclosed to Mr Roden that UBS had just "paid me in small 1x4 3rd" and asked "are they a chance to push up this set today ???". Mr Roden accepted that Mr Parker should not have asked him whether UBS was a chance to push up the set that day. But he qualified his answer by saying "but it's a pretty pointless question … Because it's quite clear I have got no real interest in providing any information to Mr Parker and I'm just, like, trying to - bat him away without being rude. With the benefit of hindsight, maybe I should have just told him to stop harassing me". 2424 In any event, as Westpac points out, Mr Roden's response to the question was "ANYTHING IS POSSIBLE…I JUST DON'T KNOW". This communication imparted little information. I do not think it establishes that there were substantial deficiencies in the information barrier between Group Treasury and Financial Markets. 2425 On 11 December 2008, Mr Parker and Mr Roden exchanged Bloomberg chat messages, and Mr Roden told Mr Parker "i am a big receiver on teh 15th". Mr Zuber conceded that this should not have been said. And Mr Zuber conceded that it was "less than ideal" for Mr Parker to tell Mr Roden "yeah, I just want to clear some of what I have on that date". In cross-examination, Mr Roden said that he had given Mr Parker "a considered opinion where I think it's probably going to be", and in relation to the "big receiver" statement he accepted that he "[p]robably" should not have told Mr Parker. 2426 Now the only part of this communication that Mr Zuber and Mr Roden accepted was not appropriate was the statement "I am a big receiver on teh 15th". Mr Zuber qualified this answer by saying "although given the early lates component, there is a component part that a receiver on the 15th, giving the way the bank bill market works, is probably something that might be seen as expected … I think that's a general market. I don't see that as anything of any great insight to someone who has been around for a long time." Mr Roden also said that he "probably shouldn't have said" that he was a big receiver on the 15th, but qualified his answer in a similar fashion, saying "it's such a generic - the 15th is such a generic period that - in terms of what happens … Because the rate generally as we spoke earlier with earlies and lates on the 15th, the rate generally sets high, but not always." 2427 Now in light of this evidence of Mr Zuber and Mr Roden, there is a real question as to whether this communication imparted any substantial information that was not widely known by market participants. But I do consider that the communication was inappropriate. 2428 On 12 December 2008, Mr Parker disclosed to Mr Roden over Bloomberg chat messages that the CBA had received a FRA out of the coming Monday, and he provided Mr Roden with both the rate and the volume of the FRA: Mr Parker: CBA receiving 52 out of Monday Mr Parker: hE HAS RECEIVED $750m Mr Roden: thks 2429 In cross-examination, Mr Roden accepted that Mr Parker should not have told him this information, agreeing that Mr Parker "probably shouldn't be telling me this stuff". Now although he accepted that Mr Parker should not have provided the information contained in this communication, namely, "CBA receiving 52 out of Monday… hE HAS RECEIVED $750m", he qualified this answer by saying that "to be frank, I'm probably - as I said, I'm probably not all that interested anyway". 2430 On 12 March 2009, Mr Parker disclosed to Mr Roden over Bloomberg chat messages that he was "so surprised ANZ so big a receiver" and that he knew Mr Roden had a "line to bookies, just may not hear it, so I'll keep throwing stuff on chat". 2431 In cross-examination Mr Roden accepted that some of the statement about ANZ was "probably inappropriate", but his complete answer was "I think is probably inappropriate is, and it may not be because it may be public information anyway". I agree with Westpac that there is no basis to infer that this communication disclosed any real confidential or otherwise sensitive information. 2432 On 19 March 2009, Mr Parker asked Mr Stokes in a Bloomberg chat: "Hi mate, can't get Col. Have you guys got any interest in tomorrow's set ??" Now Mr Zuber accepted that "I don't think this is something that we would say should be asked". But Mr Roden also gave the following evidence when the communication was put to him: Do you think Mr Parker should be asking Mr Stokes whether STIRR has any interest in tomorrow's set? - Yes, because I suspect there's nothing - there's absolutely nothing wrong about this inquiry. My sense of reading this inquiry is he's looking for a FRA out of that date. Where do you glean that out of this chat, Mr Roden? - "Have you guys got any interest in tomorrow's set" ie, do you want to do a FRA today that sets out of tomorrow. 2433 I agree with Westpac that as the person responsible for STIRR at the time, Mr Roden's understanding of the communication is to be preferred. Accordingly, there was nothing inappropriate about the communication. Moreover, Mr Stokes did not respond to the communication. In evidence, Mr Stokes could not recall the communication. In any event, no sensitive or confidential information was disclosed in the communication. 2434 On 21 September 2009, Mr Parker and Mr Roden exchanged Bloomberg chat messages as follows: Mr Parker: you're a big payer today ??? Mr Roden: biggest ever Mr Parker: thought tomorrow was your big pay day 2435 Mr Roden accepted in cross-examination that Mr Parker should not have been asking him whether he was a "big payer today" and that he should not have replied to Mr Parker by telling him that it was the "biggest ever". Now Westpac submitted that the comment "biggest [payer] ever" is so generic and lacking in detail that it could not properly be suggested to be a serious breach of the information barrier. Nevertheless in my view it was inappropriate. 2436 On 7 May 2010, Mr Parker and Ms Johnston had a telephone call, the transcript of which is not agreed (but with no relevant differences in the excerpt below), in which the following exchange took place [WBC.0003.0005.0269 (_WBC)]: Mr Parker: What - what's going on with bills this morning, what are we thinking? Ms Johnston: Um, I think it's all going to be a lot higher. At the moment it's like figure bid in August, so. Which is pretty ridiculous, so there's just nothing there. I don't think it will be that high, but um. Mr Parker: So we're not active on the rate set at all? Ms Johnston: No, oh, yeah, no, no, no. I'll be in there but, um, it's nine minutes away so I don't really want to [indistinct]- Mr Parker: Oh, no, no, no, yeah, absolutely you - Ms Johnston: Yeah. Mr Parker: -- don't show your hand - Ms Johnston: Mmm Mr Parker: -- but, um why do we - Ms Johnston: I think I just want to try and - Mr Parker: [Indistinct] Ms Johnston: I'm going to try and keep it from getting too out of whack, but I don't want to get run over. 2437 I addressed this conversation earlier in the context of ASIC's "pattern of conduct" submissions. 2438 Mr Zuber did not regard this communication as inappropriate because "[s]he hasn't told him anything". Mr Masnick likewise had no issue with this conversation, describing Ms Johnston as having spoken "[i]n generalities that were not particularly actionable, yes". 2439 Now ASIC says that Ms Johnston was not refraining from showing her hand to Mr Parker; Ms Johnston shared with Mr Parker some of her intended strategy for trading on that day, namely that she would be trying to keep the set from getting too out of whack, but that she did not want to get run over. The reference to not showing your hand is a reference to not revealing your position to participants in the Bank Bill Market nine minutes before trading is likely to commence. But I agree with Westpac that her comments reveal nothing specific about positions or trading strategy. Further, Mr Parker's comment "don't show you hand" is an indication that Mr Parker recognised that it would be inappropriate for Ms Johnston to disclose her trading strategy to him in advance of the BBSW Rate Set Window. I do not consider that this communication substantially supports ASIC's contention that the information barrier was inadequate. 2440 On 25 May 2010, Mr Parker and Mr Roden exchanged Bloomberg chat messages as follows: Mr Parker: morning Col. Any opinion on June bills into expiry ?? Mr Parker: I know it's a couple of weeks away Mr Roden: not far from here...we have no contracts left...all sold 2441 Mr Roden accepted in cross-examination that he should not have informed Mr Parker that he had no June futures contracts left. But this comment on one view does not appear to have imparted any particularly sensitive information. Nevertheless in my view it is a breach of the information barrier. 2442 On 28 May 2010, Ms Johnston called Mr Parker (in a phone conversation with an agreed transcript [WBC.0003.0005.0945]) to "warn" him that "it's going to be really ugly" on 31 May 2010, as "when we spoke the other day, it sounded like [he] had some interest" on that day. She went on to tell him that "we don't really have, ah, too much, so we're going to be staying clear". They then spoke about the trading in the BBSW Rate Set Window that had just occurred. 2443 In this communication, it appears that Ms Johnston gave Mr Parker information about what was likely to occur on 31 May 2010 and Group Treasury's likely trading on that day. 2444 Mr Parker called Ms Johnston later that same day, and the transcript of that call is not agreed, although the excerpts below are not disputed [WBC.0003.0005.0880 (_WBC)]. Mr Parker shared with Ms Johnston that he did a FRA with ANZ, saying "... I just paid ANZ in 750 at 89". Mr Parker explained to Ms Johnston that the reason for him undertaking the FRA was because of her warning in the earlier call: "Well you were saying --- it was going to be horrible on Monday." Mr Parker further explained that he had a "yard and a half" rate set exposure on the coming Monday which, although "not massive in the Treasury scale of things", would cost him "3 or 400 grand" if it "sets at 95" and he had done nothing to protect his position. 2445 Mr Masnick did not consider there to be anything untoward about these calls: In fact, what I read here is two market participants discussing what they think is likely to happen, and then Mr Parker has taken that information and taken on some mitigating risk to take - prepare himself for a rate set on Monday, based on that information in the same way all market participants speak to other market participants and then form views on things such as likely rate sets, etcetera. 2446 Ms Johnston accepted that Mr Parker had acted upon a warning given to him by her, but she defended her actions, as it was "a warning that he could have obtained or seen elsewhere and the market does generally move higher on the last day of the month". She said that "I don't think the information I gave him was sensitive or confidential". 2447 Now I agree with Westpac that to the extent Ms Johnston gave information about what was likely to occur on 31 May 2010, this was limited to saying "it's going to be really ugly" in the earlier phone call. I do not consider that this was information that it was inappropriate for Ms Johnston to convey to Mr Parker. Moreover, Ms Johnston's evidence was that she did not think the information she gave Mr Parker was sensitive or confidential. Indeed, Ms Johnston revealed no detailed information about Group Treasury's likely trading on the day. This is evident from her statement that "we don't really have, ah, too much, so we're going to be staying clear". But Mr Parker appears to have acted on Ms Johnston's warning. On balance I am inclined to the view that this communication was undesirable and preferably should not have occurred. 2448 On 10 June 2010 at 8.32 am Ms Johnston and Mr Parker had a telephone call, the transcript of which is not agreed, in which the following exchange took place [WBC.0003.0005.0774 (_WBC)]: Mr Parker: What's doing? Ms Johnston: Oh - oh you know a few bits and pieces. Exciting day ahead. Mr Parker: Ah right, what's - what secrets have you got? What's happening? Ms Johnston: Oh - oh you know, I think- Mr Parker: Does it get smashed? Or - is I mean - Ms Johnston: Um I think yesterday was probably pretty good ["a pretty good …" in Westpac's version]. I think it'll probably set similar to yesterday [indistinct]. Mr Parker: So 80 - 89ish and then we sort of roll off here or hereabouts. 2449 In cross examination Ms Johnston accepted that Mr Parker had been asking her for "secrets", but denied having provided Mr Parker with any information that would be construed as such. She said that this was "just general chat about where people think markets are going". 2450 In my view this telephone call contains little more than very high level information about the market, namely, "I think yesterday was probably pretty good ["a pretty good …" in Westpac's version]. I think it'll probably set similar to yesterday… I feel like 90 maybe even 90 plus today". There is no information imparted about trading strategies or positions. It is market commentary about a participant's expectations as to where markets might be headed. 2451 On 27 October 2010, Mr Roden informed Mr Parker in a Bloomberg chat that "ubs been a big buyer today...they are coming out some time in teh next 2 days...". Mr Roden accepted in cross-examination that he should not have been telling Mr Parker that UBS had been a big buyer in the rate set. In that same communication, Mr Parker provided information to Mr Roden, telling him "just fyg - CBA was receiver on 0x3 29th @ 4.885%". Mr Roden accepted that this information should not have been shared with him. 2452 Now although Mr Roden accepted that he "probably shouldn't have told Mr Parker UBS had been a big buyer", he went on to qualify his answer by saying "but it's quite likely that's generic information because brokers have told people". But Mr Roden accepted that Mr Parker should not have told him that CBA was a receiver of three month bills. I consider that this communication was inappropriate. 2453 On 11 June 2011, Mr Parker and Mr Roden exchanged Bloomberg chat messages as follows: Mr Roden: good luck out there ... we are pretty sqr .. small payer as well ... but will buy if it gets too high Mr Parker: as said, any help appreciated 2454 Mr Roden accepted in cross-examination that this exchange was inappropriate: You shouldn't be telling him that, though, should you?---Probably not, but I don't think it's - it's a pretty generic expression here, which is if the rate sells off and gets high, well, yes, I'm probably going to buy assets. 2455 Now Westpac says that in context this communication imparted no information that could properly be characterised as confidential or sensitive. It says that Mr Roden simply indicated that he would likely buy, which was something that would probably be done every day. It says that as Mr Roden stated, "it's a pretty generic expression here, which is if the rate sells off and gets high, well, yes, I'm probably going to buy assets". Nevertheless, I consider the communication to be inappropriate. 2456 Finally, Mr Stokes was cross-examined about communications that took place between Mr Stokes, while he was on the ALM desk, and employees of Financial Markets. But in relation to the matters that ASIC pointed to, I agree with Westpac that in the absence of context, it is not possible to say that such communications went beyond discussions of a general nature. Moreover, when cross-examined, Mr Stokes gave the following evidence: Sure. They would seek your views about whether Group Treasury would be buying or selling bills that day?---I can't remember anyone seeking those sort of views. You can't remember. Are you saying it didn't happen?---I can't - I can't really remember. You don't remember. So you're not saying it didn't happen; you're just saying you don't remember it happening?---Sorry, I don't remember that they're seeking views on whether we will buy and sell on a certain day? Yes, Mr Stokes?---I can't remember them doing that, no.

Conclusion on information barrier 2457 In my view, the communications that I have referred to do not disclose any information about Financial Markets' client positions, or any detailed information about trading strategies or detailed information about rate set exposures. Moreover, to the extent that any information was imparted that might be said to be contrary to the information barrier, those circumstances were infrequent and the information imparted was of modest significance. 2458 Generally, although there could have been better instructions to and training of employees not to have discussions across the barrier, I do consider that the structure that was in place was not so deficient as to warrant a finding that s 912A(1)(aa) had been breached. There was structural separation. Moreover, the occasions when the information barrier was breached were few and far between.

Other evidence on conflict of interest 2459 Both Professor Stulz and Professor O'Brien gave some relevant evidence on the question of conflict of interest. Professor O'Brien is the professor of financial regulation at the Monash University Business School. He received a DPhil in political science in 2002 and an MPhil in law (financial regulation) in 2005, both from Queen's University Belfast. Since 2006 he has been a professor of corporate governance (2006 to 2009) at Charles Sturt University, a research professor in the faculties of law and business (2009 to 2010) at the Queensland University of Technology, professor of law and director of the Centre for Law, Markets and Regulation (2010 to 2015) at the University of New South Wales and professor of business law and ethics (2015 to 2016) at the American University of Sharjah (UAE). But I did not find his evidence as helpful as it should have been, and his experience in these areas was significantly less than that of Professor Stulz, whose background I have set out earlier in my reasons and whose evidence I preferred on most but not all of the contested questions. 2460 Professor Stulz did not directly opine in his evidence in chief on whether Westpac had a conflict of interest while trading in the Bank Bill Market. But in his oral evidence, he seemed to accept that such a conflict could exist. Indeed, Professor Stulz said: … So from the perspective of Treasury alone, I don't - I don't see any - any conflicts of interest What is correct is that the investment banks was providing financial services. The investment bank had information - I mean, was doing things where conflicts of interest were obviously possible, and likely. The bank had created this Chinese wall between investment bank and the Treasury to precisely address this potential conflict of interest. 2461 Professor Stulz said that "I agree that there can be potential conflicts of interest, in the sense that Treasury was trading in - in the markets at the same time as the bank had customers, but that's - that's the extent to which I would agree". It was in recognition of this conflict that Professor Stulz accepted that an information barrier should exist between Group Treasury and Financial Markets. But he also accepted that the barrier that was in place was adequate. 2462 Further, Westpac itself expressly identified in December 2015 that it was operating under an actual or potential conflict of interest. In its (London) "Terms of Business for Professional Clients and Eligible Counterparties", it had a section "to outline the key areas where conflicts of interest may arise between Westpac and its clients and counterparties". It went on to note that Westpac may receive order types and engage in Transactions in many different ways. including: … benchmark orders (including fixing, market closing, time weighted average price (TWAP)). Westpac may accept an order from you to buy from you or sell to you at a price determined in relation to a third-party benchmark, e.g. a fixing price, a market closing price, or a market time-weighted average price which may be fixed or target published by a trading venue. 2463 It went on to state: Our trading activity in connection with each of these order types could affect market prices and your final execution prices, potentially against your interests. For example, to manage our own risk in relation to filling your order, we may execute trades with other participants on the same venues, or when the market is close to the price level of (or trigger level for) your order, or around the time that the benchmark is being calculated. In the case of each order type above, conflicts of interest may arise in relation to Westpac's ongoing trading activity, decisions in relation to hedging, the exercise of discretion in relation to hedging and execution of trades for other clients or with other participants, which may affect the market prices or benchmark prices achieved for you. 2464 Moreover, Mr Zuber gave evidence that the confidentiality barrier between Group Treasury and Financial Markets was to preclude the sharing of information "which could give rise to any conflict of interest". 2465 Let me now elaborate on some of the relevant policies in more detail. 2466 Westpac's July 2011 "Conflicts of Interest Policy" stated that the first step in managing a conflict of interest was "Identifying the Conflict of Interest". It went on to explain: The potential for Conflicts of Interest is inevitable in financial services businesses. The first step is to recognise how Conflicts may arise to be able to then take appropriate action. The examples in Section 5 and the associated appendices, provide guidance as to the main Conflicts of Interest that may be identified. The examples do not represent a complete list. Westpac staff are expected to apply sound judgment in identifying actual, perceived or potential conflicts. To enable staff to do this, it is important that staff understand the relationship between members of the Westpac Group, employees, customers, suppliers and other related parties involved in conducting Westpac business. 2467 Further, the document described "Chinese Walls" as: Barriers designed to limit the flow of confidential or non-public, price sensitive information between: • Employees in possession of non-public, price sensitive information to employees not in possession of such information; • Employees responsible for two separate trusts in possession of confidential information relating to those trusts; • A trust which possesses no-public, price sensitive information and employees of the Westpac Group. 2468 And under the heading "Consequences of Breaching this Policy", the document stated: Breaches of this Policy will be taken seriously. If a breach of this Policy is also a breach of laws, codes or regulations with which the Westpac Group is obliged to comply, such breaches are considered compliance breaches. Breaches of this Policy may result in disciplinary action, which could include dismissal if the breach is serious. 2469 The document categorised different types of conflicts of interest. By one standard, it distinguished between actual conflicts, potential conflicts and perceived conflicts. But the policy also distinguished between "Westpac Group Conflict of Interest", that is, where the interests of Westpac's customer, business party or other relevant party were inconsistent with that of Westpac, and "Staff Conflict of Interest", where the personal/professional interests of a staff member were inconsistent with the interests of Westpac. 2470 When dealing with customers in particular, the policy required that the following principles be applied: • Customers must be treated fairly, honestly and efficiently; • Recommendations must be made to customers based on their needs; • Westpac staff must act in accordance with the customer's instructions and the terms and conditions of the product; • The confidentiality of customer information must be maintained; • Westpac staff must act fairly and objectively when making decisions which affect more than one customer; and • Staff members must act in accordance with the spirit and letter of Westpac's policies, procedures and the law. 2471 The policy listed the following steps in managing conflicts of interest: (a) Identifying the conflict of interest; (b) Assessing and evaluating the conflict; (c) Implementing an appropriate response; and (d) Keeping documentation and records. 2472 The last relevant feature that I would mention is that the policy contained an appendix regarding the use of "Chinese Walls". It is worth setting out the following excerpts: Chinese Walls are used as a control to limit the flow of confidential or inside information. … Chinese Walls must be both physical and conceptual (procedural and behavioural) barriers which provide a defence against insider trading. Chinese Walls require three key elements to be effective from a business and legal viewpoint: 1. Separation: The physical separation, including IT processes, that restrict the area and information behind the wall to only those who are authorised to be behind it. Information behind the wall is controlled in such a manner that nobody outside the wall can receive it unless authorised. 2. Protocols: Operating guidelines to include protocols on the restriction on communication of confidential and/or price-sensitive information and a process for wall crossing. 3. Monitoring: Enterprise Compliance together with Specialised Compliance Management to monitor the process supporting the wall. Authorised employees permitted behind the Chinese wall barrier must: • Prevent unauthorised people entering behind the Chinese wall, unless • Specialised Compliance Management consent is obtained; and • The unauthorised person is accompanied into an office behind the Chinese wall and then accompanied out without giving the person access to the main area or information behind the Chinese wall; • Not disclose sensitive information to unauthorised people outside the Chinese wall; • Communicate sensitive "Chinese Wall" business only by telephone or facsimile from a secure area behind the Chinese wall; • Enter into any confidentiality agreements only after the prior approval of Counsel & Secretariat; and • Acknowledge in writing that they understand and accept Chinese wall procedures and processes prior to being permitted behind the Chinese wall, and re-affirm when asked to do so.

Relevant principles and conclusions 2473 Section 912(1)(aa) refers to arrangements for the management of conflicts of interest. Undoubtedly, it is not limited in its application to licensees who occupy a fiduciary position. Further, s 912A(1)(aa) also makes explicit the requirement embedded in s 912A(1)(a) that licensees act in an efficient, honest and fair way (ASIC v Avestra Asset Management Limited (in liq) at [192]). 2474 Now I accept that fiduciary principles can be of assistance in understanding what is meant by a conflict of interest and its effective management. In Phipps v Boardman [1967] 2 AC 46 at 124, Lord Upjohn approved the speech of Lord Cranworth LC in Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at 471; [1843-60] All ER Rep 249 at 252 that a fiduciary shall not be "allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict with the interests of those whom he is bound to protect". Lord Upjohn then elaborated (at 124) that a potential conflict arises where a: reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict. 2475 Further and generally, in relation to the identification, management and avoidance (where necessary) of a conflict of interest, I expressed the following views in ASIC v Avestra Asset Management Limited (in liq) at [193] and [194]: In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35; 241 ALR 705; 62 ACSR 427; [2007] FCA 963, Jacobson J made the following observations (at [423]), albeit by way of obiter, which I accept. First, the effective management of conflicts of interest does not require that every possible conflict of interest must be eliminated, although that course is open to a financial services licensee. The reference to "management" of conflicts of interests assumes that some potential conflicts may be managed through implementing adequate arrangements that stop short of eliminating the conflict of interest (at [444] and [445]). And even in a fiduciary situation, adequate arrangements for the management of conflicts of interest does not always require the elimination of conflicts of interest for which the beneficiaries' express consent has not been obtained (at [443]). Second, whether particular arrangements are adequate is to be determined as a question of fact in each case (at [446]). Third, adequate arrangements require more than a raft of written policies and procedures. They require a thorough understanding of the procedures by all employees and a willingness and ability to apply them to a host of possible conflicts (at [454]). To this may be added the following observations: (a) First, whether arrangements are adequate will depend upon the nature, scale and complexity of the licensee's business. Moreover, although s 912A(1)(aa) does not import the full stringency of equitable constraints upon a fiduciary acting in a conflict of interest situation, the fact that a financial services licensee is in a fiduciary position (see also s 601FC(2)) will inform what arrangements are adequate. (b) Second, the obligation to manage conflicts of interest is more than simply an obligation of disclosure to clients or beneficiaries. (c) Third, the effective management of conflicts of interest will involve a combination of avoiding, controlling and disclosing conflicts of interest. (d) Fourth, controlling a conflict of interest requires a licensee to first identify, assess and evaluate a conflict of interest and then to decide on and implement an appropriate response. Moreover, any arrangement in response must be regularly monitored to ensure that its implementation is effective. (e) Fifth, in some cases, the potential impact on a licensee or third parties will be so serious that a conflict of interest cannot effectively be managed by disclosing it and imposing effective internal controls. In such cases, the only way to adequately manage such a conflict of interest may be to avoid it. (f) Sixth, where disclosure is used as a means of managing a conflict of interest, the disclosure must be made to the affected persons in a timely, prominent, specific and meaningful way. The concept of meaningful connotes something comprehensible to the expected reasonable reader or audience. It also connotes something targeted in terms of its usefulness to the reasonable reader or audience. Further, its informational content ought cover the probability of the conflict occurring and the likely magnitude of its consequences if it does occur in terms of the potential advantages and disadvantages to those who generated the conflict or are participants or beneficiaries therein, or those to whom the disclosure is made. And for those to whom the disclosure is being made, reference should be made to any realistic steps that such a person can take (if any) to ameliorate the conflict's effects. 2476 The parties before me did not dispute any aspect of that exposition of the principles and I have applied them. 2477 Now for any arrangements addressing a conflict of interest to be adequate, they must first identify the conflict (see ASIC v Avestra Asset Management Limited (in liq) [2017] FCA 497 at [194(d)]). And this principle is well-supported in the literature. As Professor Stulz explained in one of his academic articles, "[t]he first step in risk management is to identify and measure risks" (Stulz RM, 'Risk Management Failures: What Are They and When Do They Happen?' (2008) 20(4) Journal of Applied Corporate Finance at 41). He said that in a well-functioning, truly enterprise-wide risk management system, "all major risks would be identified, monitored, and managed on a continuous basis" (at 44). Further, as the Bank of International Settlements' Basel Committee on Banking Supervision stated in its "Principles for the Sound Management of Operational Risk" in June 2011 (at 3): Risk management generally encompasses the process of identifying risks to the bank, measuring exposures to those risks (where possible), ensuring that an effective capital planning and monitoring programme is in place, monitoring risk exposures and corresponding capital needs on an ongoing basis, taking steps to control or mitigate risk exposures and reporting to senior management and the board on the bank's risk exposures and capital positions. 2478 And as principle 6 stated, "Senior management should ensure the identification and assessment of the operational risk inherent in all material products, activities, processes and systems to make sure the inherent risks and incentives are well understood" (at 6). 2479 Further, I accept that Westpac's own conflict of interest policy is consistent with this principle. Westpac's July 2011 "Conflicts of Interest Policy" states that the first step in managing a conflict of interest is "Identifying the Conflict of Interest" and it goes on to explain what I have previously set out. 2480 Let me now address ASIC's principal points. 2481 First, ASIC says that Westpac at the time did not identify in any written policy its conflict of interest when trading in the Bank Bill Market. I agree that in its Conflicts of Interests Policy, common or important "Specific Conflict Scenarios" were identified, but none expressly concerned trading in the Bank Bill Market. But in my view Westpac had identified any relevant conflict, with the information barrier the necessary step to address the same. Now I accept that the information barrier was not reduced to writing and it did not operate perfectly. But I do not agree with ASIC that for these reasons Westpac has contravened s 912A(1)(aa). 2482 Second, ASIC says that Westpac's systems, policies and procedures for managing this conflict of interest were inadequate given the extent of Westpac's knowledge at the time. Westpac employees, including employees as senior as Mr Zuber and Mr Roden, knew or believed that: (a) where the BBSW set on a particular business day could be influenced by trading in the Bank Bill Market carried out for that very purpose; (b) other participants in the Bank Bill Market engaged in such trading and potentially achieved such effects on the BBSW; and (c) other market participants speculated that Westpac also engaged in such trading and achieved such effects on the BBSW. 2483 ASIC says that given that the risk of trading to affect the BBSW was known to Westpac and Group Treasury in particular, it was inadequate for Westpac to proceed: (a) without formalising the so-called information barrier in writing; (b) without any formal written policy about how to trade in the Bank Bill Market; (c) without putting in place any limits on BBSW Rate Set Exposures or Prime Bank Bill trading; (d) with Mr Roden and STIRR having and exercising such unbridled discretion in the trading of Prime Bank Bills and the positioning of the books in terms of BBSW Rate Set Exposure. 2484 Now ASIC says that Professor Stulz's evidence supports ASIC's case. I do not agree with that proposition insofar as the information barrier question is concerned. I will deal with other parts of Professor Stulz's evidence in the section dealing with ss 912(1)(ca) and (f). 2485 Third, ASIC says that the existence of the information barrier between Group Treasury and Financial Markets was inadequate for several reasons: (a) As I have already said, one of its main complaints is that the information barrier was not reduced to writing. Not having been reduced to writing, there was room for employees to misunderstand whether or not information flows were appropriate. (b) The information barrier was breached from time to time seemingly without any consequence or repercussions. (c) On one view, the information barrier did not prevent discussions between Group Treasury and Financial Markets about the Bank Bill Market and where the BBSW might set. 2486 Now as I have said, the information barrier was not perfect, but considering the evidence as a whole, I do not consider that it was so deficient as to demonstrate a breach of s 912A(1)(aa). 2487 Fourth, ASIC says that where disclosure is the appropriate tool for managing the conflict, that disclosure must be "timely, prominent, specific and meaningful" (ASIC v Avestra Asset Management Limited (in liq) at [194(f)]). It is said that none of Westpac's statements about the BBSW to counterparties satisfied this requirement. But in my view, in terms of the conflict of interest under discussion, disclosure was not the appropriate tool for managing the conflict. Rather the information barrier was the appropriate tool. 2488 In summary, I do not consider that ASIC has made out its case concerning s 912A(1)(aa), but that does not mean to say that its employees in both Group Treasury and Financial Markets should not have been better instructed on the information barrier and, in relation to Group Treasury, trading in the Bank Bill Market. I will deal with such matters again when addressing ss 912A(1)(ca) and (f).

(c) Section 912A(1)(c) 2489 Section 912A(1)(c) obliges Westpac to comply with the financial services laws. The definition of "financial services law" is found in s 761A. By reference to that definition, each of the causes of action pleaded under the Corporations Act and ASIC Act are under financial services laws. Accordingly, as ASIC has established part of its claims concerning statutory unconscionability, it follows that Westpac has also contravened s 912A(1)(c) for that reason alone.

(d) Sections 912A(1)(ca) and 912A(1)(f) 2490 These subsections obliged Westpac to take steps to ensure that its representatives complied with financial services laws, (paragraph (ca)), including by ensuring that they were adequately trained and competent (paragraph (f)). It has been said that the combination of paragraphs (ca) and (f) strongly suggests that the holder of an Australian financial services licence should undertake a continuing training program that is calculated to produce competent representatives or maintain their level of competence (Avoca Consultants Pty Ltd v Millenium3 Financial Services Pty Ltd (2009) 179 FCR 46 at [344]). 2491 In addition to the matters discussed above concerning s 912A(1)(aa), ASIC has relied upon the following matters. 2492 First, ASIC says that there is no evidence that Westpac provided its employees with training specifically about the possible manipulation of the BBSW by trading Prime Bank Bills. It is said that this is a significant omission given that Westpac employees, including Mr Zuber and Mr Roden, believed that manipulative conduct could occur in the Bank Bill Market. 2493 Second, ASIC says that Westpac failed to take steps to ensure compliance with the financial services laws by investing so much discretion in Mr Roden and STIRR to trade Prime Bank Bills. It is said that there were no hard limits on BBSW Rate Set Exposures and Prime Bank Bill trading. Further, it is said that Mr Zuber did not actively monitor what was occurring. 2494 Third, ASIC says that it would have been open to Westpac to put in place during the relevant period after the fact auditing or monitoring of trading during the BBSW Rate Set Window, if it were the case that monitoring during that window was too difficult or intrusive. Westpac did this from 2014. 2495 Fourth, ASIC says that Westpac's remuneration structure created an incentive for STIRR employees to trade so as to influence the BBSW. 2496 Now let me address ASIC's case by starting with the following observations. 2497 First, there was no dispute between Professor Stulz and Professor O'Brien that financial institutions such as Westpac face various kinds of risk, and in particular market risk, credit risk, liquidity risk and operational risk. And there was no dispute between them that the potential manipulation of the BBSW was an instance of operational risk, which was to be managed having regard to the techniques for managing operational risk. 2498 Second, there was little disagreement between the experts that techniques for managing operational risk were less developed than they were for managing and monitoring other kinds of risks during the relevant period. 2499 Third, Professor Stulz considered that Westpac's policies and procedures were adequate having regard to the limited state of awareness of traded benchmark manipulation during the relevant period. Now I would say at this point that although there was limited general awareness, and I will elaborate on this in a moment, I would take issue in some respects with the generality of Professor Stulz's observation. On any view, during the relevant period Westpac and other Prime Banks had a much greater level of awareness of the potential susceptibility to manipulation of the Bank Bill Market and BBSW. 2500 Fourth, there appeared to be general agreement between the experts that what was written down in Westpac's policies was sufficient so far as it went. But Professor O'Brien cautioned, in my view appropriately, against the proceduralism which reliance only upon written documents can engender. And Professor Stulz did not disagree that Westpac's three lines of defence could be applied "in poor ways and in good ways". 2501 Now before proceeding further let me expand on the question of when regulatory concerns relating to traded benchmarks first arose.

International benchmarks, their potential manipulation and responses 2502 Professor Stulz gave the following evidence, none of which was seriously challenged, save that Professor O'Brien attempted to re-characterise some aspects concerning the perception of risk in relation to international benchmarks and regulatory responses. But Professor Stulz had more depth of expertise given his extensive background. 2503 Now although both BBSW and LIBOR were calculated based on submissions, BBSW differed from LIBOR in that BBSW panellists were asked in essence about where the market for Prime Bank Bills was trading that day. Contrastingly, LIBOR submitters were asked about where they thought their own bank's cost of funds was that day, even if their bank was not accessing the markets on that day. In other words, LIBOR submitters were asked about where they thought the market was for their own bank, whereas BBSW submitters were asked about the trading levels they observed in the Bank Bill Market at a specific time. Further, LIBOR submissions could not be checked if a given submitter's bank had not raised funds in the markets on a given day. Contrastingly, those who had access to information showing where Prime Bank Bills were trading could assess on their own whether the level of BBSW was in line with what they observed in the Bank Bill Market. 2504 Now during the relevant period, there was much less concern among market participants and regulators regarding benchmark manipulation than there was post 2012. Let me elaborate further on this topic based upon Professor Stulz's evidence. 2505 The investigation of LIBOR manipulation had its origins in the GFC. Although some banks were alleged to have manipulated LIBOR going back to 2005, the possibility that LIBOR was potentially being misrepresented or manipulated only received widespread notice after a Wall Street Journal article was published on the subject on 16 April 2008. The Federal Reserve (New York), which had no jurisdiction over LIBOR, communicated its concerns over the potential for manipulation to the Bank of England in June 2008. Around the same time, the British Banker's Association, which was at the time responsible for LIBOR administration, published a consultation paper seeking comments on how to modify the LIBOR fixing process. This development, along with concurrent media reports, created scepticism about the accuracy of LIBOR fixings. After completing its review on 19 June 2009, the British Banker's Association circulated a document to all the contributing banks that clarified a change in the definition of LIBOR. 2506 But the crisis-related concerns about manipulations of LIBOR were not concerns about traders trying to influence the rate in order to increase the value of their books. Rather, the concerns had to do with some banks understating their cost of funds so that they would appear more financially sound to the markets, reflecting the fact that this benchmark was based on individual banks' submissions that were not anchored by actual traded levels. Further, it was not clear whether these concerns implied that LIBOR itself was being manipulated. An understatement of the cost of funds by one bank did not necessarily affect LIBOR if that bank was an outlier. Because the relevant LIBOR panel excluded outliers in its computation of LIBOR, there was a persistent belief that LIBOR itself was difficult to manipulate as doing so would require coordination among submitters. 2507 According to Professor Stulz, the focus of concerns about LIBOR manipulation appeared to only shift decisively towards a perspective that such manipulation was conducted for the benefit of trading positions at a later point in time. This shift was related to a series of lawsuits and regulatory penalties against the submitter banks, as well as additional reports from market participants. In June 2012, Barclays paid USD 450 million to settle allegations that it had manipulated benchmark rate submissions to benefit its bottom line. This was followed shortly thereafter in December 2012 by a USD 1.5 billion settlement between UBS and American and British authorities. Further legal actions from the Financial Conduct Authority (FCA) in Britain and the US Commodity Futures Trading Commission resulted in fines or settlements against major banks in 2014, 2015, and 2016. 2508 Apparently, according to Professor Stulz, around this time period LIBOR was not the only benchmark rate over which there were accusations of manipulation. The ISDAFix rate used in a range of interest rate products was also allegedly subject to manipulation, though regulators did not take action until after the relevant period. In 2013, subpoenas were issued to several market participants. In 2014, control over the index was removed from ICAP (the same company who operated part of the Bank Bill Market as an interdealer broker), which had administered the rate since 2002. Control was given to the Intercontinental Exchange. 2509 Professor Stulz stated that general awareness of the potential manipulation of benchmarks based on traded levels like BBSW only appeared after the end of the relevant period. Reports initially surfaced in 2013 that traders had allegedly manipulated the WM/Reuters foreign exchange fixing rates used as benchmarks for foreign exchange transactions. Regulators alleged that foreign exchange traders colluded to place aggressive buy or sell orders during the London 4.00 pm fixing window in an effort to move the rates to their benefit. Apparently this was a surprising development as the market had been viewed as too large to manipulate. By 2015, several major banks had paid fines totalling more than USD 5.6 billion in relation to the alleged rigging of foreign exchange markets, with four pleading guilty to employees conspiring to fix prices and rig bids in the market. But as Professor Stulz points out, these settlements and fines were announced well after the relevant period and came even after some of the same banks had settled claims relating to interbank lending rates. 2510 During the relevant period, and whilst regulatory action was taking place regarding the allegations surrounding LIBOR manipulation, regulators and other market participants viewed traded benchmarks such as the BBSW as less susceptible to manipulation. Indeed, some of the regulatory proposals on LIBOR suggested that it should move towards a process based on traded levels, similar to the BBSW process. 2511 As I have indicated, the way the BBSW setting process worked over the relevant period was quite different from the fixing process followed by other interest rate benchmarks such as LIBOR, EURIBOR and SIBOR. Those benchmarks relied on banks' reporting the rate at which they could borrow in the currency of the benchmark at various tenors. A bank had to report regardless of whether it had borrowed at these tenors or not. In general, apparently borrowing in the interbank market had fallen over time, so banks often reported rates that were not based on any actual transactions, but instead represented their subjective view on what their cost of borrowing would be. Because such an approach was not based upon objectively measurable data, it made it vulnerable to unscrupulous traders attempting to influence the individuals responsible to report rates for benchmark submission at the panel banks. 2512 To address the problems with these benchmarks, the international regulatory community focused on switching to benchmarks relying on traded prices. For instance, two individuals who played a leading role in regulatory efforts to fix these benchmarks at the Financial Stability Board (FSB) stated that "benchmarks should be based - to the greatest practical extent - not on judgments submitted by market participants, but on actual transactions": Duffie D and Stein JC, "Reforming LIBOR and Other Financial Market Benchmarks" (2015) 29(2) Journal of Economic Perspectives 191 at 192. The FSB is an international organisation that promotes financial stability and its members include the reserve banks of many large economies, including the RBA and the Australian Treasury. 2513 Let me elaborate further on the regulatory responses. 2514 First, in September 2012 and after the end of the relevant period, the Wheatley Review, commissioned by the Chancellor of the Exchequer in the UK, on reforming the structure and governance of LIBOR was published (The Wheatley Review of LIBOR: final report (September 2012)). A key recommendation of the report was "that transaction data should be explicitly used to support LIBOR submissions" (at [1.15]). Mr Martin Wheatley was the Managing Director of the UK Financial Services Authority and Chief Executive-designate of the FCA. He was commissioned by the Chancellor to undertake a review of the structure and governance of LIBOR and the corresponding criminal sanctions regime. 2515 Second, in early 2013 the Bank for International Settlements published a report on benchmarks which included a statement that "under normal market conditions, [they should] rely to the extent possible on effective transactions in the market defining the reference rate" (Bank for International Settlements, "Towards Better Reference Rate Practices: A Central Bank Perspective" (March 2013) at 15). 2516 Third, in the International Organization of Securities Commissions' (IOSCO) July 2013 publication "Principles for Financial Benchmarks", it was stated that benchmarks should be based on prices, rates, indices or values that relate directly to the competitive forces of supply and demand. In other words they should be anchored by observable transactions so that they can function as credible indicators of prices, rates, indices or values. IOSCO was established in 1983 and its membership regulates more than 95% of the world's securities markets. It has developed internationally recognised standards for securities regulation, and its reports have been endorsed by both the G20 and the FSB. 2517 Now the BBSW setting process during the relevant period was based on actual transactions, being the type of process that regulators wanted LIBOR and these other benchmarks to evolve to. Indeed, at the end of the relevant period, on 17 July 2012 Reuters published an article which stated that "Australia's market interest-rate setting mechanism could provide an improved model to the London interbank offered rate, a global benchmark under a cloud for manipulated contributions, because of a key difference - it uses actual deals to determine rates": Feast L and Lynch N, "Australian Benchmark Offers New Model for Tarnished Libor", Reuters News. This article explained how a BBSW-type setting for LIBOR could alleviate the manipulation concerns because it used actual transactions. 2518 In summary, in terms of the level of general awareness during the relevant period, it was perceived that the BBSW was not prone to the type of manipulation that LIBOR and other international benchmark rates were perceived to be prone to. But this conclusion may not assist Westpac because in my view it and the other Prime Banks knew and perceived that the Bank Bill Market and BBSW were potentially susceptible to manipulation, as appears from the detailed evidence that I have discussed earlier.

Westpac's policies and procedures responding to the manipulation of benchmarks 2519 Throughout the relevant period, the STIRR desk was subject to the risk management and compliance provisions that applied more generally to Group Treasury and that I have described earlier. 2520 Individuals who traded Prime Bank Bills and AFMA submitters were at all times, including throughout the relevant period, subject to policies and procedures that required them not only to act within the law and regulation, but also to respect the AFMA Code of Ethics and the rules and goals of Westpac. These individuals were responsible for observing policies such as those relating to market misconduct, Chinese walls, and conflicts of interests. 2521 Westpac did eventually and from after the end of the relevant period prepare and implement policies relevant to its benchmark activities, which I have partly described elsewhere. From July 2012, Westpac started to develop explicit policies related to the BBSW setting and required the risk group to monitor the submissions and to compare them to market rates: "Monitoring of WBC Rates Contribution to the AFMA 10am BBSW Rateset" (July 2012). This action predated the publication of the IOSCO report described above, and predated some of the legal and regulatory actions surrounding the LIBOR, ISDAFix, and WM/Reuters benchmarks. The subsequent version of this policy adapted to the changes to AFMA's BBSW methodology in September 2013 and started requiring the risk manager to monitor the trading activity close to the setting. It required Group Treasury traders participating in the Bank Bill Market to complete a daily template setting out their trading activity and providing the rationale behind their actions. Rationales included issuance, credit purposes, liquid asset requirements, hedging interest rate risk and market making. These templates were reviewed by the risk manager: "Monitoring of WBC Trading Activity at AFMA 10am BBSW Rateset" (February 2014). I would note at this point that in the July 2015 FCA report, the review of post-trade data was specifically noted as good practice (Financial Benchmarks: Thematic Review of Oversight and Controls (July 2015) at 18). Under Westpac's 2014 policy, any anomalous patterns of trading activity not in line with Group Treasury risk positioning were to be identified and escalated by the risk manager. 2522 I would also note that in 2013, Westpac had also introduced a broader benchmark policy document providing guidelines for its participation in any benchmark setting processes (not only BBSW): "WIB Benchmarks Policy" (December 2013). In early 2013, it also introduced policies on the "use of instant messaging services" that codified rules, procedures, best practices, and compliance for dealers, and noted that "[p]eriodic checks of conversations for compliance and messaging content will be performed at unspecified intervals": "Dealing Room Policies for Risk in Financial Markets and Treasury" (April 2013) at 66 and 67. 2523 These developments started taking place only three months after the first report of manipulation in the foreign exchange market traded benchmark, and significantly before the FSB and IOSCO published reports on the topic. 2524 Further, other dimensions of operational risk were revised over time by Westpac. For example, in September 2012, at APRA's recommendation, Westpac began a detailed review of its top operational risk scenarios, which included rogue trading and market manipulation (Group Operational Risk & Compliance Committee: Operational Risk Report For the Quarter Ending 30 September 2012 at 34, item 6A). 2525 Now Westpac has asserted that the risk of manipulation of traded benchmarks was deemed to be low during the relevant period. Accordingly it says that with a perceived low risk, it would have been costly and inefficient for Westpac to have had intrusive policies that enquired systematically and continuously from traders why they traded in a certain way. It is said that the trading environment in dealing rooms was one where things moved quickly, and at times traders acted on instinct searching for a good opportunity. Further, the counterparties to STIRR's trading tended to be sophisticated financial market participants who were also searching for good opportunities. It said that traders who had to stop trading to take notes to have a recollection for the motivation of their trades were traders who were unlikely to be effective in fast-moving markets. It was said that having intrusive policies to monitor the traders could therefore have been particularly ineffective and costly as there could have been a host of legitimate business reasons for the traders to engage in trading a large volume of Prime Bank Bills around the setting. I have some sympathy for this view, but given that Westpac knew through its traders of the potential susceptibility to manipulation of the Bank Bill Market and BBSW, the traders should have been more rigorously trained and instructed as to what was appropriate behaviour. Further, the procedures that Westpac implemented after the relevant period should have been in place during the relevant period. There was no good reason why they should not have been in place earlier. Moreover, Westpac cannot rely upon the general lack of awareness of the susceptibility to manipulation of the BBSW prior to July 2012. After all, in my view both it and the other Prime Banks had specific awareness throughout the relevant period, as the evidence that I have discussed in my reasons demonstrates. 2526 Now Professor Stulz expressed the view that overall, the risk management policies and procedures in place at Westpac during the relevant period with respect to the operational and conduct risk at issue and their evolution over time were reasonable and consistent with the development of industry best practices around the same time. But in my view, Professor Stulz's opinion did not take into account the specific evidence that I have discussed concerning Westpac's and the other Prime Banks' awareness during the relevant period of the susceptibility to manipulation of the BBSW. 2527 Now for completeness I should note one other matter. I agree with Westpac that although Professor O'Brien's contrary view was based on an academic article from 2008 (Gyntelberg, J and Wooldridge, P, "Interbank Rate Fixings During the Recent Turmoil" (2008) March BIS Quarterly Review, 59), this concluded that "available data do not support the hypothesis that contributor banks manipulated their quotes to profit from positions based on fixings". Professor O'Brien also referred to statements made in the "London Pledge", an open letter in the Financial Times signed by representatives of prominent City financial institutions on 29 September 2010, but such matters are incapable of supporting Professor O'Brien's opinion. 2528 Further, in relation to the Gyntelberg and Wooldridge article I would note that it made several observations in relation to trimming, that is, the practice of removing several of the highest and lowest submissions before calculating a benchmark rate, and its ability to mitigate strategic behaviour by submitters. It noted that trimming occurred even in circumstances where there were a large number (12 to 16) of submitters for a benchmark rate (in this case LIBOR), because the average rate could still "be unduly influenced by unusually high or low quotes" (at 64). Further, in relation to the volatile financial markets at the time, the authors noted that the difference between maximum and minimum contributions widened markedly during the turmoil, but that "[i]f this was because a few banks engaged in manipulative behaviour, then the trimming procedure ensured that their rates were not used to calculate the rate fixing" (at 70). However, they also noted that "[i] a majority of banks engaged in strategic behaviour, then trimming alone would not have mitigated the impact on the fixing" (at 70). These excerpts from a publication of the Bank of International Settlements suggest that regulatory risks regarding LIBOR were not properly understood in 2008. The Gyntelberg and Wooldridge article is of little assistance and can be put to one side.

Summary 2529 In my view Westpac failed to take reasonable steps in accordance with s 912A(1)(ca) to ensure that its representatives did not engage in trading in Prime Bank Bills in the Bank Bill Market with the sole or dominant purpose of manipulating the BBSW. 2530 Many of the steps that it took after July 2012 should have been in place during the relevant period. Moreover, even if there was not general awareness prior to mid 2012 of the susceptibility to manipulation of the Bank Bill Market and BBSW, nevertheless Westpac and other Prime Banks had that specific awareness. 2531 Further, in my view Westpac failed to ensure that its traders were adequately trained not to engage in trading with such a sole or dominant purpose. This should have been reinforced and stipulated to them orally and in writing. In those circumstances, Westpac also contravened s 912A(1)(f). 2532 Now I accept that Professor Stulz has expressed contrary views to my own conclusions. But his expert opinion cannot foreclose my own views, particularly where his opinions proceeded on a foundation which did not include all the detailed evidence that I have discussed earlier in these reasons. Moreover, the boundaries and content of the normative standards enshrined in s 912A are matters for me. 2533 Finally on this aspect of the case, I also consider that Westpac has contravened s 912A(1)(f) by not ensuring that all employees of Group Treasury and Financial Markets on either side of the information barrier that I have discussed were adequately trained to ensure that there was no osmosis of relevant information across the barrier.

CONCLUSIONS 2534 As should be apparent from my reasons, I have concluded the following. 2535 First, ASIC has not made out its case against Westpac under ss 1041A and 1041B of the Corporations Act concerning market manipulation or market rigging. 2536 Second, Westpac engaged in unconscionable conduct under s 12CC of the ASIC Act (as in force prior to 1 January 2012) on four occasions being 6 April 2010, 20 May 2010, 1 and 6 December 2010 by trading Prime Bank Bills in the Bank Bill Market with the dominant purpose of influencing yields and where BBSW set. 2537 Third, Westpac contravened paras 912A(1)(a), (c), (ca) and (f) of the Corporations Act. 2538 Fourth, ASIC has not made out its case in respect of any of its other claims. 2539 I will give the parties an opportunity to consider these reasons and to submit proposed orders for the future conduct of this matter addressing the penalty phase. I certify that the preceding two thousand, five hundred and thirty-nine (2539) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.

GLOSSARY - KEY TERMS TERM DEFINITION 1 Month BBSW 30-day BBSW 3 Month BBSW 90-day BBSW 6 Month BBSW 180-day BBSW 90 Day Bank Accepted Bill Futures BAB Futures 1s (or 30s or 30D) 30-day Bank Bills 3s (or 90s or 90D) 90-day Bank Bills 6s (or 180s or 180D) 180-day Bank Bills 30-day or 1 month Bank Bills Bank Bills issued with a Tenor of approximately one month 90-day or 3 month Bank Bills Bank Bills issued with a Tenor of approximately three months 180-day or 6 month Bank Bills Bank Bills issued with a Tenor of approximately six months 30-day BBSW BBSW calculated and published by AFMA for the one month Tenor 90-day BBSW BBSW calculated and published by AFMA for the three month Tenor 180-day BBSW BBSW calculated and published by AFMA for the six month Tenor 30-day or 1 month Prime Bank Bills Prime Bank Bills issued with a Tenor of approximately one month 90-day or 3 month Prime Bank Bills Prime Bank Bills issued with a Tenor of approximately three months 180-day or 6 month Prime Bank Bills Prime Bank Bills issued with a Tenor of approximately six months Affected Counterparties Counterparties to Westpac on BBSW Referenced Products in respect of which a payment was required to be made by reference to the BBSW on a Sale Contravention date or Purchase Contravention date, or on a day during the relevant period, such that the counterparty had an exposure opposite to Westpac's BBSW Rate Set Exposure on that date. These counterparties were comprised of both listed companies and counterparties that were non-listed companies or individuals, and included counterparties that were not participants in the Bank Bill Market. AFMA Australian Financial Markets Association Limited AFMA Code of Ethics AFMA "Code of Ethics and Code of Conduct" AFS licence Australian Financial Services Licence numbered 233714 AGS Australian Government Securities ALM Asset Liability Management TERM DEFINITION APRA Australian Prudential Regulation Authority Arbitrage A strategy to take advantage of profitable opportunities in different markets arising from differential price anomalies. ASIC Australian Securities and Investments Commission ASIC Act Australian Securities and Investments Commission Act 2001 (Cth) ASIC Regulations Australian Securities and Investments Commission Regulations 2001 (Cth) Asset Liability Management A subdivision or desk of Group Treasury Asset Swap A form of Interest Rate Swap in which one of the cash-flow streams relates to an underlying asset. One cash flow stream is based on a non-asset rate (in Australia, commonly BBSW) and the other stream is calculated based on the coupon generated by an underlying asset, for example a Bond. ASX Australian Securities Exchange Limited ASX24 An electronic trading platform operated by the ASX At Risk Counterparties Counterparties to Westpac comprised of listed and non-listed companies and individuals (but excluding Prime Banks) on BBSW Referenced Products entered into during the relevant period irrespective of whether they related to a Sale Contravention date or Purchase Contravention date. BAB(s) Bank Accepted Bill(s). Also known as 90 Day Bank Accepted Bill Futures standardised contracts that are traded on the ASX Trade24 with the following terms: (a) The contracts relate to the delivery of 90-day Bank Bill(s) with a Face Value of AUD$1,000,000; BAB Future(s) (b) The contracts are 'deliverable', meaning that if the BAB Futures contract is held to expiry then one party must actually deliver the 90 Day Bank Bill(s) to the other party, who must buy the Bank Bill(s); and (c) The contracts expire at 12 noon on the second Thursday in each of March, June, September and December, and the delivery occurs the following day (so delivery occurs on the second Friday in each of March, June, September and December). BAB Futures contracts are quoted in terms of Yield per annum (in percentage terms) deducted from 100. For example, a BAB Futures contract quoted at "96" means that the parties to the BAB Futures contract agree to buy (or sell) a AUD$1,000,000 90-day Bank Bill on the expiry date at a price that represents a Yield of 4%. Bank Accepted Bill(s) See Bank Bill(s) Bank Bill(s) A Bill of Exchange which has been accepted by a bank and bears the name of the accepting bank as acceptor, and which obliges the bank to pay the Face Value of the bill to the holder of the bill on the date that it matures; it is an instrument by which a bank may borrow funds for a short term. Bank Bill Market The market for trading in Prime Bank Bills conducted through the interdealer brokers, ICAP and Tullett TERM DEFINITION Bank Bill Swap Reference Rate The trimmed, average mid-rate of the observed best bid/best offer for Prime Bank Bills for certain tenors on each Sydney business day published by AFMA. BBSW was set on the basis of observations submitted by BBSW Panellists as to the yield at which Prime Bank Bills in each tenor were trading at [or around] 10.00 am on each trading day. Basis Point 0.01 percent Basis Point Value See DV01 Basis Swap In the context of Interest Rate Derivatives, an Interest Rate Swap where both sides of the swap reference a Floating Rate. Usually the two Floating Rates have different Tenors or, in the case of Cross-Currency Swaps, are in two different currencies. BBSW Bank Bill Swap Reference Rate BBSW Committee The BBSW Committee of AFMA. The BBSW Committee is comprised of representatives from each of the NTI Committee, Interest Rate Options Committee and Swaps Committee. The BBSW Committee is responsible for the overall management of BBSW rate, rates directly related to BBSW rate, the procedure for the production of BBSW rate and the resolution of any disputes among AFMA members involving BBSW and directly related rates. BBSW Panel The panel of organisations (BBSW Panellists) that submits rates for the calculation of BBSW BBSW Panellists Market participants submitting views of the mid-rates for Prime Bank Bills at [or around] 10.00 am on each Sydney business day to AFMA. Banks which were designated and recognised by AFMA as BBSW Panellists in accordance with the election process as set out in AFMA's BBSW Procedures. BBSW Procedures AFMA "Bank Bill Swap Reference Rate Procedures" On each Sydney business day in the relevant period, the books of Westpac included holdings of BBSW Referenced Products in relation to which: BBSW Rate Set Exposure (a) an obligation to pay an amount of money would be quantified when the relevant BBSW was set on that day; and (b) that amount, and, in the case of some of the BBSW Referenced Products, whether the amount was payable by Westpac to the counterparty or by the counterparty to Westpac, depended upon the rate at which the relevant BBSW was set on that day, and therefore the profit and loss of those books could be affected by movement in the BBSW on that day. This is the exposure as defined. BBSW Rate Set Window The period between approximately 9.55 am and 10.05 am on each Sydney business day relating to trading in the Bank Bill Market. TERM DEFINITION Financial products that regularly referenced or were influenced by or derived from the BBSW including: (a) Interest Rate Swaps; (b) BAB Futures; (c) Forward Rate Agreements; (d) Cross-Currency Swaps; BBSW Referenced Products (e) Asset Swaps; (f) Interest Rate Options; (g) Swaptions; (h) Inflation Swaps; (i) deposit-taking facilities; (j) Floating Rate Notes; and (k) commercial loans. BBSY Bid and Offer rates calculated by AFMA using a Spread of five Basis Points either side of BBSW Bid The price at which a trader is willing to purchase, in this case, a Prime Bank Bill. Bill of Exchange An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer. Billion One thousand million BNP BNP Paribas Board Risk Management Committee A committee comprised of non-executive directors of Westpac that assists the Westpac Board as the Board oversees the risk profile and approves the risk management framework of Westpac and its related bodies corporate within the context of the risk-reward strategy determined by the Board and which has power delegated by the Board to set risk appetite, approve frameworks, policies and processes for managing risk, and accept risks beyond the approval discretion provided to management. Bond Bonds are a type of debt security. They are effectively an IOU between a borrower (the issuer of the bond) and a lender (the investor who purchases and holds the bond). Bond holders receive coupons at regular intervals as well as the Face Value of the Bond at the maturity date of the Bond. BOS Bank of Scotland Bp(s) Basis Point BPV See DV01 BRMC Board Risk Management Committee Call Option An Options contract which gives the holder the right, but not the obligation, to buy the underlying asset at a stipulated price. Cash Rate Official target Cash Rate set by the Reserve Bank of Australia CFD Contract for Difference. A cash settled total return swap where the parties agree to exchange on the maturity of the contract the relevant difference. CGS Commonwealth Government Securities, former name for Australian Government Securities (AGS) CITI Citibank NA Close Out A transaction that leave a zero net position in the market for the relevant participant TERM DEFINITION Commonwealth Government Securities Australian Government Securities (AGS) were formerly referred to as Commonwealth Government Securities. Contravention Dates The dates of Purchase Contraventions and Sale Contraventions Convergence The movement of the cash asset price towards the futures price as the expiration date of the futures contract approaches Corporations Act Corporations Act 2001 (Cth) Cost of Carry The difference between the rate earned on an asset and the rate paid on funding Counterparty/ Counterparties that entered into BBSW Referenced Products with Westpac on any Sydney business day in the relevant period in relation to which there was an obligation to pay an amount of money, either by Westpac to those counterparties or by those counterparties to Westpac Counterparties CPI - Consumer Price Index A general measure of price inflation for the household sector compiled and published by the Australian Bureau of Statistics Cross-Currency Swap A swap that is a variation on an Interest Rate Swap. It is an agreement between two parties to exchange a principal amount and associated interest payments denominated in one currency for a principal amount and associated interest payments denominated in another currency. Debt Capital Markets A division within Financial Markets in Westpac A derivative is a contractual arrangement in relation to which the following conditions are satisfied: (a) Under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind to someone, whether or not other consideration is provided at the inception of the arrangement; and (b) The amount of the consideration to be provided at the future time, or the value of the arrangement, is ultimately determined, derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable) including: Derivative (i) an asset; (ii) a rate such as an interest rate (including a reference rate such as BBSW) or a currency exchange rate; (iii) an index; (iv) a commodity. DV01 The change of the price or value of a financial instrument or portfolio when the interest rate changes by one Basis Point. It is also commonly referred to as the 'Basis Point Value (BPV)', 'Present Value of a Basis Point (PVBP)', 'PV01' and '(interest rate) sensitivity'. The exact definition, usage and calculation approach for these measures may differ between market participants. Early/Earlies Bank Bills that mature anywhere between the 1st to the 15th day of a month ECP European Commercial Paper TERM DEFINITION Exchange for physicals. EFPs The exchange for physicals (EFP) facility is an off-market trading mechanism that enables customers to simultaneously transact: (i) offsetting Bond and Treasury Bond Futures positions; or (ii) offsetting Interest Rate Swap and Treasury Bond Futures or BAB Futures positions. EMTN Euro Medium Term Note EOD End of Day ES account Exchange Settlement Account at the Reserve Bank of Australia EURIBOR The Euro Inter-bank Offered Rate Euro Medium Term Note A medium-term, flexible debt instrument that is traded and issued outside of the United States and Canada. These instruments can have a variety of different interest rate mechanisms (fixed, floating, zero-coupon etc.) and maturities. European Commercial Paper An unsecured, short-term loan issued by a bank or corporation in the international money market, denominated in a currency that differs from the corporation's domestic currency. Exchange Settlement Account An account held at the Reserve Bank of Australia by financial institutions to settle financial obligations arising from the clearing of payments. Face Value 1. The Notional Amount of a financial instrument. For example in a Bank Bill it is the dollar amount that the issuer promises to pay at maturity. 2. The amount specified to be paid pursuant to an NCD or Bank Bill. A business unit within Westpac Institutional Bank (WIB). In the relevant period: Financial Markets (a) the Financial Markets division of Westpac was known variously as Debt Capital Markets and Global Capital Markets; (b) books within Financial Markets entered into, bought and sold BBSW Referenced Products; (c) the Financial Markets division included a foreign exchange desk (Financial Markets FX); and (d) from time to time, Financial Markets FX bought and sold BBSW Referenced Products Financial Markets & Treasury Risk A unit of WIB Risk, that provides risk services for Financial Markets and Group Treasury. The unit comprises market risk oversight and analysis, reporting of market risk counterparty credit risk, and quantitative analysis supporting the management of market and counterparty credit risk with matrix reports from Markets Credit and Business Risk Advisory. Financial Markets FX The Financial Markets division foreign exchange desk Financial Markets Member of AFMA Financial Markets Members are the organisations that participate directly in Australia's financial markets and generally hold an Australian Financial Services Licence. Financial Product 1. As defined in Chapter 7 Part 7.1 Division 3 of the Corporations Act 2001 (Cth). 2. As defined in s12BAA of the Australian Securities and Investments Commission Act 2001 (Cth). TERM DEFINITION Financial Service 1. As defined in s 766A of the Corporations Act 2001 (Cth) 2. As defined in s12BAB of the Australian Securities and Investments Commission Act 2001 (Cth) Floating Rate A variable rate that is set periodically Floating Rate Note A debt instrument that pays a Floating Rate (often referred to as the "coupon") on specified dates over the term of the debt (e.g. quarterly or semi-annually), as well as repaying the Face Value on maturity. In Australia, the Floating Rate used is often BBSW plus a margin (for example, "BBSW plus 50 Basis Points"). Foreign Exchange Desk A subdivision or desk of Group Treasury Forward A customised contract between two parties to buy or sell an asset at a specified price on a future date Forward Rate Agreement An agreement to lend or borrow money at a specified price (agreed rate) on a future date for a set period. Expressed another way, a FRA is an agreement involving two parties exchanging interest payments based on two different rates, at a future date (called the "settlement date") and, based on a specified Notional Amount. FRA Forward Rate Agreement FRN Floating Rate Note Futures Expiry 12 noon on the business day immediately prior to the settlement day or date FX Foreign Exchange FX Forwards Forward foreign exchange contracts A committee which: • leads the optimisation of market risk-reward across the Group; Group Market Risk Committee (also known as 'MARCO') • oversees the market risk management framework and key policies; • oversees Westpac's market risk profile; and • identifies emerging market risks and appropriate actions to address these. Group Treasury Group Treasury Division of Westpac. Group Treasury was responsible for, inter alia, the aggregate management of Westpac's balance sheet incorporating funding, liquidity, and capital management. On each Sydney business day in the relevant period, the books in Group Treasury, including but not limited to STIRR, IMM, LTIRR and Liquids, included holdings of BBSW Referenced Products in relation to which: Group Treasury BBSW Rate Set Exposure (a) an obligation to pay an amount of money would be quantified when the relevant BBSW was set on that day; and (b) that amount, and, in the case of some of the BBSW Referenced Products, whether the amount was payable by Westpac to the counterparty or by the counterparty to Westpac, depended upon the rate at which the relevant BBSW was set on that day, and therefore the profit and loss of those books could be affected by movement in the BBSW on that day. This is the exposure as defined. HSBC HSBC Bank Australia Limited TERM DEFINITION ICAP ICAP Brokers Pty Ltd IMM International Money Market Impugned Conduct Westpac entering into or carrying out obligations in relation to BBSW Referenced Products while also carrying out its Rate Set Trading Practice on the dates of each of the Sale Contraventions and Purchase Contraventions and from time to time throughout the relevant period as part of a system of conduct or pattern of behaviour. Inflation Swaps A form of Interest Rate Swap in which two parties agree to exchange a single or streams of cash-flow(s) over a set period, with one party's obligations based on a Notional Amount and an inflation-related index and the other party's obligations based on a related (but sometimes separate) Notional Amount and a fixed or Floating Rate. In Australia, the inflation index is typically the Consumer Price Index (CPI) and the Floating Rate (where used) is typically BBSW plus or minus a margin. Interbank Overnight Rate The interest rate at which overnight unsecured funds are transacted (by financial institutions) in the Australian domestic interbank cash market. An agreement between two parties in which the buyer purchases from the seller one or a series of Call Options on future dated Floating Rates. Interest Rate Cap In exchange for payment of a premium, the buyer acquires the right (but not the obligation) to require the seller to compensate it if on prescribed reference dates the agreed Floating Rate is greater than a stipulated rate. In the context of the Australian interest rate market, the Floating Rate used in Interest Rate Caps is typically BBSW. Interest Rate Collar An Interest Rate Cap and an Interest Rate Floor combined Interest Rate Derivative A Derivative that has as underlying either a Floating Rate or an interest rate dependent financial instrument, such as a Bond or an Interest Rate Swap. An agreement between two parties in which the buyer purchases from the seller one or a series of Put Options on future dated Floating Rates. Interest Rate Floor In exchange for payment of a premium, the buyer acquires the right (but not the obligation) to require the seller to compensate it if on prescribed reference dates the agreed Floating Rate is less than a stipulated rate. In the context of the Australian interest rate market, the Floating Rate used in Interest Rate Floors is typically BBSW. Interest Rate Option (IRO) An Interest Rate Derivative that incorporates an element of optionality. Includes examples such as Interest Rate Caps, Interest Rate Floors, Interest Rate Collars, Swaptions, Bond Options and Options on Futures. Interest Rate Swap An agreement between two parties to exchange streams of cash-flow based on a Notional Amount for a set period. International Money Market A subdivision or desk of Group Treasury IOSCO International Organization of Securities Commissions ISDA International Swaps and Derivatives Association, Inc TERM DEFINITION ISDA Master Agreement A standard agreement used in over-the-counter Derivatives transactions published by ISDA, which outlines the terms applied to a Derivatives transaction between two parties. JPM J.P. Morgan Chase Bank Late/Lates Bank Bills that mature anywhere between the 16th to the last day of a month LCR Liquidity Coverage Ratio LIBOR The London Inter-bank Offered Rate. The rate of interest at which banks lend to each other on the London inter-bank market. Liquidity Coverage Ratio The regulatory liquidity ratio which calculates an authorised deposit taking institution's (ADI) liquidity under a defined crisis scenario Liquidity Management Activities undertaken by a financial institution to ensure that it can fund its assets and meet its financial obligations as and when they come due. Liquids Refers to holdings of liquid assets for Liquidity Management purposes. It also refers to a desk within Group Treasury. LLOYDS Lloyds TSB Bank An exposure where the net value of all of the books: Long Exposure (a) would be increased in the event that the BBSW in the relevant tenor was set by AFMA at a higher rate on that day; and (b) correspondingly, would be decreased in the event that the BBSW in the relevant tenor was set by AFMA at a lower rate on that day. Long Term Interest Rate Risk A subdivision or desk of Group Treasury LTIRR Long Term Interest Rate Risk MARCO Group Market Risk Committee Market Committees Sub-committees of the AFMA Market Governance Committee. These include the Negotiable & Transferable Instruments and the Swaps Committees. Market Governance Committee The AFMA committee responsible for the development and maintenance of market protocols and operational standards of the financial markets in Australia. The MGC oversees the activities of the Market Committees and advises the AFMA Board on issues of relevance. MBL Macquarie Bank Limited MGC Market Governance Committee Mio Million MTD Month to Date Murex A trading system used by Westpac for booking over-the-counter and exchange-traded Derivatives and Bonds NCD(s) A large denomination certificate issued by a bank evidencing a negotiable interest bearing deposit with the issuing bank for a fixed term, which entitles the holder of the certificate to payment of the Face Value by that bank on the date that the certificate matures; and an instrument by which a bank, including a Prime Bank, may borrow funds for a short term. Negotiable Certificate of Deposit(s) See NCD(s) Normal Model One of multiple scenarios employed by Westpac for the purposes and measuring and monitoring the Bank's liquidity position. TERM DEFINITION Nostro Account A bank account that a bank holds in a foreign currency in another bank. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions. Notional Amount The dollar amount that defines the payments and cashflows to be made as a multiple of an interest rate. NTI Negotiable & Transferable Instruments NTI Committee A Market Committee of AFMA being the Negotiable/Transferable Instruments Committee NTI Conventions The AFMA Negotiable/Transferable Instruments Conventions Offer The offer/ask price at which a trader is willing to sell, in this case, a Prime Bank Bill Other Affected Counterparties Counterparties to third parties including other banks (but not Westpac) on BBSW Referenced Products in respect of which a payment was required to be made by reference to the BBSW on a Sale Contravention date or Purchase Contravention date, or on a day during the relevant period, such that the counterparty had an exposure opposite to Westpac's BBSW Rate Set Exposure on that date. Such counterparties included non-listed companies and individuals and included counterparties that were not participants in the Bank Bill Market. OIS - Overnight Indexed Swap A bilaterally traded, or over-the-counter, Derivative in which one party agrees to pay the other party a fixed interest rate in exchange for receiving the Interbank Overnight Rate compounded over the term of the swap. Option(s) A contract which gives the buyer (the owner or holder of the Option) the right, but not the obligation, to buy or sell an underlying Financial Instrument at a specified Strike Price, including Interest Rate Option(s). OTC Over-The-Counter Portfolio The financial instruments held by a trader, desk, person or organisation. Portfolio Risk Management A subdivision or desk of Group Treasury Present value of a basis point See DV01 Prime Banks Certain banks elected and recognised as Prime Banks pursuant to a process of election and recognition specified by AFMA. Prime Bank Bills NCDs issued, and Bank Bills accepted, by Prime Banks. Prime Bank Conventions The protocols published by AFMA which govern the selection of Prime Banks, the ongoing requirements that Prime Banks must adhere to in order to maintain Prime Bank status, Prime Bank reporting requirements and the contingency plan should a major bank or banks lose Prime Bank status. Prime Bank Eligible Securities Prime Bank Bills Prime Bank Paper Prime Bank Bills PRM Portfolio Risk Management TERM DEFINITION The following purchase transactions by Westpac of Prime Bank Bills in the Bank Bill Market on each of the dates, and in each of the tenors and with a Face Value of each of the amounts set out below: Date Relevant Tenor Face Value Tuesday, 6 April 2010 30-day $1.622 billion Tuesday, 6 April 2010 90-day $1.02 billion Friday, 30 April 2010 30-day $980 million Thursday, 20 May 2010 30-day $710 million Monday, 20 September 2010 30-day $1.18 billion Monday, 20 September 2010 90-day $270 million Wednesday, 22 September 2010 90-day $500 million Wednesday, 1 December 2010 90-day $2.77 billion Monday, 6 December 2010 90-day $3.03 billion Purchase Contravention(s) Tuesday, 1 March 2011 90-day $1.39 billion Friday, 4 March 2011 90-day $2.720 billion Wednesday, 1 June 2011 90-day $260 million Monday, 6 June 2011 90-day $620 million Wednesday, 6 June 2012 90-day $3.06 billion

that allegedly: (a) were undertaken by Westpac for the sole or dominant purpose, or alternatively, a purpose, of lowering or maintaining: (i) the yield at which Prime Bank Bills were trading at approximately 10.00 am on the relevant day; and (ii) the level at which the BBSW was set by AFMA on the relevant day; (b) therefore, were entered into by Westpac at yields which did not reflect the forces of genuine supply and demand in the Bank Bill Market on the relevant day; and (c) had, or were likely to have, the effect of creating an artificial price for trading in Traded BBSW Referenced Products. Put Option An Options contract which gives the holder the right, but not the obligation, to sell the underlying asset at a specified price. PV Present Value PV01 See DV01 PVBP See DV01 RAS Risk Appetite Statement The alleged practice of Westpac to trade Prime Bank Bills, including to trade newly issued NCDs, in the BBSW Rate Set Window: Rate Set Trading Practice (a) with the sole or dominant purpose, or alternatively, a purpose, of influencing the level at which the BBSW was set in a way that was favourable to its BBSW Rate Set Exposure; and (b) therefore, resulting in yields which did not reflect the forces of genuine supply and demand. RBA Reserve Bank of Australia TERM DEFINITION RBC Royal Bank of Canada RBS Royal Bank of Scotland Relevant period The period from 6 April 2010 to 6 June 2012 Repurchase Agreement An agreement to buy and sell a debt instrument with an undertaking to reverse the transaction at an agreed date in the future and at an agreed price. Reserve Bank of Australia Australia's central bank deriving its functions and powers from the Reserve Bank Act 1959. Risk Exposure Conduct Westpac entering into BBSW Referenced Products knowing or believing that it had engaged and was likely to continue to engage in the Rate Set Trading Practice, and that doing so would be likely to or would cause loss to the counterparty to the relevant product, without disclosing this practice to the relevant counterparty. The transactions on 10 June 2010 (Westpac sold 90-day Prime Bank Bills with a Face Value of $360 million in the Bank Bill Market) and on 9 June 2011 (Westpac sold 90-day Prime Bank Bills with a Face Value of $1.47 billion in the Bank Bill Market) that allegedly: (a) were undertaken by Westpac for the sole or dominant purpose, or alternatively, a purpose, of raising or maintaining: Sale Contravention(s) (i) the yield at which Prime Bank Bills were trading at approximately 10.00 am on the relevant day; and (ii) the level at which the BBSW was set by AFMA on the relevant day; (b) therefore, resulted in yields which did not reflect the forces of genuine supply and demand in the Bank Bill Market on the relevant day; and (c) had, or were likely to have, the effect of creating an artificial price for trading in Traded BBSW Referenced Products. Semi-Government Securities In an Australian context, securities issued by the central borrowing authorities of the State and Territory governments. SFE Sydney Futures Exchange, which later became ASX24. Trading in BAB Futures could occur on these platforms. An exposure where the net value of all of the books: Short Exposure (a) would be increased in the event that the BBSW in the relevant tenor was set by AFMA at a lower rate on that day; and (b) correspondingly, would be decreased in the event that the BBSW in the relevant tenor was set by AFMA at a higher rate on that day. Short Term Interest Rate Risk A subdivision or desk of Group Treasury SIBOR USD Singapore Inter-bank Offered Rate. The rate at which prime banks in the Singapore inter-bank market lend to each other. SOAF Statement of Agreed Facts Spread In relation to Bank Bills, the difference between the bid (rate) and the offer (rate). STIRR Short Term Interest Rate Risk Submission(s) The contribution(s) provided by the BBSW Panellists to AFMA each Sydney business day identifying that BBSW Panellist's view of the mid-rate of the Yield for Prime Bank Bills at 10.00 am on that Sydney business day for each Tenor. TERM DEFINITION Submissions Period The period from 10.00 am to 10.05 am on each Sydney business day when BBSW Panellists could make Submissions. Submitter 1. The BBSW Panellist that provides Submissions to AFMA 2. The individual who inputs the submission(s) on behalf of the BBSW Panellist Swaption(s) An option contract in which, in exchange for a premium, the seller grants the buyer the right, but not the obligation, to enter into an underlying Interest Rate Swap. The terms of the (entirely separate) Interest Rate Swap are agreed at the time of entering into the Swaption. Tenor The number of days or months to maturity of a financial instrument Three Lines of Defence This is the three lines of defence approach taken to risk management The following BBSW Referenced Products: Traded BBSW Referenced Products (a) Interest rate swaps; (b) BAB Futures; and (c) Cross-currency swaps. Trading Risk and Liquidity A subdivision or desk of Group Treasury Transfer price The mechanism used to transfer interest rate risk from the business units of Westpac to Group Treasury, who has the responsibility to manage that interest rate risk. Treasury notes AGS with a short term to maturity, issued at a discount to their Face Value with the difference (or discount) representing the return on the note. TRC Trading Risk Committee TRL Trading Risk and Liquidity Tullett(s) Tullett Prebon (Australia) Pty Ltd UBS UBS AG USD LIBOR LIBOR in US Dollars Value at Risk A risk management measure that provides an estimate of the potential loss from a trading position or a portfolio of transactions from possible changes in market prices. The measure is an estimate at a specified confidence level over a specified time horizon. For example the loss can be estimated at a 99% confidence level over a 1 day holding period. VaR Value at Risk Vostro Account The account that a correspondent bank holds on behalf of a foreign bank. A vostro account is one in which the domestic bank (from the point of view of the currency in which the account is held) acts as custodian or manages the account of a foreign counterpart. Westpac Westpac Banking Corporation Westpac Institutional Bank A division of Westpac WIB Westpac Institutional Bank Yard One Billion dollars Yield The expected return (per annum) from buying a Bank Bill and holding it to maturity; this can be considered to be a rate of interest (per annum)