(Bloomberg) -- Allegations of market manipulation at an A$14 billion ($9.1 billion) sale of a government bond last year brought about an immediate tightening of rules in Australia and may lead to longer-term changes in the way funds are raised, the nation’s debt chief said.
The Australian Office of Financial Management has started to pre-announce the size of large bank-led offerings and now speaks carefully with the deal managers to ensure they act in the best interests of the government, Chief Executive Officer Anna Hughes said in an interview. Many have also met with the AOFM to clarify their approach, she said. The agency is also mulling whether changes can be made to the way syndicated issuance is priced, she said.
“Rather than pricing it in one go, is this something where we can have a continuous or different types of pricing?” Hughes said, without providing further details. “But I’d be really clear that that’s just something we’re thinking about. There have been no changes or decisions made.”
Bond deals in the country were thrust into the spotlight earlier this year when allegations surfaced that ANZ Group Holdings Ltd. may have manipulated a A$14 billion debt sale last year through its hedging operations as a risk manager. The nation’s securities regulator is investigating the sale and ANZ has said its own initial analysis hasn’t identified evidence of market manipulation.
AOFM typically issues debt through tender auctions each week that it announces on the prior Friday. For larger deals and issuance of a new bond line, the offering is run by a syndicate of banks, each of which handles a portion of the sale to investors on behalf of the government. One of the banks manages the hedging operations in the futures market so banks can mitigate their risk.
As part of the changes since the ANZ allegations, AOFM said it ensures communication lines between the debt manager and the banks remain open during a syndicated deal. It also monitors that they’re “continuing to operate in the best interest of the client” and the risk manager is watching markets as they’re performing that role, Hughes said.
“As an agency, we like to have innovation and continuous improvement as a goal,” she said. “We’ll continue to look at other things that we might be able to do that continue to improve that market functioning,” including different ways of pricing deals and how they engage with the risk manager, Hughes said.
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Since 2011, the Australian government sold about A$285 billion of new bonds via 28 bank-arranged deals, according to data compiled by Bloomberg. ANZ took part in 14 of those. It hasn’t been on any syndicated deals since the issuance last year, though remains a registered market maker and can participate in tender auctions, according to AOFM disclosures.
Hughes said confidence in Australia’s markets hasn’t been shaken following the alleged market manipulation and she hasn’t fielded questions from global investors about ANZ. While the A$14 billion issuance in April last year was large, AOFM remains very comfortable it got the sale done, Hughes said.
“We had 28 syndicated deals that performed extremely well and this is first time that this has happened,” Hughes said. “So I think in hindsight, we would’ve made the same decision on the day.”
--With assistance from Amy Bainbridge and Paul Dobson.
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