The corporate watchdog has begun court action against Westpac, alleging the bank engaged in market manipulation in relation to a key interest rate benchmark.
The Australian Securities and Investments Commission said on Tuesday it would allege in the Federal Court that Westpac traded in a manner "intended to create an artificial price for bank bills" on 16 occasions.
The allegations relate to the setting of the bank bill swap reference rate, or BBSW, the key interest rate benchmark for Australian financial markets.
ASIC has alleged that on April 6, 2010, and June 6, 2012, Westpac had "a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower".
"ASIC alleges that Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac's," the watchdog said in a statement.
Westpac has rejected ASIC's allegations, saying in a statement on Tuesday night it will vigorously defend the action brought against it.
Westpac said ASIC had provided "selected details" of one of the 16 instances it had identified.
"We reject the allegations made by ASIC and do not believe Westpac, or any employee, has acted unlawfully in relation to the instances detailed by ASIC," Westpac's group chief financial officer Peter King said.
Mr King said Westpac had fully co-operated with ASIC's ongoing investigation into the BBSW and the interbank short-term money market.
ASIC is seeking penalties against Westpac and a declaration that the bank contravened sections of the Australian Securities and Investments Commission Act and the Corporations Act.
In March, ASIC commenced Federal Court action against the ANZ Bank alleging unconscionable conduct and market manipulation in relation to that bank's involvement in setting of the BBSW.
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