My interpretation/opinion/etc:This is going to be very...

My interpretation/opinion/etc:

This is going to be very interesting to develop industry practice as it relates to hedging large principal trades. Ausgrid wanted (more or less) to receive floating and pay fixed for AUD12bn (this is big to do all in one go). If they went out and put the trade on by themselves in the open market, you can reasonably expect the price to have moved against them when compared against the going rate prior to their action.

WBC on the other side of the swap was long duration (receiving fixed) and sought to sell part of it down ahead of the actual striking of the quoted rate. Unsurprisingly, this moved the quoted rate and Ausgrid got a worse rate than what was going prior to their decision. The hedge trades would have continued after the striking of the quoted rate and the documents don't state whether they continued to move such that the quoted rate ended up being superior to the going rate _at the end_ of the hedge trades, or the average rate of all the hedge trades. I'm guessing ASIC will say that doesn't matter, while WBC might say that the full hedge should be seen as part of the same trade/scheme.

The defence will be interesting - by smoothing out the hedge trades across a period before and after, did that result in a better deal for Ausgrid than if they struck the deal and then all the hedging activity took place afterwards? It isn't clear cut because if the bank is not allowed to position themselves, the margin quoted in the deal might have to be much higher to compensate WBC for taking more principal risk. How much higher?!

Remember that for transactions like this, banks don't want to take large unhedged interest rate exposure bets - they want to lay off the risk and hopefully make a small wedge between Ausgrid and the people that are ultimately bearing the interest rate risk.

It will be an interesting case to follow for derivative desks to follow, that's for sure.