* Pair netted $6.5 mln from early release of ABS data
* Rumours had persisted in market about possible leaks
* NAB employee did not use bank funds or systems (Adds detail on alleged activity, charges, comment from ABS)
By Jane Wardell and Wayne Cole
SYDNEY, May 9 An Australian Bureau of Statistics (ABS) employee and a National Australia Bank employee have been arrested over insider trading offences that authorities said netted them A$7 million ($6.5 million) on the foreign exchange derivatives market.
The Australian Federal Police (AFP) said the pair will be formally charged in court on Friday with offences ranging from abuse of public office to corruption.
Police said the NAB employee, a 26-year-old Melbourne man, had obtained information about retail trade and jobs data from a 24-year-old ABS staff member.
"He obtained market sensitive information that had at that stage not been released by the ABS and he used that information to enter into foreign exchange derivatives," AFP Acting Assistant Commissioner Ian McCartney told a news conference in Canberra.
"In effect, he utilised sensitive ABS information to predict the fluctuations in the Australian dollar."
The alleged fraudulent activity took place between August 2013 and May 2014, with the pair identified following a joint investigation by the AFP and the Australian Securities and Investments Commission (ASIC).
Police have frozen around A$6.5 million in various funds and accounts, and impounded A$500,000 in residential property and a A$15,000 motor vehicle.
The ABS said it had suspended its arrested staff member and had launched an internal review of its systems.
NAB said it had fired the employee and stressed none of the bank's money or customers were involved.
"While I can't talk about the details of the charges, I can say that the activity alleged by authorities is unlawful and completely unacceptable to NAB and our core values of doing the right thing by our customers, our shareholders and our staff," NAB Group CEO Cameron Clyne said.
Tens of billions of dollars change hands in the wake of major Australian data releases, from foreign exchange to bonds and interest rate futures. Fortunes can be made or lost in milliseconds, particularly if the numbers show a change outside of market expectations.
The employment report is particularly influential given its importance for monetary policy, and its habit of surprising. The report for February, for instance, showed employment jumped by over 45,000 and far above market expectations, sending the local dollar surging over a half a U.S. cent in an instant.
Traders have heard vague rumours for some time that orders correctly anticipating the market reaction were going through just before the ABS data hit dealing screens, stirring suspicions that someone had inside knowledge.
"I can't recall anything like this happening before, and it's very embarrassing for the ABS. It'll make people think twice before trading on the economic data," said one economist, who asked not to be identified due to the sensitive nature of the news.
The ABS said no other staff members were suspected of involvement and it was committed to ensuring "a strict embargo for the release of statistics to ensure no one can obtain an inappropriate advantage from early access."
ASIC said its investigation revealed the two men knew each other in university. ASIC said the majority of the proceedings went to the NAB employee.
The NAB employee will be charged with insider trading, corruption of a public official and money laundering.
The ABS employee will be charged with insider trading, receiving a corrupt benefit, release of sensitive information and abuse of public office. ($1 = 1.0670 Australian Dollars) (Reporting By Jane Wardell; Editing by Richard Pullin & Kim Coghill)