By Sarah N. Lynch
WASHINGTON A unit of Deutsche Bank AG (DBKGn.DE) conceded that it misled investors and violated securities laws and will pay more than $40 million to settle charges that it misinformed clients about how it routed orders to anonymous trading platforms known as dark pools, regulators said on Friday. The bank agreed to pay $37 million to settle charges from federal and New York state regulators, and an additional $3.25 million to the Financial Industry Regulatory Authority (FINRA), Wall Street's self-funded regulator.In settling with both the New York Attorney General and the U.S. Securities and Exchange Commission, Deutsche Bank also admitted that its marketing materials about how it routed orders to various dark pools were misleading. The problems were due to a computer coding error, according to the documents related to that settlement. FINRA's charges against the bank, meanwhile, revolved around "deficient disclosures" by the bank's own dark pool trading platform itself. The bank settled that matter without admitting or denying any wrongdoing.“Deutsche Bank is pleased to have resolved these matters," Deutsche spokeswoman Amanda Williams said in a statement."We believe that all concerns described in the settlements, which do not allege intentional wrongdoing or misconduct, have been remediated.”
The SEC in recent years has been on the prowl for violations of complex equity market structure rules that are designed to ensure fairness for all investors.Those cases have targeted exchanges, brokers and dark pools for a variety of problems, from misleading investors about their services, to giving some investors an edge by providing them with faster access to trading data.This marks the third joint case filed this year against a big bank by the SEC and New York in connection with dark pools.Barclays (BARC.L) and Credit Suisse CSGN.VX previously settled charges in connection with misleading investors in dark pools, a type of alternative trading platform that is similar to an exchange, but with less price transparency.
But the SEC and New York's case against Deutsche is distinct. Unlike those two prior cases, which involved the banks misleading investors in their own dark pools, Friday's main case against Deutsche Bank centers on problems with its order router known as SuperX+.Order routers are computers that decide where client orders should be sent in order to obtain the best possible execution.
The SEC and New York Attorney General Eric Schneiderman alleged that the bank marketed this router as having a competitive edge because of its "dark pool ranking model," which was able to review multiple dark pool trading venues and determine which one would provide an investor with the best deal.But a coding error that lasted from January 2012 through February 2014 led the bank to use stale data to rank the various dark pools. The stale data caused at least two dark pools not affiliated with Deutsche Bank to receive inflated rankings, and the SEC said millions of orders would have been sent elsewhere by the SuperX+ if the data had been properly updated."Broker-dealer customers expect to be told if a routing program like Deutsche Bank's does not function properly, relies on stale data, and routes millions of orders contrary to the described methodology," said Robert Cohen, the co-chief of the SEC Enforcement Division's market abuse unit, in a statement. (Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn, David Gregorio and Bill Rigby)
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Updated Date: Dec 17, 2016 01:15:08 IST