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Deutsche Bank Securities settles US probes into order routing practices

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Deutsche Bank Securities settles US probes into order routing practices

Deutsche Bank Securities Inc. settled investigations by the state of New York and the U.S. Securities and Exchange Commission into how its electronic equities order routing services were marketed, admitting that it misled investors on that front.

Deutsche Bank Securities will pay a combined $37 million, to be split equally among the New York state and the SEC. As part of the agreement, Deutsche Bank admitted that it violated New York state and federal securities laws.

New York Attorney General Eric Schneiderman's investigation found that Deutsche Bank's dark pool ranking model was not functioning as represented from January 2012 through February 2014. When Deutsche Bank discovered a technical glitch in the model in 2013, it did not fully fix the issue or tell clients about it, Schneiderman said. Deutsche Bank, instead, ensured that its own dark pool remained eligible to receive all client orders.

Accordingly, investors were led to believe that the model was being regularly updated to reflect the state of trading in the venues to which Deutsche Bank routed orders. Clients believed that their orders were being routed to the most optimal venue, which was not the case given that no regular re-ranking of dark pools was being performed.

Separately, the U.S. Financial Industry Regulatory Authority fined Deutsche Bank Securities about $3.3 million for deficient disclosures regarding its alternative trading system, or ATS.

Deutsche Bank had pledged to provide all ATS users with identical access to all services and features. However, that did not happen for some services and features, most of which involved the ability to include or exclude counterparties against whom orders would execute. As a result, some ATS clients received services that others may not have known about.

FINRA also found a lack of adequate procedures to ensure the disclosure of identical information to all ATS users. Deutsche Bank neither admitted nor denied the charges.

Deutsche Bank Securities is a unit of Deutsche Bank AG, which itself is in the process of settling a U.S. RMBS misselling case.