{"id":76161,"date":"2016-12-17T15:47:45","date_gmt":"2016-12-17T20:47:45","guid":{"rendered":"http:\/\/madisoncountycourier.com\/?p=76161"},"modified":"2016-12-16T19:51:33","modified_gmt":"2016-12-17T00:51:33","slug":"schneiderman-announces-deutsche-bank-will-pay-37-million-penalty","status":"publish","type":"post","link":"https:\/\/madisoncountycourier.com\/?p=76161","title":{"rendered":"Schneiderman announces Deutsche Bank will pay $37 million penalty"},"content":{"rendered":"

\"Attorny_General_Eric_T_Schneiderman\"<\/a>In Joint Settlement With A.G. Schneiderman And SEC, Deutsche Bank Admits Violating State And Federal Securities Laws, Misleading Investors \u00a0<\/em><\/p>\n

Deutsche Bank Failed To Inform Its Clients That <\/em>Its \u201cDark Pool Ranking Model\u201d Was Not Functioning For Over Two Years \u00a0<\/em><\/p>\n

Schneiderman:\u00a0Misleading And Self-Serving Marketing About Order Routing Services Will Not Be Tolerated<\/em><\/p>\n

Attorney General Eric T. Schneiderman announced today that Deutsche Bank Securities, Inc. will pay a combined $37 million to the State of New York and the United States Securities and Exchange Commission (\u201cSEC\u201d) to settle investigations into false statements and omissions made in connection with the marketing of Deutsche Bank\u2019s electronic equities order routing services, known as its \u201cDark Pool Ranking Model.\u201d\u00a0 As part of the agreement, Deutsche Bank admits that it misled investors and violated New York State and federal securities laws; the Attorney General\u2019s Office and the SEC have also censured Deutsche Bank for its conduct.<\/p>\n

\u201cMisleading and self-serving statements that defraud investors will not be tolerated. Electronic order routing systems that route investor orders to various markets, including dark pools, are a part of modern equities trading, and companies that promote their routing capabilities must do so truthfully,\u201d said Attorney General Schneiderman.<\/p>\n

The Attorney General\u2019s investigation found \u2013 and Deutsche Bank admits \u2013 that for two years, from January 2012 through February 2014, Deutsche Bank\u2019s \u201cDark Pool Ranking Model\u201d (\u201cDPRM\u201d), which Deutsche Bank touted as the \u201ccore\u201d of its order router (called \u201cSuperX+\u201d) was not functioning as Deutsche Bank represented.\u00a0 In fact, when Deutsche Bank discovered in 2013 that a technological problem was causing a significant malfunction in the DPRM, Deutsche Bank did not fully correct the problem or tell clients about it.\u00a0 Deutsche Bank did, however, ensure that its own dark pool was not impacted by the problem and would remain eligible to receive all client orders.<\/p>\n

This settlement with Deutsche Bank arises from Attorney General Schneiderman\u2019s Insider Trading 2.0 initiative, first announced in September 2013, and his Investor Protection Bureau\u2019s investigation into the practices of electronic market makers, broker-dealers, and dark pool operators.\u00a0 Earlier this year, the State of New York and the SEC reached landmark joint resolutions with Barclays and Credit Suisse concerning those companies\u2019 misrepresentations and omissions about their dark pool and order routing services.\u00a0 As part of his Insider Trading 2.0 initiative, Attorney General Schneiderman also reached agreements with Thomson Reuters, Business Wire, and others to end practices that unfairly advantaged high frequency traders.<\/p>\n

A copy of the agreement with Deutsche Bank can be found here<\/a>.<\/p>\n

The Attorney General\u2019s investigation of Deutsche Bank found, and Deutsche Bank has admitted, that Deutsche Bank\u2019s marketing of its DPRM was materially misleading.\u00a0 Deutsche Bank\u2019s DPRM was designed to rank the dark pools to which Deutsche Bank routed client orders for equities via SuperX+ by measuring the execution quality and liquidity available at those venues.<\/p>\n

For several years, Deutsche Bank represented to clients and potential clients that its DPRM would periodically re-rank the pools to which it routed based on the execution quality experienced in those venues, and that its SuperX+ router used \u201ca sophisticated dark pool ranking model that profiles dark pools based on transaction cost, statistically determined compatibility for each order, client order attributes, and real time market conditions.\u201d Deutsche Bank\u2019s clients and potential clients were led to believe that the DPRM was being regularly updated with new, \u201cobjective\u201d data in order to reflect the current state of trading in the venues to which Deutsche Bank routed orders, so as to route client orders to the most optimal venue for each order.<\/p>\n

In truth, from January 2012 through February 2014, technological problems caused the execution quality rankings to not be performed.\u00a0 Despite knowing about the problem for over a year, Deutsche Bank did not address the issue.<\/p>\n