SEC Settles $37m Charges with Deutsche Bank Over Order Router Lapse

Deutsche Bank has agreed to settle with the SEC and the NY Attorney General’s office for $37m.

The US’ Securities and Exchange Commission (SEC) has announced a settlement with Deutsche Bank (NYSE:DB), which saw the lender pay a total of $37.0 million in penalties for its role in misleading clients with regard to dark pool trading, per an SEC filing.

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The nature of the penalty was focused on Deutsche Bank’s handling of its client base. In particular, the lender misled its clients about the performance of a core feature of its automated order router, which on numerous instances sent client orders to dark pools.

Coding Error

The SEC order found that Deutsche Bank made materially misleading statements and omissions concerning the Dark Pool Ranking Model feature of one of its order routers, which was known as SuperX+. This ranking model was initially intended to measure execution quality and the liquidity of venues to which it sent orders.

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However, the SEC’s order decreed that due in part to a coding error, Deutsche Bank updated its ranking model just once during a two-year period, causing at least two dark pools to receive inflated rankings.

Consequently, Deutsche Bank admitted wrongdoing in its handling of the situation, opting to pay $18.5 million in penalties to the SEC and the New York Attorney General’s office (NYAG) for a total of $37 million.

According to Andrew Ceresney, Director of the SEC’s Enforcement Division, in a recent statement on the order and settlement: “Deutsche Bank claimed to be using ongoing data analysis to rank the dark pools best suited for customer orders when in reality its system failed to actually do this analysis. When broker-dealers tout their material products and methodologies, their statements must be accurate.”

“Automated strategies for routing customer orders are a critically important part of the market. 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,” explained Robert Cohen, Co-Chief of the Enforcement Division’s Market Abuse Unit.

Earlier today, the Financial Industry Regulatory Authority (FINRA), the largest independent regulatory authority in the US, slapped a $3.25 million fine against Deutsche Bank Securities Inc., after the group failed to give uniform information to clients of its Alternative Trading System (ATS).

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