Deutsche Bank Securities will pay $37 million to settle charges that it misled clients about how its automatic router ranked dark pools for client orders, the Securities and Exchange Commission and the New York attorney's general's office announced Friday.
Each parallel action included $18.5 million in penalties.
From January 2012 through February 2014, “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,” SEC enforcement director Andrew Ceresney said in a statement.
Deutsche Bank, which admitted the facts and securities law violations in the SEC order, “is pleased to have resolved these matters. We believe that all concerns described in the settlements, which do not allege intentional wrongdoing or misconduct, have been remediated,” it said in a separate statement.
According to the SEC's order, Deutsche Bank made materially misleading statements and omissions concerning the Dark Pool Ranking Model software algorithm of one of its order routers, known as SuperX+, which was intended to measure execution quality and liquidity of venues to determine when and in what sequence to send orders. Due to a coding error, Deutsche Bank updated the ranking model only once during a two-year period, causing at least two dark pools to receive inflated rankings and millions of orders that should have been sent elsewhere.
The SEC also found that Deutsche Bank manually overrode the rankings at times and manually assigned fill rates for new venues that did not match with the venues' actual performance, including its own venue.
SEC officials considered Deutsche Bank's efforts to remediate the problems, and granted the bank a waiver from being deemed ineligible to be a “well-known seasoned issuer” as a result of the enforcement order, which would have prevented the bank from automatic shelf registration and other benefits for three years.
It also granted a waiver Friday from being considered an ineligible issuer due to a criminal conviction by Seoul Central District Court against a South Korean subsidiary in connection with manipulation of the Korea Composite Stock Price 200 index.
On July 13, the SEC proposed rules to require disclosure of order handling information to institutional customers.