Deutsche Bank Securities, Inc. has been fined $2 million by the Financial Industry Regulatory Authority (“FINRA”) for failure to follow FINRA’s rules regarding best execution of trades. Deutsche Bank submitted a Letter of Acceptance, Waiver, and Consent without admitting or denying FINRA’s findings.
Deutsche Bank Securities
Deutsche Bank Securities has been a member of FINRA since 1940 and operates primarily in New York, New York. It has seven branch offices and almost 2,000 registered representatives. The firm handles investment banking, research, and securities sales and trading.
SuperX Alternative Trading System
DBSI owned and operated an alternative trading system (ATS) known as SuperX. From January 2014 to May 2019, DBSI customers would be routed to SuperX before routing any part of an order to an exchange. This was known as the “SuperX Ping” and would happen automatically unless the customer opted out of the routing preference.
The SuperX Ping allegedly caused various issues for the firm and its customers, and routing customers to DBSI’s SuperX created inherent delays for orders that the firm did not fully execute in its ATS. The delay potentially caused lower-order fill rates in SuperX compared to orders routed to exchanges.
DBSI’s best execution committee was allegedly aware of the inherent delay, but the firm did not modify its routing arrangement. FINRA also reports that the firm did not reasonably consider price improvement opportunities for SuperX ping orders compared to orders routed directly to exchanges.
According to FINRA, DBSI’s models ranked SuperX lower than other dark pools for execution quality. Despite the firm knowing this, DBSI allegedly routed more orders to SuperX than any other dark pool during 2014-2019.
DBSI Supervisory Failures
Furthermore, DBSI reportedly did not have a reasonably designed supervisory system, and the firm’s supervisory system allegedly failed to comply with its best execution obligation. DBSI supervisory procedures also did not provide reasonable standards for conducting reviews or modifying routing practices, according to FINRA’s report.
The AWC also reveals that DBSI failed to disclose vital aspects of its connections to routing markets in its quarterly reports as required by Regulation NMS Rule 606. The quarterly reports contained disclosures that DBSI could receive trading rebates, but the reports did not disclose material payment details such as price per share/order.
Related FINRA Rules
FINRA Rule 5310 requires firms to seek the most favorable terms reasonably available for customers’ orders. To meet this obligation, firms must conduct reviews to evaluate the order execution quality their customers receive under the firm’s current routing arrangements and the execution quality their customer orders could receive through different routing arrangements. Rule 5310 lists several factors (such as price improvement and execution speed) that firms should consider when conducting these reviews. Deutsche Bank Securities’ reviews did not meet the standards of Rule 5310.