Conduct and Culture Failings Help Ring Up Another Big Fine for Deutsche Bank

Oscar-winning actress Jodie Foster may not have much in common with celebrated soccer players Wayne Rooney and Roberto Carlos, but the trio share the dubious honor of being codenames used by a Deutsche Bank salesman who tipped confidential information to a hedge fund.

The details, some of which would make Dr Hannibal Lecter wince, emerged in June from prosecutors in New York who handed the bank a $205m penalty following allegations of benchmark manipulation and a raft of conduct issues, which again exposed the collusive behavior of traders in electronic chat rooms.

 The New York Department of Financial Services said that in the period between 2007 and 2013, improper, unsafe and unsound conduct in the DB business was rife when the German lender was the largest foreign exchange dealer in the world.

Forex traders in multi-party online chat rooms shared confidential information, discussed coordinating trading activity, and attempted to manipulate foreign exchange currency prices or benchmark rates, prosecutors said.

Echoing earlier orders, NYDFS Superintendent Maria Vullo again pointed at “inadequate supervision” at the bank.

“Due to Deutsche Bank’s lax oversight in its foreign exchange business, including in some instances, supervisors engaging in improper activity, certain traders and salespeople repeatedly abused the trust of their customers and violated New York State law over the course of many years,” said Vullo.

One practice involved accumulating a large trading position and then using it to make aggressive trades just before and during the fix window, with the intention of moving the ultimate fix price in a desired direction, up or down – known as “jamming the fix.”

Certain Deutsche Bank traders increased the potential impact of this strategy by using multi-bank chats to share sensitive and confidential client information.

They disclosed where other traders had large positions in an opposite direction, so that they could attempt to coordinate trading strategies and achieve maximum influence on the published fix rate.

Other instances of improper conduct emerged as Deutsche Bank traders tried to manipulate submission-based benchmarks for certain currency pairs. The benchmarks, supposedly derived from an objective submission process, instead became tainted when traders sought submissions to benefit their own positions.

A trader warned: “int share it with yr colleagues,” over the currency pairing, as the other replies “I won’t… I will keep it to myself ”.

In a spread-collusion fix, traders shared sensitive information in a chat room entitled “Butter the Comedian”. The collusion involved agreeing to boycott any broker that tried to stop their plan. One explicitly referred to it as a “trader’s cartel”, and another called it “broker’s terror”.

Using codenames, a London-based salesman gave updates to his hedge fund customer about the order flows of other Deutsche Bank customers, such as “Jodie Foster sells financial protection in decent amount”, “Roberto Carlos sells use far in decent”, “Wayne Rooney buys topside $MXN”.

Other conduct issues stemmed from brokers short-changing customers and other tactics designed to secretly increase the “markup” charged for trade execution. In a number of instances, Deutsche Bank staff intentionally failed to correct, or even intentionally made, errors or misleading entries in trade execution records so as to keep extra profit for themselves and the bank, the NYDFS said.