Deutsche Bank has been fined £6.3m by the Financial Services Authority (FSA) for failing to observe proper standards of market conduct and failing to conduct its business with due skill, care and diligence.
The breaches arose from two separate transactions conducted by Deutsche during March 2004. The first was in relation to a book build in Scania AB B shares, while the second involved the stabilisation of Cytos Biotechnology shares.
The FSA has also fined David Maslen, Deutsche’s former head of European cash trading, £350,000 for being knowingly concerned in the failure to observe proper standards of market conduct in the Scania transaction.
The FSA found Deutsche breached Principle 5 – by failing to observe proper standards of market conduct – because Maslen, who had an active role in the Scania book build, gave instructions for proprietary trading which occurred at a sensitive time during the book build.
The trading was not transparent to the market and was of a size and manner which contributed to material changes in the Scania B share price during the book build.
It prevented potential investors from gaining a full understanding of the nature of supply and demand for Scania B shares, independent of Deutsche.
In conducting this trading, Deutsche was also found to have breached FSA Principle 2 – by failing to conduct its business with due skill, care and diligence – because, despite Maslen’s role in the book build, he gave instructions to commence the trading without notifying or seeking clearance from Deutsche compliance or senior management or checking Deutsche’s own restricted list.
Deutsche was also found to have breached Principle 2 as, during the course of the book, it made some announcements about the Scania transaction which were incomplete or inadequate.
Deutsche also released an announcement to its own sales force, which was subsequently communicated to its clients, about its holding of Scania shares prior to notifying the Stockholmbörsen.
In the second transaction, Deutsche conducted a stabilisation of Cytos shares on the Swiss SWX exchange through a Deutsche trader in Zurich. Deutsche failed to ensure the trader conducted the trades in accordance with its internal procedures and its staff involved in the trades failed to escalate the matter in a timely manner.
The Deutsche penalty comprises £3.5m in respect of the Principle breaches relating to the Scania transaction, £2,363,643 in respect of the loss it avoided through its actions in the Scania transaction, and £500,000 in relation to the Cytos transaction.
Hector Sants, FSA managing director for wholesale business, says: “The FSA has previously expressed a determination to act against institutional market misconduct and Deutsche's failure is an example of the type of conduct which the FSA will act against in its efforts to improve the overall quality of markets. The market rightly expects that firms involved in running book build transactions ensure that they observe proper standards of market conduct and act with due skill, care and diligence in their activities during these transactions.”
He adds: “We expect firms, and their staff, to be aware of the issues that are inherent in all transactions, and to ensure that they take steps to manage those appropriately. This is fundamental to maintaining efficient, orderly and clean markets.”
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