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The Guardian: Deutsche Bank fined for market misconduct

Deutsche Bank fined for market misconduct

· Regulator imposes its third-largest penalty
· Trading in Scania shares was not transparent

Mark Milner
Wednesday April 12, 2006
The Guardian

The Financial Services Authority has slapped a £6.4m fine on Deutsche Bank, the third largest imposed by the financial markets' watchdog.

The bulk of the fine, some £5.9m, was imposed for market misconduct and a further £500,000 for failing to conduct business with “due care, diligence and skill”.

The FSA also fined David Maslen, the former head of cash trading at Deutsche Bank, £350,000. It said the size of the fine imposed on Mr Maslen, who has left the bank, took account of the disciplinary action taken against him by Deutsche Bank including cutting his 2004 bonus by €1.83m (£1.27m).

Hector Sants, FSA managing director for wholesale business, said the rulings reflected the regulator's get tough approach. “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 fine has been topped on only two previous occasions: the £17m imposed on Shell for overstating reserves and £13.9m on Citigroup for failing to act with due care and diligence.

Deutsche Bank said it regretted “the failure to adhere to the high standards it expects of its staff. The events took place more than two years ago and were isolated instances involving a small number of individuals. There is no finding of deliberately wrongful conduct or of systems failures.” Mr Maslen said: “I am pleased that after two years the FSA investigation has been concluded by an agreed settlement.”

In March 2004 the bank agreed to buy £1.1bn worth of shares in the Swedish firm Scania from Volvo. It planned to sell on the shares to other investors through an “accelerated book build” – a process involved in marketing the stock to potential buyers at an indicative price range. Buyers can then say how many shares they would be prepared to buy and at what price. At the time Deutsche Bank was involved in book building for the Scania stake, Scania shares were being traded in the open market in Sweden. At one point the price dropped below the range Deutsche was indicating to potential buyers. The FSA said Mr Maslen instructed a Deutsche Bank trader to buy shares in the open market. It said Deutsche Bank's orders at times represented 90% of the trading in Scania shares and “contributed to the price moving to within the book build marketing range”.

“The manner in which Deutsche traded the shares meant it was not transparent to the market and that potential investors were unable to obtain a full understanding as to the supply, demand and price of the shares independent of Deutsche,” the FSA said. It said Mr Maslen had been “knowingly concerned in the failure to observe proper standards of market conduct in the Scania transaction”.

The second breach related to shares in the biotech firm Cytos, which were traded on the Swiss exchange SWX. The FSA said Deutsche Bank “stabilised” Cytos shares – bought equities in the wake of a stock offering – to support the price. Such operations can be carried out only in circumstances that are closely regulated.

The FSA said Deutsche failed to ensure the trader carrying out the stabilisation “understood and followed its internal procedures”.



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