Deutsche Bank Securities Inc. (CRD #2525, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $275,000.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to establish and enforce adequate WSPs regarding dividend-related yield enhancement on total return swap transactions that involved U.S. equities. The findings stated that the firm did not maintain any written procedures for how to supervise or document decisions that impacted dividend uplift on swap trades referencing U.S. dividend-paying securities. The firms issued guidelines regarding the Total Return Swap program in the form of a memorandum. The firm, having provided this advice, did not take any steps to establish written procedures for the members of the swaps desk who were in a position to implement the guidance provided in the memo.
The firm allegedly did not identify who was responsible for enforcing firm policies in this area, or provide an adequate process for enforcing and documenting supervision of these policies. The findings also stated that the firm issued additional guidance regarding the Total Return Swap program. The firm did not establish adequate procedures describing how its staff would or should monitor cross-trades, market-on-close (MOC) pricing or customer trading patterns, or how staff should assess and document customers’ requests for exceptions to the guidelines. The findings also included that the memo and guidelines permitted certain Total Return Swap transactions that were exceptions to the aforementioned guidance under particular circumstances. The firm did not keep adequate records of decisions to allow exceptions, and after-the-fact reviews of such decisions were not adequately documented.
FINRA also found that the firm developed a document so that overall client trading patterns could be monitored and potential red flags regarding the use of Total Return Swaps could be identified by desk personnel. The document and the firm’s review of it were insufficient, in that the document was based on data that did not facilitate adequate monitoring. The firm was aware that it needed to improve its recordkeeping regarding swaps, so as to better manage risks associated with yield enhancement on Total Return Swaps. The firm did not put in place systems to retrieve sufficient data from managers’ review of executions the desk staff made. The firm’s records regarding MOC pricing or cross trades were not adequate, such that it made it difficult for the firm to supervise desk staff’s compliance with the guidelines regarding such pricing.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
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