UBS and Deutsche Bank revealed they are facing inquiries by regulators related to their dark pools, joining Barclays, which was named in a fraud lawsuit by New York Attorney General Eric Schneiderman.
“UBS is responding to inquiries concerning the operation of UBS’s alternative trading system (also referred to as a dark pool) and its securities order routing and execution practices from various authorities, including the Securities and Exchange Commission (SEC), the New York Attorney General and the Financial Industry Regulatory Authority, who reportedly are pursuing similar investigations industry-wide,” the Swiss bank said Tuesday.
“The lawsuits allege principally that the defendants’ equities order handling practices favored high-frequency trading firms at the expense of other market participants,” UBS said.
The New York prosecutor filed a complaint last month alleging that Barclays had “engaged in a persistent pattern of fraud and deceit, lying to its investors in order to grow its own dark pool.” Schneiderman also announced he would expand his probing into the matter and “crack down on abuses wherever he sees them.”
According to the UBS’s Q2 report, the inquiries include one that began in 2012 by the SEC concerning its dark pool disclosure practices. It said the litigation was in the “very early stages.”
Deutsche Bank also admitted Tuesday it had “received requests for information” from regulators concerning its high frequency trading activities, but did not reveal which authorities had inquired into their practices.
Both banks said they were cooperating with the matters and that they were named as defendants in “putative class action complaints” alleging they had violated US securities laws related to high frequency trading.
“The lawsuits allege principally that the defendants’ equities order handling practices favored high-frequency trading firms at the expense of other market participants,” UBS said.
Deutsche Bank was also hit with a downgrade in its senior debt rating Tuesday “prompted by the bank’s modest profitability which is being dragged down by litigation and restructuring costs and legacy losses,” according to Moody’s.
“Since 2012, Deutsche Bank’s reported results have been negatively affected by high litigation, regulatory, and restructuring costs as well as losses from its legacy portfolio,” the credit rating agency said in a statement. “The bank’s capital position has strengthened but a significant portion of the fresh capital may be required to address the firm’s exposure to future litigation and regulatory costs—an expectation that is incorporated in the current ratings.”
The German bank again made headlines last week when letters from the Federal Reserve Bank of New York slamming its financial reporting problems came to light.
“The size and breadth of errors strongly suggest that the firm’s entire US regulatory reporting structure requires wide-ranging remedial actions,” one letter said.
The Wall Street Journal reported Tuesday that the New York Department of Financial Services has been pushing to install a government monitor inside the US arms of Deutsche Bank and Barclays. The two banks were named in yet another lawsuit involving possible manipulations in the foreign-exchange market.
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