NYSE Regulation, Inc. announced today it has censured and fined Deutsche Bank Securities, Inc. of
The first action, which resulted in the imposition of a censure and $950,000 fine, concerns violations relating to the firm’s failure to provide required conflict of interest disclosures on published research reports. The other action concerns supervisory and control deficiencies in connection with a former employee’s misuse of password protected data at another firm, and in connection with DBSI’s order entry, audit trail and prime brokerage business activities.
"Accurate and adequate conflict of interest disclosures on published research reports are essential so that the investing public can make informed decisions about the objectivity and independence of the recommendations,” said Susan L. Merrill, chief of enforcement, NYSE Regulation. “Firms must ensure that there are adequate infrastructure and procedures in place so the required conflict of interest disclosures are up-to-date and accurate."
In the first action, an NYSE hearing officer found that from July 2002 through June 2004 the firm failed to include required conflict disclosures on a significant number of its published reports in violation of NYSE Rule 472(k). Similarly, during the relevant period, the firm failed to ensure that required conflict disclosures were provided during firm research analysts' public appearances. Click on the following link to read the decision: Deutsche Bank Securities, Inc., Decision 06-217 (NYSE Hearing Board December 20, 2006).
These failures occurred primarily because the firm did not devote sufficient resources to ensure that the significant task of populating the disclosure databases housing conflict of interest information, which was performed manually by a handful of employees in the firm’s Publishing Department, was accomplished on a timely basis. As a result, a significant number of the firm’s published research reports, as well as public appearances by research analysts, omitted required conflict of interest disclosures over a period of nearly two years.
Throughout the relevant period there was an understanding by certain of the firm's senior research managers that the firm relied on a manual process to input data to generate conflict of interest disclosures. Those managers were informed on several occasions that the process was cumbersome and prone to delays. Nonetheless, those managers failed to undertake a systematic review of the firm's research disclosures or to verify that the appropriate research disclosures were included in the published reports and during analysts' public appearances.
In this proceeding, the NYSE imposed a penalty of a censure and $950,000 fine. Deutsche Bank Securities, Inc. consented to the penalty.
The second disciplinary action concerns findings of supervisory and trading violations. An NYSE hearing officer found that from November 2001 through January 2003 the firm violated NYSE Rule 342 by failing to reasonably supervise an employee who used his former member firm employer’s password to access confidential information. Click on the following link to read the decision: Deutsche Bank Securities, Inc., Decision 06-218 (NYSE Hearing Board December 20, 2006).
After joining DBSI, the employee learned that his username and password at his former member firm (“Firm A”) were still valid. During the course of his employment with DBSI, the employee accessed the data more than 200 times in total. He used the data to perform some of his work functions at DBSI’s Index Development Group, including comparing Firm A data to other publicly available data, assisting in resolving anomalies in the development of certain DBSI indices that were in progress but never finalized, and providing certain Firm A data requested by his colleagues at DBSI and its parent. Some of this data was also provided to his supervisor.
From at least November 2001 until the end of January 2003, the employee openly shared the Firm A data with other employees and it was widely known that the employee was accessing this data from the Firm A website. The employee also provided his username and password to one other colleague who used it to access certain Firm A data. DBSI should have known of the employee’s use and distribution of confidential and proprietary Firm A information but failed to discover it.
Further, the firm violated the explicit language of NYSE Rule 342 by not placing the employee’s activities within the “supervision and control of the member or member organization establishing it and of the personnel delegated such authority and responsibility” because his supervisor was employed by the non-member firm Deutsche Bank AG's London Branch and therefore was outside the jurisdiction of NYSE Regulation. It was not until after the employee’s termination that DBSI employed a supervisor to supervise members of the Index Development Group.
In addition, at various times in 2003, 2004, and 2006 the firm failed to comply with NYSE requirements governing the entry and cancellation of certain Market-on-Close/Limit-on-Close ("MOC/LOC") orders, violated NYSE Rule 132 by allowing a client to submit, through the firm or using machinery identified with the firm, numerous orders through SuperDot without an account type indicator and submitting inaccurate account type indicators, violated NYSE Rule 401 by failing to obtain and maintain certain customer agreements in its capacity as prime broker in prime broker arrangements, and failed to require customers to maintain minimum net equity in six prime broker accounts. The firm also violated NYSE Rule 342 by failing to reasonably supervise its MOC/LOC, audit trail and prime broker business activities.
Deutsche Bank Securities, Inc. consented to the imposition by NYSE of a censure and a $325,000 fine in this second proceeding. See also Wei Wu, Decision 06-093 (NYSE Hearing Board June 26, 2006) (former registered representative disciplined for accessing and using his former member firm employer’s password-protected information).
In settling these charges brought by NYSE Regulation, Deutsche Bank Securities, Inc. neither admitted nor denied guilt.
About NYSE Regulation
NYSE Regulation, Inc., is a not-for-profit corporation dedicated to strengthening market integrity and investor protection. It protects investors by regulating the activities of member organizations through the enforcement of marketplace rules and federal securities laws.
NYSE member organizations hold 98 million customer accounts or 84 percent of the total public customer accounts handled by broker-dealers.Total assets of NYSE member organizations are over $4 trillion. They operate from 20,000 branch offices around the world and employ 195,000 registered personnel. NYSE Regulation, Inc. also ensures that companies listed on the NYSE and on NYSE Arca meet their financial and corporate governance listing standards.
NYSE Regulation consists of four divisions: Market Surveillance, Member Firm Regulation, Enforcement and Listed Company Compliance, as well as a Risk Assessment unit and Dispute Resolution/Arbitration. For more information, visit our Web site at www.nyseregulation.com.
