NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CBOT 09-04307-BC

CBOT 11-8055-BC
 

MEMBER FIRM:

Deutsche Bank Securities Inc.

CBOT RULE VIOLATIONS:

Rule 432. General Offenses

It shall be an offense:

I. To make a verbal or written material misstatement to the Board, a committee, or Exchange employees;

W. For a Member to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.

Rule 526. Block Trades

A. A block trade must be for a quantity that is at or in excess of the applicable minimum threshold. Orders may not be aggregated in order to achieve the minimum transaction size, except by those entities described in Sections I. and J.

F. The seller must ensure that each block trade is reported to the Exchange within five minutes of the time of execution; except that block trades in interest rate futures and options executed outside of Regular Trading Hours (7:00 a.m. – 4:00 p.m. Central Time, Monday – Friday on regular business days) must be reported within fifteen minutes of the time of execution.

The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.

Rule 536. Recordkeeping Requirements for Pit, Globex and Negotiated Trades

A.1. At the time of execution, every order received from a customer must be in the form of a written or electronic record and include an electronic timestamp reflecting the date and time such order was received on the floor of the Exchange and, except as provided in Section C, must identify the specific account(s) for which the order was placed. Such record shall also include an electronic timestamp reflecting the date and time such order was modified, returned, confirmed or cancelled.

FINDINGS:

Pursuant to an offer of settlement in which Deutsche Bank Securities Inc. (“DBSI”) neither admitted nor denied the rule violations upon which the penalty is based, on November 27, 2012, a Panel of the CBOT Business Conduct Committee found that between October 1, 2009, and March 16, 2012, DBSI, through its employees, executed multiple block trades for customers in various

CBOT contracts that were not reported to the Exchange within the applicable time limit following execution. DBSI employees also reported several inter- commodity spread trades to the Exchange as block trades when these transactions did not meet the minimum quantity threshold for inter-commodity spread block trades. In so doing, the Panel concluded, DBSI violated CBOT Rule 526.A. and F.

Additionally, the Panel found that during the same time frame, DBSI, through its employees, misreported to the Exchange the true and accurate time of execution of multiple block trades. Further, on two occasions, DBSI employees appeared to intentionally misreport block trades’ execution times in order to give the appearance that the transactions were reported to the Exchange within the applicable time limit following execution. In so doing, the Panel concluded, DBSI violated CBOT Rule 432.I.

The Panel further found that DBSI failed to maintain accurate written or electronic records of the block trade transactions. Specifically, on numerous occasions, DBSI did not have order tickets or other acceptable records of block trades the firm executed for customer orders, and/or did not have accurate and reliable time-keeping mechanisms in place upon which to base the time of execution. In so doing, the Panel concluded, DBSI violated CBOT Rule 536.

The Panel concluded that by failing to diligently supervise its employees or agents in the conduct of their business relating to the Exchange, DBSI violated CME Rule 432.W.

PENALTY:

In accordance with the settlement offer, the Panel ordered Deutsche Bank Securities Inc. to pay a $550,000 fine. In coming to accept DBSI’s offer of settlement, the Panel considered procedural modifications the firm adopted since 2011 to improve its recordkeeping and reporting processes regarding block trades.

EFFECTIVE DATE:

November 29, 2012