Deutsche Bank makes bold move in answering ESMA on market abuse proposals

Just a few weeks have passed since the European Securities and Markets Authority (ESMA) generated a request for participation in assisting the pan-European regulator with forming the draft technical advice on possible delegated acts concerning the Market Abuse Regulation (2014/808).

Many responses have already been received by ESMA, however of particular interest is Deutsche Bank’s willingness to participate considering its current embroilment in the global investigation into the alleged FX benchmark manipulation by many large, multinational financial institutions.

Deutsche Bank has provided a concise response to ESMA’s request, proposing a series of amendments which would, in the bank’s opinion, increase the effectiveness of the proposed framework.

In particular, Deutsche Bank considers that to increase legal certainty for market participants in relation to the proposed advice on indicators of market manipulation, it would be helpful to explicitly state that certain activities – such as acts in compliance with the rules of a (regulated and supervised) trading venue – would not constitute market manipulation. Currently, Deutsche Bank has set aside funds in anticipation of fiscal penalties should the global regulators responsible for investigating whether FX benchmarks have been manipulated by Deutsche Bank decide that malpractice took place.

Whilst agreeing that non-exhaustive list of indicators of market manipulation proposed in the consultation paper issued by ESMA is appropriate, Deutsche Bank has cited ambiguity in the draft proposal (Annex 1 of the Market Abuse Regulation) by ESMA regarding situations described, stating that these should not constitute an indicator of market manipulation, since the price impact described in the actual propsals could result from any large order.

These proposals by ESMA state that as far as prices are concerned, the issuer must not, when executing trades under a buy-back programme, purchase instruments at a price higher than the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out.

If the trading venue is not a regulated market, the price of the last independent trade or the highest current independent bid taken in reference shall be the one of the [regulated market] of the Member State in which the purchase is carried out.

Where the issuer carries out the purchase of own shares through derivative financial instruments, the exercise price of those derivative financial instruments shall not be above the higher of the price of the last independent trade and the highest current independent bid.

In so far as volume is concerned, the issuer must not purchase more than 25% of the average daily volume of the shares in any one day on the regulated market on which the transaction is carried out.

In proposing that these aspects are revisited by ESMA, Deutsche Bank concedes that it is bound by German law that if a whistleblower policy is implemented in a similar vein to the system invoked by the US Commodity Futures Trading Commission in which industry professionals who are party to information which could be used by regulators to uncover malpractice by bank or trading desk employees can effectively shop their colleagues or managers to the regulator without repercussions.

To read Deutsche Bank’s submission of reply to ESMA, click here.

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