UBS, Deutsche Bank Cooperating in Trading Probe

UBS AG (UBSN) said the U.S. Securities and Exchange Commission is investigating its dark pool, while Deutsche Bank AG (DBK) is responding to requests for information from regulators on high-frequency trading.

The SEC has been investigating UBS’s private-trading venue since early 2012, the Zurich-based bank said in the litigation note of its quarterly report today, the first time it has acknowledged the probe. Frankfurt-based Deutsche Bank also said it received requests for information from undisclosed regulators on high-frequency trading without elaborating.

UBS’s dark pool was the second-biggest by U.S. shares traded in the week starting July 7 behind Credit Suisse Group AG (CSGN), according to data published by the Financial Industry Regulatory Authority yesterday. Deutsche Bank’s alternative trading system ranked fifth-biggest in the week, with Barclays Plc (BARC) paring some losses following a lawsuit by New York for allegedly lying to customers of its private exchange.

The British bank is fighting allegations it masked the role of high-frequency traders as it sought to boost revenue at what used to be Wall Street’s second-largest dark pool.

Credit Suisse Chief Executive Officer Brady Dougan said last week there has been a “significant increase” in inquiries on dark pools recently and the bank is cooperating with them. He didn’t say whether the bank is being investigated.

Photographer: Philipp Schmidli/Bloomberg

UBS AG Chief Financial Officer Tom Naratil said the bank considers a number of factors when deciding whether to disclose certain litigation in its reports, including whether or not it views an issue as relevant for the industry and investors as well as whether a potential charge related to the topic could be “material” for UBS. Close

UBS AG Chief Financial Officer Tom Naratil said the bank considers a number of factors... Read More

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Photographer: Philipp Schmidli/Bloomberg

UBS AG Chief Financial Officer Tom Naratil said the bank considers a number of factors when deciding whether to disclose certain litigation in its reports, including whether or not it views an issue as relevant for the industry and investors as well as whether a potential charge related to the topic could be “material” for UBS.

‘Disclosure Practices’

The SEC probe of UBS’s dark pool relates to various features, including “certain order types and disclosure practices” that were discontinued two years ago. The bank said it has also received inquiries from the New York attorney general and Finra and is cooperating with all of them.

UBS is also among “dozens of defendants,” including broker dealers, exchanges, high-frequency trading firms and dark pool sponsors named in putative class actions pending in New York federal court, which allege that the defendants’ equities order handling practices favored high-frequency traders at the expense of other market participants. The litigation is in “very early stages,” the bank said.

Deutsche Bank also said it’s named as a defendant in putative class action complaints alleging violations of U.S. securities laws related to high-frequency trading. The bank started an internal review into its alternative-trading system, the Financial Times reported today, citing people close to the situation. Deutsche Bank declined to comment.

Litigation Note

Dark pools are alternative trading systems where transactions are concealed from the public. They were created as a haven for institutional investors seeking to trade large blocks of shares in secret, hoping to minimize their impact on prices so they can get a better deal on their trades.

UBS executives declined to comment on details of the SEC investigation on a conference call today. Chief Financial Officer Tom Naratil said the bank considers a number of factors when deciding whether to disclose certain litigation in its reports, including whether or not it views an issue as relevant for the industry and investors as well as whether a potential charge related to the topic could be “material” for UBS.

“If you look at the press and the number of events surrounding that topic they certainly picked up in the second quarter,” Naratil said of the disclosure about probes on dark pools. “Our litigation note conformed with that pickup in activity.”

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Simone Meier, Cindy Roberts

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