Danske Tells Dealers How to Interpret Rules After Nasdaq Fine

Danske Bank A/S, which is being investigated for rigging mortgage bond prices, will step up efforts to ensure its traders comply with the rules after being fined by Nasdaq OMX for placing fake orders in AstraZeneca Plc.

“On the back of this, we’ve now stressed to all dealers how they need to interpret the rules, so that we can be sure the rules are followed,” Henrik Voetmann Mikkelsen, global head of equities at Danske, said in an e-mailed response to questions.

Danske will pay 500,000 kronor ($76,000) and a dealer at the bank has received an official warning after repeatedly placing “very large” orders for shares in AstraZeneca and then canceling them after a few seconds, Nasdaq OMX in Stockholm said yesterday in a statement.

“The dealer thought these were genuine orders and that they had a commercial purpose,” Voetmann Mikkelsen said. “But the disciplinary board” at the exchange “ has now decided that the exchange’s rules haven’t been followed. We of course accept that.”

Danske is Denmark’s biggest bank, with assets equivalent to almost double the nation’s gross domestic product. The Nasdaq OMX fine follows a separate decision by police earlier this year to probe Danske’s trades in mortgage bonds during the financial crisis. Denmark’s Public Prosecutor said Feb. 7 it was investigating the Copenhagen-based bank, its mortgage arm and six employees for manipulating bond prices in early 2009.

‘Completely Different’

“These are two completely different cases that bear no relation to each other,” Voetmann Mikkelsen said.

Danske shares rose 2.3 percent yesterday, compared with a 1.2 percent gain in the Bloomberg Europe Banks and Financial Services index. Danske is up 20 percent this year compared with a 0.8 percent advance in the index.

Nasdaq OMX said the AstraZeneca orders took place Aug. 22-30 last year when a Danske dealer bought and sold shares equivalent to about 4.6 percent of the stock’s trading volume in the period.

“Nasdaq OMX Stockholm noted a trading pattern that deviated from normally occurring trading in the shares of AstraZeneca,” the exchange said. “Danske Bank had repeatedly placed orders pertaining to very large blocks of shares in AZN, orders that were canceled after a few seconds, at the same time as the bank had placed smaller orders on the opposite side of the order book.”

Bonus Culture

“The trading pattern indicated that there was no intention that the orders registered would result in a trade, and that they had instead been designed during brief periods to send signals to other market participants of an increased supply of, or demand for, AZN shares,” the exchange said.

According to Nasdaq OMX, the smaller orders remained in place for longer periods of time and resulted in trades.

The exchange said the fine is in the lower end of what it would normally hand out in such cases because Danske hasn’t been involved in a similar breach before and because the exchange assumes neither Danske nor the trader knew the practice was prohibited.

AstraZeneca, the U.K.’s second-biggest drugmaker, is listed in both Stockholm and in London, where it has its headquarters.

The mortgage bond rigging probe started after Danske told the financial regulator it had come across some irregularities as part of an internal audit. The watchdog then handed the case over to police just days before a statue of limitations was due to take effect.

The alleged cases of price rigging at Danske were designed to drive mortgage bond prices higher, making client redemptions more costly, according to Hans Fogtdal, the public prosecutor in charge of the investigation. Police are also looking into Danske Bank’s bonus culture to find out whether the prospect of a bigger paycheck played a role, he said in February.

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