Fixed Income and Foreign Exchange Disclosures for customers of Private and Commercial Client Division and Wealth Management Division of Deutsche Bank (“Disclosure”)
Deutsche Bank AG and its branches and affiliates (together, “Deutsche Bank”, “we”, “our”) are active in fixed income markets for a wide range of products, including securities, foreign exchange (FX), and swaps and other derivatives. Deutsche Bank wishes to ensure that our counterparties (“Customer”, “counterparty”, “you”, “your”) have an understanding of our course of dealing in these products. This document provides Customers of the Private and Commercial Client Division and Wealth Management Division of Deutsche Bank with information with regard to pricing and execution of your orders, requests for quotation (‘RFQ’), trade instructions, transactions or other expressions of interest in fixed income and foreign exchange products (collectively “trade requests”). If you are a Customer of other divisions of Deutsche Bank you should consult Deutsche Bank’s “Foreign Exchange Disclosures” and/or “Fixed Income Disclosures” instead of this Disclosure. Cash equities, equity derivatives, exchange traded funds or similar securities, and listed derivatives traded on an agency basis are not addressed in this disclosure, other than specifically where referenced below. In accordance with our dedication to upholding a high level of integrity, Deutsche Bank’s course of dealing is in all cases intended to be carried out in compliance with all applicable laws and regulations and with our internal policies and procedures in furtherance of these laws and regulations.
This Disclosure shall not supersede (a) any general business terms and conditions, e.g. Deutsche Bank AG’s General Terms of Business, the Framework Agreement for Securities, the General Terms for Dealings in Securities (including the Principles for the Execution of Orders in Financial Instruments); any ISDA Master Agreement or German Master Agreement for Financial Derivative Transactions; (b) any other agreement with the Customer; or (c) any agreement with the Customer relating to a different activity or different capacity other than a “trade request” which is documented separately, in place between the Customer and Deutsche Bank; or (d) any law or regulation applicable to the “trade requests”.
I. Deutsche Bank’s role
As agreed with the Customer Deutsche Bank may act in respect of transactions with its Customers in its own name and on its own account (“acting as a principal”) or may execute the trade requests placed by its Customers for the purchase or sale of securities in the capacity of a commission agent (in the name of Deutsche Bank, but for the account of the Customer) and shall conclude for the Customer’s account a purchase or sale transaction with another market participant or a Central Counterparty (execution transaction) or it shall engage another commission agent (intermediate commission agent) to conclude an execution transaction. In electronic trading on an exchange, the Customer’s trade request may also be executed directly against Deutsche Bank.
Unless otherwise agreed with the Customer, Deutsche Bank carries out transactions in financial instruments in accordance with its Principles for the Execution of Orders in Financial Instruments (“Execution Policy”). With regard to non-securitised financial derivatives that are traded on standard terms and conditions on an exchange, Deutsche Bank and Customer conclude transactions on a commission basis. Non-standard derivatives and FX spot transactions are agreed bi-laterally between the Customer and Deutsche Bank.
Deutsche Bank reserves the right to not accept and / or execute a mandate to execute a trade request. Where Deutsche Bank acts as a principal and agrees to work a counterparty’s trade request, we are only indicating a willingness to attempt to enter into the trade requested by the counterparty. We will exercise our discretion in deciding whether to work the trade request, which trade requests we are willing to execute and when and how to execute all or any part of the trade request. Where Deutsche Bank agrees with the Customer to work a trade request over a period of time or otherwise accepts a trade request of the Customer which grants Deutsche Bank the right to exercise discretion, Deutsche Bank will endeavour to exercise this discretion reasonably and fairly, but, unless otherwise agreed Deutsche Bank is not committed to executing any or all of the trade request in any particular way.
II. Market Making
a. Risk management and hedging activities; conflicts
Deutsche Bank is a market maker in fixed income and foreign exchange products and as such may provide liquidity to multiple counterparties at the same time. As a result, Deutsche Bank may need to consider competing interests in executing its counterparties’ trade requests. Where permitted by law and regulation and when acting as a principal, Deutsche Bank may trade prior to (sometimes referred to as “pre-hedging”) or alongside a counterparty’s transaction in order to facilitate execution with other counterparties, to manage risk, to source liquidity and for other reasons. Deutsche Bank may hedge any exposure that would be created by a transaction prior to the execution of that transaction. We may also choose to leave a position unhedged or partially hedged. When acting as a principal, any profit or loss resulting from such trading will accrue to Deutsche Bank.
These market-making and hedging activities can have an impact on transaction pricing, timing and the availability of liquidity at levels necessary to execute transactions with you. They can also trigger, or delay, or prevent the trigger of, take profit or stop loss or other limit orders and contractual barriers, such as knock-outs or knock-ins, affecting the value of a transaction to a counterparty. We may establish, adjust or unwind any hedge from time to time in our discretion, including before the time for determination of a benchmark, fixing rate, or barrier or stop level which is a term of any of your transactions. Our hedging strategy may involve greater and more frequent dynamic adjustments as market prices approach a benchmark, fixing rate, or stop or barrier level.
When acting as a principal, Deutsche Bank may seek to satisfy the requests of all of its counterparties and its independent risk management objectives, and it retains discretion with respect to how to satisfy the trade requests of its counterparties, including with respect to execution, aggregation, priority and pricing. Deutsche Bank may possess material non-public information relating thereto, which may impact the price of your transactions, the timing of execution and/or the amount of your fill.
If Deutsche Bank is acting as a principal and we agree with you on a fixed or determinable price for an individual transaction (a ‘fixed-price transaction’, including, but not limited to, in respect of a securities transaction, a non-standard derivatives transaction or an FX spot transaction), we may incorporate what we determine to be an appropriate bid-ask spread, fee or markup / mark-down above/below the price at which Deutsche Bank may be able to transact, or has transacted, with other counterparties, in order to generate an appropriate return as compensation for its activity.
While Deutsche Bank is acting as a principal (including, but not limited to, in relation to a ‘fixed price transaction’) Deutsche Bank has discretion to offer different prices or service to different counterparties, or the same counterparty, for the same or substantially similar transactions. In determining any markup or spread, we may consider factors such as liquidity of the transaction type in prevailing markets, the size and/or complexity of the transaction, credit risk, counterparty risk, maturity, balance sheet and capital usage, risk limit utilization, trade-processing costs, sales efforts, hedging costs, hedge effectiveness and any other relevant considerations.
In executing transactions as a principal, Deutsche Bank may – to the extent permitted by law and regulation – look for market opportunities that satisfy both a price where we can execute a counterparty’s trade request and earn an appropriate return for that activity, including while managing and prioritizing other interests, positions and executions for Deutsche Bank and other counterparties.
If we act as a principal and execute a trade with a Customer through liquidity sourced from another counterparty, we may also receive additional compensation on, and fees for, the trade we execute with our other counterparty. Where permitted by law and regulation (and acting in compliance with such law and regulation), Deutsche Bank may also benefit from reduced transaction costs when executing through certain internal or external trading venues and, if we have an investment in, or other relationship with, an external venue, Deutsche Bank may receive other benefits as a result of that interest.
c. Liquidity Sourcing
If Deutsche Bank executes your transaction as a principal, it may enter into transactions through internal sources of liquidity, or externally in the market, in order to execute your transaction and offset the risk incurred. Deutsche Bank reserves the right to execute such a transaction with you using Deutsche Bank’s inventory or through acquisition or other hedging activities without disclosing to you the source or cost of the liquidity. Execution of a transaction with a counterparty does not mean that Deutsche Bank held or acquired inventory to complete the transaction, or that there exists any given quantity or quality of liquidity in the market at the execution level.
III. Execution of Trade Requests
If Deutsche Bank offers to execute your transaction as a principal and unless expressly agreed otherwise, Deutsche Bank’s price quotes are not an offer to execute your transaction at these prices and shall not be treated as a firm price offer. Deutsche Bank´s price quotes are indicative only and are an invitation to the Customer to provide Deutsche Bank with his offer. A transaction shall only be treated as having been executed at the time when Deutsche Bank accepts a counterparty’s offer, and Deutsche Bank may in its sole discretion accept or reject any offer for any reason, including the expiration or withdrawal of an indicated price or if Deutsche Bank determines that there is not sufficient liquidity in the market to execute at that price.
Where Deutsche Bank acts as a principal, it may in its sole discretion accept or reject any trade request. We are not generally obligated to disclose to you why we were unable to execute your trade request or why we accepted or rejected your offer. If we execute a trade request acting as a principal, the costs or benefits of any price changes arising from any risk management practices may, in our discretion, be retained by us or passed on to you.
b. Market disruption
In periods of extreme market volatility and/or disruption, Deutsche Bank has on some occasions seen delays to trades, including acceptance and execution of trade requests, pricing, price streaming and/or market data dissemination. Further, when Deutsche Bank acts as a principal, Deutsche Bank’s provision of pricing is subject to internal procedures and controls in relation to system or other issues which may disrupt the ability of Deutsche Bank’s system to provide accurate and/or up to date pricing. Deutsche Bank is not obligated to provide pricing, price streaming or accept trade requests and all determinations of if, whether or when market criteria have been met for execution shall be made by us in our sole discretion. The same shall apply in case we act as an agent or on a commission basis unless otherwise required by rules, regulation, and local civil law requirements.
Consistent with market practice, Deutsche Bank’s electronic trading platforms which are used when Deutsche Bank acts as a principal have position limits, volatility and other controls, that in each case may temporarily suspend execution, pricing and price streaming. It is possible that different counterparties submitting trade requests with similar profiles may achieve different outcomes, including whether and when such trade requests will be executed.
During volatile and/or disrupted markets, we will endeavour to continue to serve Customers acting either as a principal or as agent on a commission basis but we may not be able to provide the product offering, level of execution, liquidity and pricing – including in electronic markets – as would be the case under more normal market conditions.
b. Electronic execution tools
Deutsche Bank may elect to execute trade requests in respect of a transaction where Deutsche Bank acts as a principal by means of algorithms, internalization engines and/or other electronic execution tools (collectively, “execution tools”). In all cases, the applicable execution tool will seek to execute according to a predetermined methodology for the relevant execution tool, which may or may not be determined by Deutsche Bank.
The use of an execution tool in relation to a counterparty’s trade request in respect of a transaction where Deutsche Bank acts as a principal does not guarantee any particular outcome and/or execution of any amount requested. The results obtained from any execution tool may depend on the validity of the assumptions underlying it and prevailing market conditions that may impact these assumptions. The execution methodology utilized in relation to a particular execution tool does not guarantee execution of any part or all of a trade request.
In respect of a trade request where Deutsche Bank acts as a principal, Deutsche Bank may also elect to offset the risk of any transactions through an execution venue that is not operated by Deutsche Bank, and execution tools may be used to determine any such election.
Benchmark rates, or fixes, may be compiled by a benchmark administrator from live trade data, comprised of either tradeable quotes or traded transaction prices sourced from specific trading venues during a specified determination period known as the “fixing window”. A contribution to such a benchmark is sometimes referred to as a passive submission to the benchmark. Benchmark rates may also be published by central banks, or compiled from dealer surveys, either in the ordinary course or as a fall back in the event that the ordinary course source for the benchmark rate is not available. Deutsche Bank may participate in dealer surveys.
Deutsche Bank’s ordinary course market making business activities may impact benchmark rates, however, in the event that Deutsche Bank both acts as a submitter and transacts in relation to a benchmark, Deutsche Bank has established controls reasonably designed to mitigate or avoid potential conflicts of interest.
Transactions whose pricing is set by reference to a benchmark give rise to particular risk management concerns because Deutsche Bank, as a market maker, will be obligated to execute at a price that is not known at the time of trade. Risk management practices and Deutsche Bank’s other ordinary course activities will often result in the execution of hedging transactions before and during the fixing window, which may impact the ultimate benchmark fixing and may also impact pricing, volume and volatility in related markets.
Protecting the confidentiality and security of Customer information is an important part of how Deutsche Bank conducts its business. Deutsche Bank has reasonable controls that are designed to protect a Customer’s confidential information. However, counterparties should understand that Deutsche Bank does make use of some information contained in trade requests in order to effectuate and risk manage the transactions themselves, to the extent permitted by law and regulation.
Specifically, Deutsche Bank may use the economic terms of a trade request (but not the counterparty’s identity) to test liquidity and/or execute trades with one or more third parties (including interdealer brokers) in order to source liquidity. Deutsche Bank may also use the economic terms of various transactions (including factors relating to market, liquidity and credit risk) on a portfolio, individual trade or other basis to evaluate and execute risk-mitigating transactions. To facilitate this activity, Deutsche Bank may internally share economic terms relating to a transaction with persons acting in a sales or trading capacity for Deutsche Bank (or one of its agents). Deutsche Bank may also use economic information in its pricing methodology, as long as such usage is not designed or intended to disadvantage a Customer.
Deutsche Bank analyses transaction data on an individual and aggregate basis for a variety of purposes, including counterparty risk management, sales coverage, and Customer relationship management. Deutsche Bank may introduce such data to a third party vendor in an aggregated form for the purposes of benchmarking its performance.
In addition, Deutsche Bank may analyse, comment on and disseminate aggregated and anonymized information regarding executed transactions, as well as unexecuted orders or transaction instructions (other than market orders), together with other available information regarding various markets, internally and (with potential categorization as to product, geography and/or industry) to its Customers as part of its general market commentary and trade ideas.
In particular Deutsche Bank – to the extent permitted by law and regulation – may provide market colour, which can be any view or commentary. Market colour is not objective or independent, and may not be subject to the same controls as research. Market colour is not a recommendation and should not be relied on as such by Customers.
All information provided to a Customer by Deutsche Bank (unless already in the public domain) should be treated as confidential and should not be disclosed by a Customer to any third party.
Please note that Deutsche Bank has regulatory and other duties to supervise and control its business. Deutsche Bank shares information as necessary to fulfil these responsibilities and respond to general and specific regulatory and other requests with which it is required to comply.