Foreign Exchange Disclosures (Terms and conditions of FX Dealing)
Deutsche Bank AG (acting through its various branches and its affiliates, “Deutsche Bank”) would like to highlight certain matters relating to Deutsche Bank’s role in foreign exchange (“FX”) markets. This document sets out our standard business practices and terms and conditions of dealing with our FX customers and establishes the basis on which we can provide our customers with pricing and execution of their trade requests.
Deutsche Bank’s Role in Relation to its Customers
Deutsche Bank acts as principal for FX transactions, in an arm’s-length role in relation to its customers, and does not act as agent, fiduciary or in any advisory capacity for any FX transaction, except as expressly agreed in writing beforehand. Each customer (or its agent) should independently evaluate for the benefit of the customer the appropriateness of an FX transaction. This evaluation should include, among other things, the FX transaction’s terms and conditions and take into account the customer’s objectives and circumstances.
Customer Trade Requests
A customer may submit its trade request in the form of an order or an instruction. Deutsche Bank is not under any obligation to accept and act upon any customer trade request in any form (including voice and electronic), subject to any applicable terms and conditions. Except as may be required by such terms and conditions or applicable law, Deutsche Bank may return an accepted trade request to the customer at any time, and acceptance of a trade request does not oblige Deutsche Bank to enter into any FX transaction with a customer, in whole or in part. Market risk is considered transferred to a customer at the time the relevant trade request is filled by Deutsche Bank and this may be prior to receipt of communication by a customer in relation to the relevant FX transaction.
When a customer transmits a trade request to Deutsche Bank on any electronic platform (including any platform operated by a third party), Deutsche Bank shall follow the procedures agreed with the customer (such as set out in this document and in any agreement or terms for electronic trading) and, where not conflicting, those applicable to the relevant execution method and platform. As part of the trade acceptance process operated by Deutsche Bank, we may apply a number of risk management and operational controls automatically before a trade request is accepted or rejected (such as a price check, limits on counterparty exposure, credit checks, permissioning of currency pairs, and other controls). At Deutsche Bank these controls employed prior to trade acceptance are referred to collectively as “last look.”
The price check feature of last look is a control that is used to identify whether a customer’s trade request is made at a price that, at the moment of the trade acceptance decision, is within Deutsche Bank’s price tolerance for execution for that customer. This control may be applied immediately upon receipt of a submitted trade request and application of all other last look checks, or after a short delay. In each case, Deutsche Bank compares the price for the relevant currency pair included in the customer’s trade request with the price at which Deutsche Bank calculates that it is willing to trade with that customer, based on then-current market information (the “refreshed price.”) If the price check shows that the refreshed price has moved relative to the price included in the customer’s trade request by more than the relevant price tolerance for that customer, Deutsche Bank will reject the trade request. Otherwise, subject to other controls and the agreement between Deutsche Bank and its customer, Deutsche Bank will accept the trade request. Changes to pricing during the period of operation of the price check control may affect whether a trade request is accepted or rejected.
The default setting by which Deutsche Bank operates the price check control is to reject trade requests when the price has moved during the period of delay against Deutsche Bank (rather than when price movements have gone in its favour) in excess of the relevant price tolerance. This setting is sometimes referred to as “asymmetric”. Deutsche Bank employs an asymmetric price check by default because it believes, in general, that this allows Deutsche Bank to provide customers with a deeper, more consistent liquidity offering, at tighter pricing and higher fill rates than it otherwise could. The application of asymmetric price checks may result in a lower proportion of trades being accepted where the price moves against Deutsche Bank during the period of delay than where the price moves in its favour.
Subject to the procedures and technical capability of the electronic platform customers transact through, customers who prefer to trade subject to a symmetric price check may opt out of the default setting. This choice will result in Deutsche Bank rejecting trades when a price movement for the requested currency pair during the period of delay exceeds the relevant tolerance for that customer, regardless of whether the price moves in favour of or against Deutsche Bank on that trade request. This choice, however, may result in a lower overall trade acceptance rate and/or a wider spread of prices provided to the customer. A variation on the symmetric price check is the symmetric price check with price improvement. If a customer opts for the symmetric price check with price improvement, if the price moves in favour of Deutsche Bank in excess of the relevant tolerance for that customer, Deutsche Bank will accept the trade request, but at the then-prevailing price rather than the originally requested rate, passing on the price improvement to the client.
Alternatively a customer may choose to submit a trade request type (such as the “at latest” trade request) that Deutsche Bank has specified will not be subject to an asymmetric price check. Subject to other controls and the agreement between Deutsche Bank and its customer, ”at latest” trade requests will be executed at the refreshed price prevailing for that customer at the moment of the trade acceptance decision, although such trade requests may be subject to a protective price band, which is implemented in a similar manner to a symmetric price check but with a different configuration, and is intended to prevent execution when pricing moves outside of a certain range from the level at the point in time at which the trade request is received.
The application of the price check feature of last look allows Deutsche Bank to manage the risk posed by technological anomalies and latencies as well as to protect itself from certain adverse trading behaviours and market conditions. For example, if a customer engages in activities such as aggregation, order splitting or stale quote selection this may result in more rejected trade requests. The price provided by Deutsche Bank, the proportion of trade requests that are rejected, the extent of any short delay applied and the potential withdrawal of previously displayed prices are reviewed periodically by Deutsche Bank and may depend upon factors applicable to the customer and its trading preferences as well as Deutsche Bank’s overall risk tolerance. The factors applicable to one customer may differ from those applicable to other customers and may lead to differences in pricing, duration of delay and acceptance rates among customers.
Pricing not Continuous
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, Deutsche Bank’s provision of pricing is subject to internal procedures and controls in relation to system or other issues which 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.
In line with market practice, Deutsche Bank's electronic trading platforms have position limits, volatility and other controls, that in each case may temporarily suspend execution, pricing and price streaming. It is possible that different customers 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 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 normalized market conditions.
Any price provided by Deutsche Bank (in relation to any type of customer trade request, including but not limited to any take profit order, stop loss order (together “resting orders”)) may be inclusive of bid-ask spread, a mark-up determined by Deutsche Bank to be appropriate for the customer and the type of transactions that the customer executes with Deutsche Bank and/or other costs or fees included in the price provided by Deutsche Bank (such as, but not limited to, any component of pricing related to small transaction size), in each case allowing Deutsche Bank to earn an appropriate return for its activities. Deutsche Bank is not under any obligation to disclose the specific amount of any bid-ask spread and/or mark-up to a customer (unless otherwise agreed in writing or required by law). In determining any pricing (or any component of pricing), Deutsche Bank may consider factors such as liquidity of the transaction type in prevailing markets, the size and/or complexity of the transaction, credit costs, balance sheet and capital usage, risk limit utilization, trade processing costs, sales efforts and any other relevant considerations. As these factors may vary, Deutsche Bank may offer different prices to different customers for the same or similar FX transactions or components of such FX transactions. Further, Deutsche Bank may vary pricing for various reasons, including for commercial purposes; for technological or platform reasons; or to manage the market impact and other effects of the bank's pricing. For any given customer, different pricing may apply to different types of trade requests depending upon the factors noted above. Deutsche Bank may also be compensated in the form of an agreed fee.
Pricing provided by Deutsche Bank may be based upon (or include) pre-determined pricing for tiered levels of: liquidity, volume, maturity, currency pair or other relevant factors, with each relevant tier having a corresponding price (sometimes known as a pricing ladder).
Deutsche Bank may use the economic terms of customer trade requests and transactions internally and provide such information to third parties to accomplish transaction execution, risk management and other goals. Deutsche Bank limits such use and disclosure in a manner consistent with applicable law.
Deutsche Bank may need to determine appropriate pricing by sourcing liquidity from a Deutsche Bank trading desk or by transacting with third parties. In addition, as Deutsche Bank will manage the resulting risk of a requested FX transaction (including market, liquidity and credit risks) on an individual, portfolio, or other basis, it may be necessary for Deutsche Bank to execute one or more risk mitigating transactions. To facilitate this activity, Deutsche Bank may internally share economic terms relating to a customer’s trade request to persons acting in a sales or trading capacity for Deutsche Bank (or one of its affiliates or agents).
With regard to executed FX transactions, Deutsche Bank reviews the economic terms on an individual transaction and aggregate basis to assess the impact on market, liquidity and credit risks. Deutsche Bank may use information regarding the economic terms of individual FX transactions to tailor Deutsche Bank’s provision of products and services to its customers. Deutsche Bank may use information regarding executed FX transactions and unexecuted trade requests (other than market orders and trade requests subject to last look controls) and other available information regarding market conditions to shape Deutsche Bank’s overall market views and pricing. Deutsche Bank uses such information, on an anonymised and aggregated basis, internally and communicates it (with potential categorization as to product, geography and/or industry) to customers that may find such information useful in managing FX risks and entering into transactions. 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.
Deutsche Bank Trading
Deutsche Bank may execute FX transactions for its own account or for the benefit of other customers prior to execution of any trade request that a customer has placed with Deutsche Bank. Deutsche Bank may also engage in risk management activities prior to (sometimes referred to as “pre-hedging”) or at the same time as executing a transaction with a customer. These risk management activities may include trading in the same FX product or currencies, trading in correlated products or currencies, and establishing derivatives positions on any of the foregoing, and may also take account of other sources of exposure (such as market dislocations and disruptions). These risk management activities may also include using unexecuted trade request information (aggregated where possible) in Deutsche Bank’s pricing, as long as such usage is not intended to disadvantage a customer. However, unexecuted trade requests which are subject to last look controls are not used to inform Deutsche Bank’s trading, for pre-hedging, in other risk management activity, or in determining Deutsche Bank's pricing, during the period of operation of such controls unless Deutsche Bank has agreed with a customer that: (i) it will fill the customer’s trade request by first entering into offsetting transactions in the market; and (ii) the volume traded in the last look window will be passed on to the customer in its entirety.
Execution of Trade Requests
When Deutsche Bank receives a trade request such as, but not limited to, a resting order, Deutsche Bank’s acceptance of the trade request indicates a willingness to attempt to complete the requested FX transaction, in whole or in part, subject to prevailing market conditions, Deutsche Bank’s overall order book and risk management needs, and other relevant factors. Trade requests may be aggregated, executed proportionately, rounded, time prioritized or prioritised and filled in line with prevailing liquidity and/or other relevant circumstances as applicable. The application of mark-up may impact the liquidity that can be provided by Deutsche Bank in connection with filling a customer’s trade request and/or may also result in a trade request not being filled.
For resting orders, Deutsche Bank reserves the right to retain all or part of any price improvements in the market. For trade requests executed at “market,” any upside or downside fluctuations in the price at the time of execution may be passed to customers.
Deutsche Bank strives to ensure trade requests in the form of orders are appropriately time stamped and the following is a statement of Deutsche Bank’s general practice in time stamping such orders and may be subject to case by case and geographical variations. Orders submitted to Deutsche Bank through an electronic interface, platform or connection will be time stamped when they are submitted and when they are accepted. Orders submitted to a Deutsche Bank salesperson will be entered manually and there may be a short delay between the point of acceptance and the time stamping of the order in Deutsche Bank’s records. Once captured in one of Deutsche Bank’s order books such orders will be time stamped when any amendments are made and when the order is executed.
Deutsche Bank may receive multiple trade requests from different parties and Deutsche Bank retains discretion as to how to meet such requests, including timing, priority, pricing, aggregation and completeness of execution. As noted above, Deutsche Bank may need to hedge its exposure arising from the requested transaction or transactions for other customers which may impact prevailing pricing prior to, at, or after execution of the customer’s trade request. Deutsche Bank also will use its judgement based upon available market and internal information, including, but not limited to, available price levels and actual liquidity available during circumstances such as a disruption event, to determine whether the parameters of a trade request have been satisfied and the extent to which the requested amount of a trade request can be satisfied under prevailing conditions to enable execution of a transaction in whole or in part.
When a customer instructs Deutsche Bank to work a trade request over any period of time or to otherwise execute at a level that is not yet determined, Deutsche Bank will seek to execute the trade request at a price that is reasonable given any relevant factors, including but not limited to, the prevailing market conditions. In doing so, Deutsche Bank may enter into risk management transactions at different times and prices to be able to execute the trade request. In executing any trade request, Deutsche Bank may have recourse to internal or external sources of liquidity at its discretion.
Deutsche Bank may also execute a trade request by means of an execution tool that may cause Deutsche Bank to enter into prior transactions in the process of executing a customer’s trade request.
Electronic Execution Tools
Deutsche Bank may elect to execute trade requests by means of algorithms, internalization engines and/or other electronic execution tools (collectively, “execution tools”) and/or customers may request Deutsche Bank to execute by means of a specific execution tool designated by the customer. For the avoidance of doubt, unless agreed otherwise in writing Deutsche Bank will always act as principal in respect of any FX transaction executed by means of an execution tool. In all cases, the applicable execution tool will proceed to seek execution of a customer’s trade requests by means of a predetermined methodology for the relevant execution tool, which may be determined by Deutsche Bank.
The use of an execution tool in relation to a customer’s trade request does not guarantee any particular outcome and/or execution of any amount requested. Customers should ensure that any execution tool that they designate in an instruction to Deutsche Bank is appropriate for their needs. Deutsche Bank is not responsible for Customer’s choice of execution tool or evaluating Customer’s goals in selecting any execution tool. The output or offering of any execution tool is not investment advice or a recommendation. The results obtained from any execution tool may depend on the validity of the assumptions underlying it and prevailing market conditions may impact these assumptions.
Deutsche Bank may 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.
Deutsche Bank is a global dealer in FX for a full range of FX products including spot, forwards, and derivatives. While handling customer trade requests, Deutsche Bank may continue to establish, maintain, modify and terminate positions for its own account in the same FX products in which its customers trade to ensure that it has sufficient capacity to meet anticipated customer demand or respond to market movements. Deutsche Bank is a market maker across currencies and products, with employees trading across global locations on a continuous basis whenever markets are open for trading. As a result, subject to internal controls relating to the use of customer information and compliance with applicable laws and regulations, Deutsche Bank’s global activities may result in a Deutsche Bank trading desk or individual trader other than the one handling the trade request of a given customer executing a transaction for the benefit of Deutsche Bank or another customer at a price that could satisfy the original customer’s trade request.
Deutsche Bank’s market making activities may be based on the ideas of its traders, sales staff, research staff, as well as on public information sources. The ideas that form the basis of Deutsche Bank trading decisions are often shared with Deutsche Bank customers as trade ideas or market colour, upon which Deutsche Bank customers may or may not act. It is possible, therefore, that Deutsche Bank could have positions for its own account that are the same, similar, different or opposite to the positions of its customers.
The price for a customer’s trade request or transaction may be impacted, adversely or favourably, by Deutsche Bank executing transactions for its own account or with another customer, as part of its market making activities or in the circumstances indicated above in General and Execution of Trade Requests. Such transactions executed by Deutsche Bank may be in the same products or currencies as the customer’s trade request or transaction or in other products or currencies. Further, customers should be aware that Deutsche Bank may enter into, unwind, terminate, or close out all or part of an FX transaction with a third party at any time. This may occur before, during, or after the time at which: (i) the value of an FX transaction with a customer is determined; (ii) the value of an external market fixing or benchmark to which the FX transaction makes reference is determined; or (iii) either Deutsche Bank’s or its customer’s rights are capable of being triggered or exercised with respect to an FX transaction. They may affect whether provisions of an FX transaction are triggered such as option strike prices, barriers or resets, and may affect baskets or indices.
Orders for Benchmark Prices at Specified Fixing Times
Orders for transactions whose pricing is set by reference to certain FX benchmarks can create additional concerns for transaction execution and management of related risks. The discussion below relates to rates that are calculated by a third-party service at a specified time of day, such as WM/R benchmarks.
To meet Deutsche Bank’s obligation to a customer to execute a FX transaction at a benchmark rate, Deutsche Bank faces the challenge of finding an appropriate method of hedging Deutsche Bank’s exposure arising from transacting at a price that is not yet known and will not be determined until the closing of a specified determination period (referred to as the “Fixing Window”). Risk management practices will often result in execution of hedging transactions prior to or during the Fixing Window itself because of a number of factors, including, but not limited to, changes in the full amount and direction of customer orders prior to the Fixing Window and variations in markets during this period. Given that other market participants may face the same challenge, the volume of transactions prior to or during the Fixing Window may increase, and such transactions may impact the ultimate benchmark fixing (and may also impact pricing and volatility of related FX markets). Without limitation, and where practicable, Deutsche Bank’s general business practice is to execute customer trade requests for spot FX transactions at a benchmark rate by means of a Deutsche Bank execution tool, (see “Electronic Execution Tools” above).
Deutsche Bank engages in other ordinary course of business activities that may impact a benchmark rate, including sourcing liquidity for other customer orders that are unrelated to a benchmark fixing, or acting as a market maker or engaging in risk management activities. Such activities may cause Deutsche Bank to execute unrelated FX transactions prior to or during a Fixing Window or at other times that may impact transactions relating to a benchmark fixing and may also impact pricing and volatility in related markets.
While the above describes transaction-based benchmarks, benchmark rates may also be published by central banks, or compiled from dealer surveys (such as those sponsored by the Emerging Markets Traders Association), 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. While these submission-based benchmarks differ from the transaction-based benchmarks discussed above, in the event that Deutsche Bank may act as both a submitter and transact in relation to such benchmarks Deutsche Bank has established controls designed to mitigate or avoid potential conflicts of interest.