Foreign Exchange Disclosures
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”) and precious metals (“PM”) markets. This document sets out our standard business practices and terms and conditions of dealing with our FX and PM 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 and/or PM 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 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 a transaction. This evaluation should include, among other things, the transaction’s terms and conditions and take into account the customer’s objectives and circumstances.
Other Roles and Interests
Acting in a capacity which is separate to its role as principal for FX and/or PM transactions, Deutsche Bank may enter into other transactions with a customer, provide finance to a customer, act as a customer’s agent, advise a customer on a transaction, or enter into transactions or perform such roles for third parties in transactions in relation to which a customer is a party (“Other Transactions”). When acting in such a capacity Deutsche Bank’s role as principal in relation to FX and PM transactions with a customer, as set out above, is unaffected. This continues to apply when DB is providing FX and/or PM transactions as hedging (“Hedging Transactions”) in relation to Other Transactions (to such customer or to third parties) and Deutsche Bank will act as a principal in relation to any Hedging Transaction. Deutsche Bank may enter into Hedging Transactions with more than one party to an Other Transaction or any similar transaction to which Deutsche Bank is not a party.
In relation to any FX and/or PM transaction (including any Hedging Transaction), Deutsche Bank may make a profit or a loss in the circumstances where the Other Transaction proceeds, or when it does not proceed, based on market movements, our general market positioning, the terms of the Hedging Transaction, any risk management transactions we have entered into in connection with any Hedging Transaction, and/or any other transaction. Any compensation, return or profit may be equal to or greater than the compensation payable to Deutsche Bank in consideration for its role in relation to Other Transaction(s).
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 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 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 may apply a number of risk management and operational controls automatically before a trade request is accepted or rejected. These controls employed prior to trade acceptance are referred to collectively as “last look.” Deutsche Bank operates a last look process comprised of a price check and a validity check (itself comprised of limits on counterparty exposure, credit checks, permissioning of currency pairs, and other controls). Deutsche Bank does not apply an additional hold time over and above the time taken to complete price and validity checks. The “last look window” as used in this section means the time taken to complete the price and validity checks.
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 price check control may be applied immediately upon receipt of a submitted trade request, or after a short delay.
In the price check, 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 time required to perform the price check can be configured with a customer specific delay in a range of 0 to 10 milliseconds for spot foreign exchange trade requests and may be revised by Deutsche Bank from time to time. The majority of Deutsche Bank’s customers for spot foreign exchange are subject to a price check with no delay (a duration of 0ms). When Deutsche Bank determines customer flows and activities present higher risks, a delay may be applied as part of the price check. The maximum delay applied as part of the price check for spot foreign exchange is 10 ms.
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.
The validity check comprises elements such as (without limitation) limits on counterparty exposure, credit checks, permissioning of currency pairs, and other controls. The duration of the validity check may be affected by latencies (on networks or on Deutsche Bank’s internal systems), the Deutsche Bank system used (or connected to) by the client, market liquidity, geography, time of day, product and currencies. In addition, the duration of the validity check does not include latencies in the system used by a client to communicate with Deutsche Bank. As such, the precise duration of the validity check and thus the overall duration of the last look window can be highly fact dependent and variable and cannot be analyzed with respect to an individual trade request. Deutsche Bank expects, based on analysis of aggregated data from a period in 2021, the majority (greater than 99.9% of transactions) of business conducted with it over an electronic platform to have an overall last look window in the range of 10-350 ms. For Deutsche Bank’s most optimised platform the upper end of this range may be reduced significantly.
The duration of the last look window (and price check) may differ for products other than spot foreign exchange.
The durations stated above (even those which are based on aggregated data) or otherwise provided to customers assume the normal functioning of markets, systems and other infrastructure. Technical problems, failures or disruption of infrastructure, systems and/or disrupted markets may extend the duration of the last look window beyond the durations stated above.
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 utilisation, 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 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 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 transactions to tailor Deutsche Bank’s provision of products and services to its customers. Deutsche Bank may use information regarding executed 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 categorisation as to product, geography and/or industry) to customers that may find such information useful in managing FX and/or PM 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 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 and/or PM 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 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, internalisation 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 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 has published an additional disclosure (the Foreign Exchange Algorithmic Execution and Aggregation Disclosure) for customers of its FX and/or PM algorithmic, automation and aggregation services, the contents of which may be updated from time to time. The link to this document is set out above.
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 and PM for a full range of FX and PM 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 and/or PM 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 a transaction with a third party at any time. This may occur before, during, or after the time at which: (i) the value of a transaction with a customer is determined; (ii) the value of an external market fixing or benchmark to which the 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 a transaction. They may affect whether provisions of a transaction are triggered such as option strike prices, barriers or resets, and may affect baskets or indices.
Reference Prices and High/Low Rates
Reference prices may be used to determine the observed market level that may trigger resting orders, order limits, fixings, algorithmic orders, option strike prices, barriers or other contingent events in relation to a transaction. In addition, Deutsche Bank may, from time to time, establish a high and/or low rate for a spot currency pair. Reference prices and high and/or low rates (each a “Reference Rate”) may be established based on factors which may include (without limitation): currency, liquidity, time of day, size, tenor and prevailing market conditions. Reference Rates may be determined, obtained or derived from transactions executed by Deutsche Bank in its wholesale foreign exchange business (whether electronically or voice executed), central bank rates, wholesale interbank quotes (such as those available from Reuters, EBS, Bloomberg and equivalents), other publicly available fixing sources and may also be derived from Deutsche Bank models.
Deutsche Bank may use Reference Rates in determinations related to filling or triggering contingencies in relation to the order and transaction types listed above or otherwise. In any such determinations, the primary market for each currency pair is determined by Deutsche Bank.
There may be circumstances where a transaction has been executed (in the market or by Deutsche Bank) at a rate subsequently determined to be different to the relevant Reference Rate established by Deutsche Bank. Deutsche Bank may not execute any or all of a customer’s trade request, including where Deutsche Bank establishes a high or low rate for a currency pair at or through a client’s trade request level.
Orders for Benchmark Prices at Specified Fixing Times
Orders for transactions whose pricing is set by reference to certain FX and PM 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 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 and/or PM markets). Without limitation, and where practicable, Deutsche Bank’s general business practice is to execute customer trade requests for spot FX and/or PM 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 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.
Changes to reporting practices in relation to “FX Swaps”
Please see the disclosures in relation to the reporting of FX swaps and forwards under European regulation, the contents of which may be updated from time to time.
Liquidity Provider Cover Sheet
The Global Foreign Exchange Committee (GFXC) has requested that all foreign exchange liquidity providers should complete a cover sheet prepared by the GFXC in relation to their wholesale foreign exchange market making activities. Deutsche Bank has published its response to this request below.