[Photo:  By Björn Laczay, from Moosburg, Germany / Flickr]

Deutsche Bank agreed to pay $157 million to settle Federal Reserve charges that bank foreign exchange traders had used chat rooms to communicate with other banks, and thus violated both foreign exchange rules and Volcker rules:

• $20 million for having lax supervision i.e., failed to detect and prevent its forex traders from using chat rooms; and,
• $137 million for having disclosed some positions and for coordinating trading strategies with other banks.

Regulators based their findings, in part, on transcripts of bank traders communicating in online chat rooms, which emerged more than a year ago.

FIRST VOLCKER RULE TRADING INFRACTION.    What makes this settlement significant is the fact that Deutsche Bank is the first big bank to be fined by the Federal Reserve under the Volcker Rule’s proprietary trading ban. Big bank traders are now restricted to assisting clients in buying or selling securities, and may derive profits from spreads or price moves – although differentiating between proprietary trading and market making can be difficult.

ANOTHER REGULATORY INVESTIGATION.   Deutsche Bank faces ongoing investigation by the New York State Department of Financial Services (NYSDFS) which has been looking into whether the bank used algorithms on trading platforms to front-run or otherwise take advantage of clients.