Deutsche Bank disciplined over algorithm error

Deutsche Bank: Chastised

Deutsche Bank has been reportedly reprimanded by the Osaka Securities Exchange after an ‘error with a trading algorithm' saw orders worth Y16.7 trillion made by accident back in June.

According to the ‘admonition', on the 1 June Deutsche Bank's proprietary trading unit in Japan placed sell orders on the bourse for US$182 billion's worth of Nikkei 225 futures contracts.

Luckily the error was quickly spotted and only 0.3 percent of the orders were executed. Deutsche Bank said that they believed the ‘mis-trades' has been caused by a proprietary automated trading system specially developed for its Asian Quantitative Trading (AQT) unit.

In a statement, the financial institution said it "takes the matter seriously and continues to implement measures to further strengthen its systems-related processes and governance, and to prevent such an incident from reoccurring".

System changes

The error is believed to occurred when system changes saw previously separate data files used to obtain prices integrated from country/product-specific files into one that consolidated all the information in products and markets across Asia.

When the QT unit operated the system with this new integrated data file in the evening session of 31 May on the OSE for the first time, it then issued excessive orders because it failed to obtain a required price.

When this happened, the value of the Nikkei 225 futures index was computed as zero, prompting it to continuously send sell orders. Once the error was noted, the bank promptly suspended the AQT system and discontinued the transaction.

As a result, the Osaka Securities Exchange said the bank had not had "a sufficient degree of control of the electronic information processing system relating to securities dealers".

Deutsche Bank hopes to resolve this in the future. The error echoes a similar one that occurred on the New York Stock Exchange at the beginning of the year, when Credit Suisse Securities failed to control an algorithm that went awry and flooded the Exchange trading system with hundreds of thousands of erroneous orders.

As a result, Credit Suisse was fined US$150,000.

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