The hymn of Axiom: failure to disclose in FX trades doesn’t violate consumer protection law

Axiom Investment Advisors, LLC v. Deutsche Bank AG, 2017 WL
590320, No. 15 Civ. 9945 (S.D.N.Y. Feb. 13, 2017)
Deutsche Bank allegedly delayed execution of electronically
matched trade orders in the foreign exchange (FX) market in order to benefit
from market movements, known as “Last Look.” 
Axiom sued for breach of contract, breach of the implied covenant of
good faith and fair dealing, violations of N.Y. General Business Law §§ 349 and
350, and unjust enrichment.
The FX market is “the largest and most actively traded
financial market in the world, with global trades averaging $5.3 trillion per
day.” It mostly works through bilateral contracts, in which large banks such as
Deutsche Bank represent the “sell side” and act as liquidity providers or
market makers. Most FX trades occur on electronic trading platforms, with price
and quantity data reflecting limit orders placed by liquidity providers.  This data stream is constantly updated—limit orders
are filled or withdrawn within milliseconds. 
Deutsche Bank trades on both single-dealer and multi-dealer platforms; on
the latter, it’s only one of many liquidity providers.  Its single-dealer platform is called
Autobahn, which claims to provide “competitive and reliable prices in over 200
currency pairs” with “dynamically priced executable streaming prices customized
to suit each client’s requirements.”
Beginning in 2003, Deutsche Bank allegedly arranged for the
matching algorithms used by Autobahn and other networks to include an
unnecessary delay of anywhere from several hundred milliseconds to several
seconds. During this time, Deutsche Bank monitored the market movement and if
it moved against Deutsche Bank too much, Deutsche Bank would either reject the
matched order or execute it at the new price. Deutsche Bank allegedly never
directly disclosed Last Look to buy-side FX market participants. The process of
matching orders is undisclosed to market participants; “buy-side market
participants have no way of knowing whether any of their trades were delayed by
Deutsche Bank’s use of Last Look or whether Deutsche Bank reneged on any of
their matched orders.” Although reports about this practice surfaced “several
years ago,” the liquidity providers “said at that time that Last Look was
necessary to ensure that multiple trades were not executed on a single order,”
which the complaint alleged was pretextual and misleading.
The complaint stated a claim for breach of contract arising
out of transactions on Autobahn because the contract between the parties didn’t
unambiguously permit Last Look; so too with transactions on other networks (for
which there was no express contract between the parties).  The claim for breach of the implied covenant
of good faith and fair dealing was dismissed as redundant.  The court dismissed the claim for unjust
enrichment relating to the Autobahn transactions (because of the existence of the
contract) but not for the multi-dealer transactions.


The state consumer protection claims under N.Y. Gen. Bus. Law §§ 349, 350 were
dismissed because FX trading wasn’t consumer-oriented conduct.  Conduct is consumer oriented if it has “a
broader impact on consumers at large,” and consumers are “those who purchase
goods and services for personal, family or household use.” “Transactions
between businesses or sophisticated parties that do not affect average
consumers do not constitute consumer-oriented conduct.” Similar to securities,
FX is traded “as investments, not as goods to be ‘consumed’ or ‘used.’ ” 

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