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Axiom Investment Advisors, LLC v. Deutsche Bank AG

United States District Court, S.D. New York

February 13, 2017

AXIOM INVESTMENT ADVISORS, LLC, by and through its Trustee Gildor Management, LLC, et al., Plaintiffs,



         This putative class action arises out of Defendant Deutsche Bank AG's (“Deutsche Bank”) alleged practice of delaying execution of electronically matched trade orders in the foreign exchange (“FX”) market in order to take advantage of how the market moved in the interim -- a practice known as “Last Look.” Plaintiffs Axiom Investment Advisors, LLC and Axiom Investment Company, LLC, by and through their Trustee Gildor Management, LLC (collectively “Axiom”), assert claims against Deutsche Bank 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. Deutsche Bank moves to dismiss Plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the motion is granted in part and denied in part.

         I. BACKGROUND

         For purposes of Deutsche Bank's motion, the following facts are drawn from the Complaint and documents integral to the Complaint. The facts are construed in the light most favorable to Axiom as the non-moving party. See Littlejohn v. City of New York, 795 F.3d 297, 306 (2d Cir. 2015).

         The FX, or foreign currency, market is the largest and most actively traded financial market in the world, with global trades averaging $5.3 trillion per day. Rather than occurring on a centralized exchange, the vast majority of FX trading is accomplished through bilateral contracts between two counterparties. In these bilateral contracts, large banks such as Deutsche Bank represent the “sell side” and act as liquidity providers or market makers. Institutional investors, asset managers, corporations, hedge funds and wealthy private investors represent the “buy side.”

         Today, most FX trades occur on electronic trading platforms. Electronic trading platforms display price and quantity data for various currency pairs. The price and quantity data reflect limit orders placed by liquidity providers. Because the FX market is extremely active, the limit orders are filled or withdrawn within milliseconds and replaced with new limit orders reflecting the new market price. Consequently, someone using an electronic trading platform sees a constantly updating stream of prices.

         There are two general types of electronic trading platforms -- single-dealer and multi-dealer. On a single-dealer platform, a single liquidity provider places limit orders. On a multi-dealer platform, commonly referred to as an electronic communications network or “ECN, ” multiple liquidity providers place limit orders.

         Deutsche Bank trades on both single-dealer and multi-dealer platforms. Deutsche Bank operates a single-dealer platform called Autobahn. Autobahn 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.” From 2006 to 2011, Deutsche Bank operated a second single-dealer platform called dbFX, which offered 34 currency pairs and “streaming realtime executable currency quotes, 24 hours a day.” Deutsche Bank also participates in multiple ECNs, including Currenex, Hotspot, FXAll and 360T.

         When Plaintiff or another buy-side market participant enters an order on an electronic trading platform, computer algorithms match that order to other outstanding orders on the platform. These algorithms can match orders within several milliseconds. Speed is critical because prices in the FX market can vary significantly in a second. Plaintiff alleges, however, that beginning in 2003, Deutsche Bank arranged for the matching algorithms used by Autobahn and other ECNs to include an unnecessary delay of anywhere from several hundred milliseconds to several seconds. During the delay, Deutsche Bank monitored the market movement and determined whether executing the order at the matched price would be favorable to it. If the market moved against Deutsche Bank beyond a predetermined threshold by the end of the delay period, Deutsche Bank would either reject the matched order or execute it at the new price. This practice is known as Last Look.

         According to the Complaint, Deutsche Bank never directly disclosed Last Look to buy-side FX market participants who transacted on electronic trading platforms. Because the process of matching orders is undisclosed to market participants and is usually completed in less than a second, 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 of FX liquidity providers using Last Look first 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. The Complaint alleges that this explanation was “pretextual and misleading” because Last Look was neither necessary to avoid executing multiple trades on a single order nor restricted to that function. The alleged abuse of Last Look did not start receiving attention among buy-side FX market participants until the summer of 2014, when several news articles reported that liquidity providers had been accused of using Last Look “aggressively to dial up the profitability of their books.”


         “On a motion to dismiss, all factual allegations in the complaint are accepted as true and all inferences are drawn in the plaintiff's favor.” Littlejohn, 795 F.3d at 306. “In determining the adequacy of the complaint, the court may consider any written instrument attached to the complaint as an exhibit or incorporated in the complaint by reference, as well as documents upon which the complaint relies and which are integral to the complaint.” Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d 119, 122 (2d Cir. 2005) (citation omitted); see also Beauvoir v. Israel, 794 F.3d 244, 248 n.4 (2d Cir. 2015).

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “[W]hatever documents may properly be considered in connection with the Rule 12(b)(6) motion, the bottom-line principle is that ‘once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.'” Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 563).


         As explained below, Deutsche Bank's motion to dismiss is granted as to Axiom's claims for breach of the implied covenant of good faith and fair dealing (Count III), deceptive trade practices (Count IV), false advertising (Count V) and unjust enrichment based on transactions that occurred on Autobahn (Count VI), but denied in all other respects.

         A. Breach of Contract ...

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