The trader, Anshul Rustagi, has been ordered to stay away from the bank, pending a disciplinary hearing next week. He is alleged to have overstated profits on his own trading book, according to a Deutsche investigation, which was launched as soon as discrepancies became apparent.

The full size of the alleged abuse is not known because of the esoteric nature of the derivatives that Mr Rustagi traded. Known as collateralised debt obligations (CDOs), they can be very hard to value.

CDOs, once famously labelled “toxic waste” by Sir Howard Davies, the former chairman of the Financial Services Authority, have become very big business for investment banks.

The affair is especially sensitive because Deutsche Banks’ CDO desk is finalising its accounts ready for the annual bonus season — and millions of pounds of bonuses are at stake.

There has been a very high turnover of staff on the desk in recent months, with Mark Stainton, the former desk head, recently departing for a job with a US hedge fund.

The bank is understood to have notified the Financial Services Authority (FSA) but it does not regard the matter as criminal. Mr Rustagi, a relatively junior trader, is registered with the FSA.

The alleged mis-marking of CDO positions is said to have been going on for about two months. Mr Rustagi, who is said to be a bright MBA graduate, has been listed as an investment adviser on the FSA register of approved City operators since August 2004.

By overstating trading profits a trader would not benefit personally but an employee could hope to qualify for a larger bonus.

It is not Deutsche Bank’s first brush with alleged rogue trading. The bank lost £200 million when Peter Young, a former star fund manager, breached dealing rules by investing in small unquoted securities.

Because of their complexity and opacity, CDOs can be high-risk investments. The hedge fund GLG is thought to have shouldered large losses in the market after General Motors debt was downgraded to “junk” last May.

Barclays Capital settled a high-profile dispute with the German bank HSH Nordbank last year over losses in CDOs linked to corporate disasters such as Enron and WorldCom. Nordbank had been claiming $150 million (£80 million) to cover its losses. The dispute centred on valuation.

Derivatives were called “financial weapons of mass destruction” two years ago by Warren Buffett, the billionaire US investor, because of the difficulty of valuing them. Counterparties on each side of a trade could value them very differently, he said.

Deutsche Bank has met other mishaps recently. Its UK fund management arm, Deutsche Asset Management, lost clients and was sold to Aberdeen Asset Management. The bank’s chief executive, Josef Ackermann, faces a retrial of a case relating to bonuses paid to Mannesmann executives when Vodafone bid for the German telecoms group. However its booming derivatives trading and thousands of job cuts have produced record profits.

Mr Rustagi could not be contacted last night. Deutsche Bank declined to comment.

BANK'S WOES

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts