Goldman Sachs Fined $3M for Mismarking 60M Short Sale Orders

by Solomon Oladipupo
  • The mismarking was caused by a coding error.
  • The global bank agreed to the fine without admitting or denying FINRA findings.
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The Financial Industry Regulatory Authority (FINRA) has slammed a censure and fine of $3 million on Goldman Sachs for mismarking approximately 60 million short sales orders as 'long' orders between October 2015 and April 2018. About 8 million of these orders, which amounted to over a billion shares, were executed in violation of US securities law and FINRA rules, the American self-regulatory organization (SRO) said in a published letter signed by both parties.

FINRA in the letter noted that the mismarking of the orders caused the New York-based global investment bank to submit inaccurate trade reports. Goldman Sachs, which has been a member of FINRA since October 1936, engages in market marking, execution services and underwriting as a broker-dealer. However, the full-service broker-dealer during the stated period, which is approximately 29 months, maintained inaccurate books and records, FINRA said.

Furthermore, the SRO noted that Goldman Sachs failed to create and maintain “a supervisory system reasonably designed to achieve compliance” with Regulation SHO and other rules relating to accurate trade reporting and order memoranda. Regulation SHO is a set of rules implemented by the US Securities and Exchange Commission (SEC) to regulate short-sale practices.

FINRA Explains Goldman Sachs’ Mismarking

According to FINRA, of the 60 million mismarked orders, nearly 27 million were forwarded to an alternative trading system, representing less than one percent of Goldman Sachs’ total principal selling orders at the time. The mismarking occurred as a result of Goldman Sachs’ upgrade of its relevant automated trading software intended to simplify its order flow.

“Goldman inadvertently failed to include a single line of code that was designed to copy the long or short mark from a parent sell order and affix it to the instantaneously created child sell order(s) that were routed to the market. While the parent orders were accurately marked as short sales and a location was obtained for each, the child orders did not receive the short sale order mark of the parent order due to the missing line of code," FINRA explained.

Goldman Sachs Rectifies Coding Error

Meanwhile, the regulator noted that the investment bank immediately rectified the coding error after it was notified about it in April 2018. In addition, the broker-dealer agreed to FINRA's findings without admitting or denying them.

“In May 2019, Goldman enhanced its order marking surveillance report to capture child orders as well as parent orders. In September 2019, the firm also added an additional control designed to detect and prevent the routing of inaccurately marked short sale orders (i.e., orders marked long that should be marked short),” FINRA explained.

Since the start of the year, FINRA has slapped varying fines on various broker-dealers for violations of the US securities law and its own rules. These include firms, such as Webull, SageTrader, UBS Securities, BGC Financial and Nomura Securities.

BUS Offers Interest; FINRA Warns against Phishing; read today's news nuggets.

The Financial Industry Regulatory Authority (FINRA) has slammed a censure and fine of $3 million on Goldman Sachs for mismarking approximately 60 million short sales orders as 'long' orders between October 2015 and April 2018. About 8 million of these orders, which amounted to over a billion shares, were executed in violation of US securities law and FINRA rules, the American self-regulatory organization (SRO) said in a published letter signed by both parties.

FINRA in the letter noted that the mismarking of the orders caused the New York-based global investment bank to submit inaccurate trade reports. Goldman Sachs, which has been a member of FINRA since October 1936, engages in market marking, execution services and underwriting as a broker-dealer. However, the full-service broker-dealer during the stated period, which is approximately 29 months, maintained inaccurate books and records, FINRA said.

Furthermore, the SRO noted that Goldman Sachs failed to create and maintain “a supervisory system reasonably designed to achieve compliance” with Regulation SHO and other rules relating to accurate trade reporting and order memoranda. Regulation SHO is a set of rules implemented by the US Securities and Exchange Commission (SEC) to regulate short-sale practices.

FINRA Explains Goldman Sachs’ Mismarking

According to FINRA, of the 60 million mismarked orders, nearly 27 million were forwarded to an alternative trading system, representing less than one percent of Goldman Sachs’ total principal selling orders at the time. The mismarking occurred as a result of Goldman Sachs’ upgrade of its relevant automated trading software intended to simplify its order flow.

“Goldman inadvertently failed to include a single line of code that was designed to copy the long or short mark from a parent sell order and affix it to the instantaneously created child sell order(s) that were routed to the market. While the parent orders were accurately marked as short sales and a location was obtained for each, the child orders did not receive the short sale order mark of the parent order due to the missing line of code," FINRA explained.

Goldman Sachs Rectifies Coding Error

Meanwhile, the regulator noted that the investment bank immediately rectified the coding error after it was notified about it in April 2018. In addition, the broker-dealer agreed to FINRA's findings without admitting or denying them.

“In May 2019, Goldman enhanced its order marking surveillance report to capture child orders as well as parent orders. In September 2019, the firm also added an additional control designed to detect and prevent the routing of inaccurately marked short sale orders (i.e., orders marked long that should be marked short),” FINRA explained.

Since the start of the year, FINRA has slapped varying fines on various broker-dealers for violations of the US securities law and its own rules. These include firms, such as Webull, SageTrader, UBS Securities, BGC Financial and Nomura Securities.

BUS Offers Interest; FINRA Warns against Phishing; read today's news nuggets.

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