Goldman Sachs & Co. LLC
Goldman Sachs & Co. was fined $3,000,000 for erroneously mismarking and routing certain sell orders. The findings stated that the firm mismarked approximately 60 million short sell orders as long, of which 26,944,700 were sent to an alternative trading system (ATS).
The orders were auto-generated to promptly hedge the Synthetic Product Group’s (SPG’s) synthetic risk exposure resulting from its execution of equity swap transactions with clients. The mismarked orders were caused by the firm’s implementation of an upgrade to the relevant automated trading software that was intended to simplify this order flow. The firm 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 locate 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. The firm immediately fixed this coding error after being notified by FINRA.
In addition, the firm misapplied order marking logic to sell orders routed to the firm by a foreign affiliate in a manner that resulted in certain of those orders being inaccurately marked short. The firm corrected this error after being notified by FINRA.
The findings also stated that the firm failed to establish and maintain a supervisory system reasonably designed to comply with Rule 200(g) of Regulation SHO of the Securities Exchange Act of 1934 (Exchange Act) and FINRA rules relating to accurate trade reporting and order memoranda.
Although the firm had a report that was designed to surveil for order marking accuracy, that report reviewed the accuracy of the order marks of parent orders but did not confirm that the proper marking of the parent order carried over to the child orders. This deficiency resulted in the firm’s failure to detect that it had mismarked approximately 60 million short sale orders as long during an approximately 29-month period and the execution of 12,355 short sale transactions for 1,596,375 shares at or below the national best bid while a short sale circuit breaker was in effect.
It also resulted in the firm submitting over two million inaccurate trade reports to FINRA and creating and maintaining over seven million inaccurate order memoranda.
Subsequently, the firm enhanced its order marking surveillance report to capture child orders as well as parent orders, and also added an additional control designed to detect and prevent the routing of inaccurately marked short sale orders.
