New York-based Goldman Sachs was censured and will pay $3 million for mismarking about 60 million short sale orders as long, and for failing to maintain a reasonable supervisory system, Finra announced.
Because of the inaccurate categorization, 12,335 of the executed orders were at or below the national best bid while a short sale circuit breaker was in place, the regulator said in documents filed today.
“The orders were auto-generated to promptly hedge the Synthetic Product Group’s synthetic risk exposure resulting from its execution of equity swap transactions with clients,” Finra stated. “By marking short sell orders as long, Goldman also violated Finra rules relating to filing accurate trade reports and maintaining accurate order memoranda.”
Goldman Sachs did not respond to a request for comment by the time this story was filed.
Of the $3 million, $1,147,500 is payable directly to Finra.
The errors occurred between October 2015 and April 2018, and were discovered during a Finra examination that included how Goldman Sachs executed large “parent orders” and their associated “child orders,” according to Finra.
“The mismarked orders were caused by Goldman’s implementation of an upgrade to the relevant automated trading software that was intended to simplify this order flow,” Finra stated. “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.”
The broker-dealer corrected the coding error after Finra pointed it out in April 2018, and also corrected another technical area when notified of it in October 2019, the regulator said.
While Goldman Sachs did have a report that reviewed the accuracy marks of parent orders, it did not confirm that the proper marking had been carried over to the child orders, Finra said.
“This deficiency resulted in Goldman’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,” Finra said. “It also resulted in Goldman submitting over two million inaccurate trade reports to Finra and creating and maintaining over seven million inaccurate order memoranda.”