Goldman Sachs was fined $3 million by the Financial Industry Regulatory Authority (FINRA) for mismarking nearly 60 million short sell orders as long and related supervision failures.
The firm further agreed to be censured as part of FINRA’s disciplinary action published Tuesday. Goldman Sachs neither admitted nor denied the self-regulatory organization’s findings.
The details: From 2015-18, Goldman Sachs’s automated trading software mismarked sell orders following a system upgrade intended to simplify order flow, according to FINRA.
“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,” FINRA explained. “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.”
These alleged errors violated Regulation SHO and FINRA rules relating to filing accurate trade reports and maintaining accurate order memoranda. The firm was also faulted for failing to supervise its trading system, leading to the inaccurate execution of nearly 7.9 million orders and more than two million trade reports submitted to FINRA, the organization stated.
Compliance considerations: Goldman Sachs was alerted to the alleged deficiencies regarding its trading software by FINRA in April 2018. The firm immediately fixed the coding error, according to FINRA.
Goldman Sachs also corrected an error regarding its logic system for selling orders routed to the firm by foreign affiliates after being notified of the issue by FINRA in October 2019.
Goldman Sachs in 2019 enhanced its order marking surveillance reports and added additional controls designed to detect and prevent the routing of inaccurately marked short sale orders, according to FINRA.
Goldman Sachs declined to comment.