Goldman Sachs will pay a $15 million fine to settle charges from the Commodity Futures Trading Commission (CFTC) it manipulated the execution of same-day swaps to the detriment of unsophisticated clients and for failing to accurately disclose the actual cost of those swaps.
Goldman admitted that over a two-year period from 2015-16 it failed to disclose any pre-trade-mid-market marks (PTMMM) on dozens of the same-day equity index swaps it executed or failed to disclose an accurate PTMMM in violation of CFTC rules, the agency said Monday in a press release.
The CFTC said it found Goldman “opportunistically solicited or agreed to enter into same-day swaps only on days and at times that were financially advantageous to Goldman and disadvantageous to its clients.” In many cases, Goldman made these same-day swaps appear more advantageous to the client than they were.
“Put simply, through a ‘same-day’ swap trade, Goldman could go long the index at a below-market level or go short the index at an above-market level,” the CFTC said in its order. “… Indeed, any client taking the other side of the trade would be buying the index at an above-market level or selling the index at a below-market level.”
Goldman trading and sales personnel would purposefully obscure certain key facts to clients who were not experienced in trading same-day swaps, the order said, and the practice was profitable to Goldman. In one series of trades in August 2015, Goldman earned more than $1.6 million in profits.
“Furthermore, communications show that Goldman personnel believed that the less the clients understood about the economics of the same-day swaps, the more profit Goldman could make,” the order said.
Through a spokesperson, Goldman declined to comment.