Goldman Sachs Fined $3M By Finra For Mismarked Sales

Finra has announced that Goldman Sachs, based in New York, has been censured and fined $3 million for mismarking around 60 million short sale orders as long, and for not maintaining a reasonable supervisory system. As a result of the incorrect categorization, 12,335 executed orders were at or below the national best bid while a short sale circuit breaker was in place, according to documents filed by the regulator today.

Finra stated that these orders were auto-generated to hedge the Synthetic Product Group's synthetic risk exposure that resulted from executing equity swap transactions with clients. By marking short sell orders as long, Goldman Sachs also violated Finra rules that require accurate trade reports and order memoranda.

Out of the $3 million fine imposed on Goldman Sachs, $1,147,500 must be paid directly to Finra.

Finra discovered the errors during an examination that looked into how Goldman Sachs executed large "parent orders" and their corresponding "child orders" between October 2015 and April 2018.

“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.”

According to the regulator, the broker-dealer, Goldman Sachs, rectified a coding error that Finra brought to its attention in April 2018. Additionally, the firm corrected another technical area when notified of it in October 2019. Although Goldman Sachs had a report to review the accuracy marks of parent orders, it did not ensure that the correct marking had been transferred to the child orders, resulting in the firm's inability to detect the mismarking of around 60 million short sale orders as long over a 29-month period.

This failure also led to 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. As a result, Goldman Sachs submitted over two million inaccurate trade reports to Finra and created and maintained over seven million inaccurate order memoranda.

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