FINRA Fines Goldman Sachs Execution & Clearing $800,000
On July 1, 2014, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined Goldman Sachs Execution & Clearing, L.P. $800,000 for failing to have reasonably designed written policies and procedures in place to prevent trade-throughs of protected quotations in NMS stocks from November 2008 through August 2011 in connection with trading in its proprietary alternative trading system, SIGMA-X.
The Order Protection Rule generally requires that trading centers trade at the best-quoted prices or route orders to the trading centers quoting the best prices. FINRA found that from July 29, 2011, through August 9, 2011, there were more than 395,000 transactions executed in SIGMA-X where the execution traded through a protected quotation at a price inferior to the National Best Bid and Offer (NBBO).
During the eight-day trading period, Goldman Sachs was unaware that it was trading through a protected quotation in these instances. The trade-throughs were caused by market data latencies at SIGMA-X and were undetected in a timely manner. FINRA found that from November 2008 through August 2011, Goldman Sachs failed to establish, maintain, and enforce written policies and procedures that were reasonably designed to prevent trade-throughs of protected quotations in NMS stocks; and failed to regularly surveil to ascertain the effectiveness of its policies and procedures designed to prevent trade-throughs of protected quotations in NMS stocks.
In connection with the approximately 395,000 trade-throughs, Goldman Sachs returned $1.67 million to disadvantaged customers.
Thomas Gira, Executive Vice President, FINRA Market Regulation, said, “It is imperative that firms take steps to ensure compliance with the SEC’s trade-through rule so that displayed trading interest is appropriately protected and customers do not receive executions at inferior prices. In today’s highly automated trading environment, FINRA has no tolerance for firms that fail to have robust policies and procedures to protect against trading through protected quotations.”
In settling this matter, Goldman Sachs neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2013, members of the public used this service to conduct 16.5 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.
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