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FINRA fines Goldman Sachs $800,000 for SIGMA-X failings

First Published 2nd July 2014

FINRA fines Goldman Sachs Execution & Clearing, L.P. $800,000 for failing to prevent trade-throughs in its alternative trading system.

Washington - The Financial Industry Regulatory Authority (FINRA) has 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 centres trade at the best-quoted prices or route orders to the trading centres 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.

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