U.S. regulators have fined a division of Goldman Sachs for failing to prevent trade executions at inferior prices in its dark pool, known as SIGMA-X.
The Financial Industry Regulatory Authority (FINRA) announced that it has fined Goldman Sachs Execution & Clearing, L.P. US$800,000 for failing to have policies and procedures in place to prevent so-called “trade-throughs” of protected quotations in its dark pool from November 2008 to August 2011. As a result, FINRA says that between July 29 and August 9, 2011 more than 395,000 transactions were done in Goldman’s dark pool where the execution traded through a protected quotation at an inferior price.
“During the eight-day trading period, Goldman Sachs was unaware that it was trading through a protected quotation in these instances,” FINRA said, noting that the trade-throughs were caused by market data latencies within the dark pool.
The firm settled the allegations, neither admitting nor denying the charges, but consenting to the entry of FINRA’s findings. In addition to the fine, the firm also returned US$1.67 million to customers that were disadvantaged by the inferior executions.
“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,” said Thomas Gira, executive vice president, FINRA Market Regulation.
In Canada, regulators recently proposed changes to their rule designed to prevent trade-throughs; among other possible market structure reforms.