United States Authority Fines Goldman Sachs $15 Million for Profiting Financially from Not Disclosing Same-Day Equity Swap and T+1 Equity Swap Arrangements to Clients
15th April 2023 | Hong Kong
United States authority Commodity Futures Trading Commission (CFTC) has fined Goldman Sachs $15 million for profiting financially from not disclosing same-day equity swap and T+1 equity swap arrangements to clients. Commodity Futures Trading Commission: “The order finds that in 2015 and 2016, Goldman transacted dozens of “same-day” equity index swaps with U.S.-based clients. In a “same-day” equity index swap, the equity leg of the swap strikes on the “same day” as the other material terms of the swap are agreed upon, rather than—as is typical—the day after the date of agreement. The order finds that Goldman failed to disclose to clients the PTMMM (pre-trade-mid-market marks) of these swaps – often disclosing a PTMMM for a different swap (the analogous “T+1” swap) instead, thereby obscuring the value of the same-day swap. The order finds that 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. Moreover, the manner in which Goldman communicated to clients caused the same-day swaps to appear more economically advantageous to the clients than they actually were.” See below for CFTC statement.
“ United States Authority Fines Goldman Sachs $15 Million for Profiting Financially from Not Disclosing Same-Day Equity Swap and T+1 Equity Swap Arrangements to Clients “
United States Authority Fines Goldman Sachs $15 Million for Profiting Financially from Not Disclosing Same-Day Equity Swap and T+1 Equity Swap Arrangements to Clients
- CFTC Orders Goldman Sachs to Pay $15,000,000 for Violations of Swap Business Conduct Standards
- Swap Dealer Failed to Disclose Pre-Trade-Mid-Market Marks and Failed to Communicate in a Fair and Balanced Manner
10th April 2023 – The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against Goldman Sachs & Co. LLC (Goldman) for violations of the CFTC’s Business Conduct Standards applicable to swap dealers. Specifically, the CFTC found that Goldman failed to disclose dozens of pre-trade-mid-market marks (PTMMM), in violation of Regulation 23.431, and failed to communicate to clients in a fair and balanced manner based on principles of fair dealing and good faith, in violation of Regulation 23.433.
Goldman admits that for nearly all “same-day” swaps executed in 2015 and 2016, it either failed to disclose any PTMMM or failed to disclose an accurate PTMMM, and that this conduct violated a CFTC regulation.
The order imposes a $15,000,000 civil monetary penalty.
“The purpose of the CFTC’s Business Conduct Standards is to promote transparency and fairness in the swaps market. The CFTC is committed to ensuring that swap dealers abide by these standards, so that swap counterparties receive disclosures allowing them to assess material aspects of the swaps before entering into them. As today’s penalty against Goldman demonstrates, the CFTC will aggressively pursue swap dealers that violate these business conduct standards,” said Director of Enforcement Ian P. McGinley.
Case Background
The order finds that in 2015 and 2016, Goldman transacted dozens of “same-day” equity index swaps with U.S.-based clients. In a “same-day” equity index swap, the equity leg of the swap strikes on the “same day” as the other material terms of the swap are agreed upon, rather than—as is typical—the day after the date of agreement. The order finds that Goldman failed to disclose to clients the PTMMM of these swaps—often disclosing a PTMMM for a different swap (the analogous “T+1” swap) instead, thereby obscuring the value of the same-day swap.
The order finds that 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. Moreover, the manner in which Goldman communicated to clients caused the same-day swaps to appear more economically advantageous to the clients than they actually were. As found in the order, in certain instances, Goldman disclosed a PTMMM for the “T+1” swap and then bid over it for the “same-day” swap, giving the client the impression that the same-day swap was a better deal for the client than the T+1 swap when, in fact, it was not. Indeed, the order finds any marginal benefit Goldman offered to clients on the interest rate leg of the swap would be outweighed by the cost to clients on the equity leg when transacting “same day.” The order finds that Goldman failed to communicate in a fair and balanced manner by touting the supposed benefits of same-day swap transactions, but not the corresponding costs.
The Division of Enforcement staff responsible for this case are Sam Wasserman, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.
United States Authority Fines Goldman Sachs $3 Million for Wrong Labelling of 60 Million Short Sale Orders as Long Orders with Error Caused by Failing to Modify a Single Line of Computer Code During Upgrade to Automated Trading System, Resulted in 12,335 Trades Executed at Below Best Displayed Price During Short Sale Circuit Breaker
7th April 2023 – Authority (FINRA) has fined Goldman Sachs $3 million for wrong labelling of 60 million short sale orders as long orders with the error caused by failing to modify a single line of computer code during an upgrade to the automated trading system, resulting in 8 million orders (wrongly labelled) executed and 12,335 trades executed at below best displayed price during a short sale circuit breaker. The orders occurred between 2015 to 2018, with the wrongly labelled data (transactions report) submitted to FINRA, and thus maintaining incorrect records.
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