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FINRA fines Goldman Sachs for improper dark pool trading

BBR Staff Writer Published 02 July 2014

Goldman Sachs Execution & Clearing has been fined by the Financial Industry Regulatory Authority (FINRA) over failure to prevent trade-throughs in its proprietary alternative trading system.

Goldman Sachs

The $800,000 penalty comes after FINRA found that more than 395,000 transactions executed in the company's dark pool, called Sigma X, traded at a price inferior to the National Best Bid and Offer (NBBO) between 29 July 2011 and 09 August 2011.

The Order Protection Rule (OPR) generally requires that trading centers trade at the best-quoted prices or route orders to the trading centers quoting the best prices.

The regulator also found that the company did not had proper policies and procedures in place to prevent such trade-throughs of protected quotations in National Market System (NMS) stocks in connection with trading in Sigma-X from November 2008 through August 2011.

Goldman was unaware of the trade-throughs that were caused by market data latencies at SIGMA-X and were undetected in a timely manner, according to FINRA.

FINRA Market Regulation executive vice president Thomas Gira said the companies should take steps to ensure compliance with the Stock Exchange Commission's (SEC) trade-through rule so that displayed trading interest is appropriately protected and customers should 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," Gira added.

A Goldman Sachs spokeswoman refused to comment on the matter.

The bank, which already returned $1.67m to disadvantaged customers, neither admitted nor denied the charges in settling the matter, but consented to the entry of FINRA's findings.


Image: FINRA has fined Goldman Sachs' execution and clearing unit over failure to prevent trade-throughs in its Sigma X tradingsystem. Photo: Ricardo630.