Goldman Sachs has been fined $3M by FINRA for mismarked sales

Goldman Sachs Inc (GS.N), Wall Street's self-funded watchdog, was fined $3 million on Tuesday by the Financial Industry Regulatory Authority (FINRA). This fine was for incorrectly marking some of Goldman Sachs Inc's stock orders as "long" instead of "short", and for failing to file trade reports on its behalf.

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The FINRA said in a statement on Thursday that Goldman has mislabelled about 60 million short sale orders totaling over 14 billion shares as "long" sales from October 2015 to April 2018. Nearly eight million of those orders, totaling over one billion shares, were executed during this period.

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It turns out that Goldman's mismarked orders were caused by the failure to add a single line of computer code to its automated trading software during an upgrade that aimed to simplify its order processing flow, according to FINRA.

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The FINRA stated that 12,335 of the executed orders were executed at or below the best-displayed price available when a short sale circuit breaker was in place because they were mistakenly marked as "long" because they were mistakenly marked as "long." Circuit breakers prevent short sales from being executed or displayed in a security at a price less than the current national best bid or equal to that price.

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Goldman's Synthetic Product Group was auto-generating these trades during the period in order to hedge Goldman's synthetic risk exposure resulting from its execution of equity swap transactions with its clients, which resulted in only less than 1% of the total principle sell orders generated during that period.

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Goldman failed to mark its orders correctly, which caused it to submit inaccurate trade reports to the Financial Industry Regulatory Authority (FINRA) and maintain inaccurate books and records.

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It has also been found that Goldman failed to implement and maintain a supervisory system that would properly ensure compliance with the Short Sale Act (SHO), as well as the rules relating to accurate trade reporting, according to FINRA.

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FINRA's findings were accepted by Goldman Sachs without admitting to or denying them, and Goldman therefore consented to their conclusion.