Back to Main

Goldman in Trouble as FINRA Imposes Fine for 'Dark Pool' Faults - Analyst Blog

By: Zacks.com
Posted: 7/2/2014 11:10:00 AM
Referenced Stocks: CS;UBS;BCS;GS

Legal hassles heightened for The Goldman Sachs Group, Inc. ( GS ), as the bank was slapped with a fine of $800,000 by the Financial Industry Regulatory Authority (FINRA). The company has been charged of malpractices related to its dark pool - SIGMA-X amid ongoing scrutiny around the US share trading industry.

It is alleged that Goldman defaulted in maintaining the policies and procedures to guarantee that clients trading in the SIGMA-X dark pool were provided the best possible prices. FINRA accused Goldman for violation of "trade-through" rule under which trades are executed at the best possible prices.

Specifically, FINRA notified that during the trading period from Jul 29, 2011 to Aug 9, 2011, more than 395,000 deals were struck in SIGMA-X, sullying the "trade-through" rule. Though Goldman was unaware of the violation, timely detection could have saved the litigation costs. Notably, on determination of the pricing errors, Goldman already compensated customers by paying around $1.67 million in March.

According to FINRA, from Nov 2008 through Aug 2011, the bank also failed to preserve the written policies to prevent trade-throughs along with improper invigilation. However, the bank neither admitted nor denied any wrongdoings.

Among other holders of the dark pool, last week, a lawsuit has been filed against Barclays PLC ( BCS ) by the New York Attorney General Eric Schneiderman, charging it for faulty practices related to its dark pool. It is alleged that Barclays made false claims regarding its Equities Electronic Trading Division taking measures to protect investors from high-frequency traders in the dark pool. In fact, the division fraudulently propagated the trading platform by understating the degree of high-frequency traders in it.

After Credit Suisse Group AG ( CS ), Barclays has the highest holdings of dark pool in the country followed by UBS AG ( UBS ). In a determined effort to develop its dark pool as one of the largest in the U.S., Barclays compromised on investors' security and divulged sensitive information about their identity and trading activities to the high-frequency traders.

Though Goldman has undertaken special measures to combat the rise in expenses, persistent litigation issues will be a headwind for the company in the forthcoming quarters. Moreover, the overall subdued economic scenario and stringent regulatory environment will continue to pressure the top line.

Goldman currently carries a Zacks Rank #4 (Sell).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CREDIT SUISSE (CS): Free Stock Analysis Report

UBS AG (UBS): Free Stock Analysis Report

BARCLAY PLC-ADR (BCS): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research