MNeagle
4th May 2010, 12:28 PM
May 4 (Bloomberg) -- Goldman Sachs Group Inc.’s execution and clearing unit agreed to pay NYSE Euronext and the Securities and Exchange Commission $450,000 to settle allegations it broke rules governing short sales on U.S. stocks because of a bookkeeping error.
Goldman Sachs was censured for violating the SEC’s Regulation SHO, which sets rules for handling bearish trades in equities. The infractions, which are unrelated to the SEC’s April 16 mortgage-related fraud suit against the world’s most profitable investment bank, involved requirements implemented in September 2008 to reduce naked short selling, in which firms sell stock short without intending to borrow the shares required to complete their obligations.
An emergency SEC rule implemented after Lehman Brothers Holdings Inc.’s collapse in September 2008 forced brokers to close short sales that didn’t settle by the morning of the fourth day after the trade. That regulation, called Rule 204T, also imposed stricter requirements on subsequent short sales when failures to deliver shares occurred. The rule was made permanent in July 2009.
Goldman Sachs Execution & Clearing LP “initially responded to the rule by implementing procedures that were inadequate in that they relied too heavily on individuals to perform manual tasks and calculations, without sufficient oversight or verification of accuracy,†the SEC said today.
Updating a Spreadsheet
The SEC said in its order that New York-based Goldman Sachs failed to close out positions on Dec. 9, 2008, because an employee in the firm’s operations department didn’t correctly update a spreadsheet used to calculate market-maker obligations related to short sales. While the company corrected the mistake after the market opened that day, two market makers on NYSE Arca were unable to conduct business in two securities for three days, the SEC said.
The SEC also said Goldman Sachs failed to close out market- maker positions on 46 occasions in 38 securities in January 2009. The commission said the failures resulted from the firm’s “error in calculating its potential T+6 obligations,†referring to the requirement that certain trades by market makers be closed out by the morning of the sixth day after the transaction occurred. These errors were the result of an employee incorrectly removing a number used in calculations of short-sale close-out obligations.
‘Processing Error’
Goldman Sachs neither admitted nor denied wrongdoing.
“This was the result of a manual processing error following the changes in Rule 204T closeout requirements in October 2008,†Goldman Sachs spokesman Ed Canaday said in a statement. “There was no financial impact on our clients. We now have improved, automated processes in place to avoid future errors.â€
The company clears an average of 3 million trades a day, said Canaday, who added that an automated system began in May 2009.
NYSE said that from around Dec. 9, 2008, to Jan. 22, 2009, the Goldman Sachs unit failed about 68 times to close out positions after short sales had failed to settle. Goldman Sachs also didn’t notify customers that short sales in particular stocks had failed to settle on time, the exchange said.
Goldman Sachs improperly accepted about 385 short-sale orders from customers over the same time period, NYSE said. Existing failed positions in specific securities required the firm to accept only short-sale orders in those stocks when the shares had been arranged to be borrowed in advance, which it didn’t do, NYSE said. The broker also failed to “reasonably supervise and implement adequate controls†to ensure short-sale rules were met from Sept. 24, 2008, to Jan. 22, 2009, NYSE said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aq4Eu_botJTU&pos=5
So these payoffs are about what? 2 minutes worth of transactions???
Goldman Sachs was censured for violating the SEC’s Regulation SHO, which sets rules for handling bearish trades in equities. The infractions, which are unrelated to the SEC’s April 16 mortgage-related fraud suit against the world’s most profitable investment bank, involved requirements implemented in September 2008 to reduce naked short selling, in which firms sell stock short without intending to borrow the shares required to complete their obligations.
An emergency SEC rule implemented after Lehman Brothers Holdings Inc.’s collapse in September 2008 forced brokers to close short sales that didn’t settle by the morning of the fourth day after the trade. That regulation, called Rule 204T, also imposed stricter requirements on subsequent short sales when failures to deliver shares occurred. The rule was made permanent in July 2009.
Goldman Sachs Execution & Clearing LP “initially responded to the rule by implementing procedures that were inadequate in that they relied too heavily on individuals to perform manual tasks and calculations, without sufficient oversight or verification of accuracy,†the SEC said today.
Updating a Spreadsheet
The SEC said in its order that New York-based Goldman Sachs failed to close out positions on Dec. 9, 2008, because an employee in the firm’s operations department didn’t correctly update a spreadsheet used to calculate market-maker obligations related to short sales. While the company corrected the mistake after the market opened that day, two market makers on NYSE Arca were unable to conduct business in two securities for three days, the SEC said.
The SEC also said Goldman Sachs failed to close out market- maker positions on 46 occasions in 38 securities in January 2009. The commission said the failures resulted from the firm’s “error in calculating its potential T+6 obligations,†referring to the requirement that certain trades by market makers be closed out by the morning of the sixth day after the transaction occurred. These errors were the result of an employee incorrectly removing a number used in calculations of short-sale close-out obligations.
‘Processing Error’
Goldman Sachs neither admitted nor denied wrongdoing.
“This was the result of a manual processing error following the changes in Rule 204T closeout requirements in October 2008,†Goldman Sachs spokesman Ed Canaday said in a statement. “There was no financial impact on our clients. We now have improved, automated processes in place to avoid future errors.â€
The company clears an average of 3 million trades a day, said Canaday, who added that an automated system began in May 2009.
NYSE said that from around Dec. 9, 2008, to Jan. 22, 2009, the Goldman Sachs unit failed about 68 times to close out positions after short sales had failed to settle. Goldman Sachs also didn’t notify customers that short sales in particular stocks had failed to settle on time, the exchange said.
Goldman Sachs improperly accepted about 385 short-sale orders from customers over the same time period, NYSE said. Existing failed positions in specific securities required the firm to accept only short-sale orders in those stocks when the shares had been arranged to be borrowed in advance, which it didn’t do, NYSE said. The broker also failed to “reasonably supervise and implement adequate controls†to ensure short-sale rules were met from Sept. 24, 2008, to Jan. 22, 2009, NYSE said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aq4Eu_botJTU&pos=5
So these payoffs are about what? 2 minutes worth of transactions???