Goldman Sachs pays fine in Australia

The Australian Securities & Investments Commission alleges that Goldman Sachs caused the price of a stock to climb 95% because of an erroneous trade order.
Goldman Sachs pays fine in Australia

Australia’s securities regulator has fined Goldman Sachs for a fat-finger error that an equities trader sent to the country's main stock exchange, despite the trader acknowledging a warning sent by the bank's internal programme.

Goldman Sachs has paid the A$35,000 ($32,716) penalty.

The error caused the price of AP Eager to rise from the last traded price of A$14.85 to A$29, representing a 95% increase, when it was sent to the market on May 17, 2012, said the Australian Securities & Investments Commission (Asic).

The trader subsequently notified the Australian Securities Exchange (ASX) within the required time to cancel the erroneous trade, which the bourse then did.

“The misconduct had the potential to damage the reputation and integrity of the market,” the regulator said.

Asic alleges Goldman Sachs contravened a subsection of its market integrity rules. The rules state that a market participant must not do anything that results in a market for a product not being both fair and orderly.

The maximum penalty that a court could impose for such a transgression of both sets of rules is A$1 million.

Asic said compliance with the infringement notice’s penalty does not mean Goldman Sachs had contravened the market integrity rules or had admitted guilt or liability.

On May 17, 2012, a Goldman Sachs client instructed the broker to buy 2,800 AP Eagers shares, whose ASX code was 'APE', asking the trader to execute the order manually.

At the same time the client also asked that same trader execute a number of unrelated orders, including one to buy National Australia Bank shares, whose ASX code was 'NAB'.

Asic did not disclose how many NAB shares the client had instructed Goldman Sachs to buy.

At the pre-open trading session that day, the trader keyed in an order to buy 2,800 shares of AP Eager at $29.13 and submitted it into the ASX trading platform in the belief he had keyed 'NAB'.

After inputting the order and before it was sent to the ASX, the trader received and acknowledged an alert generated from the firm’s internal manual trading system.

But when the market opened that day, the APE order was executed in full in four transactions, at $29 per share.

APE was quoted at a bid-ask spread of $14.85/$15, and its last traded price was $14.85 immediately prior to the Goldman order being sent to the exchange.

“The misconduct was inadvertent on the part of Goldman Sachs as the functions of [its trader] were not exercised to the requisite high standard,” the regulator said.

It added that Goldman did have effective internal procedures in place to ensure compliance with the market integrity rules and detect potential breaches of them.

In determining the amount of the penalty, Asic took into account the fact that the bank did not derive any actual or potential benefit from the breach.

Goldman has taken steps to prevent a similar event happening again. The bank now, for example, requires a senior trader to review and acknowledge alerts or warnings before an order is sent to the exchange. It has also retrained its traders on its internal trading system’s alerts and warnings.

The firm declined to comment for this article.

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