Goldman Sachs to Pay $7M Over Market Access Rule Violation Allegations

Goldman Sachs (GS) has agreed to pay a $7 million penalty to settle SEC charges accusing the firm of violating the market access rule on August 20, 2013. According to the SEC, on that day, in under an hour, the firm mistakenly executed thousands of options contracts executions resulting in incorrect orders.

The regulator said that Goldman did not have the adequate safeguards in place that could have prevent it from accidentally sending about 16,000 options orders that were wrongly priced to different options exchanges. According to the SEC, the mistaken transactions occurred after Goldman put into place new electronic trading functionality that was supposed to match client orders with internal options orders.

Because of a configuration error in the software, contingent orders were turned into live orders. All of the orders were given a $1 price.

The orders were sent to options exchanges during pre-market trading. Minutes after regular market trading opened, about 1.5 million options contracts were executed. Because of the rules regarding erroneous options trades, many of the executed trades received price adjustments or were cancelled. The losses might have otherwise cost the firm $500 million.

The SEC, in its order, said that during pre-market hours, Goldman had been using unreasonably wide price checks options instead of the price bands it uses during regular trading hours. If the latter had also been in effect during pre-market, the wrongly priced orders would have been identified and not gone to exchanges.

The Commission said that Goldman’s written policies about software changes were missing a number of precautionary requirement. Also, said the regulator, the that day the order went through, a firm employee lifted the electronic circuit breaker blocks that automatically cut off outgoing options order messages after a certain rate of messages has been surpassed.

In paying the penalty, as is customary, Goldman did so without denying or admitting to the findings.

Read the SEC Order (PDF)