(Adds more background throughout, comments from FINRA)
By Sarah N. Lynch
WASHINGTON, July 1 Wall Street's self-funded
regulator fined a unit of Goldman Sachs on Tuesday over
pricing rule violations stemming from its "dark pool," marking
the latest in a string of recent enforcement actions targeting
anonymous trading platforms.
Goldman Sachs Execution & Clearing L.P. agreed to pay an
$800,000 fine and settle the case with the Financial Industry
Regulatory Authority, or FINRA, without admitting or denying the
FINRA said that Goldman's dark pool SIGMA-X executed nearly
400,000 trades between July 29 and August 9 in 2011 that were at
inferior prices, in violation of investor protection rules
designed to ensure customers are getting the best deal.
In addition, FINRA said that between November 2008 and
August 2011, the bank did not have adequate policies in place to
protect stock quotes.
In addition to paying the fine, FINRA said Goldman has since
returned $1.67 million to harmed customers.
"FINRA has no tolerance for firms that fail to have robust
policies and procedures to protect against trading through
protected quotations," said Thomas Gira, the executive vice
president of FINRA's Market Regulation unit.
A spokeswoman for Goldman Sachs declined to comment beyond
the details spelled out in the settlement with the regulator.
FINRA's settlement with Goldman on Tuesday comes less than a
week after the New York Attorney General filed a lawsuit against
LX, a rival dark pool operated by Barclays.
That case alleges more grave violations, including claims
that Barclays lied to investors by giving high-speed traders
unfair advantages, even though the bank had pledged to police
the pool for "predatory" trading.
Barclays is fighting the lawsuit and has retained the
high-profile law firm Wilmer Cutler Pickering Hale and Dorr LLP
to assist in its defense.
The U.S. Securities and Exchange Commission, meanwhile, is
also in the midst of conducting a variety of probes into dark
pools and other alternative trading systems over potential
Such venues allow investors to trade stocks anonymously and
report trade data after the deals are done, which can be helpful
for investors who do not wish to tip their hand to the market
about large trades.
But critics say they are harmful to price discovery. That's
because the rise of dark pools has reduced trading on exchanges
that publicly quote prices, potentially eroding market quality.
The SEC recently settled a case with another dark pool
called Liquidnet over charges that the venue improperly shared
confidential client data in marketing materials.
SEC Chair Mary Jo White also recently announced that agency
staff is working to craft new rules that would require dark
pools and other brokerages that execute trades internally to
disclose more information about how they operate.
FINRA also last month for the first time starting a new
reporting initiative that gives the public more data about the
trading volumes of dark pools.
(Reporting by Sarah N. Lynch; Editing by Susan Heavey)