For a Wall Street bank that prides itself on not making mistakes, an incident when Goldman Sachs erroneously sent thousands of stock options trades into the market two summers ago was embarrassing and costly. Now Goldman is paying a $7 million penalty to the Securities and Exchange Commission to settle civil administrative charges that it did not maintain adequate safeguards to prevent the trading mistake from occurring. The agency, in announcing the settlement on Tuesday, said the erroneous trading that took place in early morning hours of Aug. 20, 2013 highlighted the need for Wall Street firms to maintain better systems to prevent technological glitches that can roil markets. The trading glitch, during which Goldman sent out 16,000 mispriced options orders to various exchanges before the official start of the trading day, ultimately cost the firm $38 million in losses, according the settlement order. The problem was caused by an error in the Goldman’s trading software that turned “contingent orders” for option trades into live orders and assigned them all a price of $1. The erroneous orders led others to submit orders to Goldman for stock option trades representing 150 million of underlying shares. The S.E.C. said Goldman could have lost up to $500 million if the orders and trades were not later canceled by the exchanges, which treated most of them as erroneous orders. Soon after the incident, Goldman put several employee associated with the trading on leave. A person briefed on the matter but not authorized to speak publicly said those employees have either left the firm or remain on leave. The S.E.C. order notes that a circuit breaker system Goldman had in place to stop the bank from sending out erroneous trades initially limited the potential damage. But employees of Goldman made things worse by “repeatedly” lifting the circuit breakers and allowing more erroneous orders to flood the market. The S.E.C. said Goldman had done a poor job educating its employees about when and how to remove the circuit breakers. “Goldman’s control environment was deficient in several way,” said Andrew Ceresney, the S.E.C.’s director of enforcement, in a prepared statement. In settling with the S.E.C., Goldman neither admitted nor denied any wrongdoing. The bank issued a statement, noting that since the incident, “we have reviewed and further strengthened our controls and procedures.”
The Securities and Exchange Commission (SEC) has confirmed that Goldman Sachs has paid a $7mn fine for erroneously sending around 16,000 options orders over less than an hour in the days leading up to its acquisition of Merrill Lynch last year.