ASIC goes soft on Goldman Sachs with minuscule penalty for incorrect entry of orders


Given the will displayed by the Australian Securities and Investments Commission (ASIC) to emulate the world’s most prominent financial services regulatory authorities over the last two years, during which ASIC invested in leading edge technology in order to monitor the activities of all market participants under its auspices, as well as having become widely regarded among FX firms as being one of the most secure jurisdictions in which to not only operate an electronic trading firm but also in which to ensure the best interests of clients.

Today’s announcement by ASIC that it has issued global banking giant Goldman Sachs with a $35,000 fiscal penalty is perhaps the first example in recent times of leniency.

The fiscal penalty was settled by Goldman Sachs in compliance with an infringement notice given to it by the Markets Disciplinary Panel (MDP). The penalty was for failing to prevent the entry into the ASX Trading Platform of an erroneous Order which resulted in a market for AP Eagers Limited ordinary shares not being both fair and orderly.

The MDP was satisfied that on May 17, 2012, a client of Goldman Sachs (Client), instructed Goldman Sachs to buy 2,800 AP Eagers Limited fully paid ordinary shares having ASX code ‘APE’ at ‘Best Carefully’ (Initial Order).

The Initial Order was to be manually worked by a Designated Trading Representative (DTR) at Goldman Sachs (Goldman Sachs DTR). The Goldman Sachs DTR was to also work a number of other unrelated Orders, including an ‘at-market’ Order to buy National Australia Bank Limited fully paid ordinary shares having ASX code ‘NAB’.

As the Market was nearing the open for the day, the Goldman Sachs DTR intended to key-in the Initial Order through Goldman Sachs’ manual trading system (Trading System) before its submission into the ASX Trading Platform. However, at 9:52:44 during the Pre-Open Session State, the Goldman Sachs DTR instead keyed-in an Order to buy 2,800 APE at $29.13 and submitted this into the ASX Trading Platform (Relevant Order) – by mistakenly thinking the ASX code had been keyed-in as NAB when in fact it was APE.

The market in APE immediately before the entry of the Relevant Order into the ASX Trading Platform was $14.85/$15.00/$14.85 (bid/ask/last traded price).
After the Relevant Order was keyed-in through the Trading System and before its submission into the ASX Trading Platform, the Goldman Sachs DTR received and acknowledged Trading System soft filter alerts or warnings for ‘price deviation’.

On Market open, after commencement of the Open Session State and opening auction, at 9:59:59 the Relevant Order matched and executed in full, resulting in four Market Transactions totalling 2,800 APE at $29.00 (Relevant Transactions).

The submission into the ASX Trading Platform of the Relevant Order, resulting in the Relevant Transactions, caused the price of APE to increase from $14.85 to $29.00, representing an increase of $14.15 or 95%.

At 10:08:00, following an initial telephone call, the Goldman Sachs DTR contacted ASX by email and requested cancellation of the Relevant Transactions. The Relevant Transactions were subsequently cancelled by ASX direction.

By reason of Goldman Sachs’ entry of the Relevant Order into the ASX Trading Platform on 17 May 2012, the MDP had reasonable grounds to believe that Goldman Sachs contravened Rule 5.9.1 of the ASIC Market Integrity Rules (ASX Market) 2010 (MIR 5.9.1), and thereby contravened subsection 798H(1) of the Corporations Act 2001 (Corporations Act) which requires compliance with the market integrity rules. The MDP issued Goldman Sachs with an infringement notice specifying a penalty of $35,000.

Given the current wave of regulatory disdain in other regions which is being made more than apparent toward the conduct of large banks when handling electronic orders on behalf of clients, the relatively paltry $35,000 pales into insignificance.

For the full announcement by ASIC, click here.

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ASIC goes soft on Goldman Sachs with minuscule penalty for incorrect entry of orders

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