The Commodity Futures Trading Commission (CFTC) found that Goldman Sachs violated the Business Conduct Standards applicable to swap dealers as it failed to disclose dozens of pre-trade-mid-market marks (PTMMM). Thus, the agency imposed a civil monetary penalty of $15 million on the company.

A Hefty Fine on Goldman Sachs

As a part of the settlement, Goldman Sachs admitted that it either failed to disclose any PTMMM or failed to disclose an accurate PTMMM for nearly all 'same-day' swaps executed in 2015 and 2016.

In the 'same day' equity index swaps, the equity leg of the swap strikes on the 'same day,' while the other material terms are typically agreed upon on a date after the agreement.

Disclosure Failure

The official press release of the CFTC detailed that Goldman Sachs transacted dozens of "same-day" equity index swaps with US-based clients in the specified period. However, Goldman Sachs failed to disclose to clients the PTMMM of these swaps and even often disclosed the PTMMM for a different swap.

According to the regulatory agency, the lapses by Goldman Sachs had put the company in an advantageous position while the clients were at a disadvantage. However, Goldman Sachs' communication with the clients appeared to be to their advantage.

On top of that, the CFTC found that in some instances, Goldman Sachs disclosed a PTMMM for the 'T+1' swap and then bid over it for the 'same-day' swap. This gave clients the false impression that the same-day swap was a better deal than the T+1 swap. Goldman Sachs even overweighted any marginal benefits to the clients by the cost on the equity leg.

"The purpose of the CFTC's Business Conduct Standards is to promote transparency and fairness in the swaps market. The CFTC is committed to ensuring that swap dealers abide by these standards, so that swap counterparties receive disclosures allowing them to assess material aspects of the swaps before entering into them. As today's penalty against Goldman demonstrates, the CFTC will aggressively pursue swap dealers that violate these business conduct standards," said the Director of Enforcement at the CFTC, Ian McGinley.

Earlier this month, the Financial Industry Regulatory Authority, a self-regulatory body in the US, slammed a censure and fine of $3 million on Goldman Sachs for mismarking approximately 60 million short sales orders as 'long' orders between October 2015 and April 2018.

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