The Commodity Futures Trading Commission has filed and settled charges against Goldman Sachs & Co. LLC for violations of the CFTC’s Business Conduct Standards applicable to swap dealers.
The US regulator has imposed a $15 million civil monetary penalty on the company and alleges that Goldman failed to disclose dozens of pre-trade-mid-market marks (PTMMM) and neglected to communicate that to clients in an adequate way.
The CFTC stated:
Goldman admits that for nearly all “same-day” swaps executed in 2015 and 2016, it either failed to disclose any PTMMM or failed to disclose an accurate PTMMM, and that this conduct violated a CFTC regulation.
According to CFTC’s filling, Goldman made transactions of dozens of “same-day” equity index swaps with US-based clients in 2015 and 2016. The “same-day” equity index swap involves striking the equity leg on the day that the other key terms of the swap are agreed upon, instead of the following day, which is the usual practice. However, Goldman did not disclose the PTMMM of these swaps and instead disclosed a PTMMM for a different swap, thereby masking the actual value of the same-day swap.
The regulator said:
The order finds that Goldman opportunistically solicited or agreed to enter into same-day swaps only on days and at times that were financially advantageous to Goldman and disadvantageous to its clients. Moreover, the manner in which Goldman communicated to clients caused the same-day swaps to appear more economically advantageous to the clients than they actually were.
The CFTC found that at certain times, the company communicated a PTMMM for the “T+1” swap and then bid over it for the “same-day” swap, leaving the client with the impression that the same-day swap was a better deal than the T+1 swap when it was not.
The regulator concluded that the additional advantage that Goldman provided to its clients on the interest rate leg of the swap is negligible compared to the expenses that the clients would have to bear on the equity leg when engaging in a “same-day” transaction.
