CFTC fines Goldman Sachs $15 million for violations as a swaps dealer
“As today’s penalty against Goldman demonstrates, the CFTC will aggressively pursue swap dealers that violate these business conduct standards.”
The Commodity Futures Trading Commission has fined Goldman Sachs $15 million for violations of the CFTC’s Business Conduct Standards applicable to swap dealers.
According to the order simultaneously filing and settling charges against Goldman Sachs & Co. LLC, the CFTC found that Goldman failed to disclose dozens of pre-trade-mid-market marks (PTMMM) and failed to communicate to clients in a fair and balanced manner based on principles of fair dealing and good faith.
Goldman Sachs admitted 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.
Ian P. McGinley, Director of Enforcement at the CFTC, commented: “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.”
Goldman Sachs obscured the value of the same-day swap
Goldman Sachs’ violations took place in 2015 and 2016 as the firm transacted dozens of “same-day” equity index swaps with U.S.-based clients.
In a “same-day” equity index swap, the equity leg of the swap strikes on the “same day” as the other material terms of the swap are agreed upon, rather than—as is typical—the day after the date of agreement.
The CFTC order stated that Goldman failed to disclose to clients the PTMMM of these swaps—often disclosing a PTMMM for a different swap (the analogous “T+1” swap) instead, thereby obscuring the value of the same-day swap.
The regulator claimed 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. As found in the order, in certain instances, Goldman disclosed a PTMMM for the “T+1” swap and then bid over it for the “same-day” swap, giving the client the impression that the same-day swap was a better deal for the client than the T+1 swap when, in fact, it was not.
Indeed, the order finds any marginal benefit Goldman offered to clients on the interest rate leg of the swap would be outweighed by the cost to clients on the equity leg when transacting “same day.” The order finds that Goldman failed to communicate in a fair and balanced manner by touting the supposed benefits of same-day swap transactions, but not the corresponding costs.
