Tuesday, May 4, 2010
The SEC and Goldman Sachs settled administrative charges alleging that Goldman Sachs Execution & Clearing LLC (GSEC) willfully violated Rule 204T of Regulation SHO by failing to deliver certain securities or immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the required date. The charges relate to GSEC’s response to the Commission’s September 17, 2008 emergency order enacting temporary Rule 204T to Regulation SHO (“Rule 204T” or the “Rule”). That Rule was in response to concerns about the effects of “naked” short selling upon securities prices. The Rule required participants of a registered clearing agency to either deliver securities by a trade’s settlement date or, in connection with short sales, immediately purchase or borrow securities to close out the fail to deliver position by no later than the beginning of regular trading hours on the trading day following the settlement date. GSEC initially responded to the Rule by implementing procedures that were inadequate in that they relied too heavily on individuals to perform manual tasks and calculations, without sufficient oversight or verification of accuracy. As a result, on certain occasions in December 2008 and January 2009 (“the relevant time period”), GSEC violated Rule 204T by failing to timely close out fail to deliver positions.
The settlement censures GSEC and imposes a civil money penalty in the amount of $225,000.