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FINRA Imposes Stiff $2 Per Trade Penalty For Goldman Dark Pool Funny Stuff

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That’ll teach’em.

Goldman Sachs Execution & Clearing L.P. agreed to pay an $800,000 fine and settle the case with the Financial Industry Regulatory Authority, or FINRA, without admitting or denying the charges.

FINRA said that Goldman's dark pool SIGMA-X executed nearly 400,000 trades between July 29 and August 9 in 2011 that were at inferior prices, in violation of investor protection rules designed to ensure customers are getting the best deal….

"FINRA has no tolerance for firms that fail to have robust policies and procedures to protect against trading through protected quotations," said Thomas Gira, the executive vice president of FINRA's Market Regulation unit.

But how will they ever pay it, as a mere “market performer” in an industry that’s maybe on the wane?

The latest to adopt this view: Sanford C. Bernstein bank analyst Brad Hintz. In a note Tuesday, he downgraded shares of Goldman Sachs to "market perform" from "outperform." In doing so, he became the first of the firm's analysts in three generations to question Goldman's business model and appeared to join the ranks of those who argue Wall Street is in the midst of a structural, not simply cyclical, decline.

This is based on the continuing slide in the profitability of trading. Behind this, in Mr. Hintz's view, is an almost perfect storm of market and regulatory conditions: higher capital requirements that make holding inventory more expensive; "Volcker rule" limits on risk taking; low volatility due to central-bank actions; and disintermediation as direct purchases of Treasurys cut out Wall Street middlemen….

Mr. Hintz estimates Goldman's trading operations are achieving a return on equity of just 7%, far below the firm's theoretical cost of capital of 10%.

Goldman Sachs fined over trade rule violations in dark pool [Reuters]
Goldman Agrees to $800,000 Fine Over Dark Pool [WSJ]
Fading Trading Dims Goldman’s Prospects [WSJ]


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