FINRA Unleashes Dark Pool Fury On Goldman Next With Whopping $800,000 Fine

In case there is still any confusion on whose behalf the US regulators work when they “fine” banks, the latest announcement from Finra should make it all clear.

Recall the spectacle full of pomp and circumstance surrounding NY AG Scheinderman’s demolition of Barclays after it was announced that the bank had lied to its customers to drive more traffic to Barclays LX, its dark pool, and allow HFT algos to frontrun buyside traffic. Yes, it was warranted, and the immediate result was the complete collapse in all buyside Barclays dark pool volume, meaning predatory HFT algos would have to find some other dark pool where to frontrun order flow. Such as Goldman’s Sigma X.

Which brings us to, well, Goldman’s Sigma X, which moments ago, in a far less pompous presentation, was fined – not by the AG, not by the SEC, but by lowly Finra – for “Failing to Prevent Trade-Throughs in its Alternative Trading System.“

In essence, what Goldman is said to have done is engage in the same latency arbitrage gimmicks that Michael Lewis and so many others have accused the “fair and efficient” US equity markets of doing for years. From Finra:

The Order Protection Rule generally requires that trading centers trade at the best-quoted prices or route orders to the trading centers quoting the best prices. FINRA found that from July 29, 2011, through August 9, 2011, there were more than 395,000 transactions executed in SIGMA-X where the execution traded through a protected quotation at a price inferior to the National Best Bid and Offer (NBBO).

During the eight-day trading period, Goldman Sachs was unaware that it was trading through a protected quotation in these instances. The trade-throughs were caused by market data latencies at SIGMA-X and were undetected in a timely manner. [oh they were detected all right – they were also quite intentional but FINRA here is desperately trying to make Goldman appear cleaner than a) it was and b) Barclays] FINRA found that from November 2008 through August 2011, Goldman Sachs failed to establish, maintain, and enforce written policies and procedures that were reasonably designed to prevent trade-throughs of protected quotations in NMS stocks; and failed to regularly surveil to ascertain the effectiveness of its policies and procedures designed to prevent trade-throughs of protected quotations in NMS stocks.

The impact: “In connection with the approximately 395,000 trade-throughs, Goldman Sachs returned $1.67 million to disadvantaged customers.”

The punchline, or rather, the “fine”: $800,000. Also known as a few seconds of revenue for the bank which just like Virtu has at best 1 or 2 days of trading losses per quarter.

Oh, and this: