Securities Law Updates | New Releases/No Action Letters
May 5, 2010
SEC Releases Cease and Desist Order Against Goldman Sachs Execution & Clearing, L.P.
Cease and Desist Order Against Goldman Sachs Execution and Clearing, L.P.
File No. 3-13877, Release No. 62025, 5/4/2010
The Securities and Exchange Commission (“SEC,” or “Commission”) has released an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”) against Goldman Sachs Execution & Clearing, L.P. (“GSEC”).
Specifically, the Order found that GSEC violated Rule 204T of Regulation SHO (“Rule 204T,” or “Rule”) on certain occasions in December 2008 and January 2009. Rule 204T was an important part of the Commission’s response to concerns about the effects of “naked” short selling upon securities prices.
The Rule, adopted as an interim final temporary rule on Oct. 17, 2008, required participants of a registered clearing agency such as GSEC 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 Commission’s enactment of Rule 204T of Regulation SHO 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, GSEC violated Rule 204T by failing to timely close out fail to deliver positions.
In this regard, the Order censured GSEC, directed that GSEC cease and desist from committing or causing any violations and any future violations of Exchange Act Rule 204, and ordered that GSEC pay a civil money penalty of $225,000. GSEC has also agreed to an undertaking requiring it to pay a fine in the amount of $225,000 to NYSE Regulation, Inc. GSEC consented to the issuance of the Order without admitting or denying any of the findings in the Order.
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