Washington, D.C. – Goldman Sachs & Co. LLC has been slapped with a $15 million penalty by the Commodity Futures Trading Commission (CFTC) for violating business conduct standards related to swap dealer disclosures. The CFTC alleges that Goldman failed to accurately disclose pre-trade-mid-market marks (PTMMM) to clients in dozens of transactions, and did not communicate swap terms in a fair and balanced manner.
The violations center around “same-day” equity index swaps executed in 2015 and 2016. Unlike typical swaps where the equity leg settles the day after agreement, these “same-day” swaps settled on the same day terms were agreed upon. The CFTC found that Goldman routinely failed to disclose the correct PTMMM for these swaps, often substituting the mark for a standard “T+1” swap instead, effectively obscuring the true value.
According to the CFTC’s order, Goldman strategically pursued these “same-day” swaps only when financially advantageous to the firm and to the detriment of its U.S.-based clients. The firm is accused of presenting these swaps as more beneficial to clients than they actually were, highlighting potential gains on the interest rate side while downplaying the costs associated with the equity leg.
Specifically, the CFTC alleges Goldman would disclose a PTMMM for the “T+1” swap and then bid over it for the “same-day” swap, creating the illusion of a better deal for the client. In reality, the costs on the equity leg often outweighed any marginal benefit offered on the interest rate side. This practice, the CFTC argues, constitutes a failure to communicate in a fair and balanced manner.
“The purpose of the CFTC’s Business Conduct Standards is to promote transparency and fairness in the swaps market,” said Ian P. McGinley, Director of Enforcement. “The CFTC is committed to ensuring that swap dealers abide by these standards… and will aggressively pursue swap dealers that violate these business conduct standards.”
The case was led by CFTC staff members Sam Wasserman, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.
Source: CFTC.gov
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