In a letter to the CFTC’s Enforcement Division, the CFTC orders Goldman Sachs to pay $3 million for regulatory deficiencies and material omissions

Washington, D.C – The Commodity Futures Trading Commission today issued an order concomitantly filing and resolving charges Goldman Sachs & Co. LLC for failing to maintain adequate monitoring systems and controls to ensure that its customers’ trading was not disruptive, and for material omissions in a letter to the CFTC’s Division of Enforcement (DOE).

The CFTC order requires Goldman to pay a $3 million civil penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

“The CFTC takes very seriously the role of registrants’ supervisory responsibilities to detect and prevent disruptive trading and maintain the integrity of the futures markets,” said Ian McGinley, Director of Enforcement. “This settlement and the significant civil penalty also reflect the CFTC’s expectation that responses to the Department’s inquiries will be accurate and complete.”

Fall background

The order finds that Goldman failed to maintain an adequate monitoring system to ensure that its clients’ December 29, 2017 trading in the ICE Futures Europe (ICE) Low Sulfur Gasoil futures contract with the February 2018/December 2018 calendar range wasn’t disturbing. Specifically, the order finds that Goldman’s Volatility Awareness Control (VAC) – a preemptive control designed to suspend potentially disruptive trades when volatility thresholds are exceeded – malfunctioned and did not suspend trading as intended on December 29, 2017. Additionally, the order finds that Goldman’s post-trade monitoring, which was intended to detect potential intentional or reckless attempts to influence the daily settlement price in futures contracts, failed to identify the correct settlement period for the ICE Gasoil futures contract on December 29, 2017. Contract therefore, proper monitoring for possible disruptive trading activities was not carried out. As a result, Goldman failed to maintain an adequate regulatory regime with respect to disruptive trading, thereby violating CFTC Regulation 166.3.

The order also states that Goldman omitted material information regarding the VAC’s malfunction in its response to a DOE request, including a description of the method by which Goldman’s clients’ orders were executed, including the reasons why Goldman carried out this Customer’s orders in the manner in which he did it and a full description of any algorithms used. Goldman did not mention Goldman’s VAC, which should have suspended operations of Goldman’s trading algorithm on December 29, 2017, but failed to do so. The order states that Goldman should have reasonably known that failure to provide this information terminated the trading algorithm’s operations on August 6, 2018. The letter to the Department of Energy is materially misleading and violates Section 6(c)(2) of the CEA .

The CFTC acknowledges and appreciates the support of the UK Financial Conduct Authority for its assistance in this matter.

The law enforcement personnel in charge of this matter are W. Derek Shakabpa, Elizabeth C. Brennan, Trevor Kokal, R. Stephen Painter, Jr., Lenel Hickson, Jr. and Manal M. Sultan.