According to the FINRA order, between July 2018 and September 2021, Goldman failed to report, or inaccurately reported, OTC options positions to the LOPR in approximately one million instances. Goldman’s systems for reporting OTC options positions to the LOPR “failed to recognize that the accounts of certain customers were under common control or acting in concert,” FINRA said.
“As a result, Goldman failed to report approximately 9,000 OTC options positions to the LOPR in approximately 35,000 instances and misreported positions by failing to identify accounts acting in concert with an ‘In Concert ID’ for approximately 32,000 OTC options positions in approximately 1,000,000 instances,” FINRA added.
Such conduct violated FINRA Rule 2360(b)(5), which “requires member firms to report to the LOPR each customer or firm account that, acting alone or in concert, has established an aggregate position of 200 or more option contracts on the same side of the market covering the same underlying security or index. The report must identify the account holder and the total number of option contracts for each options class comprising the reportable position and must include other information as prescribed by FINRA.”
Supervision Failures
Over this same period, Goldman “failed to maintain and enforce a supervisory system reasonably designed to achieve compliance with FINRA Rule 2360(b)(5),” FINRA said. A violation of FINRA Rule 2360(b) also constitutes a violation of FINRA Rule 2010, which requires “[a] member, in the conduct of its business, [to] observe high standards of commercial honor and just and equitable principles of trade.”
In this case, Goldman’s automated system was “too restrictive to be effective on its own,” while its manual review system was “designed to complement the automated review by identifying acting in-concert accounts that were not identified by the automated system but evidenced signs of being under common control or acting in concert.”
However, Goldman “failed to conduct the manual review for institutional investors accounts as a result of an oversight during a transfer of LOPR reporting responsibilities from one department to another within the firm in July 2018,” FINRA said. Following a FINRA inquiry, Goldman identified the process gap and implemented revised manual and automated review processes in September 2021, FINRA said.
Goldman neither admitted nor denied FINRA’s findings in agreeing to the settlement. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.