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Goldman Sachs Said to Send Refunds After Dark Pool Error

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Goldman Sachs Headquarters
Goldman Sachs Group Inc. headquarters stand in New York. Photographer: Ron Antonelli/Bloomberg

March 13 (Bloomberg) -- Goldman Sachs Group Inc. discovered pricing errors in the firm’s dark pool trading venue and sent checks to customers to compensate for the mistakes, according to people with direct knowledge of the matter.

The bank sent the money to clients and other Wall Street firms that use its Sigma X pool for equity trades made in August 2011, said the people, who requested anonymity because the communications and payments aren’t public. Concerns that Greece would default on its debt that month led to a sharp decline in stock markets and dramatic price swings.

While the refunds probably weren’t large relative to Goldman Sachs’s trading revenue, the errors show the potential risks to operators of dark pools, which were created to let major investors trade big blocks of stock without having news of the orders move prices. Sigma X is one of the largest dark pools in the U.S., accounting for 1 percent of total daily trading in January, data from Rosenblatt Securities Inc. show.

The refunds were sent to customers whose trades were executed at a certain point beyond the national best bid and offer, according to one of the recipients. Stock venues in the U.S. are obliged to price trades at the NBBO or better. Goldman Sachs appears to have taken the action voluntarily.

Michael DuVally, a spokesman for the New York-based bank, declined to comment.

High Volatility

The Standard & Poor’s 500 Index tumbled 13 percent through the first eight days of August 2011, while the Chicago Board Options Exchange Volatility Index hit a multi-year high of 48 on Aug. 8. High-frequency trading firms tripled volume in the first 10 days of that month, Wedbush Securities Inc., the largest broker supplying bids and offers on the Nasdaq Stock Market, said at the time.

Goldman Sachs generated $7.17 billion in revenue from equity trading in 2013, excluding accounting charges, the most of any global bank. Last month, the firm promoted the leaders of the business, Paul M. Russo and Michael D. Daffey, to the management committee.

Still, the company hasn’t avoided some mishaps in its equities business. In 2013, a programming error caused the investment bank to send faulty stock-options orders to exchanges. Most of the trades caused by the error were canceled, a person with direct knowledge of the matter said.

To contact the reporters on this story: Sam Mamudi in New York at smamudi@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Steven Crabill

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