”Goldman Sachs Group Inc. agreed Monday to pay $15 million to settle regulatory claims that it obscured the cost of derivatives that clients purchased to bet on or against an index of overseas stocks. The Commodity Futures Trading Commission said Monday that Goldman in 2015 and 2016 didn’t tell clients that it priced swaps in a way that put them in a disadvantageous position. The swaps contracts were tied to an index of stocks from Japan, Europe, Hong Kong, Singapore, New Zealand and Australia, the CFTC said. Clients that traded with Goldman on those terms either bought the index at an above-market level or sold at a below-market level, which put them ‘underwater’ at the start of the trade …
“Swaps are financial contracts in which traders agree to exchange payments based on, say, changes in the price of a stock, index or other asset. Buyers can purchase them from a bank such as Goldman, typically paying a fee, expressed as an interest rate, when they enter the trade … Goldman traders set the initial price of the swap using the MSCI Europe Australasia and Far East Index’s value on the same day the parties agreed to the trade, regulators said. Such trades are typically priced on the following day’s value of the index, in order to reduce the risk that banks with more information about the underlying markets could gain an advantage in how the swaps are priced … Goldman benefited when it found a client that would agree to same-day swaps because it could enter into related trades that quickly netted a profit …
“Goldman tended to target the trade at clients who understood less about how the underlying markets of the swaps worked, the regulator said. ‘Communications show that Goldman personnel believed that the less the clients understood about the economics of the same-day swaps, the more profit Goldman could make,’ the settlement order said.”Excerpted from The Wall Street Journal / April 11, 2023 (Attribution to Reuters ) Byline - Dave Michaels
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“If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”
― Warren Buffett
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