Goldman Sachs was officially censured by Hong Kong's stock exchange earlier this week for breaching a listing agreement, after errors in structured warrant term sheets were found.
The bourse stopped short of denying the bank market facilities, citing the firm's cooperation and voluntary withdrawal of the warrants after the mistake was discovered.
Goldman Sachs (GS) issued four cash-settled derivative warrants linked to the Nikkei 225 last February. Trading volumes of some of the warrants spiked on 30 March and was initially attributed to increased interest following last March's earthquake and subsequent tsunami.
According to Hong Kong Exchange and Clearing (HKEx), GS caught wind of a market rumour that there was an error in the formula provided in the warrant's term sheets where the warrant's JPY payout should have been divided by the exchange rate instead of multiplied.
The following morning the price of the warrants rose sharply - helped by institutions and individuals trading - before a request to halt trading was accepted by the bourse nearly an hour and a half after the market opened.
The bourse found GS had not provided accurate and complete materials for the structured warrants and that the problem was the result of human error, rather than a systemic failure.
In a statement, HKEx said GS should have requested a suspension of the warrant's trade (which led to a "disorderly market" during morning trading) earlier than 31 March 2011, but noted GS's full cooperation with the exchange.
The firm offered compensation to affected investors through a buyback programme, which offers 110% of initial costs or its highest value prior to the halt in trade.
Goldman Sachs has issued some 1,700 warrants and callable bull/bear contracts in Hong Kong since 2005.