Goldman, Sachs & Co. agreed to pay a fine of US $15 million to the Securities and Exchange Commission to resolve charges that it failed to comply with certain of its obligations under so-called “Reg SHO” – the SEC’s regulation governing the short sales of equity securities. Under Reg SHO, a broker-dealer accepting a short sale of an equity security from a customer (or engaging in a short sale in its own proprietary account) must first borrow the security, enter into a bona fide arrangement to borrow the security or have reasonable grounds to believe the security can be borrowed before the delivery date. These steps are referred to as the broker-dealer’s “locate requirement.” According to the SEC, between November 2008 and mid-2013, GSCO used an automated system to handle the “vast majority” of its customers’ short sale locate requests. This system would either grant, in whole or part, deny, or send the requests to a group of individuals – known as the “Demand Team” – for further consideration. The automated system was populated each morning with available inventory based on feeds from certain lending banks and brokerages that was haircut to be conservative, and was reduced each time shares were used to grant a locate request. Over time, an increasing number of locate requests were referred by the automated system to the Demand Team and the Demand Team routinely processed the requests by using an application that solely considered each day’s beginning day share inventory, rather than the inventory reduced by prior intra-day locates. As a result, the SEC charged GSCO with executing certain short sales “without reasonable grounds to believe that the securities to be sold short could be borrowed to meet its delivery obligations.” The SEC also alleged that, when its Office of Compliance Inspections and Examinations reviewed GSCO’s lending practices in 2013, the firm “created the incorrect impression that the Demand Team conducted an individualized review for all locate requests” when it did not. The SEC acknowledged GSCO’s effort to replace its deficient automated system beginning in at least mid-2013.