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Goldman Sachs' Internal Trading Rules Melted Away in Market Tumult

When the going gets tough,

Goldman Sachs

changes its rules.

On Tuesday afternoon, as stocks swung upward after dropping 7% on Monday, Goldman gave its partners and employees permission to ignore the company's restrictions on short-term trading.

Normally, Goldman, like several other major securities firms, requires its employees to hold stocks -- or short positions -- for 30 days. The restriction is designed, in part, to discourage securities professionals from trading on rumors and keep them focused on their jobs rather than on making money off every tick of the tape.

While brokerage firms are loath to talk about their compliance rules publicly, companies that require minimum 30-day holding periods for employee investments include



D.E. Shaw

, according to employees at those two firms. Most mutual fund companies have stricter rules, preventing employees from profiting from positions held less than 60 days. Employees at mutual fund companies can generally close out losing positions at any time.

"The 30-day rule is fairly standard. I don't think it's universally embraced, but it's usually embraced," says Gary Simon, a securities lawyer at

Parker Chapin


"If somebody's engaged in a lot of short-term trading, it could create a suspicion of people that they could have superior information. I think firms typically don't want to create that kind of suspicion," says Michael Missal, a securities lawyer at Washington's

Kirkpatrick & Lockhart


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But with stocks jumping around madly on Tuesday, as the

Dow Jones Industrial Average

opened down almost 200 points before beginning a 500-point rally, Goldman apparently decided that its employees needed more freedom to act.

"In light of recent market events and their impact on securities, commodities, and currency markets, compliance with the 30-day minimum holding period generally applicable to investments by partners and employees of the Firm will not be required with respect to transactions effected prior to October 27, 1997," Goldman director of compliance Hans Reich wrote in an email to "All Goldman Sachs Employees."

Reich did not respond to several requests for comment. A Goldman spokesman, when reached, said the firm would have no comment on the matter. Several other big investment companies said they had not changed their rules in response to the market's volatility.


Prudential Investments

, which manages more than $200 billion in assets, Vice President Marcos Rada says, "We are not liberalizing rules because of market activity. Our restriction is 60 days ... If you bought an individual stock three weeks ago, and you want to get out of it, tough luck -- you have to stay in it."

NatWest, D.E. Shaw,

Fidelity Investments




American Express Financial Advisors

also kept their rules in place, according to spokespeople and employees at those firms.

Missal, the lawyer, says Goldman's abrupt change of heart doesn't bother him. "I think given what was going on

Monday, and the way things were crashing, there

was a valid reason for trading," he says.

"Obviously you have fiduciary responsibilities -- but I don't think these people would be spending significant time analyzing their portfolio."