Merrill Lynch has agreed to pay a $650,000 fine to settle claims that it did not get clients the best price for thousands of trades that were done manually; the Financial Industry Regulatory Authority also says that the brokerage firm did not keep accurate records of the trades, which involved purchases of nonconvertible preferred securities from 2010 to 2012.
The firm also will pay more than $124,000 in restitution and also interest to clients.
In the period reviewed by FINRA, Merrill moved many of its security orders via automated or electronic systems, but more than 1,500 trades went to its credit desk; during the time in question, these same securities were being “electronically displayed in the market at better or equal prices than what the customer received,” the FINRA order states. Thus, these orders “were handled in a manner inconsistent with the firm’s best execution obligations.”
“The firm failed to use reasonable diligence to ascertain the best interdealer market and failed to buy or sell in such market so that the resultant price to its customer was as favorable as possible under prevailing market conditions,” FINRA said.
A review of over-the-counter convertible preferred securities uncovered more than 550 trades with similar issues.
Furthermore, in over 5,400 instances, Merrill did not tell clients the difference between the price reported to the regulatory authorities and the investor’s price. In other words, the firm’s compensation for the trades was not disclosed.
The specific fines to be paid by Merrill are: $365,000 for best execution violations, $150,000 for supervision violations, $60,000 for books and records violations, $25,000 for customer confirmation violations, $25,000 for trade reporting violations and $25,000 for market order timeliness violations.
According to FINRA, Merrill Lynch also did not record the time on some orders, and it submitted sales reports with the wrong price. The firm lacked “accurate supervisory systems in place to protect against such violations,” according to the order.
Merrill Lynch, which has more than 14,000 advisors, neither admitted nor denied wrongdoing but consented to the entry of FINRA’s findings.
A request for a comment on the settlement, which was announced last week, was not released as of press time.