What You Need to Know
- The latest FINRA fine came only two days after it agreed to accept Merrill's payment of a $1.5 million fine for alleged MSRB violations.
- Merrill misapplied the SEC-approved Multi-day Approach on at least 6,000 occasions, FINRA alleged.
- The firm also allegedly failed to establish and maintain a supervisory system reasonably designed to achieve SEC compliance.
The Financial Industry Regulatory Authority has hit Merrill Lynch with an $850,000 fine for alleged violations related to short sales, according to FINRA.
Without admitting or denying FINRA’s findings, the firm signed a FINRA letter of acceptance, waiver and consent last month in which it consented to the imposition of the fine and a censure. FINRA signed the letter on Wednesday, agreeing to settle its charges.
Merrill Lynch declined to comment Thursday about the latest matter, which originated from examinations conducted by FINRA Member Supervision.
The sanctions were disclosed only two days after FINRA agreed to accept Merrill Lynch’s payment of a $1.5 million fine for allegedly violating Municipal Securities Rulemaking Board rules related to short sales of muni securities.
From September 2013 until July 2016, Merrill violated Rule 204 of Regulation SHO and FINRA Rule 2010 by “improperly netting the trading activity of five affiliated” broker-dealer clients “when determining their close-out obligations and claiming pre-fail credit,” FINRA alleged.
Also, from January 2005 until January 2015, Merrill violated Rule 200(f) of Regulation SHO by including securities positions held by the wirehouse’s foreign and non-BD affiliates when calculating the net positions of two independent trading units (also known as aggregation units or AGUs), according to FINRA. That rule requires that, to determine its net position, a broker or dealer shall aggregate all of its positions in a security.
From January 2005 until July 2017, Merrill also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Rule 200(f) of Regulation SHO, in violation of NASD Rules 3010 and 2110, and FINRA Rules 3110 and 2010, FINRA alleged.
Rule 204(a) of Regulation SHO requires BDs to take action to close out fail-to-deliver positions resulting from short sales in equity securities by either borrowing or buying securities of like kind and quantity by the start of regular trading hours on the settlement day following the settlement date, according to FINRA.