Regulator censures firm for handling of customer orders for nonconvertible preferred securities
Merrill Lynch has agreed to a settlement with Finra over its handling of transactions in nonconvertible preferred securities from July 1, 2010 through Dec. 31, 2012. The firm was censured, fined $650,000 and ordered to pay restitution of more than $124,000.
The issue involved how Merrill reported and routed orders to its automated and manual systems. While most of the orders during the period in question were routed electronically, the Financial Industry Regulatory Authority Inc. said many trades were executed by the firm's credit desk. In 1,508 of those manual trades, Finra said, "100% of the trade quantity or greater was electronically displayed in the market at better or equal prices than what the customer received."
As a result, Finra said, the orders executed manually "were handled in a manner inconsistent with the firm's best execution obligations."
Finra said that it found other "violative conduct" during its investigation, including instances in which Merrill recorded inaccurate order execution times and the reporting of prices that reflected the credit desk's mark-ups or mark-downs.
Merrill also issued "inaccurate customer confirmations to its customers," Finra said, noting that in 5,410 cases the firm failed to disclose on customer trade confirmations the difference between the price reported to the Finra/Nasdaq Trade Reporting Facility and the customer's price, which represented compensation to the firm.
Regarding its fine, Merrill will pay $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.
