Quick Facts
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Merrill Lynch, Pierce, Fenner & Smith Incorporated Fine Amount: $2,000,000
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Date: 30 September 2024
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Violation Period: March 2010 - September 2020
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Primary Violation: Trade Reporting Errors
Merrill Lynch Fine Overview
FINRA has fined Merrill Lynch $2 million for violations related to trade reporting between March 2010 and September 2020.
The violations centered around inaccurate reporting to the Trade Reporting and Compliance Engine (TRACE) and Municipal Securities Rulemaking Board's (MSRB) Real-Time Transaction Reporting System (RTRS).
The firm failed to accurately report execution times, customer allocations, and 'No Remuneration' indicators for various types of securities transactions.
Details of the Merrill Lynch Fine
Execution Time Reporting
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Approximately 1,576,000 primary market transactions in market-linked securities were reported with incorrect execution times.
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The firm's systems misclassified processing times as execution times due to missing execution time fields.
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Period: March 2010 to June 2018.
Customer Allocation Reporting
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422,197 customer allocations in TRACE-eligible securities were not reported as separate transactions.
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Block transactions were incorrectly reported as single transactions instead of individual allocations.
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Period: August 2013 to June 2019.
'No Remuneration' Indicator
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Failed to include the NR indicator for 179,734 U.S. Treasury securities transactions.
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These transactions did not include transaction-based compensation.
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Period: July 2017 to September 2020.
Municipal Securities Over-Reporting
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Reported 65,335 municipal securities transactions unnecessarily to RTRS.
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These were third-party dealer-executed transactions where Merrill Lynch only acted as custodian.
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Period: September 2017 to February 2019.
Select Quotes
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"From March 2010 to September 2020, the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with FINRA Rule 6730. Specifically, the firm did not have reasonable supervisory reviews or written procedures relating to over-reporting or under-reporting of certain transactions in TRACE-eligible securities."
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"Where a firm purchases a block of TRACE-eligible securities and then allocates portions of the block to the various client accounts, the firm must report the corresponding sales, or allocations, to its customers individually."
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"The firm's supervisory system, including written supervisory procedures, was not reasonably designed to ensure compliance with RTRS reporting requirements because it did not have reasonable supervisory reviews or written procedures relating to over-reporting of certain transactions."
Merrill Lynch FINRA Fines and Penalties
$2,000,000 fine.
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$50,000 allocated explicitly to MSRB Rules G-14 and G-27 violations.
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Remaining $1,950,000 for TRACE reporting violations.
Sources
