Merrill Lynch fined for flouting SEC norms

WASHINGTON, NOV 23: Merrill Lynch & Co has been fined $97,000 by regulators for alleged rule violations at its brokerage unit Pierce F...

WASHINGTON, NOV 23: Merrill Lynch & Co has been fined $97,000 by regulators for alleged rule violations at its brokerage unit Pierce Fenner & Smith. The National Association of Securities Dealersâ€™ regulatory arm said Wednesday that between November 1997 and December 1999, Merrill Lynch allegedly violated the Securities and Exchange Commissionâ€™s limit order display rule, as well as NASDâ€™s rules related to best execution, short sales, locked and crossed markets, and trade reporting.

â€œThese were unintentional errors that involved a very small fraction of the transactions that we executed,â€ a Merrill Lynch spokesman said. â€œWe have taken steps that addressed them, and continuously work to apply with NASD regulations.â€ The agency found that Merrill Lynch failed to comply with the SECâ€™s limit order display rule on 41 customer limit orders. Customers place limit orders to trade securities at a specific price. The SECâ€™s limit order display rule requires the immediate display of customer limit-order prices if they improve on the market makerâ€™s quotation.

Regulators also found that Merrill Lynch failed to provide best execution for 70 customer orders. Under NASD rules for best execution, members must execute customer orders at prices that are as favorable as possible under prevailing market conditions.

Story continues below this ad

In another area, regulators said Merrill Lynch failed to comply with the NASDâ€™s rule for locked and crossed markets in 73 instances. A locked market occurs when the inside bid price equals the inside offer price in the same security, and a crossed market occurs when the inside bid is greater than the inside offer price of a security. NASDâ€™s rules require that, before entering a quote during the trading day that will lock or cross the market in a Nasdaq security, a market maker must make reasonable efforts to avoid such a locked or crossed market by executing transactions with all market makers whose quotations would be locked or crossed.

The NASD also determined that Merrill Lynch engaged in a pattern of late transaction reporting into the Automated Confirmation Transaction system, which members use to report transactions and assist in the clearance of trades.