FINRA Fines Merrill Lynch $1 Million and Orders Restitution of More Than $320,000 for Failing to Provide Customers Best

  FINRA Fines Merrill Lynch $1 Million and Orders Restitution of More Than
  $320,000 for Failing to Provide Customers Best Execution in Non-Convertible
  Preferred Securities Transactions

Business Wire

WASHINGTON -- April 16, 2013

The Financial Industry Regulatory Authority (FINRA) announced today that it
has fined Merrill Lynch, Pierce, Fenner & Smith Inc. $1.05 million for failing
to provide best execution in certain customer transactions involving
non-convertible preferred securities executed on one of its proprietary order
management systems (ML BondMarket), and for failing to have an adequate
supervisory system and written supervisory procedures in place. Merrill Lynch
was also ordered to pay more than $323,000 in restitution, plus interest, to
customers who did not receive best execution for their trades in
non-convertible preferred securities. Additionally, FINRA has required Merrill
Lynch to revise its written supervisory procedures regarding ML BondMarket
best execution obligations within 30 business days.

In any customer transaction, a firm or its registered persons must use
reasonable diligence to ensure that the purchase or sale price to the customer
is as favorable as possible under current market conditions. FINRA found that
Merrill Lynch had programmed a faulty pricing logic into ML BondMarket that
only incorporated quotations published on the primary listing exchange for
that non-convertible preferred security. As a result, in instances when there
was a better quote on a market other than the primary listing exchange, that
quote was not reflected on ML BondMarket. The firm instead executed 12,259
transactions in non-convertible preferred securities with its customers on ML
BondMarket at prices that were inferior to the National Best Bid and Offer
(NBBO).

Thomas Gira, FINRA Executive Vice President and Head of Market Regulation,
said, "It is paramount that a broker-dealer’s systems are adequately designed
to ensure that customers receive fair prices in securities transactions.
Merrill Lynch lacked the necessary systems and supervision to ensure that it
provided customers with the best execution of their non-convertible preferred
securities transactions which resulted in many customers receiving inferior
prices for more than four years.”

FINRA also found that Merrill Lynch’s supervisory system relating to ML
BondMarket was deficient in a number of respects. Merrill Lynch failed to
perform any post-execution review of non-convertible preferred transactions
executed on ML BondMarket to ensure compliance with its best execution
obligations. The firm also failed to enhance its supervisory review of
non-convertible preferred securities transactions executed on ML BondMarket
despite the fact that several thousand of such transactions were identified on
FINRA’s best execution report cards and it had received several inquiry
letters from the staff.

In concluding this settlement, Merrill Lynch neither admitted nor denied the
charges, but consented to the entry of FINRA's findings.

FINRA's investigation was conducted by the Department of Market Regulation.

Investors can obtain more information about, and the disciplinary record of,
any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck.
FINRA makes BrokerCheck available at no charge. In 2012, members of the public
used this service to conduct 14.6 million reviews of broker or firm records.
Investors can access BrokerCheck at www.finra.org/brokercheck or by calling
(800) 289-9999. Investors may find copies of this disciplinary action as well
as other disciplinary documents in FINRA's Disciplinary Actions Online
database.

FINRA, the Financial Industry Regulatory Authority, is the largest independent
regulator for all securities firms doing business in the United States. FINRA
is dedicated to investor protection and market integrity through effective and
efficient regulation and complementary compliance and technology-based
services. FINRA touches virtually every aspect of the securities business –
from registering and educating all industry participants to examining
securities firms, writing rules, enforcing those rules and the federal
securities laws, informing and educating the investing public, providing trade
reporting and other industry utilities, and administering the largest dispute
resolution forum for investors and firms. For more information, please visit
www.finra.org.

Contact:

Financial Industry Regulatory Authority (FINRA)
Michelle Ong, 202-728-8464
Nancy Condon,202-728-8379
 
Press spacebar to pause and continue. Press esc to stop.