Trading irregularities see Merrill Lynch fined $10m

27 January 2011

Merrill Lynch has received a $10 million fine by the Securities and Exchange Commission (SEC) over allegations of securities fraud committed by proprietary traders.

Traders at the firm, who worked on the Equity Strategy Trading (EST) desk between 2003 and 2005, are accused of misusing customer information to make trades and charging undisclosed fees, the SEC explained.

Merrill Lynch traders are believed to have obtained customer details from the bank’s market-making desk, before then using this data to influence the firm’s own trades.

This is despite telling customers that the data would be “maintained on a strict need-to-know basis”, the SEC stated.

Scott W Friestad, associate director in the SEC's Division of Enforcement, said: “Investors have the right to expect that their brokers won't misuse their order information.

“The conduct here was clearly inappropriate. Merrill's proprietary traders had improper access to information about the firm's customer orders, and misused it to place trades on the firm's behalf.”

Between 2002 and 2007, traders working on the desk are also thought to have added undisclosed mark-ups on some customer orders.

Merrill Lynch has agreed to settle the allegations but did not admit or deny the findings of the SEC investigation.

By Jim Ottewill

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