The Financial Industry Regulatory Authority’s (FINRA) findings state that Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill) and BofA Securities (together BAML) failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to detect potentially manipulative trading.
FINRA states that during a relevant period the firm relied on a number of third-party automated surveillances to assess potentially manipulative activity – including wash trading and pre-arranged trading – which were found to be deficient in several aspects.
BAML have submitted a letter of Acceptance, Waiver and Consent (AWC) in order to propose a settlement of the alleged rule violations from FINRA. Importantly through this, the respondents “accept and consent to the findings without admitting or denying them”.
A condition has also been included that, if accepted, FINRA will not bring any future action against the respondents based on the same factual findings.
In addition, BAML has consented to a $3 million fine, a censure, and that within 180 days of the date of the acceptance of the AWC, a member of BAML’s senior management will certify that the firm has remediated the identified issues and implemented a supervisory system.
Specifically, BAML has violated FINRA rules 3110(a), 3110(b), and 2010.
FINRA confirmed that overall, between 2015 to present, “the firm did not review approximately 155 alerts representing approximately 700 potentially manipulative equity trades and approximately 1,000 alerts representing approximately 125,000 potentially manipulative options trades.”