Merrill LynchPierce Fenner & Smith Inc. will pay multiple fines forallegedly violating market access rules and maintaining ineffective tradingcontrols.
The broker agreed to pay the SEC a $12.5 million penalty forfailing to prevent erroneous orders from being sent to the markets and causingmini-flash crashes. The SEC's investigation found that Merrillcaused market disruptions on at least 15 occasions from late 2012 to mid-2014and violated the market access rule because its internal controls in place toprevent erroneous trading orders were set at levels so high that it renderedthem ineffective. The erroneous orders that passed through Merrill's internalcontrols caused certain stock prices to plummet and then suddenly recoverwithin seconds. The SEC's order finds that Merrill also violated therequirement for annual CEO certifications in 2013 and 2014.
Aside from the penalty, the brokerage also agreed to acensure and must cease and desist from further violations.
In addition to the SEC's penalty, six exchanges collectivelyfined Merrill Lynch Pierce Fenner& Smith Inc. $3 million for market access rule violations.
The disciplinary actions were initiated by the FinancialIndustry Regulatory Authority on behalf of Bats BZX Exchange Inc., Bats BYXExchange Inc., Bats EDGX Exchange Inc., New York Stock Exchange LLC, NYSE ArcaInc. and Nasdaq Stock Market LLC.
The exchanges found that the company filed more than 200erroneous petitions from July 14, 2011, through Oct. 20, 2014, and hadinadequate controls for preventing the entry of erroneous or unintended orders.
For example, a Merrill trader in May 2013 entered a marketorder to sell 400,000 shares of Anadarko Petroleum Corp. for the company's account withless than a minute left in the trading day. Concerned that a part of the orderwas stuck in the company's system and that there was little time left toexecute the order, the trader entered a new sell order for 150,000 shares usingan aggressive trading strategy.
By the time both orders were executed, the price of AnadarkoPetroleum had dropped to 1 cent from $90.24. As a result of the error, allexecutions at or below $87.56 were broken.
Merrill, a unit of Bank of America Corp., consented to thefindings by both the SEC and the exchanges without admitting or denying thecharges.