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Merrill Lynch to pay $42M over NY AG probe into trading disclosures


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Merrill Lynch to pay $42M over NY AG probe into trading disclosures

Merrill Lynch Pierce Fenner & Smith Inc. has agreed to pay $42 million to the state of New York, resolving its attorney general's investigation into electronic trading practices that the company concealed from clients.

Merrill Lynch admitted to systematically hiding from clients that their equity securities orders were being routed to third-party electronic liquidity providers. Among the third parties were Citadel Securities, Knight Capital, D.E. Shaw, Two Sigma Securities and Madoff Securities, New York's attorney general reported. The company made it appear that execution of orders was done in-house, "masking" the identities of the providers in trade confirmation messages and revising transaction cost analysis reports accordingly.

The providers did not charge Merrill Lynch for the execution of the orders, according to the settlement agreement. Merrill Lynch had entered into the agreements to increase the volume of trades it sent to the third parties, on account of "other revenue opportunities" with those partners.

The strategy was used in more than 16 million client orders between 2008 and 2013.

Merrill Lynch Pierce Fenner & Smith is a subsidiary of Bank of America Corp.