Merrill Lynch Trading Overcharges Results in $1.3M in Fines, Restitution

Merrill Lynch has been fined $1.05 million by a regulatory agency for overcharging customers on nonconvertible preferred securities, and the brokerage firm has been ordered to pay more than $323,000 in restitution to cusomers.  

The Financial Industry Regulatory Authority (FINRA) announced on April 16 that a programming error caused Merrill Lynch to overcharge for trading in 12,259 transactions involving its ML BondMarket.

In addition to the fine and restitution, the company will also revise its written supervisory procedures for non-convertible preferred securities.

“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,” the authority said in a press release issued last week. “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 authority ruled that Merrill Lynch failed to properly review its transactions even after several thousand transactions were flagged by FINRA and several warning letters were issued.

Merrill Lynch officials say the company has corrected the programming error.

FINRA oversees all securities firms doing business in the United States, providing arbitration services for claims against stock brokers and serving to protect investors by making sure the securities industry operates fairly and honestly.

FINRA was created in July 2007 as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.

The ruling comes a year after FINRA awarded $10.2 million to two former brokers who said the company denied them deferred compensation benefits promised by the company. FINRA fined Merrill Lynch in that case for abusive and fraudulent conduct.