FINRA fined two Merrill Lynch units $6 million yesterday for alleged short-selling rule violations, which included letting thousands of orders through their systems that violated emergency bans on ‘naked’ short sales in 2008. According to FINRA, Merrill Lynch Professional Clearing Corp. and Merrill Lynch Pierce Fenner & Smith Inc. did not have sufficient supervisory policies and procedures implemented in order to adhere to the SEC’s emergency orders in July and September 2008 that prevented traders from selling short shares of certain companies they did not own or had not previously arranged to borrow. These orders additionally mandated that traders deliver shares by the settlement date, which is typically three days after the transaction.
The Merrill Lynch units, subsequently, let thousands of orders go through their systems in violation of the SEC’s orders, which were made to prevent abusive, naked short sales in the midst of the financial crisis. FINRA additionally stated that Merrill Lynch’s clearing unit failed to close out particular fail-to-deliver positions as necessary under Regulation SHO. Further, the unit did not have the policies and procedures implemented to address its closeout requirements or adhere to anti-money laundering rules.
Both units of Merrill Lynch have settled the claims without either admitting or denying wrongdoing. Merrill Lynch Professional Clearing paid $3.5 million. Merrill Lynch Pierce Fenner & Smith paid $2.5 million. In reference to the settlement, a Merrill Lynch spokesperson stated, “We are pleased to resolve this matter. We take very seriously our obligations and have improved our procedures to address issues identified by FINRA.”
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