Merrill Lynch Charged $11 Million for Using Old Data in Short Sales

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Merrill Lynch Charged $11 Million for Using Old Data in Short Sales

Merrill Lynch was charged with using stale data when executing short sale orders.  Merrill Lynch agreed to settle the case by admitting their current system was improper, paying almost $11 million and retaining a consultant to review compliance procedures.

Merrill Lynch and other firms prepare easy-to-borrow (ETB) lists that comprise of stocks that the firms have determined are readily available to grant locates.  ETB lists are created for the routine occasions that customers ask their brokers to lawfully “locate” stock for short selling.  Merrill Lynch’s system of creating these lists involves checking the availability of securities one time every day.  The lists are then prepared daily and are relevant for one day.  However, some securities that Merrill Lynch deemed accessible become no longer easily available during the course of the day, but stay on the ETB list until the next business day.

When Merrill Lynch discovered this glitch in 2012, personnel discontinued use of the ETB list when certain shares became unavailable, but Merrill Lynch’s automatic platforms continued to process short sale orders based on the ETB list.  Not until the SEC began its investigation did Merrill Lynch correct the automatic processing problem by implementing system enhancements.

Merrill Lynch admits violating Rules 203(b) of Regulation SHO of the Securities Exchange Act of 1934 and paid almost $11 million in settlement fees.

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By |August 7th, 2015|Legal Matters|

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