Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, April 16, 2013

FINRA Fines Merrill $1 Million for Best Execution Failures in Non-Convertible Preferred Shares Transactions

FINRA fined Merrill Lynch, Pierce, Fenner & Smith Inc. $1.05 million for failing to provide best execution in certain customer transactions involving non-convertible preferred securities executed on one of its proprietary order management systems (ML BondMarket), and for failing to have an adequate supervisory system and written supervisory procedures in place. Merrill Lynch was also ordered to pay more than $323,000 in restitution, plus interest, to customers who did not receive best execution for their trades in non-convertible preferred securities. Additionally, FINRA has required Merrill Lynch to revise its written supervisory procedures regarding ML BondMarket best execution obligations within 30 business days.

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. 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 firm instead executed 12,259 transactions in non-convertible preferred securities with its customers on ML BondMarket at prices that were inferior to the National Best Bid and Offer (NBBO).

 

 

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