Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed to pay a fine of $ 1.5 million to settle his charges of failing to adopt supervisory measures to deal with short positions in municipal securities, Finra said .
The company also failed to accurately notify clients of the receipt of alternative interest payments and the potential tax liability of those payments, Finra said.
Finra said from February 2015 to June 2021, Merrill broke municipal securities rules by not establishing and maintaining a securities monitoring system, including written procedures dealing with short positions. Merrill also failed to quickly bring short positions in municipal securities under his control within 30 days, the regulator said.
Finra said that in February 2015, Merrill was asked to hedge his short positions in municipal securities by the end of the month. But the following month, Merrill said he had 255 short positions that were more than 30 days old and out of possession or control of the company, including 83 short positions in municipal securities, Finra said.
Also, Finra said, those short positions increased from 83 to 231 between March and December 2015.
This led to Finra advising Merrill to implement supervisory measures to resolve his short positions in municipal stocks, but the company’s efforts failed, leading to several instances of the company holding too many positions. short between 2016 and 2021, Finra said. As of June 2021, Merrill had 69 short positions in municipal securities with an associated face value of $ 2,182,854, Finra said.
“Merrill’s surveillance systems were designed only to prevent short positions from retail transactions on certain fixed rate bonds and did not account for or address short positions created by other causes,” said Will end.
“Merrill’s failure to implement supervisory systems and procedures designed to detect and resolve short positions in municipal securities, prevent their consequences, and take swift action to bring short positions under its control.” on municipal securities was unreasonable given the municipal securities industry. the company led, âFinra added.
Additionally, Finra said Merrill did not promptly disclose to its clients holding municipal titles their receipt of substitute interest. From January 2015 to December 2018, Merrill had to pay at least $ 796,000 in substitution interest to more than 1,500 clients, linked to aging short positions in municipal securities, Finra said.
When asked for a response, Bill Halldin, spokesperson for Merrill’s parent company, Bank of America, said, âWe have implemented improvements to our monitoring system and procedures.
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