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The Financial Industry Regulatory Authority (FINRA) has fined Bank of America Corp’s Merrill Lynch unit $1.9m for violating fair pricing guidelines related with more than 700 retail customer transactions in distressed securities over two years.
Merrill was ordered pay more than $540,000 in restitution and interest to affected customers.
FINRA’s probe found that Merrill Lynch’s Global Banking & Markets Credit Trading Desk acquired Motors Liquidation Company Senior Notes (MLC Notes) from retail customers at prices 5.3% to 61.5% below the market price. It then sold the notes to other brokers at market price.
According to FINRA, Merrill Lynch did not have an adequate supervisory system to review fair pricing and didn’t conduct post-trade best-execution or fair-pricing reviews of the credit desk.
In 510 instances, out of 716 transactions, Merrill Lynch bought notes at markdowns of more than 10%, said FINRA.
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By GlobalDataAs part of sanctions, FINRA ordered Merrill Lynch to provide three reports over the next 18 months regarding the effectiveness of its supervisory system of the credit desk.
Merrill Lynch, which neither admitted nor denied the charges, consented to the entry of FINRA’s findings.
Thomas Gira, executive vice president and head of market regulation at FINRA, said: "We expect firms to adhere to their fair pricing obligations to customers when transacting in lower-priced or distressed securities.
"Even after factoring in the nature of the market for these types of instruments, the markdowns charged were simply unacceptable, as was Merrill Lynch’s failure to conduct post-trade fair pricing or best execution reviews for customer transactions executed on the Credit Desk," he added.