FINRA fines Merrill Lynch for short sale reporting deficiencies

Maria Nikolova

Between May 2012 and September 2017, Merrill Lynch reported at least 11,625 short sales to a Trade Reporting Facility without a required short sale indicator.

Merrill Lynch, Pierce, Fenner & Smith Inc. has agreed to pay a fine of $150,000 as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).

From May 2012 to September 2017, Merrill Lynch reported at least 11,625 short sales to a Trade Reporting Facility (“TRF”) without a required short sale indicator, in violation of FINRA Rules 6182 and 2010.

In addition, on July 14, 2015, the firm incorrectly marked thirty-two principal sell orders as long sales, when it should have marked the orders as short sales. The issue that caused these mismarked orders persisted for a period of at least ten months. As a result, the firm violated Rule 200(g) of Regulation SHO and FINRA Rule 2010.

In connection with the above, between May 2012 and September 2017, the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with FINRA Rule 6182 and Rule 200(g) of Regulation SHO. As a result, Merrill Lynch violated FINRA Rules 3110 (for conduct occurring on or after December 1, 2014) and 2010 and NASD Rule 3010 (for conduct occurring prior to December 1, 2014).

Furthermore, between approximately 2014 and 2018, the firm failed to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution or display of short sale orders at prices at or below the national best bid during a short sale circuit breaker, in violation of Rule 201(b) of Regulation SHO, FINRA Rules 2010 and 3110 (for conduct occurring on or after December 1, 2014), and NASD Rule 3010 (for conduct occurring prior to December 1, 2014).

Finally, during the period of July 2007 through March 2015, the firm reported as many as 6,174,868 non-media transactions’ in National Market System (“NMS”) equity securities to the FINRA/Nasdaq Trade Reporting Facility (“FNTRF”) with inaccurate capacity codes. The transactions were incorrectly reported as “principal” transactions, when they should have been reported as”riskless principal” transactions.

As a result,the Firm violated FINRA Rules 7230A and 2010 (for conduct occurring on or after December 15, 2008) and NASD Rules 6130 and 2110 (for conduct occurring prior to December 15, 2008).

On top of the fine, the firm agrees to a censure.

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