From April 2013 through June 2015, the wirehouse allegedly didn’t collect enough margin to offset credit, market and exposure risk presented by the longer time period between trades and settlements inherent in such trades, Finra says.
Merrill Lynch wrongly extended hundreds of millions of dollars across various products to its clients as a result, according to the regulator.
Finra alleges the firm’s written supervisory procedures weren’t adequate to properly identify and evaluate the transactions to comply with net capital and margin requirements. The supervisory failures resulted in tens of thousands of inaccurate extended settlement transactions that violated rules and inaccurate record filings, according to the press release.
In addition, Merrill Lynch allegedly extended hundreds of millions of dollars in margin credit for its retail clients’ cash accounts, while such credit is only allowed in margin accounts, Finra says.
The regulator also alleges Merrill Lynch was aware of the inadequacies in its supervisory system in regard to extended settlement transactions by April 2013, but failed to act until mid-2014. The wirehouse also didn’t implement a supervisory system firm-wide until mid-2015, Finra says. As is usual, Merrill Lynch neither admitted nor denied fault in settling the matter.