FINRA fines Merrill Lynch $50,000 for muni violations out of $2 million total

The Financial Industry Regulatory Authority has fined Merrill Lynch $50,000 for reporting 65,335 municipal securities transactions that it shouldn’t have, part of a wider action against the banking behemoth that ended in $2 million in fines.

Without admitting or denying the findings, the firm agreed to the fines and a censure for violating MSRB Rules G-14 on customer transaction reporting and MSRB Rule G-27 on supervision.

“From September 2017 to February 2019, the firm reported 65,335 transactions in municipal securities that a third-party dealer executed and for which the firm acted only as custodian,” FINRA said. “The over-reporting occurred because the firm failed to code its systems to suppress the reporting for such transactions.”

The firm corrected the mistake and reported it to FINRA in 2019. The firm did not have a comment on the fines, but pointed to the settlement to note “there was no client harm and the bank resolved the issue several years ago,” a spokesperson for the firm said.

That was just one part of wider reporting failures, the complaint detailed. From March 2010 to September 2020, “the firm failed to accurately report to the Trade Reporting and Compliance Engine (TRACE) over two million retail customer transactions in TRACE-eligible securities,” FINRA said. “Specifically, the firm reported incorrect execution times for approximately 1,576,000 primary market transactions in market-linked securities.”

This misreporting took place due to the firm failing to include a field for execution time for market-linked primary market transactions, and as a result, the firm’s systems misclassified each transaction’s processing time as the execution time. For those offenses, Merrill Lynch violated FINRA Rules 6730(c) and 2010.

The firm also, from August 2013 to June 2019, failed to report 422,197 customer allocations in TRACE-eligible securities as individual transaction and instead reported each block transaction as a single transaction.

Merrill Lynch also failed to include the No Remuneration indicator on 179,734 transactions in US Treasury securities that did not include transaction-based compensation. “This occurred because the firm incorrectly concluded the NR indicator was not required when reporting Treasury transactions.”

The firm”s supervisory system was also not designed to achieve compliance with TRACE reporting rules, or MSRB reporting rules, which is a violation of the supervision rules.