Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") settled allegations and agreed to pay a $42 million penalty related to the undisclosed routing of equity securities orders to external firms for execution.
According to the Office of the Attorney General of the State of New York ("OAG"), Merrill Lynch entered into agreements with several electronic liquidity providers ("ELPs") that allowed the ELPs to execute some of Merrill Lynch's institutional client orders. The OAG found that, over a five-year period, Merrill Lynch routed certain "direct strategy access" orders to the ELPs before routing the orders to public stock exchanges without notifying its clients. The OAG also found that Merrill Lynch altered post-trade "transaction cost analysis" reports, client invoices and other written documentation that would have otherwise revealed where the trades had been executed, and made inaccurate representations to investors about its electronic trading services.
Merrill Lynch admitted to the factual findings of the investigation and acknowledged that the conduct was in violation of New York General Business Law Section 352 and New York Executive Law Section 63(12). To settle the charges, Merrill Lynch agreed to a third-party review of its electronic trading policies and procedures in addition to the fine.
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