Bank of America Corp.'s Merrill Lynch division agreed to pay
nearly $11 million and admit wrongdoing to settle charges it used
inaccurate data in executing short sale orders.
The U.S. Securities and Exchange Commission said some securities
that Merrill Lynch placed on its easy-to-borrow list for short
sales became no longer easily available, but the company's
execution platforms were programmed to continue processing short
sale orders based on the list.
Short sellers borrow shares to sell them in hopes of buying them
back cheaper at a later date, aiming to profit from a price
decline.
"When firm personnel determine that a security should no longer
be considered easy to borrow, the firm's systems need to
incorporate that knowledge immediately," said Andrew M. Calamari,
director of the SEC's New York regional office.
Such lists are put together by Merrill and other broker-dealers
for customers to "locate" stock for short selling and are comprised
of stocks they have deemed readily accessible.
It wasn't until the platforms received the next day's list that
they returned to using accurate data, the SEC said. After the
agency started investigating, Merrill began implementing systems
enhancements to correct the problem, which occurred until 2012, it
said.
The bank also agreed to retain an independent compliance
consultant as part of the settlement, which included a $9 million
penalty, $1.57 million in disgorgement and nearly $335,000 in
prejudgment interest.
A representative from Merrill noted the firm has taken steps to
improve its controls related to the execution of short sales.
Write to Lauren Pollock at lauren.pollock@wsj.com
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