Merrill, SEC settle customer order info claim
The SEC and Merrill Lynch & Co. agreed to settle charges tied to a broker-deal unit of Merrill that allegedly improperly shared customer order information.
The Securities and Exchange Commission and Merrill Lynch & Co. agreed to settle charges tied to a broker-deal unit of Merrill that allegedly improperly shared customer order information.
The settlement includes the payment of a $7 million penalty. Merrill did not admit wrongdoing in the settlement, according to the SEC.
Merrill Lynch, Pierce, Fenner & Smith Inc. — Merrill’s broker-dealer unit — was accused of allowing day traders at other firms to listen to details over internal intercom systems known as “squawk boxes.” The boxes were used to relay institutional customer order information from Merrill clients.
Between 2002 and 2004, Merrill brokers put telephones next to the boxes to let day traders listen, allowing them to execute trades ahead of orders placed by the Merrill customers, the SEC said in a statement.
The information allows day traders to trade in the same stock before the customer’s order is executed, in anticipation of a movement in price. As a result, the firm’s customers often do not obtain as favorable a price as they might have.
“This created conditions that rogue brokers could exploit, as happened here,” Kay Lackey, the associate regional director of the SEC’s New York regional office, said in the statement.
The SEC said Merrill failed to limit who had access to the intercom systems and monitor employees for possible misuse of the system.
In a statement, Merrill spokesman Bill Halldin said: “The misuse of so-called squawk boxes occurred more than five years ago and would have been a firing offense as a violation of the policies we then had in place. We worked with the SEC on examining what happened and enhanced our procedures, particularly for access to squawk boxes, to safeguard such communications.”
The SEC previously sued the former Merrill brokers involved in the case and brokers at other firms as well as employees at day-trading firms that used the information illegally.
Merrill Lynch was acquired by Charlotte, N.C.-based Bank of America Corp. on Jan. 1.
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