Bank of America, Merrill Lynch fined $3M over “deficient” supervision systems

investmentnews.com:

Bank of America and its subsidiary, Merrill Lynch, have reached a settlement with Finra, including a $3 million fine and censure, for a reported years-long failure to adequately supervise potentially manipulative trading by their customers.

The settlement, dated August 28, stems from violations that occurred over several years, beginning in 2015 for Merrill Lynch and 2019 for Bank of America Securities, the firm’s institutional broker-dealer, according to Finra.

The AWC noted that both entities relied on third-party surveillance systems to detect manipulative practices, such as wash trading and prearranged trading. These activities, where investors buy and sell the same securities to create the impression of market activity involving the same securities, were not properly flagged due to the “too narrow” parameters set within the surveillance systems.

“[T]he firm did not take reasonable steps … to determine whether these parameters were reasonable or additional surveillances were necessary,” Finra said. “The firm could not explain why it initially selected the particular modules that it used or why it did not select other modules that were available from the vendor.”

The ACW letter also highlighted how at certain periods, Merrill excluded trading in OTC securities and warrants from its surveillance systems. While its surveillance system had the capability to surveil for wash trading in warrants as early as 2016, a coding error let those trades fall through the cracks until January 2019.

“Between July 2017 and October 2018, Merrill failed to have a surveillance system in place to detect wash trading, prearranged trades, matched trades, or spoofing and layering in OTC securities because [it] had failed to purchase the OTC