Merrill Lynch, Pierce, Fenner & Smith, now a unit of
The
"Merrill's proprietary traders had improper access to information about the firm's customer orders, and misused it to place trades on the firm's behalf,'' said Scott W. Friestad, associate director in the SEC's Division of Enforcement. "Investors have the right to expect that their brokers won't misuse their order information."
The SEC said that Merrill's Equity Strategy Desk, which traded securities for Merrill's own benefit, misused information about orders being executed on the firm's market-making desk on behalf of institutional investors.
The equity desk then used the information to place trades on Merrill's behalf after executing the customers' trades.
The activity, between 2003 and 2005, was "contrary to its representations to customers" that the information on their orders would be shared only on a "need-to-know" basis.
The SEC's order also found that, between 2002 and 2007, Merrill had agreements with certain institutional and high-net-worth customers that Merrill would only charge a commission equivalent for executing riskless principal trades.
However, in some instances, Merrill also charged customers undisclosed mark-ups and mark-downs by filling customer orders at prices less favorable to the customer than the prices at which Merrill purchased or sold the securities in the market.
"Charging these undisclosed mark-ups and mark-downs was improper and contrary to Merrill's agreements with its customers," said Robert B. Kaplan, co-chief of the SEC's Asset Management Unit.
A spokeswoman for Bank of America was not immediately available for comment.
