Bank of America’s broker-dealer arm, Merrill Lynch, has agreed to pay $425 million to resolve several accusations from the Securities and Exchange Commission (SEC), according to two separate announcements from the agency.
The SEC said its investigation found multiple types of violation involving customer protection rules and misleading investors on structured notes.
The US watchdog accused Merrill Lynch of two sets of violations. First, instead of keeping customers’ investments in a safe reserve account, from 2009 through 2012 it engaged in “complex options trades that lacked economic substance, allowing freed up billions of dollars per week that Merrill Lynch used to finance its own trading activities,” the statement read.
In a second case, SEC announced that Merrill Lynch will pay a $10 million penalty to settle the regulator’s claims that it violated federal securities laws through misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary Volatility
Volatility
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
Read this Term index.
In conjunction with this case, the regulator also announced Thursday an initiative to uncover additional abuses by encouraging broker-dealers to proactively report potential violations. In return, the commission will provide credit and favorable settlement terms in any enforcement recommendations arising from self-reporting.
Misusing customer cash
In announcing the first settlement, the US watchdog said Merrill admitted to violating federal securities laws requiring broker-dealers to protect the cash and securities of their clients, which began during the financial crisis and in some cases continued as recently as this year. Bank of America’s brokerage arm has agreed to pay $415 million to resolve the regulator’s claims. The amount is divided into $57 million in disgorgement and interest plus a $358 million penalty.
Secondly, from 2009 to 2015, Merrill further violated the Customer Protection Rule by failing to adhere to regulations that require holding the customers’ fully-paid securities in lien-free accounts shielded from claims by third parties should a firm collapse.
Merrill Lynch held up to $58 billion per day of customer securities in a clearing account that was subject to a general lien by its clearing bank and held additional customer securities in accounts worldwide that similarly were subject to liens.
“Had Merrill Lynch failed at any point, customers would have been exposed to significant risk and uncertainty of getting back their own securities,” the regulator noted.
The SEC also sued the Merrill Lynch’s head of regulatory reporting, William Tirrell, in connection with the case.
Tirrell was ultimately responsible for determining how much money the firm would reserve in its special account, and failed to adequately monitor the trades and provide specific information to the regulators about the substance and mechanics of the trades.
The litigated administrative proceeding against Tirrell will be scheduled for a public hearing before an administrative law judge who will issue an initial decision stating what, if any, remedial actions are appropriate.
Second case
In an unrelated settlement, Merrill Lynch agreed to pay $10 million to the SEC over allegations that brokers marketed complex offerings to customers without disclosing hefty fees hidden within.
According to the SEC’s order instituting, the brokerage offered “materials emphasized that the notes were subject to a 2 percent sales commission and 0.75 percent annual fee. Due to the impact of these costs over the five-year term of the notes, the volatility index would need to increase by 5.93 percent from its starting value in order for investors to earn back their original investment on the maturity date.”
However, the offering materials failed to adequately disclose a third cost included in the volatility index known as the “ Execution
Execution
Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018.
Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018.
Read this Term factor” that imposed a cost of 1.5 percent of the index value each quarter.
FINRA is also here
The Financial Industry Regulatory Authority (FINRA) separately fined Merrill Lynch $5 million for negligent disclosures related to the sale of five-year senior debt notes to retail investors, the regulator said on Thursday.
Merrill Lynch cooperated fully with the SEC's investigation and has engaged in extensive remediation, including by retaining an independent compliance consultant to review its compliance.
In a statement, Merrill spokesman noted that no customers were harmed or losses incurred in connection with the activities.
“Our responsibility is to protect customer assets and we have dedicated significant resources to reviewing and enhancing our processes. The issues related to our procedures and controls have been corrected,” he added.
Bank of America’s broker-dealer arm, Merrill Lynch, has agreed to pay $425 million to resolve several accusations from the Securities and Exchange Commission (SEC), according to two separate announcements from the agency.
The SEC said its investigation found multiple types of violation involving customer protection rules and misleading investors on structured notes.
The US watchdog accused Merrill Lynch of two sets of violations. First, instead of keeping customers’ investments in a safe reserve account, from 2009 through 2012 it engaged in “complex options trades that lacked economic substance, allowing freed up billions of dollars per week that Merrill Lynch used to finance its own trading activities,” the statement read.
In a second case, SEC announced that Merrill Lynch will pay a $10 million penalty to settle the regulator’s claims that it violated federal securities laws through misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary Volatility
Volatility
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets.
Read this Term index.
In conjunction with this case, the regulator also announced Thursday an initiative to uncover additional abuses by encouraging broker-dealers to proactively report potential violations. In return, the commission will provide credit and favorable settlement terms in any enforcement recommendations arising from self-reporting.
Misusing customer cash
In announcing the first settlement, the US watchdog said Merrill admitted to violating federal securities laws requiring broker-dealers to protect the cash and securities of their clients, which began during the financial crisis and in some cases continued as recently as this year. Bank of America’s brokerage arm has agreed to pay $415 million to resolve the regulator’s claims. The amount is divided into $57 million in disgorgement and interest plus a $358 million penalty.
Secondly, from 2009 to 2015, Merrill further violated the Customer Protection Rule by failing to adhere to regulations that require holding the customers’ fully-paid securities in lien-free accounts shielded from claims by third parties should a firm collapse.
Merrill Lynch held up to $58 billion per day of customer securities in a clearing account that was subject to a general lien by its clearing bank and held additional customer securities in accounts worldwide that similarly were subject to liens.
“Had Merrill Lynch failed at any point, customers would have been exposed to significant risk and uncertainty of getting back their own securities,” the regulator noted.
The SEC also sued the Merrill Lynch’s head of regulatory reporting, William Tirrell, in connection with the case.
Tirrell was ultimately responsible for determining how much money the firm would reserve in its special account, and failed to adequately monitor the trades and provide specific information to the regulators about the substance and mechanics of the trades.
The litigated administrative proceeding against Tirrell will be scheduled for a public hearing before an administrative law judge who will issue an initial decision stating what, if any, remedial actions are appropriate.
Second case
In an unrelated settlement, Merrill Lynch agreed to pay $10 million to the SEC over allegations that brokers marketed complex offerings to customers without disclosing hefty fees hidden within.
According to the SEC’s order instituting, the brokerage offered “materials emphasized that the notes were subject to a 2 percent sales commission and 0.75 percent annual fee. Due to the impact of these costs over the five-year term of the notes, the volatility index would need to increase by 5.93 percent from its starting value in order for investors to earn back their original investment on the maturity date.”
However, the offering materials failed to adequately disclose a third cost included in the volatility index known as the “ Execution
Execution
Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018.
Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a common marketing point of emphasis by brokers, whose action execution varies considerably from company to company. When execution prices are not matching the submitted price the client is charged or credited the difference resulting from the negative or positive slippage.Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. Best Execution a Legal ObligationBrokers are required by law to diver to their clients the best execution possible. Some regulators are requiring brokers to submit execution stats in order to assess the quality of their services. Other brokers are regularly posting execution statistics in order to boost the confidence of their clients in the best execution commitment of the company.Best execution has been a point of emphasis in recent years from both retail and institutional players in the FX industry. Negotiating and executing transactions in order to promote a robust, fair, open, liquid and appropriately transparent FX market is identified as one of the six main principles outlined in the FX Global Code of Conduct, which came into effect in 2018.
Read this Term factor” that imposed a cost of 1.5 percent of the index value each quarter.
FINRA is also here
The Financial Industry Regulatory Authority (FINRA) separately fined Merrill Lynch $5 million for negligent disclosures related to the sale of five-year senior debt notes to retail investors, the regulator said on Thursday.
Merrill Lynch cooperated fully with the SEC's investigation and has engaged in extensive remediation, including by retaining an independent compliance consultant to review its compliance.
In a statement, Merrill spokesman noted that no customers were harmed or losses incurred in connection with the activities.
“Our responsibility is to protect customer assets and we have dedicated significant resources to reviewing and enhancing our processes. The issues related to our procedures and controls have been corrected,” he added.
