The U.S. Commodity Futures Trading Commission (CFTC) has imposed a fine of $1.2 million on Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), a wholly owned subsidiary of Bank of America Corporation (BAC), for faulty supervision of client-fee processing over a period of three years. This fine also settles the charges brought against Merrill Lynch by the independent federal regulator of futures and option markets.
Per the charges, the New York-based CFTC-registered Futures Commission Merchant failed to supervise its support staff while they processed futures exchange and fees from clients. Due to lapses in Merrill Lynch’s fee reconciliation process, between Jan 1, 2010 and Apr 2013, some clients were overcharged, while some others were undercharged.
Notably, JPMorgan Chase & Co. (JPM) had reached a $650,000 settlement with CFTC in July to resolve the claims of filing falsified reports on the trading positions of some of its large traders. (Read more: JPMorgan to Pay $650K for Clearing CFTC False-Report Charges)
Nevertheless, as per CFTC charges, Merrill Lynch paid over $318 million in exchange and clearing fees to the CME Group Inc. (CME) and Chicago Board of Trade during that time. Moreover, the swap firm had over accrued around $451,318 (0.14% of all the fees paid) from 196 clients over the same time period.
CFTC found the fee reconciliation of Merrill Lynch to be ‘fundamentally flawed’. The company had not recruited qualified personnel for overseeing the fee processing. The support staff was not provided with procedure manuals to supervise the process effectively and employees were not adequately trained.
All these culminated into Merrill Lynch violating Regulation 166.3 of CFTC, pertaining to diligent supervision. However, payment of a civil monetary penalty of $1.2 million will exonerate the company.
Bank of America currently holds a Zacks Rank #3 (Hold). PrivateBancorp, Inc. (PVTB) is a better-ranked bank with a Zacks Rank #2 (Buy).
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