Bank of America agreed to pay a $12.5 million penalty to the SEC for its Merrill Lynch unit’s asserted failure to maintain effective trading controls and prevent erroneous orders that caused mini crashes, as well as agreeing to pay $3 million in fines to several exchanges, including the NYSE and NASDAQ, for the same purported failures.
Repetitive Violations Leading To Stock Failure
The SEC penalty was for alleged violations of the market access rule by Merrill Lynch from 2012 to the middle of 2014 on at least 15 occasions. The SEC said that Merrill’s internal controls in place to prevent erroneous or excessive trading orders were set at levels so high that they were ineffective.
How Do Those Numbers Work?
For example, the SEC said that Merrill Lynch applied a limit of 5 million shares per order for one stock that only traded around 79,000 shares a day, and had limits as high as 25 million shares, which were reduced to 50,000 shares after the SEC’s investigation began.
One notable crash involved Andarko Petroleum Corp. in 2013, which incurred a 99% drop, briefly losing $45 billion in market value before recovering.
The SEC penalty is the largest one ever imposed for violation of market access rules.
The SEC’s press release on the matter can be found at the below link:
Jeff Petersen is an attorney licensed in California and Illinois who represents clients in a wide variety of SEC proceedings. He can be reached in California at 858.792.3666 and in Illinois at 312.583.7488.