MERRILL LYNCH PIERCE FENNER & SMITH, INC.
CBOT RULE VIOLATIONS:
(Legacy) Rule 432. General Offenses
It shall be an offense:
I. To make a verbal or written material misstatement to the Board, a committee, or Exchange employees;
W. For a Member to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.
(Legacy) Rule 526. Block Trades
F. The seller must ensure that each block trade is reported to the Exchange within five minutes of the time of execution; except that block trades in interest rate futures and options executed outside of Regular Trading Hours (7:00 a.m. – 4:00 p.m. Central Time, Monday – Friday on regular business days) must be reported within fifteen minutes of the time of execution. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.
Rule 536. Recordkeeping Requirements for Pit, Globex and Negotiated Trades
A.1. Customer Orders — At the time of execution, every order received from a customer must be in the form of a written or electronic record and include an electronic timestamp reflecting the date and time such order was received on the floor of the Exchange and, except as provided in Section C, must identify the specific account(s) for which the order was placed. Such record shall also include an electronic timestamp reflecting the date and time such order was modified, returned, confirmed or cancelled.
Pursuant to an offer of settlement in which Merrill Lynch Pierce Fenner & Smith, Inc. neither admitted nor denied the rule violations upon which the penalty is based, on October 22, 2013, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“Panel”) found that between June 5, 2009, and May 17, 2012, Merrill Lynch Pierce Fenner & Smith, Inc., through its employees, agents, or affiliates (“Merrill Lynch”), executed block trades for customers in CBOT Interest Rate futures contracts that were not reported to the Exchange within the applicable time limit following execution. Additionally, the Panel found that Merrill Lynch misreported the true and accurate time of execution of block trades to the Exchange. The Panel concluded that Merrill Lynch thereby violated legacy CBOT Rules 526.F. and 432.I.
The Panel further found that Merrill Lynch failed to maintain accurate written or electronic records of the block trade transactions. Specifically, the order tickets and other records Merrill Lynch employed to record block trades contained inaccurate timing information, and Merrill Lynch did not have accurate and reliable time-keeping mechanisms in place upon which to base the time of execution. The Panel concluded that Merrill Lynch thereby violated CBOT Rule 536.
The Panel concluded that by failing to diligently supervise its employees or agents in the conduct of their business relating to the Exchange related to the above, Merrill Lynch violated legacy CBOT Rule 432.W.
In accordance with the settlement offer, the Panel fined Merrill Lynch $190,000.
October 24, 2013
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