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Alternative Market Briefing

Merrill Lynch fined for fundamentally flawed procedures, errors in exchange and clearing fees accounting

Wednesday, August 27, 2014

Komfie Manalo, Opalesque Asia:

Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) was ordered to pay a fine of $1.2m by the U.S. Commodity Futures Trading Commission (CFTC) for failing to diligently supervise its officers’, employees’, and agents’ processing of futures exchange and clearing fees charged to its customers from at least January 1, 2010 through April 2013.

Merrill Lynch is a CFTC-registered Futures Commission Merchant and approved swap firm located in New York, New York.

The CFTC charged that Merrill Lynch’s fee reconciliation process for identifying and correcting discrepancies between the invoices from the exchange clearinghouses and the amounts charged its customers had been faulty for more than two years. As a result, Merrill over-accrued fees from some clients and under-accrued fees from others.

These fee reconciliations show that Merrill paid more than $318m in exchange and clearing fees to the CME and Chicago Board of Trade during that time, but had unexplained over-accruals of approximately $451,318 (0.14% of fees paid) from 196 clients, according to the order.

Additionally, the CFTC Order finds that Merrill Lynch did not hire qualified personnel to conduct and oversee its fee reconciliations and did not provide any completed procedures manuals regarding fee reconciliations to its staff until at least April 2013. The Order also finds that procedures Merrill Lynch did have up until that time were viewe......................

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