The above is a headline of InvestmentNews.com (June 23, 2016) on another SEC settlement with a major financial firm for essentially breaking laws and regulations.
Unfortunately, most people have gotten so used to it, they don’t even read them. However, if any person would commit these types of breaches, they would probably have a bigger problem than a settlement. The settlement amount of $415 million sounds like a slap on the wrist to many.
InvestmentNews headlined the story: “Wirehouse agreed to the payment and to admit wrongdoing in violations of the customer protection rule, according to an SEC announcement”
Here is an excerpt:
“An SEC investigation found that Merrill Lynch violated the SEC’s customer protection rule by misusing customer cash that rightfully should have been deposited in a reserve account,” the agency said in statement Thursday. “Merrill Lynch engaged in complex options trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account.”
Merrill’s maneuvering freed up billions of dollars a week from 2009 to 2012, which the firm used to finance its own trading activities. Customers would have been exposed to a “massive shortfall” in the reserve account if Merrill had failed in these trades, according to the SEC.
From 2009 to 2015, Merrill Lynch also held up to $58 billion per day of customer securities in a clearing account subject to a general lien by its clearing bank. There were additional customer securities in accounts worldwide that similarly were subject to liens, the SEC said, all exposed to significant risk and uncertainty of clients getting back their own securities had Merrill collapsed.
The agency also announced Thursday a new initiative to root out violations of the customer protection rule by other broker-dealers.
In our opinion this is a horrible breach of important regulations. As in other settlements, once again the amount of the settlement is probably far less than was derived from the breach.
This is the reason we have always suggested to investors not to have accounts at brokerage firms that trade for their own accounts. We like the firms formerly known as “discount brokers”, such as Schwab among others. Ask you broker if his firm engages in “proprietary trading.”