These include failure to comply with an undertaking that arose as a result of a 2000 disciplinary action, to report a significant number of litigation and arbitration judgments, to preserve certain emails, and to update employee information in the securities industry’s central personnel database.
“The delivery of a prospectus to a potential investor is the foundation of investor protection. More than just a sales document, the prospectus talks about risks. So, it is inexcusable for them not to be delivered,” said Richard G. Ketchum, chief regulatory officer, the New York Stock Exchange.
“Internal controls at our member firms cannot run on auto-pilot, but must be reviewed periodically to ensure that firms are complying with their responsibilities under federal securities laws and NYSE Rules,” said Susan L. Merrill, chief of enforcement, NYSE Regulation.
Merrill Lynch was also cited for delaying its registration with the Exchange’s Electronic Filing Platform (EFP), as well as failing to ensure that all applicable employees maintain proper securities industry registrations. Intended to enhance NYSE Regulation’s efficiency in carrying out its self-regulatory responsibilities, the EFP is a secure communications link through which members and member firms are required to file a wide variety of confidential data, including certain forms detailing personnel changes, and responses to requests for information.
As part of the consent agreement, Merrill Lynch will retain an independent consultant, subject to approval by NYSE Regulation, to review the firm’s policies, procedures, and supervisory systems governing the mandatory reporting of customer complaint and other information. The consultant’s final report will be issued to both the firm’s chief executive as well as NYSE Regulation. Merrill Lynch has agreed to undergo a thorough review of other areas of the firm that were responsible for the violations and to make the necessary modifications to ensure compliance with NYSE Rules and federal securities laws.
Regarding the prospectuses, from October 2002 to March 2004, Merrill Lynch failed to deliver these documents with respect to 64,000 transactions in connection with certain sales of registered, open-ended mutual fund securities. Further, between January 2004 and July 2004, Merrill Lynch failed to deliver prospectuses with respect to about 900 transactions in approximately 275 accounts in auction rate preferred stocks.
The firm’s failure to preserve or retain e-mail impeded certain investigations by enforcement staff.
As for the for maintaining proper employee registrations, between December 2002 and February 2005, NYSE Regulation and Merrill Lynch identified 69 employees whose registration had lapsed or had not been properly completed. After a review that concluded in February 2005, Merrill Lynch identified an additional 818 employees who did not maintain all applicable registrations.
Additional details of the disciplinary action against Merrill Lynch can be found by clicking here.
About NYSE Regulation
On December 17, 2003, the SEC approved a new governance structure for the NYSE. Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, who have no affiliation with any regulated member firm. A new position of chief regulatory officer was created and reports directly to the board of directors through a new Regulatory Oversight Committee. As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.
NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws. Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange. These firms service 92 million customer accounts, or 90 percent of the total public customer accounts handled by broker-dealers, with total assets of over $3 trillion. They operate from 19,000 branch offices around the world and employ 146,000 registered personnel. Nearly 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation and Enforcement and Listed Company Compliance, as well as a Risk Assessment Unit and Dispute Resolution/Arbitration.
