Bank of America Merrill Lynch fined $ 42 million for‘ masking’ electronic order routing
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Bank of America Merrill Lynch fined $ 42 million for‘ masking’ electronic order routing
BAML made agreements with HFT firms including Citadel Securities and Two Sigma to secretly route client orders.
Bank of America Merrill Lynch( BAML) has been fined $ 42 million after it admitted to New York authorities that it sent orders electronically to certain liquidity providers secretly as part of a‘ masking’ scheme.
The investment bank confessed it systematically hid where dark pool orders were being sent as part of undisclosed agreements with high-frequency trading firms including Citadel Securities, Knight Capital, Two Sigma Securities and Madoff Securities.
Over a five-year period, BAML reprogrammed its electronic trading systems, doctored trade confirmations sent to clients and altered post-trade reports to avoid detection, claiming orders sent to those liquidity providers were instead being executed in-house.
Authorities in New York found BAML applied its‘ masking scheme’ to more than 16 million client orders between 2008 and 2013, representing over four billion traded shares.
“ Bank of America Merrill Lynch went to astonishing lengths to defraud its own institutional clients about who was seeing and filling their orders, who was trading in its dark pool, and the capabilities of its electronic trading services,” New York Attorney General Eric Schneiderman said.
“ As Wall Street firms offer increasingly complex electronic trading services, they cannot use new technology to exploit their clients in service of their business relationships with large industry players, like Bank of America Merrill Lynch did here.”
The settlement is the latest in a string of regulatory actions against major financial institutions related to electronic, dark pool and high frequency trading. Barclays, Deutsche Bank and Credit Suisse incurred major fines in 2016 for allegations of misleading investors about dark pool operations and fraudulent electronic trading operations.
Attorney General Schneiderman urged the financial community to evaluate and, if necessary, reform practices around electronic trading services.
12 // TheTrade // Spring 2018