A regulator of securities firms said Monday it has fined Bank of America’s Merrill Lynch unit $6 million to resolve claims it violated rules for the short selling of stocks.
In a short sale, an investor borrows shares and sells them but later must buy identical shares to give back to the lender. If the stock’s price falls, the investor will turn a profit when buying the shares to return them to the lender.
The Financial Industry Regulatory Authority said Monday it fined Merrill Lynch for violating a Securities and Exchange Commission regulation designed in part to prevent abusive “naked short selling” – when an investor sells shares before borrowing them.
FINRA also said it fined Merrill Lynch for failing to have systems and procedures in place to ensure compliance with the regulation as its clients engaged in short selling.
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FINRA said alleged violations ran from 2008 to 2012. Bank of America bought Merrill Lynch in January 2009.
Bank of America did not admit or deny the allegations.
“We are pleased to resolve this matter,” Bill Halldin, Merrill Lynch spokesman, said in an email to the Observer. “We take very seriously our obligations and have improved our procedures to address issues identified by FINRA.”
It’s not the first time this year that Merrill Lynch has been fined by FINRA.
In June, FINRA fined Merrill $8 million and ordered it to pay $24.4 million in restitution to settle claims it overcharged thousands of charities and retirement accounts by failing to waive mutual fund fees.
Earlier that same month, FINRA fined Merrill $1 million over claims it provided inaccurate information about trades over an eight-year period.
Merrill did not admit to or deny the charges in those two cases.