Merrill Lynch & Co. agreed to pay $23.5 million to the New York Stock Exchange and the state of New Jersey, promising reforms to resolve allegations it failed to supervise employees who made improper mutual fund trades.
New Jersey’s attorney general said Merrill Lynch will pay the state a $10 million civil penalty and separately, the NYSE said it fined the brokerage $13.5 million.
Merrill Lynch, the No. 1 U.S. brokerage, also said on Tuesday that it had fired three financial advisers who market timed mutual funds and sanctioned three supervisors over the matter.
Merrill Lynch said in a statement it resolved regulatory inquiries of New Jersey, Connecticut and the NYSE into activities of financial advisers in connection with short-term trading.
Merrill Lynch did not provide terms for its settlement with Connecticut, and state officials were not immediately available to comment.
Market timing involves the short-term buying and selling of mutual fund shares to exploit inefficiencies in the pricing of the shares. While not illegal, a fund’s prospectus can limit the number of trades that can be conducted by a single investor.
Market timing harms mutual fund shareholders because the heightened trading activity requires a fund to set aside more money in liquid assets, which can limit the types of investments a fund can make.
Tuesday’s agreement with the New Jersey attorney general settled allegations by the New Jersey Bureau of Securities concerning trades made by hedge fund Millenium Partners L.P.
The allegations focus on market timing by three financial advisers who joined Merrill Lynch’s Fort Lee, New Jersey, office in January 2002.