Merrill Lynch has agreed to pay $7 million to settle charges that it failed to control information about its institutional customer order flow, the Securities and Exchange Commission said Wednesday.
Merrill, which Bank of America Corp. bought on Jan. 1, also agreed to a censure and to take action to protect customer order information, the SEC said.
The agency said Merrill inappropriately allowing traders to listen to its "squawk box" broadcasts.
Merrill, the SEC said, uses internal intercom systems, or squawk boxes, for broker-dealers to broadcast institutional customer order information to traders and sales traders.
From 2002 to 2004, the agency said, several Merrill retail brokers at three branch offices permitted day traders at other firms to listen to confidential information on large unexecuted block orders of Merrill's institutional customers by putting telephones next to the squawk boxes.
Day traders used the broadcasts to trade ahead of orders placed by Merrill's customers, the SEC said.
The SEC charged Merrill Lynch, Pierce, Fenner & Smith Inc. with securities laws violations for allegedly having inadequate policies and procedures for controlling access to institutional customer order flow. Merrill also agreed to cease and desist from future violations.