Merrill Lynch Reaches $1.2 Million Settlement with CFTC for Improper Fee Reconciliations

The U.S. Commodity Futures Trading Commission (CFTC) has settled charges against Merrill Lynch related to the processing of futures exchange and clearing fees, resulting in a $1.2 million fine.
By Jake Safane(2147484770)
The U.S. Commodity Futures Trading Commission (CFTC) has settled charges against Merrill Lynch related to the processing of futures exchange and clearing fees, resulting in a $1.2 million fine.

From at least January 1, 2010, through April 2013, the CFTC alleges that Merrill Lynch, a registered futures commission merchant (FCM) and an approved swap firm, violated CFTC Regulation 166.3, which requires diligent supervision, as the firm did not properly oversee its officers’, employees’ and agents’ processing of these fees, resulting in both over- and under-charging some clients.

Additionally, the CFTC says that Merrill Lynch did not have the proper staff or training in place to properly conduct fee reconciliations.

Merrill Lynch charges its clients for exchange and clearing fees that it occurs when it executes client transactions. At the end of each month, however, Merrill Lynch receives rebates from some exchanges based on monthly volumes, for which the firm manually processed the discounts owed to each customer during this time, according to the CFTC.

Yet in December 2012, says the CFTC filing, the director of Merrill Lynch’s fee group notified his manager that he was unable to balance the November 2012 exchange and clearing fees reconciliations, which then led to further reviews, confirming that the firm’s reconciliation processes and procedures were not working properly.

“We self-identified a problem with our fee reconciliation process in late 2012 and have changed our procedures in order to correct it,” says Bill Halldin, a spokesperson for Bank of America Merrill Lynch.

In 2013, the firm began working on improving reconciliations, including firing the fee group’s supervisor and hiring two consulting firms between April 2013 and March 2014 to conduct a review of the situation, both going forward and correcting past mistakes. Upon discussions with the CFTC, Merrill Lynch agreed to review fee reconciliations for CME fees from January 2010 to October 2013 as well as Chicago Board of Trade (CBOT) fees from January 2011 to October 2014.

As a result of the review, Merrill Lynch found that it had over- and under-accrued fees from some clients, and in all, the firm paid more than $318 million in exchange and clearing fees to the CME and CBOT during that period but had unexplained over-accruals of approximately $451,318 (0.14% of fees paid) from 196 clients.

For those customers that Merrill Lynch confirms it overcharged, the firm has now adjusted customer accounts but has been unable to resolve all discrepancies.

Merrill Lynch decided to settle charges with the CFTC, by which the firm neither admits nor denies the findings, and pay a fine of $1.2 million, plus any post-judgment interest, within 10 days of the settlement’s entry, which occurred on Monday.

The settlement also includes provisions Merrill Lynch must follow, such as hiring an outside consulting firm that the CFTC deems acceptable, in order to help train staff and review/update processes for exchange and clearing fee reconciliations.

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