US investment bank Merrill Lynch agreed to pay $11 million in fines for providing misinformation related to “short sale” transactions which require investors to sell borrowed stock that they repurchase later, the US Securities and Exchange Commission (SEC) said in a press release.
“[The SEC] charged two Merrill Lynch entities with using inaccurate data in the course of executing short sale orders,” the release, issued on Monday, said. “Merrill Lynch agreed to admit wrongdoing, [and] pay nearly $11 million… to settle the charges.”
Short selling entails an investor selling stock not yet owned, but borrowed from a broker and subsequently repurchased. The investor profits if the repurchase price is lower than the original sell price.
The SEC alleged that Merrill Lynch systems incorrectly categorized certain stocks as easily available to borrow. It said the firm’s daily easy-to-borrow (EBT) list was not being updated properly until the day after trades were conducted.
“While personnel received responses from lenders that a supply of a particular security was no longer available, Merrill Lynch’s systems continued to rely on the ETB list and execute short sales totaling thousands of shares of that security,” the release said.
The mission of the SEC is to protect US investors and maintain orderly and efficient markets, according to the group’s mission statement.
SEC rules that govern the US securities industry are based on the concept that all investors should have access to certain basic facts about an investment prior to buying it.