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Merrill Lynch charged with failures that led to mini-flash crashes

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Staff Writer |
Merrill Lynch
Banking   99-percent drops in the stocks

The Securities and Exchange Commission (SEC) said that Merrill Lynch has agreed to pay a $12.5 million penalty for maintaining ineffective trading controls that failed to prevent erroneous orders from being sent to the markets and causing mini-flash crashes.


An SEC investigation found that Merrill Lynch caused market disruptions on at least 15 occasions from late 2012 to mid-2014 and violated the Market Access Rule because its internal controls in place to prevent erroneous trading orders were set at levels so high that it rendered them ineffective.

For example, Merrill Lynch applied a limit of 5 million shares per order for one stock that only traded around 79,000 shares per day. Other trading strategies had limits set as high as 25 million shares, which Merrill Lynch reduced to 50,000 shares after the SEC’s investigation began.

According to the SEC’s order instituting a settled administrative proceeding, the erroneous orders that passed through Merrill Lynch’s internal controls caused certain stock prices to plummet and then suddenly recover within seconds.

Among the mini-flash crashes were 99-percent drops in the stocks of Anadarko Petroleum Corporation on May 17, 2013, and Qualys Inc. on April 25, 2013. Another order led to a nearly 3-percent decline in Google’s stock in less than a second on April 22, 2013.


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