Merrill Lynch has agreed to pay a $500,000 fine to settle claims that it failed to have effective supervision of its total return swaps business.
The firm submitted a letter of acceptance, waiver and consent in which it neither admitted nor denied wrongdoing. The Financial Industry Regulatory Authority accepted the offer in December, but the settlement was only made public in a recent FINRA filing, according to Compliance Intelligence, a sister publication to DI.
According to the self-regulatory organization, from 2006-09, Merrill failed to establish adequate written supervisory procedures--or WSPs--and to reasonably supervise total return swap transactions involving U.S. equities and American Depository Receipts. The total return swaps were designed to generate for certain offshore clients a perceived tax advantage related to dividend income on the underlying securities, FINRA said, adding that the advantage was known by various terms throughout the industry, such as dividend uplift or yield enhancement. Stanley McDermott III of DLA Piper, counsel to the respondent, declined to comment.
