Over a period of almost 10 years, Merrill Lynch executed an
estimated 1.2 million transactions in non-UK European equities.
These transactions were incorrectly reported because they showed
the firm's status as 'agent' rather than 'principal'. This was
because the transaction reporting system was set to report trades
from the client's perspective rather than the firm's
perspective.
The error in the transaction reporting system was not spotted by
Merrill Lynch until December 2005. This was despite a warning from
the FSA in November 2002 and subsequent discussions with the FSA
about certain transactions in 2004 and 2005. During this time the
firm made several improvements to the systems and controls to
report transactions, and increased the seniority of the team
overseeing reporting, but improvements did not focus on the content
of the reports.
Merrill Lynch reported the transaction failures to the FSA in
January 2006. The FSA said it has co-operated fully with the
investigation. The firm completed a systems change to correct the
error, and has revised the testing mandate to include all mandatory
fields.
The FSA considers accurate transaction reports to be critical to
its ability to maintain confidence in the financial markets and
reduce financial crime.
