Bank of America Corp.'s
$42 million fine for misleading clients prompted fresh calls for better insight into where investor orders go in the U.S. stock market.
It settled with New York Attorney General Eric Schneiderman over accusations of bad behavior from 2008 through 2013, including secretly sending customers' trades to firms like
Citadel Securities, Knight Capital and Two Sigma Securities.
The infractions point back to a question that can addle investors: Do they really know what their brokers are doing?
This settlement is glaring proof that the Securities and Exchange Commission needs to advance its nearly 2-year-old proposal to tighten disclosures on broker order routing, said Tyler Gellasch, executive director of
Healthy Markets Association, an investor advocacy group.
"When you're not able to verify, unfortunately your
trust can be abused," Mr. Gellasch said.
Bank of America Merrill Lynch lied outright to clients, according to
a statement from Mr. Schneiderman's office.
In 2010, in response to an institutional client asking if the bank routed orders to electronic traders on the way to other venues, BofA falsely denied that it did.
In another exchange in 2013, an institutional client asked for the names of all the other venues where the bank sent orders. A Bank of America salesperson drafted a response that identified the outside traders, but after some internal debate, including a managing director asking, "is there anything you want to streamline or eliminate (i.e., the HFT stuff at the end of to whom do we route)?" the trading firms were deleted.
The bank also swapped in its own trading identification code in reports to customers, removing the codes of the outside firms, according to the New York attorney general. Other infractions include false claims about how its dark pool "Instinct X" operated.
A spokesman for Bank of America said Friday that "the settlement primarily relates to conduct that occurred as long as 10 years ago" and "at all times we met our obligation to deliver the best prices to clients."
