Notice of Disciplinary Action Against Merrill Lynch, Pierce,Fenner & Smith Incorporated and Merrill Lynch Professional
Clearing Corp., both Member Organizations
To:Members, Member Organizations, Participants and Participant Organizations

From:John C. Pickford, Assistant General Counsel, NASDAQ OMX PHLXSM

DATE:December ___, 2014

FINRA Matter No. 20120322493 (including Matter Nos. 20120330912 and20120326130)
Enforcement No. 2014-18
On December 22, 2014, the Business Conduct Committee (the “Committee”) issued aDisciplinary Decision against Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MerrillPierce”) and Merrill Lynch Professional Clearing Corp. (“Merrill Pro”) (collectively, the“Merrill Lynch firms”), both member organizations of the Exchange. In response to a
Statement of Charges issued in this action, the Merrill Lynch firms submitted an Offer ofSettlement, Stipulation to Findings and Consent to Sanctions (“Offer”). Solely to settle thisproceeding and without admitting or denying the charges, the Merrill Lynch firms
stipulated to findings that from January 2008 through November 2013, they violated
Exchange Rule 1003(a) by omitting positions and submitting inaccurate data to the Large
Options Position Reporting (“LOPR”) system.
Merrill Pierce stipulated to the entry of facts and conclusion of violations of Exchange Rule1003(a), as follows:In more than 26.8 million instances from January 2010 through April 2013, thefirm failed to report positions with respect to accounts acting in concert with others
that together had established an aggregate position of 200 or more option
contracts on the same side of the market covering the same underlying security.

In approximately 1.1 million instances from January 2010 through April 2013, thefirm reported in-concert positions, but failed to identify them as acting in concert.

In approximately two million instances from January 2010 through November
2013, the firm reported positions to the LOPR system with incorrect account types.



In approximately 171,400 instances from January 2010 through November 2013,
the firm reported positions to the LOPR system with incorrect addresses.

In approximately 19,000 instances from September 2010 through April 2012, in its
LOPR submissions, the firm aggregated positions having weekly expirations withpositions having monthly expirations.

Merrill Pro stipulated to the entry of facts and conclusion of violations of Exchange Rule1003(a), as follows:In more than 700,000 instances from January 2010 through March 2013, the firm
failed to report positions with respect to accounts acting in concert with others thattogether had established an aggregate position of 200 or more option contracts on
the same side of the market covering the same underlying security.

In approximately 39,000 instances from January 2010 through March 2013, Merrill
Pro reported in-concert positions inaccurately by over-reporting certain positions.



In approximately 112,000 instances from January 2010 through March 2013, thefirm under-reported in-concert positions.

In approximately 1,650,000 instances from June 2011 through January 2013, thefirm reported positions to the LOPR system with incorrect account types.

In nearly 35,000 instances from January 2010 through April 2013, the firm
reported positions to the LOPR system with incorrect addresses.

From January 2010 through April 2013, the firm improperly deleted approximately360,000 positions from the LOPR system on the Friday before expiration.

In nearly 80,000 instances from June 2011 through January 2013, the firm
reported positions to the LOPR system with incorrect clearing numbers.

For 209 trading days from March 2011 through January 2012, the firm failed toupdate one reported position after a corporate action.

In addition, without admitting or denying the allegations or violations, Merrill Pierce andMerrill Pro stipulated to the entry of facts and conclusions that they violated Exchange
Rule 748(b), (d), and (g), and later (h),1 by failing to establish adequate systems ofsupervision, including systems of follow-up and review, that were reasonably designed toachieve compliance with Exchange Rule 1003(a) governing the reporting of options
positions to the LOPR system.
The Committee accepted Merrill Pierce and Merrill Pro’s Offer, which formed the basis of
the Committee’s Decision. The Committee concurred in the sanctions consented to by theMerrill Lynch firms and ordered the imposition of the following sanctions:1(i)as to Merrill Pierce, a censure, a total fine of $5,796,000, of which $1,856,000
shall be paid to the Exchange, and an undertaking. Merrill Pierce will pay thebalance of its fine to NASDAQ OMX BX, Inc., BOX Options Exchange LLC, andFINRA pursuant to separate settlement agreements.

(ii)

As to Merrill Pro, a censure, a total fine of $1,454,000, of which $464,000 shall bepaid to the Exchange, and an undertaking. Merrill Pro will pay the balance of its
fine to NASDAQ OMX BX, Inc., BOX Options Exchange LLC, and FINRA pursuant toseparate settlement agreements.

(iii)

The terms of the undertaking that the Merrill Lynch firms agreed to is as follows:

Rule 748(g) was renumbered as Rule 748(h), effective November 23, 2012.
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a. 90 days after the Decision in this case becomes final, and again 180 days after
the Decision becomes final, Merrill Pierce and Merrill Pro shall make a written
submission to the Exchange, in care of FINRA’s Market Regulation Department,regarding their in-concert reporting. The written submission shall address, at aminimum, the following:(1)

An assessment of the degree to which the Merrill Lynch firms havetaken steps to confirm that the data they submit to the LOPR systemis accurate and that they reported all reportable in-concert positions
to the LOPR system; and(2)The adequacy of the Merrill Lynch firms’ policies, systems,
procedures, and training relating to achieving complete and accurate
reporting to the LOPR system.

For more information, contact:
John C. Pickford, Enforcement Counsel, NASDAQ OMX PHLX, at +1 215 496 5273

 Copyright 2009 The NASDAQ OMX Group, Inc. All Rights Reserved.

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