Merrill Lynch strongly denied the allegations and said it would defend itself. A hearing before an administrative law judge is planned. David Rudder is former chairman of the Securities and Exchange Commission and now a professor of law at Northwestern University. Marketplace's Michelle Brier explains. Floor brokers are expressly forbidden from using their own money when trading.
Profit sharing is when a broker uses a customer's account instead to trade and make a profit.
But prosecutors did not pursue charges of profit sharing in this case because, until recently, the New York Stock Exchange did not make it clear this kind of activity was not allowed and a conflict of interest. The NYSE and other exchanges have now clarified their rules. Floor brokers who have access to highly sensitive information cannot trade for themselves. Even if they use funds that technically belong to a client. And they can't put their trading interests ahead of their customers.