penalty@ (Adds details)
WASHINGTON, Sept 22 (Reuters) - The U.S. Commodity Futures Trading Commission ordered Merrill Lynch, Pierce, Fenner & Smith Inc to pay a $2.5 million civil penalty on Friday for record-keeping violations and failing to properly supervise its traders in 2010.
The broker-dealer affiliate of Bank of America was found by the regulator to have insufficient policies to ensure traders maintained accurate records for futures block trades.
The settlement followed probes in 2009 and 2010 by CME Group into the firms trading in U.S. dollar interest rate swaps and block futures. As part of that investigation, CME Group staff questioned traders on Merrill Lynch's swaps desk about whether they ever traded ahead of futures block trades from counterparties.
According to the CFTC, the traders made misleading statements and failed to acknowledge that they did in fact trade ahead of futures block trades in some instances.
The CFTC said Merrill Lynch showed minimal oversight over trading in that group, prompting a failure to identify improper activity. As an example, the CFTC said Merrill Lynchs business operations team had conducted trading analysis that showed certain traders were trading ahead of block trades, but that analysis was never handed over to compliance and legal staff for corrective action. (Reporting by Pete Schroeder; editing by Grant McCool and Tom Brown)