The U.S. Financial Industry Regulatory Authority has fined two brokerage firms for supervisory failures that allowed unsuitable short-term sales of closed-end funds.

On Tuesday, FINRA fined Merrill Lynch, Pierce, Fenner & Smith, Inc. US$150,000 and UBS Financial Services, Inc. US$100,000. It also suspended five Merrill Lynch brokers each for 15 days and fined them US$10,000 for making unsuitable CEF recommendations to customers. FINRA’s investigation into the activities of former UBS brokers continues, it said.

“Closed-end funds possess complex features that can give rise to unsuitability for short-term investors, particularly when purchased at the initial public offering,” said Susan Merrill, FINRA executive vice president and chief of enforcement. “Neither Merrill nor UBS had adequate supervisory systems and procedures to prevent brokers from engaging in unsuitable short-term sales of newly issued CEFs.”

In determining the appropriate sanctions against the firms, FINRA considered the firms’ remediation efforts, which included payments to customers in excess of US$3 million by Merrill Lynch and more than US$2 million by UBS. Also, FINRA considered the firms’ self-reviews and prompt remedial measures to correct systems and procedures to prevent future violations.

In settling the matters, Merrill Lynch, UBS and the Merrill brokers neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

IE