New York Stock Exchange Regulation today announced that Merrill Lynch has agreed to a US$10 million fine and a censure to settle disciplinary actions taken for failure to deliver prospectuses, as well as other supervisory and operational lapses.

These other lapses include failure to comply with an undertaking that arose as a result of a 2000 disciplinary action, to report a significant number of litigation and arbitration judgments, to preserve certain emails, and to update employee information in the securities industry’s central personnel database. Merrill Lynch was also cited for delaying its registration with the exchange’s Electronic Filing Platform, as well as failing to ensure that all applicable employees maintain proper registration.

As part of the agreement, Merrill Lynch will retain an independent consultant, subject to approval by NYSE Regulation, to review the firm’s policies, procedures, and supervisory systems governing the mandatory reporting of customer complaint and other information. The consultant’s final report will be issued to both the firm’s chief executive as well as NYSE Regulation. Merrill Lynch has agreed to undergo a thorough review of other areas of the firm that were responsible for the violations and to make the necessary modifications to ensure compliance with NYSE Rules and federal securities laws.

Regarding the prospectuses, from October 2002 to March 2004, Merrill Lynch failed to deliver these documents with respect to 64,000 transactions in connection with mutual fund sales. Further, between January 2004 and July 2004, it failed to deliver prospectuses with respect to about 900 transactions in approximately 275 accounts in auction rate preferred stocks.

“The delivery of a prospectus to a potential investor is the foundation of investor protection. More than just a sales document, the prospectus talks about risks. So, it is inexcusable for them not to be delivered,” said Richard Ketchum, chief regulatory officer, the NYSE.

The firm’s failure to preserve or retain e-mail impeded certain investigations by enforcement staff, it adds. As for the for maintaining proper employee registrations, between December 2002 and February 2005, NYSE Regulation and Merrill Lynch identified 69 employees whose registration had lapsed or had not been properly completed. After a review that concluded in February 2005, Merrill Lynch identified an additional 818 employees who did not maintain all applicable registrations.

“Internal controls at our member firms cannot run on auto-pilot, but must be reviewed periodically to ensure that firms are complying with their responsibilities under federal securities laws and NYSE Rules,” said Susan Merrill, chief of enforcement, NYSE Regulation.