The Asian branch of Merrill Lynch has been fined HK$3.5 million (US$450,000) for “systems and controls failings” by mis-marking a trading book in exotic options.
The Hong Kong Securities and Futures Commission (SFC) found that between December 2007 and October 2008, a managing director at Merrill Lynch was found to have overvalued the trading book by altering price parameters. This resulted in it being inflated by US$25 million and caused the actual loss in the book to be wrongly reported internally.
Mark Steward, the SFC’s executive director of enforcement, said in a statement: “Licensed corporations must have effective procedures in place to manage risks of trading books. For books that deal in illiquid assets which have low price transparency, more robust measures must be in place. The proper implementation of an effective risk management framework could have enabled Merrill Lynch to detect the mis-marking earlier.”