BofA Fined $12.5 Million For Creating At Least 15 Mini "Flash Crashes"

Tyler Durden's picture

One of our recurring activities over the past few years was, in collaboration with Nanex, to point out the countless mini-flash crashes that take place almost on a daily basis across the equity market. Although not as dramatic as the far more popular major flash crashes of May 2010 or August 2015, these recurring events merely served to underscore just how broken and fragment the market plagued by HFTs has become.

And while the HFT lobby was quick to point out that mini flash crashes do not really take place and it is all just a fabrication by the "anti-HFT crusaders", moments ago the SEC validated our previous observations, when it announced that Merrill Lynch has agreed to pay a $12.5 million penalty for unleashing at least 15 mini flash crashes between 2012 and 2014, as a result of maintaining "ineffective trading controls that failed to prevent erroneous orders from being sent to the markets."

An SEC investigation found that Merrill Lynch caused market disruptions on at least 15 occasions from late 2012 to mid-2014 and violated the Market Access Rule because its internal controls in place to prevent erroneous trading orders were set at levels so high that it rendered them ineffective.  For example, Merrill Lynch applied a limit of 5 million shares per order for one stock that only traded around 79,000 shares per day.  Other trading strategies had limits set as high as 25 million shares, which Merrill Lynch reduced to 50,000 shares after the SEC’s investigation began.

According to the SEC’s order instituting a settled administrative proceeding, the erroneous orders that passed through Merrill Lynch’s internal controls caused certain stock prices to plummet and then suddenly recover within seconds.  Among the mini-flash crashes were 99-percent drops in the stocks of Anadarko Petroleum Corporation on May 17, 2013, and Qualys Inc. on April 25, 2013.  Another order led to a nearly 3-percent decline in Google’s stock in less than a second on April 22, 2013.

We vividly recall the Anadarko flash crash, prominent featured in a blog post on May 17, 2013 titled "How A Last Second Flash Crash Pushed The S&P 500 From 1,667 To 1,666."

“Mini-flash crashes, such as those caused by Merrill Lynch, can undermine investor confidence in the markets,” said Andrew Ceresney, Director of the SEC Enforcement Division.  “It is essential that broker-dealers with market access have reasonable controls to prevent erroneous orders that disrupt trading.”

What investor confidence? What markets? Between HFTs and central banks, neither exists any more.

Robert Cohen, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, added, “This is the highest-ever SEC penalty for violations of the Market Access Rule.  Despite multiple red flags, Merrill Lynch failed to evaluate adequately whether its controls were reasonably designed and failed to fix the problems quickly.”

Considering that $12.5 million is a fraction of the profits the BofA trade desk generated with these forced "stop hunts", which is what ultimately these trading practices were,  we are certain that absolutely nothing will change and that "mini" flash crashes will continue further "undermining investor confidence in the market", especially since the next crash will have to be blamed on HFTs to deflect anger and attention from the true culprit: central banks.

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williambanzai7's picture

Like that Indian kid extradited from London? Is he still alive?

Looney's picture

 

BofA calls them mini-flash-crashes “Hot Flashes” and blames them on menopause.   ;-)

Looney

ParkAveFlasher's picture

$12.5 million, wowwwwwwwww

prefan4200's picture

Is 12.5 million big enough to be a rounding error for BofA?

SubjectivObject's picture

15 ................. Meeeeeeeeeeeeeeeeeelion dollars !

BUUUUUUUUUUUUUWAAAAAAAAAAHAHAHAHahahahahahah aaaaaaaaaaaa huh?

........ What?

hooligan2009's picture

who gets the money - the regulator or those harmed?

no prizes

CuttingEdge's picture

Hey, when you are $19 trillion in the red, civil asset forfeiture just ain't gonna hack it alone.

BennyBoy's picture

 

The regulator gets the money. 

To pay for porn sites.

 

Catullus's picture

When are they going after Knight for the reverse split short selling schemes?

CuttingEdge's picture

Thank fuck it wasn't DoucheBank taking the hit.

The coffers there are drying up quicker than Hillary's popularity.

RiverRoad's picture

Who needs to blame it all on HFTs when they can blame it all on a debate?

This is it's picture

And how much did they get away with?

CPL's picture

It's okay, BoA will write it off as a business cost during tax season so the fine really isn't a 'loss', it's part of the shell game called responsible chartered accounting. 12.5 million, a bank can take a 13 million dollar loss on another investment and pay peter to pay paul...as long as both of those guys work at the same bank in different divisions.

buzzsaw99's picture

You are tickling my ballz! [/007]

bada boom's picture

Is this a fine or a commission charged by regulators?

coast's picture

I robbed a bank a few weeks ago....got home and free with 10k, but it seems they found out who I was...So, the police came to my door, knocked gntly and asked politely if they could talk to me...They said overwhelming evidence that I robbed a bank, and that when I have a free day I should go to see a judge..I said next tuesday...So tuesday comes along, I pplead guilty to robbing a bank, and I got a 1k fine.  I just took out 1k from the 10k I stole and I still have 9k...isnt America grat??

Soul Glow's picture

Meanwhile DB is trying to figure out how they are going to pay a $14 B fine.  Wonder when Europe fines a US bank for a few billion?  Fininacial war heating up.

metalup's picture

equivalent to 1 month of executive pay.

Consuelo's picture

 

 

Is that enough for a BoA holiday banquet - for like, oh I don't know - 20 people or so and a few dozen bottles of Egon Muller...?

 

Thanks!!

 

 

Seasmoke's picture

They are Debt Collectors. And Servicers. Nothing more.

rosiescenario's picture

Ok....that is a fine paid to the SEC.....now we will see the class actions take life....anyone who got stopped out by one of these flash crashes and lost money due to that was damaged. BofA's liabilities on that score may be far greater than the token SEC wrist slap.

atthelake's picture

Hang bankers and the people they own.

Kaiser Sousa's picture

BUY, BUY, BUY, SOME MO' STAWKS YOU SUCKERS!!!!!!

 

 

 

DEATH TO THE MONEYCHANGERS.

Rik Haines's picture

12.5 million? How would you like that, small unmarked bills or a derivatives coupon booklet?

BustainMovealota's picture

LOL,  thats chunk change for these fukers!

Albertarocks's picture

Still... somebody at BofA is going to get his wrist slapped and be forced to pay for that fine personally. 

"We're not going to honor your lunch tabs for a whole fucking month Bob.  Let this be a lesson to you.  By the way, great work.  Just don't get caught next time."

withglee's picture

The SEC announced that BofA/Merrill Lynch agreed to pay a $12.5 million penalty for "maintaining ineffective trading controls" that failed to prevent erroneous orders from being sent to the markets and causing at least 15 mini-flash crashes between 2012 and 2014.

Man, this is truly silly utilization of the government's latest income generating tactic ... that being look the other way while the perps have their day ... then hit them with a 10% fine on the ill-gotten gains.

Anything that isn't in the billions of dollars is just not going to work. This ship is taking on water at a serious rate. Bailing with a teaspoon isn't going to work.

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Sep 26, 2016 1:09 PM

Remember when BoA started actively discouraging retail banking?

I knew it would lead to this.

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Sep 26, 2016 1:18 PM

Citizens United was one of the worst crimes against the American People ever perpetrated.

The result is this kickback scheme where bureaucracies oversee pay to play organized crime and no one goes to jail. People can die because of lawyers over at GM and no one goes to jail.

We live in a truly lawless society. All Republics quickly result in a deep state Oligarchy. It is a terrible form of government that is just marginally better than democracy and socialism. The USA is now an unholy mix of the worst elements from all 3.

Calculus99's picture

Whoever doesn't think the US government operates a racket a la the mob. Pay us a cut and we'll protect you.

Nav never paid them a cut did he?

He's out on bail fighting extradition to the US and then a probable 10 years.

 

pndr4495's picture

Michael Coscia's reputation as a stand up and stand alone trader on NYMEX's floor spoke for itself. What he was doing is no different than what investment banks and DMMs do every trading day. He just did not have a political ally nor did he have the political power to avoid a prosecution. Removing the human being from trading was a monumental mistake.

DaBard51's picture

These used to be called 'bear raids' back when humans made trades...

 

 

 

 

 

When nine hundred years old you become, look this good you wil not.