Bloomberg – Merrill Lynch & Co., the third- largest U.S. securities firm, is probing one of its trading desks in London and has suspended a trader after discovering he may have overstated the value of some of the bank’s equity derivatives.
“The firm routinely reviews the marks our traders set,” Merrill spokesman Jezz Farr said May 23 in an e-mailed statement. “Our preliminary review determined that one desk used marks that appear to be outside of our accepted policy. We have suspended a trader and we continue to review this matter.”
The trader, whom Merrill declined to identify, was a member of a team that traded derivatives based on individual stocks for the firm’s own account, according to a person with direct knowledge of the matter. Merrill, based in New York, has determined that he may have overstated the value of some holdings by less than 10 million pounds ($19.8 million) during April, when his marks were detected, the person said.
Declines on European and U.S. markets this year have exposed a growing list of errant traders, tarnishing firms including Credit Suisse Group and Societe Generale SA. The discovery of potential trading lapses at Merrill may spur regulatory scrutiny as Chief Executive Officer John Thain works to reassure shareholders that the firm has improved risk management after his predecessor’s bad bets on mortgages contributed to a record loss of $7.8 billion in 2007.
“This case shows our oversight system works,” Farr said in the statement, referring to the firm’s detection of the suspended trader’s conduct. Merrill dropped $1.35, or 3 percent, to $43.15 at 2:30 p.m. in New York Stock Exchange composite trading on May 23.
