FINRA Hits Merrill Over Muni Sales

In 20 of those instances, Merrill "failed to inform its customer at the time of trade that the municipal securities transaction was in an amount below the issue's minimum denomination," violating Rule G-47, according to the letter.

Merrill declined to comment Monday. However, according the letter, the firm "provided evidence that it offered to rescind the transactions to all the firm's customers that continued to hold the position."

Municipal securities issuers establish minimum denominations for bonds at issuance to "help target the sale to an appropriate category of investors or reduce administrative costs, among other reasons," MSRB points out at its website.

"In some cases, the use of minimum denominations is set by state or local law," it notes, adding it "has no rulemaking authority over issuers, including with respect to the use of minimum denominations."

However, "to help to ensure that municipal securities dealers observe minimum denominations in the official statement of a bond issue, the MSRB in 2002 established a rule that generally prohibits dealers from effecting a municipal securities transaction with a customer in an amount below the minimum denomination of the issue," it says.