The U.S. Securities and Exchange Commission (SEC) on Monday announced that Merrill Lynch has agreed to pay a US$12.5 million penalty for maintaining ineffective trading controls that failed to prevent erroneous orders from being sent to the markets and causing “mini-flash crashes”.

An SEC investigation found that weaknesses in the firm’s internal controls caused minor market disruptions on at least 15 occasions from late 2012 to mid-2014.

The firm violated the rules because certain internal controls were set too high, the SEC says, rendering them ineffective. As a result, erroneous orders made it to the market, causing certain stock prices to plummet and then suddenly recover within seconds, the SEC adds.

“Mini-flash crashes, such as those caused by Merrill Lynch, can undermine investor confidence in the markets,” says Andrew Ceresney, director of the SEC’s enforcement division, in a news release. “It is essential that broker-dealers with market access have reasonable controls to prevent erroneous orders that disrupt trading.”

The firm consented to the SEC’s order without admitting or denying its findings.

In addition to paying the financial penalty, Merrill Lynch also agreed to be censured and to cease and desist from further violations.

Financial Industry Regulatory Authority (FINRA) acted on behalf of the exchanges to collectively fine the firm US$3 million in connection with its trading control failures, and weaknesses in its supervisory policies.

Merrill Lynch neither admitted nor denied the charges, but consented to the entry of the exchanges’ findings.

“Today’s announcement by the six exchanges underscores the exchanges’ efforts at ensuring firms comply with the SEC’s market access rule and exchange supervision rules which require firms maintain effective risk management controls and procedures to prevent the entry of erroneous or unintended orders as well as effective capital and credit thresholds. Adherence by firms to these requirements is essential to the stability of U.S. financial markets,” say regulatory officials, including Tami Schademann, chief regulatory officer at BatsS Exchange Inc., John Zecca, senior vice president of market regulation for Nasdaq’s U.S. markets, and Anthony Albanese, chief regulatory officer for the NYSE, in a joint statement.