It said its brokerage subsidiary, Merrill Lynch, Pierce, Fenner and Smith, had agreed to pay the fine under a settlement with the exchange.
Merrill also agreed to pay a fine of $15m (pounds 9.5m) in a settlement with the Commodity Futures Trading Commission (CFTC) in the United States, taking its total penalty for the Sumitomo affair to pounds 16m.
The move follows the decision by the LME to launch disciplinary action taken against Merrill, claiming it committed acts of misconduct and breached LME regulations.
Lord Bagri, chairman of the LME, said: "Merrill Lynch, without admitting or denying the LME's charges or any finding of the LME disciplinary committee, agreed to pay a fine of pounds 6.5m. The level of the agreed fine reflects ... our determination to maintain the integrity of the LME markets."
Its disciplinary committee found Merrill had "assisted clients to manipulate the LME copper market or create a disorderly market" and that it "failed to observe the required standards of market conduct". The investigation relates to July 1996 when Sumitomo reported losses of $2.6bn (pounds 1.65bn) in 10 years of unauthorised trading by Yasuo Hamanaka, its chief copper trader. Hamanaka, who was sentenced to eight years in prison in Japan, cornered the market by buying much of the copper stocks held by the LME.
Global Minerals and Management, a US copper merchant that had accumulated copper warrants on behalf of Sumitomo using $500m of finance provided by Merrill had misrepresented the purpose of the deals. LME said Merrill should have realised this and that its clients were trying to squeeze the copper market.
Alan Whiting, LME executive director of regulation, said: "By failing to appreciate that its clients were attempting to manipulate the market and by failing to pursue the concerns of its representatives, Merrill Lynch assisted the attempt and failed to observe high standards of market conduct."
In the US, David Spears, the CFTC's acting chairman, said: "The Commission's order sends an important message to market participants and their brokers that aiding and abetting manipulation of US markets will be met with appropriate sanctions."Reuse content