Bank of America is cracking down on penny stocks - securities which trade for less than $5, after the bank's Merrill Lynch initially restricted their purchase in late July, according to CNBC.

The bank's Merrill Lynch division banned purchases of the risky securities in late July, according to the people, who declined to be identified speaking about the move. About six weeks later, the bank abruptly said it was restricting clients' sales of penny stocks, then amended that policy to give financial advisers more time to exit positions, the people said. -CNBC

BofA clients received letters this month notifying them that stocks priced under $5 per share with a market cap under $300 million will be subject to regulatory review, according to a copy obtained by CNBC - while clients who wish to sell penny stocks "will experience a delay in execution" due to the review, according to the firm.

The new policy was enacted "to ensure we are complying with Securities and Exchange Commission regulations and protecting the interests of our clients," according to spokesman Jerry Dubrowski. "As a result, certain transactions may be subject to restrictions, trading prohibitions or other limitations."

Regulators have increasingly made their views of penny stocks known. The SEC's Division of Economic and Risk Analysis published a white paper in 2016 highlighting the risks of investing in over-the-counter markets. The majority of investors lose money in the trades, and losses worsened for stocks that were the subject of promotional campaigns and those that had weaker disclosures, the SEC said. -CNBC

According to talking points distributed to Merrill brokers, penny stocks are illiquid and can be easily manipulated for fraudulent purposes, while the asset class is "rife with companies with shaky businesses," according to CNBC.

the high volatility of the asset class — in which shares worth a few pennies can rocket in value — invariably lures retail investors. That happened in July 2014 with Cynk Technology, when a company with no discernible assets, revenue and a single employee surged from 6 cents a share to $21.95, or a market cap of more than $6 billion. The next year, a Canadian citizen named Philip Kueber was accused by U.S. authorities of engaging in a $300 million stock manipulation fraud. -CNBC

The firm's 17,442 Financial Advisers have been left scratching their heads.

"We were told to get rid of them by a certain date," said one Merrill Lynch broker via CNBC. "I called compliance today to say my client doesn't want to do that. Now they're telling me he doesn't have to sell, but it could be hard to get rid of it down the road."

After their initial ban of most penny stocks, BofA paused the new policy for review, with only the riskiest penny stocks labeled with a "skull-and-crossbones" icon by the firm's OTC Markets Group, labeling it unavailable for sale. Clients who wish to trade the restricted penny stocks will need to transfer them to another brokerage in order to liquidate the positions.

BofA is reportedly the first major wirehouse to restrict the purchase of new penny stocks, while their competitors have processes in place for riskier trades. Morgan Stanley and UBS, for example, still allow the purchase of penny stocks.

In February, BofA banned clients from using credit cards to buy bitcoin and other cryptocurrencies, while the firm's investment banking head, Christian Meissner, reportedly left BofA earlier this month over clashing with CEO Brian Moynihan over the division's risk appetite. Moynihan has been curtailing the firm's risky activities after spending much of his tenure doling out billions of dollars in settlements with regulators.

According to the SEC's 2016 white paper - low income, retired and less-educated investors were hurt the most by penny stocks. The agency assessed 1.8 million trades by 200,000 investors, finding that the typical return from penny stocks is "severely negative."