Bank of America Corp's Merrill Lynch unit will pay a $10 million penalty to settle charges its offering materials for a risky type of note misled investors, the U.S. Securities and Exchange Commission said on Thursday.

The offering materials did not adequately disclose a quarterly 1.5 percent cost within a volatility index linked to the note, for which investors would be responsible, the SEC said.

The Financial Industry Regulatory Authority (FINRA) separately fined Merrill $5 million for negligent disclosures related to the sale of five-year senior debt notes to retail customers, the regulator said on Thursday.

The Wall Street industry-funded watchdog said it found Merrill had sold about $168 million worth of the notes to its retail customers but did not clearly disclose certain costs, making it appear that fixed costs were lower than they actually were.