The Middletown Press (Middletown, CT)

Interactiv­e Brokers fined $1.75M

U.S. futures regulator said customers suffered $82.6M in trading losses

- By Paul Schott pschott@stamfordad­vocate. com; Twitter: @paulschott

GREENWICH — Online brokerage Interactiv­e Brokers Group will pay a civil penalty of $1.75 million to settle charges over its alleged failure to prepare its electronic trading system for a historic plunge last year in the value of oilfutures contracts that led to tens of millions of dollars in customer losses, the federal Commodity Futures Trading Commission announced.

Greenwich-based Interactiv­e Brokers’ supervisor­y failures were discovered on April 20, 2020, according to the CFTC. That day, certain U.S. crude-oil futures traded at negative prices for the first time amid plummeting oil demand as the COVID-19 pandemic hammered the global economy.

Oil futures are broadly defined as contracts in which there is an agreement to exchange an amount of oil at a set price on a certain date. They are traded on exchanges and reflect the demand for various oil types.

“Interactiv­e Brokers failed to deploy necessary system changes before negative prices occurred resulting in two significan­t systems issues on April 20, 2020,” the CFTC said in its announceme­nt Tuesday. “Negative prices were not displayed to customers, and customers were unable to place orders with negative-priced limit orders to buy or sell.”

The CFTC also found that “internal minimum margin requiremen­ts were not correctly enforced prior to trade execution for trades” in a certain contract.

Those issues affected hundreds of accounts, with customers incurring trading losses on April 20, 2020, that exceeded $82.57 million, according to the CFTC.

“This enforcemen­t action demonstrat­es that the CFTC will hold registrant­s responsibl­e for their handling of customer accounts and ensuring the integrity of trades on their trading platforms and electronic systems, including during instances of market volatility,” Vincent McGonagle, the CFTC’s acting director enforcemen­t, said in a statement.

The CFTC said its order “recognizes Interactiv­e Brokers’ substantia­l cooperatio­n and systems remediatio­n in the form of a reduced civil monetary penalty.”

Interactiv­e Brokers said in a statement that it extensivel­y tested its systems and started implementi­ng “necessary coding changes” ahead of April 20, 2020, but that it was “not able to fully deploy new software” before crude oil futures traded in negative territory. After April 20, 2020, the company said it “promptly put in place measures to ensure that our systems are prepared for similar negative-pricing of futures products going forward.”

Shortly after the negative-pricing disruption, IBKR said that it voluntaril­y made payments of more than $102 million to customers it determined were potentiall­y impacted by the systems issues.

Alongside the penalty, the CFTC’s order requires Interactiv­e Brokers to pay restitutio­n of $82.57 million to its customers. But the agency said that the company “is credited the full restitutio­n” due to its compensati­on to customers.

“IBKR is proud of its history of developing and maintainin­g state-of-the-art electronic systems for our customers to access securities and futures markets around the globe,” the company added in its statement. “We are pleased to resolve this matter and pleased that the CFTC recognized our proactive compensati­on of our affected customers (exceeding our restitutio­n obligation) and substantia­l cooperatio­n in reaching this settlement.”

Last year, in a separate case, Interactiv­e Brokers agreed to pay a total of $38 million in penalties to three federal agencies — including $11.5 million to the CFTC — to settle charges that it did not report suspicious trading activity and failed in its anti-moneylaund­ering oversight for several years.

Interactiv­e Brokers ranked as the No. 848 company on this year’s Fortune 1,000 list. In the first quarter of this year, its number of customer accounts jumped 74 percent year over year to about 1.3 million. The trend reflects a surge in trading among retail investors since the start of the pandemic.

 ?? Tyler Sizemore / Hearst Connecticu­t Media file photo ?? Online brokerage Interactiv­e Brokers Group has offices in the Pickwick Plaza complex in downtown Greenwich.
Tyler Sizemore / Hearst Connecticu­t Media file photo Online brokerage Interactiv­e Brokers Group has offices in the Pickwick Plaza complex in downtown Greenwich.

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