Publicly traded on the Nasdaq, the online brokerage firm Interactive Brokers (NQ: IBKR) has agreed to pay a $475,000 fine to settle charges brought by the exchange. The alleged violations pertained to five different "corporate actions," including sending orders with incorrect prices.
Interactive Brokers Fined $475,000 by Nasdaq for Supervisory Failures
The Letter of Acceptance, Waiver and Consent (AWC) released by the exchange states that between January 2020 and June 2021, Interactive Brokers failed to properly process several corporate actions, such as reverse stock splits, due to deficiencies in its supervisory systems.
This resulted in the firm sending orders to the market with incorrect prices in some cases. In two instances, Interactive Brokers' procedures also allowed customers to sell shares they did not own.
“As a result of its investigation, Nasdaq Enforcement determined that during the Relevant Period, the Firm incorrectly processed five corporate actions due to a combination of system and supervisory deficiencies,” Nasdaq commented in the AWC.
Nasdaq found that Interactive Brokers violated its rules requiring member firms to establish and maintain supervisory systems reasonably designed to ensure compliance. The exchange also determined that the brokerage's risk management controls for erroneous orders were inadequate in certain scenarios, especially for orders involving warrants.
While neither admitting nor denying the findings, Interactive Brokers agreed to the censure and $475,000 fine and to address the issues. The firm has reportedly taken remedial steps, including compensating harmed customers.
Other Interactive Brokers’ Fines
Interactive Brokers, which has been a Nasdaq member since 2006, provides online trade execution and clearing services to institutional and individual investors. The firm has no prior relevant disciplinary history with the exchange.
However, over the past six years, Interactive Brokers has faced several fines and penalties from other regulatory authorities. In 2018, the company was hit with a substantial $5.5 million fine by the Financial Industry Regulatory Authority (FINRA) for violating Security and Exchange Commission (SEC) Regulation SHO and supervisory failings related to naked short positions for at least three years.
The following year, in 2019, Interactive Brokers agreed to pay $100,000 in fines to settle multiple charges with New Jersey's Division of Consumer Affairs and the Bureau of Securities. However, the most significant penalty came in 2020 when the broker was slapped with a combined $38 million penalty in settlements with three US regulators over several anti-money laundering breaches, including failing to file suspicious activity reports (SARs).
In the same year, NYSE Arca, an electronic US trading exchange, fined Interactive Brokers $237,500 for alleged violations in trade reporting. Additionally, FINRA imposed a financial penalty of $25,000 on Arnold J. Feist, a former AML Compliance Officer (AMLCO) of Interactive Brokers, for severe lapses in performing his duties. Concurrently, the National Futures Association (NFA), the United States' derivatives industry watchdog, fined Interactive Brokers $250,000.
Most recently, in September 2023, the Australian financial markets regulator slapped the local unit of Interactive Brokers with a monetary penalty of AU$832,500 (approximately $538,000) for being “negligent” in its failure to identify suspicious trading conducted by one of its clients.
