Interactive Brokers Japan Fined $176,500 over Internal Control Failures

From March 2010 to July 2015, the company’s system mistakenly duplicated codes for TSE listed companies.

Tokyo Stock Exchange (TSE) has fined Interactive Brokers Securities Japan, Inc JPY 20 million ($176,500) for regulatory breaches and internal control failings related to the identification of unfair trading and transactions pertaining to listed financial instruments.

The disciplinary action follows Japan Exchange Regulation’s (JPX-R) investigation into the insufficient management of the Japanese arm of Interactive Brokers which led to acceptance of trading orders that may have generated manipulative quotations not reflecting actual market status.

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According to the investigation of the Tokyo Stock Exchange, during five years, between March 2010 to July 2015, the company’s system duplicated by mistake codes for TSE listed companies. As such, each trading volume was calculated for two different issues instead of one. Moreover, the system produced trading volume without separating sell and buy order executions on the system and added them together.

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The TSE also found Interactive Brokers’ head of compliance in breach of its code of conduct for failing to implement adequate internal controls to identify when unfair trading was conducted. Specifically, the compliance officer neglected data identified by the SRG system, assuming that no measures were necessary. In addition, he only checked big changes in frequency of identification and completed investigations without checking details or forms.

The TSE also highlighted the fact that the Japanese arm of Interactive Brokers lacked adequate knowledge of trading surveillance operations and that the US group hadn’t ensured cooperation with operations in Japan to build its trading management system and make it effective as a whole. Additionally, it did not provide sufficient guidance and training on operations of trading management to its head of compliance at the Japanese subsidiary.

Finally, it was found that the firm increased acceptance of orders of Japanese stocks from non-resident customers, via IB’s group companies, a situation which requires attention in terms of trading management.

The exchange, however, stressed that Interactive Brokers will submit a business improvement report to improve its internal controls and resolve its concerns.

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