The massive online brokerage Interactive Brokers (IBKR) has consented to settle with the Nasdaq Stock Market by paying a $475000 fine. The company has also taken corrective action to compensate customers who suffered direct injuries due to corporate actions being processed slowly. In addition to voluntarily accepting the penalties, Interactive Brokers has given up all procedural rights, such as the right to a formal complaint and a disciplinary hearing. The satisfactory results from the company’s improper management of five corporate activities from January 2020 to June 2021, as stated in a Letter of Acceptance, Waiver, and Consent (AWC) that the exchange made available.
Additionally, the company has committed to refraining from publicly disputing the agreement’s findings. It is crucial to remember that the issue will be resolved once this agreement is examined and approved by the Nasdaq Enforcement Department and the Nasdaq Review Council.
If approved, the agreement will be permanently part of Interactive Brokers’ disciplinary file and could be considered in any further legal action that Nasdaq or another regulator takes against the company. Regarding the penalties issued by Nasdaq, Interactive Brokers has not released a statement to the public.
The issue is Interactive Brokers’ supervisory systems
Inaccurate Order Prices: Interactive Brokers occasionally sent orders to the market with pricing predicated on pre-split data. This may have resulted in erroneous values following reverse stock splits (when a business lowers the number of outstanding shares).
Erroneous Short Sales: The AWC identifies two situations in which the company’s deficient protocols enabled clients to short-sell shares they were not in possession of. While short selling is a legal trading strategy, it must follow specific rules to guarantee correct execution and reduce risk.
Fines for Other Interactive Brokers
Interactive Brokers has been a member of Nasdaq since 2006 and offers institutional and individual clients online transaction execution and clearing services. The company and the exchange have no relevant past disciplinary history.
However, Interactive Brokers has been charged several fines and penalties by different regulatory bodies over the last six years. The Financial Industry Regulatory Authority (FINRA) fined the corporation a hefty $5.5 million in 2018 for failing to comply with Regulation SHO of the Securities and Exchange Commission (SEC) and for supervisory shortcomings connected to naked short positions for a minimum of three years.
In 2019, Interactive Brokers consented to pay $100,000 in fines to resolve several complaints with the Bureau of Securities and the Division of Consumer Affairs in New Jersey. However, the most significant fine occurred in 2020, when the broker settled with three US agencies for $38 million in penalties for multiple anti-money laundering violations, including neglecting to submit suspicious activity reports (SARs).
Interactive Brokers was fined $237,500 by NYSE Arca, an electronic US trading exchange, for purported trade reporting infractions that same year. Furthermore, Arnold J. Feist, a former Interactive Brokers AML Compliance Officer (AMLCO), was fined $25,000 by FINRA for serious negligence in his job performance. Simultaneously, Interactive Brokers was fined $250,000 by the National Futures Association (NFA), the US industry watchdog for derivatives.
The local Interactive Brokers unit was most recently fined AU$ 832,500 (about $538,000) by the Australian Financial Markets Authority in September 2023 for being “negligent” in failing to recognize suspicious activity by one of its clients.
Also read: New Zealand Regulator Sounds Alarm on Potential Investment Scam
