Interactive Brokers fined $475K in Nasdaq settlement for processing errors and inadequate risk controls in electronic trading.
Interactive Brokers fined $475K in Nasdaq settlement for processing errors and inadequate risk controls in electronic trading.
Interactive Brokers LLC has reached a settlement with Nasdaq, agreeing to pay a fine of $475,000. This resolution stems from an investigation initiated by Nasdaq Enforcement following referrals from Nasdaq MarketWatch.
Nasdaq Enforcement found that during the period between January 1, 2020, and June 2, 2021, Interactive Brokers incorrectly processed five corporate actions due to system and supervisory deficiencies, violating Nasdaq Rule General 9, Sections 20(a) and 1(a). Additionally, regulatory authorities found that the firm’s risk management controls and supervisory procedures inadequately prevented the entry of erroneous orders, violating multiple regulations.
The investigation revealed that Interactive Brokers utilized three independent data vendors to source information on corporate actions and required confirmation from at least two sources before processing. However, deficiencies in the firm’s procedures led to delays and errors in processing corporate actions, resulting in customers trading based on inaccurate information and, in two instances, selling shares they did not own.
Specifically, the firm’s written supervisory procedures lacked guidance for manual review when issues arose, and there were no protocols for verifying corporate actions from a single data vendor or in cases of conflicting information. Furthermore, Interactive Brokers failed to promptly address a known system issue that affected the processing of reverse stock splits.
Regarding warrant orders, Interactive Brokers employed a reference price filter, but during the Relevant Period, if certain inputs were missing, no reference price was calculated, leading to orders not being price capped as intended. An incident on October 1, 2020, where a buy execution of warrants occurred significantly away from the prior day’s close, resulted in Nasdaq busting the trade.
In addition to the fine, Interactive Brokers has agreed to a censure. The firm has since enhanced its reference price calculations for warrants to mitigate similar issues in the future.
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