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Interactive Brokers receives 5,5 million USD penalty

Interactive Brokers receives 5,5 million USD penalty

created Paweł MosionekAugust 24 2018

The American financial market regulator, FINRA (Financial Industry Regulatory Authority), said in a statement about imposing a fine of 5,5 million USD on Interactive Brokers LLC. The reason is the faults committed by the broker over three years.

In total, almost 12 million $ penalty a year

This is not the first financial penalty imposed on Interactive Brokers. In mid-February of this year we reported in this article about the total penalty of 6 million received from SEC and FCA regulators. Additionally, in August 2017 reported that IB received a fine from FINRA for the amount of 450 thous. $. It must be definitely admitted - American supervision is not lenient.

Errors from 2012 to 2015

FINRA decided to punish Interactive Brokers due to numerous violations of regulations and supervisory errors. In order to limit short positions of customers without collateral, under US law, brokers are required to deliver shares on the settlement date to the SEC (United States Securities and Exchange Commission). Otherwise, the broker is required to close the position by purchasing or lending a security. If she does not do it, she will not be able to complete further short positions.

According to FINRA's findings, from July 2012 to June 2015 Interactive Brokers operated a governance system that was not in line with SEC requirements. Additionally, the IB ignored warnings on several occasions - internal audit, settlement attorneys, FINRA exam results showing inconsistency in supervisory procedures and its own annual risk assessments.

Despite the awareness of the violations committed, the company repaired the supervisory system only in the middle of the 2015 year. As a result, Interactive Brokers, according to FINRA's calculations, did not close the orders in excess of 2300 in due time and allowed for the execution of short transactions over 28 000 without the collateral required by SEC. In addition, IB enabled opening of short positions in secured securities over 4700 at a price less than or equal to the current best offer.

Susan Schroeder, Executive Vice President of FINRA:

Companies that are aware of deficiencies in their surveillance systems must immediately repair them. In this case, the company has internally identified the problems, but has not changed its supervisory systems for over three years, which could potentially have a negative impact on the markets and harm investors.

Representatives of Interactive Brokers did not confess, nor did they deny the allegations. At the same time, they agreed to bear the penalty imposed on them.

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.

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