CFTC fines Interactive Brokers $1.75 million for supervision failures

The Commodity Futures Trading Commission (CFTC) has announced that it has settled charges against Interactive Brokers LLC for failing to supervise and handle customer accounts. The regulator determined that the company did not adequately prepare and configure its electronic trading system to receive negative prices and calculate margin on 20 April, 2020.

For these violations, the CFTC has ordered Interactive Brokers to pay a civil monetary penalty of $1.75 million and restitution of $82.57 million to its customers.

Acting Director of Enforcement Vincent McGonagle, said:

This enforcement action demonstrates that the CFTC will hold registrants responsible for their handling of customer accounts and ensuring the integrity of trades on their trading platforms and electronic systems, including during instances of market volatility.

The CFTC discovered Interactive Brokers’ supervisory violations on 20 April 2020 when the benchmark West Texas Intermediate light, sweet crude oil (CL) futures contract on CME Group Inc.’s New York Mercantile Exchange (NYMEX) traded into negative prices. Trades on that day were settled at negative $37.63 per barrel for the May 2020 contracts set to expire the following day.

CFTC penalty

On 20 April 2020, customers of the brokers held long positions in the May E-mini crude oil (QM) and sweet crude oil (WTI) and suffered trading losses on those positions as a result of the firm’s systems issues.

The US regulator stated that Interactive Brokers was aware of the possibility of negative oil futures prices before it happened and did not prepare its electronic trading system to recognize negative prices. As a result of this failures, the CFTC found two system issues which occurred on 20 April 2020. The first one was that negative prices were not displayed to customers and they were unable to place orders with negative-priced limit orders to buy or sell. The second issue was that internal minimum margin requirements were not correctly enforced before the trade execution for trades in the WTI contract.

The CFTC discovered that this affected hundreds of customer accounts that held long QM or WTI futures positions into settlement. The trading losses they experienced on 20 April 2020 were initially determined by Interactive Brokers to exceed $82.57 million.

Interactive Brokers provided substantial cooperation and systems remediation. The regulator has acknowledged that has imposed a reduced civil monetary penalty.

Earlier this week, the CFTC fined Refinitiv $650,000 for or failing to report certain categories of swap data.

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