FINRA has reached a settlement with Interactive Brokers, a member since 1995, over allegations of rule violations related to free-riding in customer cash accounts. The firm accepted a Letter of Acceptance, Waiver, and Consent (AWC) as part of the resolution, without admitting or denying the findings.

From October 2015 to December 2022, Interactive Brokers failed to identify more than 4.2 million instances of free-riding in options and issued options transactions. Free-riding occurs when securities are purchased and sold without full payment, violating Regulation T of the Federal Reserve Board and FINRA Rules 4210 and 2010.

Scrutiny over Free-Riding Detection

FINRA determined that the firm's automated surveillance system did not detect free-riding in options. Required freezes on accounts engaging in such activity were therefore not imposed.

The investigation also highlighted deficiencies in the firm’s supervisory systems and written supervisory procedures (WSPs). According to FINRA, these systems lacked measures to ensure compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term with regulations designed to prevent free-riding.

Interactive Brokers Settles with $2.25 Million Fine

Interactive Brokers agreed to a censure and a $2.25 million fine. The firm has since updated its surveillance systems and WSPs to address the identified deficiencies.

This settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term concludes the matter. The firm has waived its right to further procedural steps, and FINRA will include the disciplinary action in its public records.

Interactive Brokers told Finance Magnates that “Interactive Brokers is pleased to have resolved this matter and takes its compliance responsibilities seriously.”

tastytrade Fined $30K for Supervision Lapses

Earlier, FINRA imposed a $30,000 fine on tastytrade, a retail trading platform and US subsidiary of IG Group, for failing to properly supervise its employees' outside securities accounts between July 2021 and June 2023. The firm allegedly failed to maintain adequate supervision of 84 outside securities accounts belonging to 35 employees, as reported by Finance Magnates.

The investigation revealed delays in reviewing employee trading activities, with 25 accounts left unchecked until the fourth quarter of 2021. Notably, 14 accounts went unreviewed until June 2023, when FINRA conducted a cycle examination. FINRA also found deficiencies in tastytrade's written supervisory procedures for tracking mandatory reviews.