The National Futures Association (NFA), the United States’ derivates industry watchdog, has fined Interactive Brokers LLC, an American multinational brokerage firm, $250,000.
The fine is for allegedly cancelling its retail customers’ forex orders and failing to adequately supervise its employees in the conduct of their forex activities on behalf of the firm.
These actions, the self-regulatory organisation (SRO) said, violated the NFA Compliance Rules 2-43(a)(1) and 2-36(e), respectively.
NFA Compliance Rule 2-43(a)(1) in pertinent part “prohibits Forex Dealer Members (FDMs) from cancelling an executed customer order or adjusting a customer account in a manner that would have a direct or indirect effect of changing the price of an executed order.”
In contrast, the NFA Compliance Rule 2-36(e) requires the association’s FDMs, which Interactive Brokers became in 2012, to “diligently supervise their employees and agents in the conduct of their forex activities for or on behalf of the FDM.”
The NFA announced the fine on Thursday in a statement published on its website. It added that the decision was reached by its Business Conduct Committee (BCC).
BCC made the decision based on a complaint it had issued against Connecticut-based Interactive Brokers and a settlement offer submitted by the broker in which it neither admitted nor denied the allegations, the regulator further said.
Background to the Allegations
According to the NFA, on 30 October 2020, Interactive 'burst' some of its retail customers' forex transactions after it had 'auto matched' the customers' orders, citing Rule 2-43(a)(1)(ii) of its compliance rules, and arguing that it used the straight-through processing exclusively.
NFA Compliance Rule 2-36(s)(5) defines 'straight-through processing' as when an FDM automatically executes (without human intervention and without exception) an offsetting position for a customer order with another counterparty prior to providing execution of the customer order.
The NFA said it warned the firm in a May 10, 2021, letter that it could not depend on the provision “since the firm did not operate exclusively utilizing 'straight-through processing' when it 'auto-matched' customers' orders.”
“A member of Interactive’s compliance department sent NFA an e-mail on May 10, 2021 confirming the firm had received the letter. NFA also spoke to the same staff member the next day, who did not disagree during the call with NFA’s position,” the NFA said in the filing seen by Finance Magnates.
Despite this warning, the NFA said Interactive approximately two months later “submitted a daily report that reflected the firm had cancelled transactions in the USD/CAD pair on July 19, 2021, involving eight customer accounts.”
This step, the watchdog said, again contravened the rule it had earlier brought to the broker’s attention.
“Despite NFA bringing the cancellation issue to Interactive’s attention in May 2021, the firm did not take prompt remedial action to ensure it did not violate NFA’s forex requirements,” NFA wrote in the filing.
On Interactive’s supervisory failure, NFA said under its Compliance Rule 2-36(e), Interactive is required to diligently supervise its employees and agents in the conduct of their forex activities for or on behalf of the company.
In a letter from 6 October 2021 to Interactive, the NFA said it had directed the firm to provide adjustments, totalling less than $20,000, to the customers adversely affected by the improper July 2021 trade cancellations.
However, despite not objecting to or disagreeing with the directive, the NFA said Interactive did not obey the directive until 25 January 202 which was more than three months after the deadline.
As a result of this, the NFA said Interactive did not ensure that it had complied promptly with its directive and, therefore, had failed to adequately supervise its employees to ensure compliance with its relevant requirements.
2022: NFA’s Fines So Far
In late March, the NFA slammed fines of $275,000 and $250,000, on introducing brokers, Coquest Inc, and Marex Spectron International Limited (Marex), respectively, for their compliance and supervisory failures.
According to the BCC’s complaint file on Coquest seen by Finance Magnates, the NFA had alleged that Coquest, among other things, violated the NFA Bylaw 1101 by doing futures business with an affiliate, the Woodbine Group, that was not an NFA Member.
Furthermore, Marex allegedly allowed unregistered individuals to act as associated persons without registering as such.
