CFTC Orders Interactive Brokers to Pay Restitution of $82.57M to Customers

The US Commodity Futures Trading Commission (CFTC) announced on Tuesday that it filed and settled charges against Interactive Brokers LLC, a US-listed brokerage firm, for supervision failures in handling its customer accounts.

According to the press release, the company failed to diligently supervise the handling of its customer accounts by not adequately preparing and setting its electronic trading system to receive negative prices and calculate margin on April 20, 2020. That said, the CFTC ordered Interactive Brokers to pay a $1.76 million civil monetary penalty and restitution of $82.57 million to its customers.

The authority found that Interactive Brokers’ supervisory failures were first spotted on April 20, 2020, when the benchmark West Texas Intermediate light, sweet crude oil (CL) futures contract on CME Group Inc.’s New York Mercantile Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term (NYMEX) traded into negative prices, settling at negative $37.63 per barrel for the May 2020 contracts set to expire the following day.

“Because the QM and WTI contracts settle based on the trading of the CL contract in the settlement window, both contracts settled at negative $37.63 per barrel. Interactive Brokers customers held long positions in the May QM and WTI contracts on April 20, 2020, and experienced trading losses on those positions as a result of the firm’s systems issues,” the CFTC’s order noted.

Negligency in Acting Adequately

Interactive Brokers acknowledged the possibility of negative oil futures prices prior to such date but did not prepare its systems for it, the CFTC added. “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 Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term,” Vincent McGonagle, CFTC Acting Director of Enforcement, commented.

Yesterday, the CFTC filed and settled charges against Citibank and Citigroup Global Markets Limited for failing to comply with certain swap dealer requirements.