$5.5 Million Fine Imposed on Interactive Brokers by FINRA

It has recently been announced by FINRA that they have decided to fine Interactive Brokers LLC with an amount of $5.5 million for violating the SHO regulations as well as the lack of supervision for a period of three years.

The firms need to deliver the settlement date or take necessary actions to put an end to the "failure to deliver" by borrowing or buying the securities after the completion of a short transaction as per regulation SHO of SEC.

If the firm fails to close the issue of failure to deliver, then they cannot participate in short transactions without making arrangements for procuring the securities.

It has also been prohibited by the regulation SHO to carry out or offer a short sale at a price that is either less or equal to the national best bid if the security of the price has fallen at least by 10 percent in a single day.

It has been found by FINRA that for the period between July 2012 to June 2015, the supervisory systems of Interactive along with its supervisory procedures were not on par with the requirements of Regulation SHO.

Furthermore, the broker LLC also ignored several red flags from its compliance and clearing personnel, FINRA, risk assessments, given in the form of internal audits and warnings.

Failure to Close More Than 2300 Transactions

These warnings clearly showed that its system for Regulation SHO supervision was impractical. Despite knowing the incapability of its supervisory system, Interactive did not take any action up until mid-2015.

Thus, it failed to close more than 2300 fail-to-delivers and carried out short transactions without preparing to procure securities for over 28,000 times. Moreover, Interactive displayed more 4,700 short sale orders in covered securities at a price that was less than the best national bid.

Susan Schroeder, the Executive Vice President of FINRA said

"Firms that are aware of deficiencies in their supervisory systems must promptly remediate them. In this case, the firm internally identified the problems, yet did not revise its supervisory systems for more than three years, creating the potential for negative impact on the markets and investor harm."

Interactive did not admit but also did not deny the charges against them to settle the matter rather they consented to the findings of FINRA.

FINRA is a non-profit organization that works to protect the investors and maintain the integrity of the market. Based in the US and controlled by SEC, FINRA creates rules and regulations apart from enforcing the compliance with the FINRA rules as well as federal laws.

FINRA also protects the integrity of the equity and the options market while maintaining a forum to resolve the disputes of investors, brokerage firms as well as their employees.


Interactive Brokers and UFX Parent Fined by Regulators

Financial Conduct Authority (FCA) has announced that it has imposed a fine on the UK arm of Interactive Brokers (IBUK) in the amount of 1.05 million pound. The fine comes as a result of poor market abuse controls and failure to report suspicious trading transactions, says FCA.

IBUK outsourced its post-trade auditing to a subsidiary within the Interactive Brokers Group in the US but didn’t provide adequate training for the staff and ensure to avoid potential market abuse from the clients.

FCA

IBUK's systems were inadequate and ineffective in the face of potentially suspicious transactions; they fell below the appropriate standards and exposed counterparties and the market to risks they did not bargain for. The FCA will continue to enforce appropriate standards of market conduct to ensure our markets function well.

IBUK is not the only broker who got bitten by watchdogs recently. Cyprus Securities and Exchange Commission (CySEC) fined UFX.com’s parent company Reliantco Investments for a sum of €95.000 for three different types of compliance breaches; €40.000 for violation related to customer support services account managers provide to clients, €40.000 for failure to provide accurate, clear and non-misleading advertising materials to clients, €15.000 for non-compliance to obtain all the necessary and complete information to ensure customer suitability checks.

CySEC

The Company has not met the standards prescribed by the laws we have in place to protect investors. The fine imposed on the Company for their failings to act in the best interest of their customers follows CySEC’s initial supervisory action towards Reliantco. A fine is not an end-stop action for investment firms regulated in Cyprus, and CySEC will not hesitate to use all the supervisory tools at its disposal to limit consumer detriment.