FINRA Fines Interactive Brokers $5.5M


FINRA fines Interactive Brokers $5.5M for insufficient supervisory system practices. In spite of the broker being aware of the flaws in its systems, the firm did not make any changes to advance the situation until the middle of 2015. 

21 August, AtoZ Markets The Financial Industry Authority (FINRA) has made an announcement on its website. The regulator has stated that it fined Interactive Brokers LLC $5.5 million for breaching Security and Exchange Commission (SEC) Regulation SHO. According to the regulator, the brokerage also failed in regards to the naked short positions for a period of a minimum 3 years.

FINRA Fines Interactive Brokers $5.5M

Naked short selling is the sale of shares that a trader did not borrow or made arrangements to borrow. According to SEC’s requirements, firms have to purchase or borrow the securities to restrict ongoing naked short positions after carrying out a short sale transaction. 

As per the statement, FINRA found out that the broker’s supervisory system was not compliant with the regulations of SEC. Additionally, Interactive Brokers LLC has continuously ignored “red flags” that have indicated that the supervisory systems and procedures were insufficient. 

This has been alerted via internal audit findings and a number of internal warnings from clearing and compliance staff. In addition, this issue has been brought to the broker’s attention by the broker’s own annual risk assessments, and FINRA exam findings.

What are the reasons for the fine?

In spite of the broker being aware of the flaws in its systems, the firm did not make any changes to advance the situation until the middle of 2015. This implies that the entity did not close-out more than 2,300 fails-to-deliver in time. The brokerage has also accepted and implemented short orders in those securities without first borrowing the security around 28,000 times. 

The Executive Vice President of FINRA, Susan Schroeder, has commented on the decision of FINRA:

“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 to the markets and investor harm.”

We have reached out to Interactive Brokers for more insights on the case and currently are awaiting the response. We will update you once the new details will be known.

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