FINRA fines Interactive Brokers $3.5m for best execution violations

Rick Steves

Interactive Brokers LLC has settled with FINRA following alleged rule violations.

The key findings include IBKR’s failure to comply with best execution and related supervision obligations from January 2014 to February 2023, according to the document seen by FinanceFeeds.

The firm’s reviews of execution quality were ad hoc, not adequately documented, and did not consistently consider all relevant factors, FINRA said.

According to the regulator, IBKR routed marketable orders to venues disseminating priced indications of interest (IOIs) before non-IOI venues without reasonably evaluating price improvement possibilities.

The firm also allegedly failed to reasonably assess the impact of adjusting its routing of non-marketable orders for volume-based rebate payments and violated rules related to net trading activity with two broker-dealers. IBKR lacked a supervisory system to ensure compliance with best execution obligations, and its reviews and procedures were deficient until February 2023, FINRA added. Furthermore, the firm did not disclose per-share amounts received as trading rebates in its quarterly reports from January 2014 to March 2017.

As part of the settlement, Interactive Brokers LLC consents to censure and a $3.5 million fine. The firm waives procedural rights, including the right to a complaint, written answer, disciplinary hearing, and appeal. The settlement becomes part of the firm’s permanent disciplinary record, subject to public disclosure. Interactive is prohibited from denying the charges or making statements inconsistent with the deal.

The firm, headquartered in Greenwich, Connecticut, has been a FINRA member since January 1995, providing online trading services in equities and options to both retail and institutional customers through self-directed accounts. Additionally, Interactive offers clearing services.

IBKR services over 2.5 million clients

Interactive Brokers LLC saw 1.89 million daily average revenue trades, or DARTS, in November 2023 compared to 1.93 million transactions in the prior month. The figure is three percent lower on a yearly basis, and also dropped slightly from a month earlier.

In terms of equity balance in customers’ accounts during November 2023, the figure totaled $404.3 billion, higher by 27 percent on a yearly basis. Interactive Brokers also managed to beat its October equivalent, having notched a 10 percent increase relative to $367 billion the prior month.

Elsewhere, the discount brokerage has won more than 42,000 new accounts. November’s active accounts increased to 2.52 million, or 2 percent higher than in October and 22 percent above the previous year’s figure.

The Greenwich, Connecticut-based company also revealed that on average it charged clients commission fees of $3.21 per order compared to $3.09 in October. This figure includes exchange, clearing and regulatory fees, with the key product metrics coming out at $2.04 for stocks, $4.28 for equity options and $4.80 for futures orders.

Interactive Brokers made headlines recently following the launch of its fractional trading feature for Canadian stocks and ETFs. The discount broker has also won regulatory approval from the Financial Conduct Authority (FCA), allowing it to continue serving UK-based customers.

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