Interactive Brokers refuses to produce source code materials in lawsuit brought by former customer

Maria Nikolova

If access to Interactive’s source code were made public, the brokerage’s competitors would potentially be able to replicate aspects of Interactive’s margin liquidation system, Software Engineering Department Head says.

As previously reported, online trading major Interactive Brokers Group, Inc. (IEX:IBKR) continues to defend itself in a civil case brought by one of its former customers. 

On December 18, 2015, a former individual customer – Robert Scott Batchelar, filed a purported class action complaint against Interactive Brokers LLC, IBG, Inc., and Thomas Frank, PhD, the Company’s Executive Vice President and Chief Information Officer, in the U.S. District Court for the District of Connecticut. The complaint alleges that the former customer and members of the purported class of IB LLC’s customers were harmed by alleged “flaws” in the computerized system used by the Company to close out (i.e., liquidate) positions in customer brokerage accounts that have margin deficiencies.

The plaintiff is pursuing a class action alleging that he suffered losses arising from an unspecified flaw allegedly contained in Interactive’s algorithm system and therefore seeks civil liability in negligence against the defendants, based on the purported “negligence in the design, coding, testing and maintenance” of the system.

The plaintiff has not identified any specific programming flaw. The plaintiff seeks discovery concerning how Interactive’s software and system work on different types of securities, and how, if applicable, the software and system have changed over time.

On May 1, 2019, Albert Lukazik, a Software Engineering Department Head, Senior Technology Manager, and Information Security Officer for Interactive Brokers LLC and Interactive Brokers Group, Inc., filed a Declaration in support of defendants’ objection to produce source code materials.

He submitted the Declaration after being informed that plaintiff Robert Scott Batchelar has requested that the brokerage produces certain “source code” materials to the plaintiff’s counsel so that counsel and experts can have independent access to it.

In his Declaration, Lukazik stresses that one of Interactive Brokers’ most valuable assets is their proprietary trading system. This system includes the margin liquidation system. (For purposes of this Declaration, the proprietary computer code underlying Interactive’s margin liquidation system is referred to as “source code”).

The source code is one of Interactive’s foundational assets and incorporates its trade secrets and know-how accumulated over a period of more than 20 years. The source code is comprised of approximately 600,000 lines of code and it refers to various subsystems within Interactive’s trading system.

If access to Interactive’s source code were made public, the brokerage’s competitors would potentially be able to replicate aspects of Interactive’s margin liquidation system, Mr Lukazik notes.

Such access could potentially also allow customers to improperly utilize Interactive’s trading platform in a manner that may result in heightened trading and liquidity risks to IB LLC and IBG, based on their improperly-gained knowledge of the source code.

Based on the breadth of allegations, producing the source code would be incredibly burdensome to defendants, Lukazik says. Furthermore, due to the interconnected nature of the source code underlying Interactive’s margin liquidation system, the source code would be difficult (if even possible) to segregate from the rest of Interactive’s trading system. In addition to that, the plaintiff’s request threatens Interactive’s trade secrets.

The case continues at the Connecticut District Court.

Read this next

Digital Assets

Ripple and Lithuanian FINCI partner for XRP-based payments

Ripple is looking to expand its presence in Europe, forming a new partnership with Lithuanian electronic money institution FINCI.

Digital Assets

Crypto.com enables Shopify merchants to accept crypto payments

Crypto.com has integrated with Canadian e-commerce giant Shopify so global merchants can accept crypto payments and save on processing fees through cash-final settlements.

Institutional FX

FX volume drops 13pct at CLS Group in April 2022

FX settlement specialist CLS Group today reported that the executed volumes of currency trading on its platforms were notably down in April.

Crypto Insider, Opinion

Regulation: The Gold-Standard for Crypto-Assets

When the US supervisory authority SEC allowed an investment product referencing Bitcoin futures to be traded for the first time last October, this was widely perceived as a signal that cryptocurrencies had finally become established as an asset class.

Executive Moves

Solid hires FX industry veteran Darren Barker for multi-bank ECN’s business development

His curriculum vitae includes former roles at Cantor Fitzgerald, Sucden Financial, R.J. O’Brien, Jefferies, Natixis, Unicredit, J.P. Morgan, Raiffeisen, RBS International, UBS, Deutsche Bank, and Citi. 

Inside View

Mihails Safro, xpate CEO: Tips sellers need to know to overcome compliance obstacles

The unprecedented growth of e-commerce changed shopping dramatically last year. Many sellers suddenly faced a rapidly growing number of customers who had to stay home during the lockdown. When some clients adopted Netflix and Spotify as part of a daily routine, others ventured into online business. Robinhood alone saw a whopping 6 million rise in user numbers in 2 months. 

Institutional FX

BMLL delivers Level 3 data to Kepler Cheuvreux for order book analytics and algo performance

The solution covers more than 6.5 years of harmonised historical data from 65 venues and combines it with easy to use APIs and analytics libraries in a secure cloud environment. 

Digital Assets

Crypto Is An Invaluable Tool In The Fight Against Financial Oppression  

Crypto has proven itself to be much more than just a hot investment. Indeed, some say it’s poised to play a critical role in the future of finance

Executive Moves

Parameta appoints Head of Benchmark and Indices with a focus on ESG and rates

The firm said building out its benchmarks & indices offering will now be a core priority, with a particular focus on the ESG and rates space.

<