Nasdaq fines IBKR $475,000 for corporate actions failures

Rick Steves

IBKR has engaged in remedial measures to compensate customers who were directly harmed by the late processing of corporate actions. ​

Interactive Brokers LLC has been fined $475,000 by Nasdaq for violating several rules and regulations, as part of the exchange operator’s enforcement department.

The fine comes as a result of an investigation initiated by Nasdaq Enforcement based on referrals received by Nasdaq MarketWatch.

IBKR’s system not reasonably designed to process corporate actions

During the period between January 1, 2020, and June 2, 2021, Nasdaq Enforcement found that Interactive Brokers incorrectly processed five corporate actions due to a combination of system and supervisory deficiencies. Additionally, the firm’s risk management controls and supervisory procedures were not reasonably designed to prevent the entry of erroneous orders.

The investigation revealed that Interactive Brokers’ written supervisory procedures and supervisory system were not reasonably designed to process corporate actions. The firm used three independent data vendors to source information on corporate actions, and their procedures required confirmation of a corporate action by at least two of the three data sources. ​

However, the firm’s procedures did not adequately address situations where conflicting information was received or when only one data source confirmed the corporate action. ​ As a result, the firm incorrectly processed five corporate actions, leading to erroneous orders being sent to the market and customers being able to sell shares they did not own. ​

One notable incident occurred on January 14, 2020, when Interactive Brokers failed to process a reverse stock split, resulting in orders being routed to the market and executed at erroneous prices. ​ Another incident took place on April 27, 2021, when the firm failed to process a reverse stock split, leading to customers trading based on inaccurate account information and suffering losses. ​

Furthermore, the investigation found that Interactive Brokers’ erroneous order control for warrants was not reasonably designed. ​ The firm’s system could not calculate a reference price for warrants in certain situations, leading to a buy execution of 200 shares in warrants for Publicly-Traded Company 6 at a price 124% away from the prior day’s close. ​

Interactive Brokers compensating customers

In response to the violations, Nasdaq has imposed a censure and a fine of $475,000 on Interactive Brokers. ​ The firm has also engaged in remedial measures to compensate customers who were directly harmed by the late processing of corporate actions. ​ Interactive Brokers has voluntarily accepted the sanctions and waived its procedural rights, including the right to have a formal complaint issued and the right to a disciplinary hearing.

The firm has also agreed not to make any public statements denying the findings in the agreement. It is important to note that the submission of this agreement does not resolve the matter until it has been reviewed and accepted by the Nasdaq Enforcement Department and the Nasdaq Review Council. ​

If accepted, the agreement will become part of Interactive Brokers’ permanent disciplinary record and may be considered in any future actions brought by Nasdaq or any other regulator against the firm. ​ Interactive Brokers has not made any public statements regarding the fine imposed by Nasdaq. ​ Disclaimer: The information in this article is sourced from the document provided and does not reflect the views of Nasdaq or its staff. ​

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