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NEWSLETTERS & ALERTS
Interactive Brokers Fined $5.5Mn for Reg SHO Violations
by Howard Haykin
Interactive Brokers LLC agreed to pay a $5.5 million fine to settle FINRA charges related to Regulation SHO violations and supervisory failures spanning a period of at least 3 years. FINRA cited that Interactive had 4 instances of relevant disciplinary history, dating back to December 2011, July 2012, January 2013 and March 2015.
Interactive, a FINRA member since 1995, ... is an online global broker specializing in electronic order routing to execute and process transactions in securities, futures, and options to more than 80 electronic exchanges and trading venues around the world. The firm does not conduct any proprietary trading and acts in an agency capacity for its customers. Interactive’s 258 registered reps operate out of 6 branch offices, including the firm’s headquarters in Greenwich, CT.
FINRA FINDINGS. From July 2012 through June 2015, Interactive’s supervisory system, including its WSPs, was not reasonably designed to achieve compliance with the requirements of Reg SHO. In addition, Interactive repeatedly ignored “red flags” - including (i) internal audit findings, (ii) multiple internal warnings from its clearing and compliance personnel, (iii) its own annual risk assessments, and, (iv) FINRA exam findings –indicating the inadequacies of its Reg SHO supervisory systems and procedures.
Despite these “red flags,” remedial measures were not implemented until mid-2015. As a result, Interactive …
- did not timely close-out more than 2,300 fails-to-deliver;
- accepted and executed short orders in those securities without first borrowing (or arranging to borrow) the security approximately 28,000 times;
- permitted the execution or display of more than 4,700 short sale orders in covered securities at a price less than or equal to the current national best bid.
[For further details on this case, click on … FINRA Disciplinary Actions Online and refer to AWC #2014043143401.]