Interactive Brokers pays $832k fine for "negligent" and "reckless" conduct

The firm allowed suspicious trading activity to continue, says regulator

Interactive Brokers pays $832k fine for "negligent" and "reckless" conduct


By Mina Martin

Market participant Interactive Brokers Australia has paid a $832,500 fine after receiving an infringement notice from the Market Disciplinary Panel (MDP), ASIC has reported.

Interactive Brokers was penalised after MDP found that it was “negligent” in its failure to identify suspicious trading by one of its clients, as well as “reckless” in continuing to allow further suspicious trading after the corporate watchdog raised concerns about the trades. The firm was also found to have not maintained the necessary organisational and technical resources to comply with the law.

ASIC highlighted that market participants play a crucial gatekeeper role in detecting and preventing suspicious trading. To efficiently identify and disrupt potential market misconduct, they must have effective controls and adequate resources and respond quickly to concerns raised by the regulator.

ASIC said certain Closing Single Price Auction (CSPA) orders placed by a client, who actively traded in Orthocell (OCC) shares, from March 10 to Nov. 5, 2021, should have been found suspicious by Interactive Brokers for these reasons:

  • they were entered or amended late in the CSPA,
  • were for a very small volume and value,
  • they returned or held the price for OCC to or at the high of the day, and
  • they were inconsistent with the client’s previous trading during the relevant day.

“The MDP found that Interactive Brokers allowed its client to place certain orders when it ought reasonably to have suspected the client was placing those orders with the intention of increasing the closing price of OCC, thereby creating a false or misleading appearance with respect to the price of OCC,” ASIC said.

On Oct. 14, 2021, ASIC advised Interactive Brokers that its client’s trading had triggered ASIC alerts. But despite the firm’s attempts to contact the client, it allowed the trading to continue and placed further suspicious orders.

The client’s trading in OCC also triggered 44 “marking the close” alerts on Interactive Brokers’ own surveillance systems from Feb. 10 to Oct. 13, 2021.

MDP said Interactive Broker’s response and follow up to the suspicious activity was inadequate because the alerts took too long to be closed, the firm’s reviews of the alerts did not include meaningful notes, the firm did not address the trading conduct of the client, and the firm did not lodge a suspicious activity report to ASIC until Nov. 5, 2021.

“The MDP considered that these circumstances demonstrated that Interactive Brokers did not have sufficient staff with the necessary skills, knowledge, or experience to properly assess the alerts or those staff were not adequately supervised to ensure they were doing their job,” ASIC said in a media release. “The MDP noted that analysis of high-risk alerts must begin on the relevant trade date and review of all alerts should be concluded within a fortnight.

“The MDP characterised this failure by Interactive Brokers as negligent as it should have realised that it did not maintain the necessary ‘organisational and technical resources’ to ensure that trading messages submitted by it did not interfere with the efficiency and integrity of the market.”

The regulator clarified that compliance with the infringement notice is not an admission of guilt or liability. By paying the penalty, Interactive Brokers is not taken to have contravened subsection 798H(1) of the Corporations Act.

Read the infringement notice on the Markets Disciplinary Panel Outcomes Register.

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