Washington, D.C. – The Commodity Futures Trading Commission (CFTC) has settled charges against Interactive Brokers LLC for failing to adequately supervise its customer accounts and prepare its electronic trading system for the possibility of negative prices on April 20, 2020. The failures violated CFTC Regulation 166.3, which requires diligent supervision.
The CFTC order requires Interactive Brokers to pay a $1.75 million civil monetary penalty and $82.57 million in restitution to affected customers. However, the firm will receive credit for the full restitution amount, as it has already compensated its customers for the losses.
According to the CFTC, the supervisory failures came to light when the benchmark West Texas Intermediate (WTI) crude oil futures contract traded into negative prices on April 20, 2020, settling at negative $37.63 per barrel. This unprecedented event impacted cash-settled contracts, including the E-mini crude oil and WTI futures contracts, resulting in losses for Interactive Brokers customers holding long positions.
The investigation revealed that Interactive Brokers was aware of the potential for negative oil futures prices prior to April 20, 2020, but failed to adequately configure its systems to handle them. This resulted in two key issues: customers were unable to view negative prices or place corresponding limit orders, and internal minimum margin requirements were not correctly enforced before trade execution for WTI contracts.
These system failures affected hundreds of customer accounts and initially resulted in trading losses exceeding $82.57 million. The CFTC acknowledged Interactive Brokers’ cooperation and subsequent systems remediation, leading to a reduction in the civil monetary penalty.
“This enforcement action demonstrates that the CFTC will hold registrants responsible for their handling of customer accounts and ensuring the integrity of trades on their trading platforms and electronic systems, including during instances of market volatility,” said Acting Director of Enforcement Vincent McGonagle.
The case was led by CFTC staff members Danielle Karst, Julia Colarusso, Dmitriy Vilenskiy, Christine Ryall, and Paul G. Hayeck.
Source: CFTC.gov
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