FINRA Settles with Interactive Brokers Over Free-Riding Violations

The Financial Industry Regulatory Authority (FINRA) settles with Interactive Brokers following allegations of rule violations related to free-riding in customer cash accounts. The firm accepted a Letter of Acceptance, Waiver, and Consent (AWC) as part of the resolution without admitting or denying the findings.

Between October 2015 and December 2022, Interactive Brokers failed to detect over 4.2 million instances of free-riding in options and issued options transactions. Free-riding, which occurs when securities are bought and sold without full payment, violates Regulation T of the Federal Reserve Board and FINRA Rules 4210 and 2010. The failure to identify these transactions led to regulatory concerns.

FINRA Settles with Interactive Brokers Over Free-Riding Violations

The investigation revealed that the firm’s automated surveillance system did not properly detect instances of free-riding in options trading. As a result, required freezes on accounts engaging in such activity were not imposed. The inquiry also found deficiencies in the firm’s supervisory systems and written supervisory procedures (WSPs), which lacked measures to ensure compliance with regulations aimed at preventing free-riding.

In response, Interactive Brokers agreed to a censure and a $2.25 million fine. The firm has since upgraded its surveillance systems and WSPs to address the identified shortcomings, ensuring better adherence to regulatory requirements moving forward.

This settlement concludes the matter, and FINRA will include the disciplinary action in its public records. Interactive Brokers waived its right to further procedural steps. At the time of writing, the firm had not responded to requests for comment from Finance Magnates.

In a related development, FINRA recently fined retail trading platform tastytrade $30,000 for supervisory lapses involving employee outside securities accounts, highlighting continued scrutiny in the industry.

Company Overview

Interactive Brokers caters to diverse requirements, offering competitive fees alongside a wide array of trading options such as stocks, ETFs, options, futures, and other global assets. It distinguishes itself as a top-tier brokerage, particularly appealing to traders and investors seeking a straightforward trading experience. With Interactive Brokers’ user-friendly platform, users can execute trades seamlessly, benefiting from competitive spreads that enhance cost-effectiveness. 

Discover more in our Complete Review.