Interactive Brokers LLC (IBKR) has agreed to pay a $900,000 fine as part of a settlement with The Nasdaq Stock Market LLC, along with a censure, over deficiencies in its supervisory systems related to omnibus accounts.

According to Nasdaq, from at least April 12, 2021, through August 2023, IBKR’s supervisory system was not ready to prevent potentially manipulative trading through omnibus accounts held by foreign introducing brokers. Orders and trading activity from these accounts triggered exception reports, some of which IBKR considered actionable. However, in certain cases, the firm either closed reports without sufficient follow-up or failed to conduct reasonable investigations into the trading activity of ultimate beneficial owners.

$900k Fine for Interactive Brokers Following Nasdaq Settlement

When IBKR sought to restrict trading by these owners, it relied on foreign affiliates to implement the restrictions. Nasdaq found that IBKR sometimes closed compliance reviews without confirming that the restrictions were actually enforced, creating an unreasonable reliance on unaffiliated foreign introducing brokers.

Nasdaq also noted that high volumes of exception reports and regulatory inquiries regarding microcap securities trading through these accounts constituted red flags. Despite this, IBKR delayed imposing restrictions on omnibus accounts of certain foreign introducing brokers and, in some cases, never implemented them. Weaknesses in IBKR’s procedures allowed brokers to execute trades that were under restriction. The firm has since enhanced these processes.

Additionally, IBKR began requesting anonymous identifiers for subaccounts in March 2021 to improve oversight but did not fully integrate this system into all exception reports until August 2023. The absence of this functionality hindered the firm’s ability to evaluate trading and compliance histories of ultimate beneficial owners. IBKR later introduced order management functionality to automatically reject trades that violated restrictions or lacked required identifiers.

Nasdaq concluded that during the relevant period, IBKR’s written supervisory procedures were insufficient to achieve full compliance with Nasdaq rules, including General 9, Sections 20(a) and 1(a). The settlement reflects IBKR’s agreement to the fine and censure while acknowledging improvements in its supervisory controls.

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