The UK’s Financial Conduct Authority said it has fined Interactive Brokers (UK), the London-based arm of Greenwich, Connecticut-based Interactive Brokers LLC, £1.05m ($US1.5m, €1.15m) for “poor market abuse controls” which, the FCA said, caused it to fall short of the required standard for identifying and reporting suspicious transactions.
The UK regulator said in a statement today that had taken the action for “serious and systemic weaknesses within IBUK’s procedures” that it had uncovered during the period between February 2014 to February 2015.
Interactive Brokers is an online discount brokerage which arranges and executes transactions in such financial instruments such as contracts for difference directly on behalf of its clients.
Interactive Brokers didn’t immediately reply to requests for comment.
According to the FCA, IBUK delegated its post-trade monitoring to a team based at another company within the Interactive Brokers Group in the US. However, it said, IBUK then “failed to adequately input into the design and calibration of the post-trade monitoring systems, or test their operation, to ensure that potential market abuse by its clients would be captured, and it failed to provide effective oversight of the US team’s conduct of the reviews of the reports produced”.
In particular, IBUK “carried out no quality assurance or monitoring of the review of the reports, and it failed to ensure that the staff conducting the reviews were adequately trained,” the FCA said in its statement.
“This heightened the risk of IBUK failing to submit suspicious transaction reports to the FCA,” it added.
“Prior to being notified of the FCA’s concerns, during the [period from February 2014 to February 2015] IBUK failed to submit any suspicious transaction reports in relation to insider dealing, and the [FCA also] identified three occasions on which IBUK failed to report suspicious trading by IBUK clients.”
Mark Steward, director of enforcement and market oversight at the FCA, noted that companies doing business in the UK not only had a responsibility to report to the authorities any “suspicious conduct” they came across in the country’s capital markets, but also “an obligation to ensure their trading systems are not used for the purpose of financial crime”.
Because IBUK’s systems “were inadequate and ineffective in the face of potentially suspicious transactions”, the FCA’s view, they “fell below the appropriate standards, and exposed counterparties and the market to risks they did not bargain for”, thus the decision on the FCA’s part to take action in the way it did, with the fine.
Early adopter of computer technology
The company now known as Interactive Brokers LLC was founded in 1977, when Thomas Peterffy,who is still the chairman of the Interactive Brokers Group, bought a seat on the American Stock Exchange, and began trading as an individual market maker in equity options. Within a year Peterffy’s fledgling company, TP & Co, consisted of four people, and had become the first to make use of a computer to generated fair value sheets printed daily, according to a history of the business on its website.
Peterffy’s company did business as “Timber Hill” from 1982 until 2001, when it changed its name to Interactive Brokers. It opened its London office in 2000, and listed its shares on the Nasdaq exchange in May 2007.
Today it has more than US$6bn in equity capital, and overseas outposts in Montreal, Sydney, Mumbai, Hong Kong and Japan, in addition to London, where its offices are located on Bishopsgate in the city’s financial district, according to its website.