CFTC Orders Connecticut-based Interactive Brokers LLC, a Registered Futures Commission Merchant, to Pay a $225,000 Civil Monetary Penalty

Firm failed to supervise its employees, failed to maintain sufficient U.S. dollars in customer segregated accounts, and failed to compute on a currency-by-currency basis the amount of customer funds on deposit and required to be on deposit in segregated accounts

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order requiring Interactive Brokers LLC (IB) of Greenwich, Conn., to pay a $225,000 civil monetary penalty for failing to calculate the amount of customer funds on deposit, the amount of funds required to be on deposit in customer segregated accounts, failing to maintain sufficient U.S. dollars (USD) in customer segregated accounts in the United States to meet all USD-denominated obligations, and supervision failures. The CFTC’s Order also requires IB to cease and desist from violating CFTC Regulations, as charged.

IB, an on-line brokerage firm, is a Futures Commission Merchant and Retail Foreign Exchange Dealer with more than 140,000 customer accounts.

Specifically, the CFTC Order finds that from at least January 2008 through at least April 4, 2011, IB failed to compute as of the close of business each day, on a currency-by-currency basis, the amount of customer funds required to be on deposit and the amount of customer funds actually on deposit in segregated accounts on behalf of commodity and options customers.

Additionally, between September 21, 2011 and May 8, 2012, IB improperly covered a portion of its USD commodity futures and options customer obligations with Japanese yen and Swiss francs to maximize its interest earnings and not at the request of any of its commodity customers, the Order finds. As a result, IB did not retain enough USD in segregation to meet its USD-denominated obligations to its commodity customers – with the USD segregation requirement shortfall ranging from approximately $90 million to $300 million during that time, according to the Order. IB discovered and self-reported this violation to the CFTC on May 10, 2012; however, IB had excess segregated funds ranging from $48.4 million to $455.3 million at all relevant times, according to the Order.

The Order also finds that prior to May 9, 2012, IB did not have adequate procedures in place and failed to adequately train and diligently supervise its officers, employees, and agents to prevent the violations described in the Order. However, the Order finds that IB independently implemented corrective measures after discovering the violations and cooperated with the CFTC’s Division of Enforcement in investigating the circumstances.

The CFTC appreciates the assistance of the Division of Swap Dealer and Intermediary Oversight. The CFTC also appreciates the assistance of the National Futures Association.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Passman, Heather Johnson, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.

Media Contacts
Dennis Holden
202-418-5088

IB comments on press release:

Below is our response which hopefully provides some prospective as to this press release. In particular, it's worth noting that this matter was uncovered by IB itself and self reported immediately thereafter and that IB at all times maintained segregated assets well in excess of that required.


Interactive Brokers LLC recently agreed with the Commodity Futures Trading Commission ("CFTC" or "Commission") to pay a fine of $225,000 in connection with the denomination of currency in which segregated funds were held at several clearinghouses and banks prior to June 2012.

Interactive Brokers conducts a global customer business on U.S. and non-U.S. exchanges, and its U.S. and worldwide customers transact business on over 100 different markets in 20 different countries and in 19 different currencies.

Because of the unusual interest rate environment beginning in late 2011, Interactive Brokers began to hold a portion of segregated funds in Japanese yen and Swiss francs, rather than in U.S. dollars. Interactive Brokers was not aware at the time that this was a violation of CFTC rule 1.49.

The funds were always held in proper segregated accounts and were calculated daily to be the correct amount in U.S. dollar equivalents, but should not have been held in yen and francs.

Interactive Brokers discovered the violation itself during a review of its procedures. Interactive Brokers immediately corrected the error and self-reported the issue to the CFTC in May 2012. Interactive also agreed to settle certain related books and records and supervisory charges with the Commission.

In the Settlement Order, the CFTC noted that "Interactive Brokers independently implemented corrective measures after discovering the violations; and IB cooperated with the Division in investigating the circumstances."

The CFTC also noted there was never any deficiency in segregated funds. To the contrary, the CFTC stated: "During the time period of the violations* * * IB had excess segregated funds on deposit * * * of between $ 48.4 MM and $ 455.3 MM."

Interactive Brokers General Counsel David Battan stated: "We discovered this issue during a review of our procedures and we immediately corrected it by converting certain funds held in non-US currencies back into dollars. We self-reported the issue to the CFTC right away and cooperated with their staff during its inquiry. During the entire period, we had large amounts of excess funds segregated for our customers. We kept anywhere from $48 million to over $400 million more than we were required to in customer-protected accounts."

Interactive Brokers was recently named 2013 Best Online Broker and Best for International Traders by Barron's Magazine. Interactive Brokers' parent company has over $4.8 billion in equity capital and is publicly traded under the symbol IBKR.

Because of the unusual interest rate environment beginning in late 2011, Interactive Brokers began to hold a portion of segregated funds in Japanese yen and Swiss francs, rather than in U.S. dollars. Interactive Brokers was not aware at the time that this was a violation of CFTC rule 1.49.

Dollar Utilization now enforced by the CFTC - wow, brave new world...