Interactive Brokers Fined

Discussion in 'Retail Brokers' started by mathewt, Apr 21, 2002.

  1. mathewt

    mathewt Guest

    NASD Regulation Censures and Fines Interactive Brokers for Market Systems Violations

    Washington, D.C. — NASD Regulation, Inc., today announced that it censured and fined Interactive Brokers, L.L.C., $230,000 for multiple violations, including order routing, Order Audit Trail System (OATS) reporting, record keeping and supervision violations. During a three-year period Interactive Brokers violated NASD rules by mis-programming its order routing system so that customer orders that were routed through Nasdaq's SelectNet system to electronic communication networks (ECNs) were treated as "non-negotiable," which means the essential terms of the order, including the size, could not be changed. NASD rules prohibit non-negotiable orders from being sent to ECNs and permit ECNs to reject them. In most cases, ECNs exercised their right to reject them, due to difficulties in programming their systems to accept this type of order.

    Interactive Brokers also failed to submit Order Audit Trail System reports in the manner required by NASD OATS rules. Interactive Brokers' record keeping violations occurred as a result of its system programming which retained certain required details concerning its routing of orders through SelectNet for no more than one week. NASD rules require this data to be retained for three years. Interactive Brokers' OATS and record keeping violations spanned a 20-month period from August 1999 through April 2001.

    Interactive Brokers also was ordered to revise its supervisory procedures to ensure that future computer programming changes will result in the firm's automated routing and execution system, OATS reports, and maintenance of required books and records being in compliance with NASD and SEC rules.

    Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an e-mail through NASD Regulation's Web Site at

    The National Association of Securities Dealers, Inc. is the largest securities industry, self-regulatory organization in the United States. It is the parent organization of NASD Regulation, Inc.; the American Stock Exchange, LLC; and NASD Dispute Resolution, Inc. For more information about the NASD and its subsidiaries, please visit the following Web sites:;;;
  2. Be nice now; everybody gets fined in this business.
  3. Reeeeaaaaaaaaaaaallly?
  4. OK, so what is the effect on IB customers??
  5. that if there isn't a trail there is no way to verify any customer complaint. think about electronic "paper shredding". timber hill has been fined for similar reasons in the past. it's not the first time this has happened.

    if you are an IB customer you may have noticed that it's very difficult to cross-match quotes, time and sales and individual trade records, i don't think that's because of "technical difficulties".

    where do you think IB cheap commissions come from? my opinion is that they "scalp" single ticks at a mili-second speed from customers here and there so that pays for the low commissions and more. this happens so fast that people with "slow" connections will never notice it. IB is not a "true" direct access platform.

    so the implication is that if IB customers finally realize the major screwing they are subject to, they will be able to prove it by requesting IB's records.
  6. buzzy: forget this scalping idea. it is nonsense.
    i tested many times, and i can assure your order
    is routed to the exch without any "wanted" delays.
  7. Very rare that my orders are not filled at the CORRECT price, and the exceptions were for very small amounts, likely accounted for by other factors.

    Slander is uncalled for, and if you have proof , present it.

    'Cheap' commisions come from efficiency of operations, unlike the bloated and pompous Chas. Schwab organization who, in addition to charging $29.99 a trade, have added a $3 surcharge. Now that's a bonafide screwing, no audit trail needed.
  8. IB has enough problems of their own making; no need to create the great conspiracy theory, give them a break they paid the fine.
  9. just21


    Posted on IB Forum

    On March 8, 2002, Interactive Brokers (“IB”) entered into a settlement to resolve an inquiry by
    NASD Regulation, Inc. (“NASDR”) regarding the electronic format of orders sent by IB to
    electronic communication networks (“ECNs”) via the SelectNet system; the electronic format of
    Order Audit Trail (“OATS”) reports and the retention thereof; and IB’s related supervisory
    practices. Specifically, NASDR found that IB violated an NASD rule concerning the use of the
    Nasdaq SelectNet system by electronically sending orders with an “N” (or “non-negotiable”)
    modifier in accessing ECNs (in cases where IB did not route orders directly to the ECNs). NASDR
    also found that IB provided 24-character hexadecimal order identification numbers in its OATS
    reports rather than an 8-character alphanumeric identifier as required by the OATS rules; found
    that IB failed to retain for a sufficient period of time certain electronic information created by IB
    as a software debugging record; and found deficiencies in IB’s supervision of these aspects of
    the firm’s operations. IB cooperated with NASDR staff during the investigation and is pleased
    that it was able to resolve the NASDR inquiry on satisfactory terms. Under the terms of the
    settlement, IB did not admit or deny NASDR findings that the firm failed to comply with NASD
    regulations, but agreed, among other things, to make certain changes in its systems based on
    NASDR findings.

    IB is committed to providing to its customers the highest quality electronic trading systems
    available to market participants anywhere. We are continuously working to update and improve
    our systems to maintain our preeminence in high-speed execution and straight-through clearing

    David Battan, Vice President and General Counsel, Interactive Brokers
  10. I am just trying to "explain" differences in executions among different brokers. IB does NOT provide the best possible executions. Maybe I am wrong about the scalping theory, maybe IB got fined just because they're stupid, maybe they have bad executions just because their equipment and software sucks.

    But if I am not using IB is because I get systematically better executions somewhere else. An execution better by 1 tick or by a few miliseconds more than compensates the savings in commissions at IB.

    But there are still other "details" in IB's software and API that makes me really suspicious about what's going on at their servers. Not to mention their not keeping records for more than 1 week.

    In my experience, executions and API's at other brokers have been much more transparent.

    But this is a free country and anybody who thinks IB is the best is free to go with them and spread the IB gospel to the world. I am not making accusations and I am not insulting IB users, just making comments on my personal experience and expressing my personal opinion.

    To the guy who wanted me to show proof: exactly. I can't prove anything about my executions because IB does not keep any records for more than 1 week. That's why they were fined. get it?
    #10     Apr 21, 2002