NASD Regulation Censures and Fines Interactive Brokers

NASD Regulation Censures and Fines Interactive Brokers
For Market Systems Violations

WASHINGTON, April 18 /PRNewswire/ -- 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 http://www.nasdr.com .

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:
http://www.nasd.com ; http://www.nasdr.com ; http://www.amex.com ;
http://www.nasdadr.com .

 

Posted on IB Forum
http://www.interactivebrokers.com/discus/messages/6/83.html?1019148347

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
services.

Thanks,
David Battan, Vice President and General Counsel, Interactive Brokers

 

BFD. The Empire strikes back. I'd be more impressed if NASD looked into something with a little more significance, say Merrill analysts pushing merchandise that they described internally as "crap" and "POS". Or Morgan Stanley. Or Goldman. Don't hold your breath. IB has stuck it to the big boys and now is paying the price.