NASD Regulation Censures and Fines Interactive Brokers

Discussion in 'Trading' started by just21, Apr 19, 2002.

  1. just21


    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 .

    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. 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
  3. 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.