Interactive Brokers: Difference between revisions

IB connects its customers to a wide range of financial markets, including futures markets based in the United States.

IB customers can request trading permissions to access futures markets based in the United States. The process for obtaining these permissions can be completed through IB's public-facing customer portal. Customers must log in, navigate to the appropriate settings, review the provided documentation, and complete a web form to electronically 'sign' the agreement. When selecting futures trading permissions, customers will encounter a '''Futures Arbitration Agreement''' among the documents they are required to acknowledge.   

As a result, applicable IB customers may not realize that they can open futures transactions without agreeing to the Futures Arbitration Agreement. They may also be unaware that IB's systems impose a 1-contract trading restriction on accounts that do not agree to the agreement. Furthermore, customers may not recognize that this behavior by IB's systems conflicts with 17 CFR 166.5(c)(1), which they might have believed would protect them from such restrictions.

IB may be charging customers interest rates that exceed the maximum allowable rates set by statutory laws in certain U.S. jurisdictions. For example, the 2024 Maryland Code, Commercial Law § 12-102, specifies a maximum interest rate of 6% per annum.<ref>https://law.justia.com/codes/maryland/commercial-law/title-12/subtitle-1/section-12-102/</ref> However, IB does not explicitly state that it limits its interest rates to 6% for customers residing in Maryland.

It is worth noting that other brokerage firms publicly advertise significantly higher (and less favorable) interest rates to their customers, which may provide context for IB's practices. Nonetheless, the lack of clarity regarding compliance with state-specific interest rate laws raises questions about transparency and adherence to legal requirements.<ref>https://www.interactivebrokers.com/en/index.php?f=44427</ref>

On September 28, 2021, the U.S. [[Commodity Futures Trading Commission]] (CFTC) issued a press release announcing that it had settled charges against Interactive Brokers, LLC. The settlement included a $1.75 million fine and $82.57 million in customer restitution for the following violation:<ref>https://www.cftc.gov/PressRoom/PressReleases/8432-21</ref><blockquote>Failing to diligently supervise the handling of its customer accounts by not adequately preparing and configuring its electronic trading system to receive negative prices and calculate margin on April 20, 2020, in violation of CFTC Regulation 166.3.</blockquote>On April 20, 2020, the May 2020 West Texas Intermediate (WTI) crude oil futures contract, traded on the NYMEX exchange, settled at negative prices. The CFTC alleges that when a futures commission merchant, such as Interactive Brokers, LLC, operates systems incapable of accurately reflecting actual market prices, customers may suffer harm.

It remains unclear whether the CFTC or any other regulator has required Interactive Brokers, LLC, to update its systems to a specific performance standard to prevent customers from being exposed to potential harm from similar incidents in the future.

On January 28, 2021, Interactive Brokers restricted customer trading in certain securities with heightened stock volatility, including GameStop, AMC Entertainment, and Koss. Specifically, the company prevented customers from opening new options positions.<ref>https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html</ref> Interactive Brokers' chairman, Thomas Peterffy, stated in an interview with CNBC that the decision was made independently by the company and not due to external pressure, including from parties who might have financially benefited from disrupted order flow. CNBC also noted that the brokerage [[Robinhood]] had imposed similar trading restrictions on the same day.<ref>https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-trading-in-gamestop-s.html</ref>

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