Jump to content

Interactive Brokers: Difference between revisions

From Consumer_Action_Taskforce
SncEkln7Q (talk | contribs)
category
mNo edit summary
 
(13 intermediate revisions by 6 users not shown)
Line 1: Line 1:
== Overview ==
{{Incomplete}}
Interactive Brokers (IB or IBKR) provides brokerage and financial services.  IBKR operates under various names and legal structures in various jurisdictions (such as Interactive Brokers Hong Kong Limited) and lines of business (such as Interactive Brokers, LLC for futures markets).


IBKR connects customers with various financial markets including futures markets based in the United States
{{InfoboxCompany
| Name = Interactive Brokers
| Type = Public
| Founded = 1978
| Industry = Financial
| Official Website = https://interactivebrokers.com
| Logo = Interactive Brokers.png
}}


== Select business and consumer practices ==
'''[[Wikipedia:Interactive Brokers|Interactive Brokers, Inc.]]''' (IB) is an American multinational firm that provides brokerage and financial services. The company operates under various names and legal structures across different jurisdictions, such as '''Interactive Brokers Hong Kong Limited''', and specializes in distinct lines of business, including '''Interactive Brokers, LLC''' for futures markets.


=== Arbitration Agreements ===
IB connects its customers to a wide range of financial markets, including futures markets based in the United States.
IBKR customers can request trading permissions to trade futures markets based in the United States. The IBKR trading permission process can be completed by logging into IBKR's public-facing customer portal website, navigating through settings, reviewing the presented documentation, and completing a web form to "sign" electronically.  Selecting futures trading permissions will include a "Futures Arbitration Agreement" in the presented documents to be acknowledged. 


The document may contain text like:<blockquote>You need not sign this agreement to open or maintain an account with IB. See 17 CFR 166.5</blockquote>Note that as of 2015-01-15, the text of 17 CFR 166.5 includes paragraph (c)(1):<blockquote>Signing the agreement must not be made a condition for the customer to utilize the services offered by the Commission registrant.</blockquote>and portions of paragraph (c)(2):<blockquote>If the agreement is contained as a clause or clauses of a broader agreement, the customer must separately endorse the clause or clauses containing the cautionary language and provisions specified in this section.</blockquote>But the IBKR online trading permission web page form does not allow "endorsing" the presented "cautionary language and provisions" separately from the "settlement procedure" (e.g., "Futures Arbitration Agreement").
==Select business and consumer practices==


Applicable IBKR customers may not realize that they could open futures transactions using IBKR, be subject to the risks of IBKR systems imposing a 1-contract trading restriction upon accounts not agreeing to a Futures Arbitration Agreement, and potentially not realize that this is IBKR system behavior is not in accordance with 17 CFR 166.5(c)(1) that they might have believed to be protecting them.
===Arbitration agreements===
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.


=== Interest Rates Charged ===
The agreement may include text such as:<blockquote>You need not sign this agreement to open or maintain an account with IB. See 17 CFR 166.5</blockquote>Note that as of 2015-01-15, the text of 17 CFR 166.5 includes paragraph (c)(1):<ref>https://www.ecfr.gov/current/title-17/chapter-I/part-166/section-166.5</ref><blockquote>Signing the agreement must not be made a condition for the customer to utilize the services offered by the Commission registrant.</blockquote>and portions of paragraph (c)(2):<blockquote>If the agreement is contained as a clause or clauses of a broader agreement, the customer must separately endorse the clause or clauses containing the cautionary language and provisions specified in this section.</blockquote>However, IB's online trading-permission web form does not allow customers to separately endorse the 'cautionary language and provisions' from the 'settlement procedure' (e.g., the Futures Arbitration Agreement).
IBKR may be charging customers a higher rate of interest than the maximum allowed rate named in statutory laws in some jurisdictions in the United States. For example, the 2024 Maryland Code Commercial law sec. 12-102 states a maximum rate of interest of 6 percent per annum, but IBKR does not specify that it does not allow its interest rates to go above 6% for customers residing in Maryland. It is worth noting, however, that other companies providing brokerage services publicly advertise drastically higher (less favorable) interest rates to customers.


== Public sphere ==
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.


=== CFTC action: failure to handle negative prices ===
===Interest rates charged===
On September 28, 2021, the U.S. Commodity Futures Trading Commission (CFTC) issued a press release indicating that it had settled charges which fined Interactive Brokers, LLC $1.75 million (in addition to $82.57 million in customer restitution) for<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 crude oil futures contract trading on the NYMEX exchange traded and settled at negative prices, and the CFTC alleges that when a futures commission merchant like Interactive Brokers, LLC operates systems that cannot correctly reflect the actual market prices, customers may be harmed.
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 unclear if the CFTC or any other regulator required that Interactive Brokers, LLC update systems to a certain level of performance to prevent customers from being subjected to potential harm from this or similar factors in the future.
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>


=== January 2021 customer trading restrictions ===
==Public sphere==
On January 28, 2021, IBKR systems restricted customer trading in certain securities for companies with heightened volatility in their stocks such as Gamestop, AMC Entertainment, and Koss.  Specifically, the company prevented customers from opening new options positions.  Interactive Brokers chairman Thomas Peterffy told CNBC that the decision was the company's own and not due to pressure from outside parties, including those who might have gained financially if customer brokers voluntarily disrupted order flow.  CNBC noted that the brokerage Robinhood had restricted trading on this trade date as well.


Customers should be aware that brokers including IBKR may take similar actions in the future, and that this poses a risk that they may incur economic harm as a result of being artificially impeded from entering orders.
===Commodity Futures Trading Commission (CFTC) action===


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.


== References ==
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.
https://www.ecfr.gov/current/title-17/chapter-I/part-166/section-166.5


https://law.justia.com/codes/maryland/commercial-law/title-12/subtitle-1/section-12-102/
===January 2021 customer trading restrictions===
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>


https://www.interactivebrokers.com/en/index.php?f=44427
Customers should be aware that brokers, including IB, may take similar actions in the future. This poses a risk of economic harm, as investors could be artificially prevented from entering or executing trades during critical market movements.


https://www.cftc.gov/PressRoom/PressReleases/8432-21
==References==
 
<references />
https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html
[[Category:Interactive Brokers]]
 
https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-trading-in-gamestop-s.html
 
 
[[Category:Companies]]
[[Category:Financial Services Companies]]

Latest revision as of 20:36, 4 March 2025

⚠️ Article status notice: This article has been marked as incomplete

This article needs additional work to meet the wiki's Content Guidelines and be in line with our Mission Statement for comprehensive coverage of consumer protection issues.

This notice will be removed once sufficient documentation has been added to establish the systemic nature of these issues. Once you believe the article is ready to have its notice removed, visit the discord and post to the #appeals channel.

Learn more ▼


Interactive Brokers
Basic information
Founded 1978
Type Public
Industry Financial
Official website https://interactivebrokers.com


Interactive Brokers, Inc. (IB) is an American multinational firm that provides brokerage and financial services. The company operates under various names and legal structures across different jurisdictions, such as Interactive Brokers Hong Kong Limited, and specializes in distinct lines of business, including Interactive Brokers, LLC for futures markets.

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

Select business and consumer practices[edit | edit source]

Arbitration agreements[edit | edit source]

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.

The agreement may include text such as:

You need not sign this agreement to open or maintain an account with IB. See 17 CFR 166.5

Note that as of 2015-01-15, the text of 17 CFR 166.5 includes paragraph (c)(1):[1]

Signing the agreement must not be made a condition for the customer to utilize the services offered by the Commission registrant.

and portions of paragraph (c)(2):

If the agreement is contained as a clause or clauses of a broader agreement, the customer must separately endorse the clause or clauses containing the cautionary language and provisions specified in this section.

However, IB's online trading-permission web form does not allow customers to separately endorse the 'cautionary language and provisions' from the 'settlement procedure' (e.g., the Futures Arbitration Agreement).

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.

Interest rates charged[edit | edit source]

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.[2] 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.[3]

Public sphere[edit | edit source]

Commodity Futures Trading Commission (CFTC) action[edit | edit source]

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:[4]

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.

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.

January 2021 customer trading restrictions[edit | edit source]

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.[5] 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.[6]

Customers should be aware that brokers, including IB, may take similar actions in the future. This poses a risk of economic harm, as investors could be artificially prevented from entering or executing trades during critical market movements.

References[edit | edit source]