Interactive Brokers

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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. IB 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).

IB connects customers with various financial markets including futures markets based in the United States.

Select business and consumer practices

Arbitration agreements

IB customers can request trading permissions to trade futures markets based in the United States. The IB trading-permission process can be completed by logging into IB'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:

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):

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.

But the IB 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").

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

Interest rates charged

IB 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 IB 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

Commodity Futures Trading Commission (CFTC) action

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

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 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.

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.

January 2021 customer trading restrictions

On January 28, 2021, IB 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 IB 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.

References

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/

https://www.interactivebrokers.com/en/index.php?f=44427

https://www.cftc.gov/PressRoom/PressReleases/8432-21

https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html

https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-trading-in-gamestop-s.html