Interactive Brokers was penalized for failing to adequately prepare and configure its electronic trading system to recognize negative prices on April 20, 2020.
The CFTC (Commodity Futures Trading Commission) penalized Interactive Brokers for failing to configure its electronic trading system to receive negative prices and calculate the margin in April 2020.
The Interactive Brokers defaults were discovered on April 20, 2020, when the benchmark WTI light sweet crude oil futures contract on NYMEX traded negative, settling at $ 37.63 on barrel for May 2020 contracts that were due to expire the next day, according to the CFTC mentioned.
This price was used as the basis for determining the settlement price of certain cash-settled contracts, resulting in trading losses on long positions held by clients, including NYMEX e-mini crude oil futures and contracts. WTI light crude oil futures on ICE Europe.
The CFTC order finds that Interactive Brokers were aware of the possibility of negative oil futures prior to April 20, 2020, but “failed to adequately prepare and configure their electronic trading system to recognize negative prices â.
As a result, negative prices were not displayed to clients, clients were unable to place limit buy or sell orders, and internal minimum margin requirements were improperly enforced.
Losses suffered by hundreds of customers exceeded $ 82.57 million.
The order requires Interactive Brokers to pay a civil pecuniary fine of $ 1.75 million and a restitution of $ 82.57 million to its clients. Interactive Brokers is credited with the full return due to its compensation to its clients.
The CFTC noted that Interactive Brokers were making the necessary coding changes for negative prices and had already started testing these changes when oil prices turned negative on April 20, 2020.
After April 20, 2020, the company put measures in place to ensure its systems are prepared for similar negative pricing of futures products in the future, and has voluntarily made payments of over $ 102 million. to customers that it has determined to be potentially affected by its systems issues. .
The order is published here (download).