Interactive Brokers has reached a settlement with the Financial Industry Regulatory Authority (FINRA) following allegations that the firm failed to properly detect and respond to over 4.2 million free-riding incidents in customer cash accounts. The case was resolved through a Letter of Acceptance, Waiver, and Consent (AWC), with the firm neither admitting nor denying the findings.
What Happened?
Between October 2015 and December 2022, Interactive Brokers’ surveillance systems reportedly failed to flag free-riding activity—where customers buy and sell securities without actually paying for them. Such activity breaches Regulation Tof the Federal Reserve as well as FINRA Rules 4210 and 2010. These violations primarily involved options and issued options transactions.
According to FINRA, the firm’s system lacked the necessary mechanisms to detect and freeze accounts engaged in repeated free-riding. Furthermore, deficiencies in the company’s written supervisory procedures (WSPs) were found, with inadequate provisions to ensure compliance.
Regulatory Penalty and Resolution
To resolve the matter, Interactive Brokers agreed to:
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Pay a $2.25 million fine
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Accept a censure
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Update its supervisory systems and WSPs to correct the issues identified
This agreement ends FINRA’s investigation. The sanction will be publicly recorded, and the firm has waived any right to appeal or contest the outcome.
At the time of reporting, Interactive Brokers had not released an official comment.
tastytrade Also Sanctioned for Supervision Gaps
In a separate action, FINRA fined tastytrade—a retail trading platform owned by IG Group—$30,000 for supervisory failures regarding employees’ outside securities accounts. Between July 2021 and June 2023, the firm reportedly failed to monitor 84 external accounts belonging to 35 employees.
FINRA found lapses in reviewing account activity, with some accounts going unchecked for over a year. The platform’s written supervisory procedures were also deemed insufficient to ensure regular oversight. The issue only came to light during a FINRA cycle exam in 2023.