Online brokerage Interactive Brokers LLC has been fined $475,000 by the Financial Industry Regulatory Authority (FINRA) for supervisory failures related to its securities lending program.
FINRA Fines Interactive Brokers $475,000
According to a FINRA Letter of Acceptance, Waiver, and Consent (AWC), Interactive Brokers made errors in calculating the number of excess shares of stocks listed on European exchanges it had available to return to customers.
This resulted in over 800 instances where the firm returned borrowed shares prematurely, causing them to fall into a segregation deficit.
Segregation refers to the practice of broker-dealers holding customer securities separate from the firm’s own assets. A deficit occurs when the number of shares a firm has on hand falls below the amount it owes to customers.
FINRA rules require broker-dealers to maintain possession or control of customer securities to protect them in case of insolvency.
FINRA also found that Interactive Brokers failed to establish and maintain a supervisory system reasonably designed to comply with these possession and control obligations.
The firm’s written supervisory procedures are said to have lacked guidance on how to identify and resolve deficits caused by early returns.
Additionally, the regulator said the software development team responsible for the securities lending program algorithm update in June 2021 included an unregistered person who oversaw changes to the code.
This individual should have been registered as an Operations Professional with FINRA.
Interactive Brokers has consented to the sanctions imposed by FINRA, which include a censure and a $475,000 fine. The firm is also said to have taken corrective steps, including placing properly registered personnel in charge of the securities lending program software development and updating its algorithms to accurately account for anticipated loan returns.
