Interactive Brokers fined $4.5 million for algo trading system failures

Hong Kong authorities found Interactive Brokers breached code of conduct for execution of algo and electronic orders.

Financial authorities have fined the Hong Kong-based arm of Interactive Brokers $4.5 million due to failures  relating to its algorithmic and electronic trading systems.

The Securities and Futures Commission (SFC) found the business had breached a code of conduct for the execution of market orders using the systems. 

Disciplinary action was handed to the firm following severe market movements in 2015 and 2016 where the share prices of two companies jumped 49% and 126%.

Interactive Brokers worked alongside the regulator following the incidents to review its electronic and algorithmic trading systems. In particular, it looked at the controls to monitor execution orders, which could interfere with the operation of markets.

The SFC found Interactive Brokers had executed orders by placing the entire order volume to the market and then repeatedly submitted the unexecuted part of the order at the next available price until it was completed.

Furthermore, the firm failed to have effective price and volume controls in place to prevent disruptions to the market, and did not take into account the liquidity of the market when executing orders.

Interactive Brokers’ senior management liaised with the SFC for the review and its board of directors took steps to ensure regulatory compliance in respect to algorithmic and electronic trading. 

The failures are expected to be resolved within 12 months and the SFC added the firm’s cooperation led to a substantially lower financial penalty.