Release Number 8432-21
CFTC Orders Interactive Brokers LLC to Pay a $1.75 Million Penalty for Supervision Failures
Failures for Electronic Trading System’s Inability to Handle Negative Crude Oil Futures Prices on April 20, 2020
September 28, 2021
Washington, D.C. — The Commodity Futures Trading Commission
supervisory failures were discovered on April 20, 2020, when the benchmark West Texas Intermediate light, sweet crude oil (CL) futures contract on CME Group Inc.’s New York Mercantile Exchange (NYMEX) traded into negative prices, settling at negative $37.63 per barrel for the May 2020 contracts set to expire the following day. This price was the basis for determining the settlement price for certain cash-settled contracts, including the E-mini crude oil (QM) futures contract on the NYMEX and the West Texas Intermediate light, sweet crude oil (WTI) futures contract on the Intercontinental Exchange Europe. Because the QM and WTI contracts settle based on the trading of the CL contract in the settlement window, both contracts settled at negative $37.63 per barrel. Interactive Brokers customers held long positions in the May QM and WTI contracts on April 20, 2020 and experienced trading losses on those positions as a result of the firm’s systems issues.
The order finds that Interactive Brokers was on notice of the possibility of negative oil futures prices prior to April 20, 2020, but did not adequately prepare and configure its electronic trading system to recognize negative prices. Specifically, Interactive Brokers failed to deploy necessary system changes before negative prices occurred resulting in two significant systems issues on April 20, 2020: (1) negative prices were not displayed to customers and customers were unable to place orders with negative-priced limit orders to buy or sell; and (2) internal minimum margin requirements were not correctly enforced prior to trade execution for trades in the WTI contract. These issues impacted hundreds of customer accounts that held long QM or WTI futures positions into settlement, and those customers experienced trading losses on April 20, 2020, initially determined by Interactive Brokers to exceed $82.57 million.
The Division of Enforcement staff members responsible for this matter are Danielle Karst, Julia Colarusso, Dmitriy Vilenskiy, Christine Ryall, and Paul G. Hayeck.