Concurring Statement of Commissioner Dawn D. Stump Regarding Settlement with Interactive Brokers LLC
September 28, 2021
I agree with the Commission’s finding that Interactive Brokers LLC (IB) violated CFTC Rule 166.3 by failing to diligently supervise its electronic trading system’s preparedness for, and ability to handle, negative crude oil futures prices as occurred on April 20, 2020.
The Order being issued by the Commission states, “IB’s substantial cooperation and appropriate remediation is . . . reflected in the form of a reduced civil monetary penalty.” This credit results from the application of an Advisory issued by the Division of Enforcement (DOE or the Division) in 2017. I would like to note the absence of credit to IB for self-reporting based on the Advisory, and the considerations implicated in that regard.
The Advisory provides that the requirements for a self-reporting credit include, among other things, voluntary disclosure to DOE: 1) prior to an imminent threat of exposure of the misconduct; and 2) within a reasonably prompt time after the company becomes aware of the conduct. Here, I agree that IB does not qualify for a self-reporting credit under the Advisory because IB’s disclosure on April 21, 2020 was not made “prior to an imminent threat of exposure of the misconduct.” After all, news reports about the consequences of crude oil futures prices moving into negative territory were plentiful on April 20 and 21, 2020, and IB itself issued a press release on April 21, 2020, noting losses suffered by its customers as a result of the negative prices the day before.
However, as a matter of general application, I am troubled by the position that a self-reporting credit also should be denied because IB failed to satisfy the Advisory’s separate requirement that the disclosure be made “within a reasonably prompt time after the company becomes aware of the conduct.” In my view, this position reflects an unwarranted stinginess in granting credit for self-reporting, and a misguided focus with respect to achieving the Commission’s objectives under our governing statute, the Commodity Exchange Act.
The settlement Order in this matter states that IB “reported its system issues to the Division on or about April 21, 2020.” My conclusion based on the information available to me is that this communication occurred on April 21, 2020.
Yet, a self-reporting credit to IB is being denied, in part, because IB’s disclosure did not meet the “within a reasonably prompt time” requirement in the Advisory. If this is based on a view that a self-report to DOE on April 21, 2020, was not within a reasonably prompt time, I disagree. A “reasonably prompt time” does not mean “immediately.” It is natural that IB’s attention on April 20 would have focused on dealing with the consequences of crude oil futures prices going negative. It is inappropriate for the Commission to suggest that IB should have diverted focus on April 20 to self-report to DOE as the context for doing so requires an assumption of a future enforcement action which could not have been predicted at the time. Self-reporting to DOE the next day was within a reasonably prompt time.
Even more troubling would be to deny a self-reporting credit based on a view that in order to receive such a credit, IB had to have made a self-report before April 20. IB was recently aware of the potential for negative oil futures prices and knew that its trading system was not yet capable of handling such an event should it occur, and IB was in the process of updating its system when prices went negative on April 20.
Even so, negative crude oil futures prices had never happened before, and it was not guaranteed that they would happen in April 2020. I cannot accept that in these circumstances, IB was required to self-report before April 20 that its system could not accommodate negative crude oil prices at that time so that, if prices went negative for the first time in history, and if that occurred before IB’s remediation efforts were completed, and if its customers lost money as a result—then IB could receive a self-reporting credit if the Commission subsequently decided to bring an enforcement action against it for violating its duty of diligent supervision.
Some may reasonably wonder, since I agree that IB is not entitled to a self-reporting credit in this case (as provided for in the staff Advisory), why I am making such a fuss about this. The answer lies in the Advisory itself. The Advisory states that it should “provide greater transparency about what the Division requires from companies and individuals seeking mitigation credit for voluntarily self-reporting misconduct . . .” and that DOE “expects that this Advisory will encourage companies and individuals to detect, report, and remediate wrongdoing, thus increasing voluntary compliance with the law.”
I wholeheartedly support the Advisory’s stated objectives of transparency in granting credit for self-reporting and utilizing such credits to increase voluntary compliance with the law. But I believe we undermine these very objectives when self-reporting credit hinges on a company calling DOE rather than the appropriate oversight division. And I do not believe that denying self-reporting credit to a company for failing to report a gap in its system that is not presently a problem but that might become a problem if certain events happen in the future—and that is already being remediated by the company—does anything to further our objective of increasing voluntary compliance with the law.
 17 C.F.R. § 166.3
 See Settlement Order at 2.
 Enforcement Advisory: Updated Advisory on Self-Reporting and Full Cooperation at 2 (DOE September 25, 2017) (the Advisory), available here. This Advisory was issued prior to my arrival at the agency about a year later.
 Id. at 2.
 See Interactive Brokers Issues Statement on Crude Oil Contracts and Margin Loss (April 21, 2020), available at https://investors.interactivebrokers.com/en/index.php?f=46837.
 See Settlement Order at 5.
 I also disagree with the Advisory’s rejection of self-reporting credit where voluntary disclosure is made to one of the Commission’s oversight divisions, as opposed to DOE directly (in the case of IB, the oversight Division is the Market Participants Division). A registrant’s priority in the midst of a market event should be engaging the Division at the Commission that exercises oversight of the registrant’s operations. This is essential for market continuity. And in a non-emergency setting, a self-report to an oversight division serves the Commission’s interests by enabling that division to begin working with the company to come into compliance on a going forward basis, while referring the matter to DOE where appropriate to investigate whether an enforcement action is warranted for any violations that may have been committed.
 See Settlement Order at 3 (IB had taken steps to prepare for negative oil prices and was in the process of making the necessary coding changes for negative prices pursuant to its own internal procedures and had begun testing those changes, but IB had not changed its system’s market rule configuration for crude oil futures contracts to make them ‘negative-capable’ on or before April 20, 2020.).
 See Advisory at 2.