SFC slaps Interactive Brokers Hong Kong with $4.5m penalty

Its trading systems caused market disruptions in 2015 and 2016.

The Securities and Futures Commission has slapped electronic brokerage firm Interactive Brokers Hong Kong Limited with a $4.5m fine following market disruptions caused by the company’s electronic and algorithmic trading systems.

According to a press release, the disciplinary action was based on two incidents in 2015 and 2016 when the share prices of O-Net Communications Limited and AAG Energy Holdings Limited were ramped up by 48.7%and 126% respectively, in less than two minutes.

The review found out that IBHK executed market orders by placing the entire order volume to the market and repeatedly submitting the unexecuted part of the order at the next available price until the entire order was completed without failing to consider the market liquidity.

“IBHK did not conduct adequate user acceptance testing on the system; and the technical design documents of the systems were high level and did not provide a detailed explanation of the components of the trading systems,” the regulator noted in its review, adding that IBHK did not sufficiently record the design, development deployment or operation of order cancellation
functionality in its electronic trading system. 

The brokerage firm also failed to enforce effective price and volume controls so that its execution of market orders will not disrupt the market.

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