Interactive Brokers

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Interactive Brokers

Basic information
Founded	1978
Legal Structure	Public
Industry	Financial
Also known as
Official website	https://interactivebrokers.com

Interactive Brokers, Inc. (IB) is an American multinational firm that provides brokerage and financial services. The company operates under various names and legal structures across different jurisdictions, such as Interactive Brokers Hong Kong Limited, and specializes in distinct lines of business, including Interactive Brokers, LLC for futures markets.

IB connects its customers to a wide range of financial markets, including futures markets based in the United States.

Select business and consumer practices

Arbitration agreements

IB customers can request trading permissions to access futures markets based in the United States. The process for obtaining these permissions can be completed through IB's public-facing customer portal. Customers must log in, navigate to the appropriate settings, review the provided documentation, and complete a web form to electronically 'sign' the agreement. When selecting futures trading permissions, customers will encounter a Futures Arbitration Agreement among the documents they are required to acknowledge.

The agreement may include text such as:

You need not sign this agreement to open or maintain an account with IB. See 17 CFR 166.5

Note that as of 2015-01-15, the text of 17 CFR 166.5 includes paragraph (c)(1):

Signing the agreement must not be made a condition for the customer to utilize the services offered by the Commission registrant.

and portions of paragraph (c)(2):

If the agreement is contained as a clause or clauses of a broader agreement, the customer must separately endorse the clause or clauses containing the cautionary language and provisions specified in this section.

However, IB's online trading-permission web form does not allow customers to separately endorse the 'cautionary language and provisions' from the 'settlement procedure' (e.g., the Futures Arbitration Agreement).

As a result, applicable IB customers may not realize that they can open futures transactions without agreeing to the Futures Arbitration Agreement. They may also be unaware that IB's systems impose a 1-contract trading restriction on accounts that do not agree to the agreement. Furthermore, customers may not recognize that this behavior by IB's systems conflicts with 17 CFR 166.5(c)(1), which they might have believed would protect them from such restrictions.

Interest rates charged

IB may be charging customers interest rates that exceed the maximum allowable rates set by statutory laws in certain U.S. jurisdictions. For example, the 2024 Maryland Code, Commercial Law § 12-102, specifies a maximum interest rate of 6% per annum. However, IB does not explicitly state that it limits its interest rates to 6% for customers residing in Maryland.

It is worth noting that other brokerage firms publicly advertise significantly higher (and less favorable) interest rates to their customers, which may provide context for IB's practices. Nonetheless, the lack of clarity regarding compliance with state-specific interest rate laws raises questions about transparency and adherence to legal requirements.

Public sphere

Commodity Futures Trading Commission (CFTC) action

On September 28, 2021, the U.S. Commodity Futures Trading Commission (CFTC) issued a press release announcing that it had settled charges against Interactive Brokers, LLC. The settlement included a $1.75 million fine and $82.57 million in customer restitution for the following violation:

Failing to diligently supervise the handling of its customer accounts by not adequately preparing and configuring its electronic trading system to receive negative prices and calculate margin on April 20, 2020, in violation of CFTC Regulation 166.3.

On April 20, 2020, the May 2020 West Texas Intermediate (WTI) crude oil futures contract, traded on the NYMEX exchange, settled at negative prices. The CFTC alleges that when a futures commission merchant, such as Interactive Brokers, LLC, operates systems incapable of accurately reflecting actual market prices, customers may suffer harm.

It remains unclear whether the CFTC or any other regulator has required Interactive Brokers, LLC, to update its systems to a specific performance standard to prevent customers from being exposed to potential harm from similar incidents in the future.

January 2021 customer trading restrictions

On January 28, 2021, Interactive Brokers restricted customer trading in certain securities with heightened stock volatility, including GameStop, AMC Entertainment, and Koss. Specifically, the company prevented customers from opening new options positions. Interactive Brokers' chairman, Thomas Peterffy, stated in an interview with CNBC that the decision was made independently by the company and not due to external pressure, including from parties who might have financially benefited from disrupted order flow. CNBC also noted that the brokerage Robinhood had imposed similar trading restrictions on the same day.

Customers should be aware that brokers, including IB, may take similar actions in the future. This poses a risk of economic harm, as investors could be artificially prevented from entering or executing trades during critical market movements.

Two-factor Authentication & Biometrics

Deceptive MFA options

Interactive Brokers requires the use of Two-Factor Authentication to access their services. They heavily push for the use of their application: IBKR Mobile to provide a TOTP challenge code. While their website states you can use a third party, offline authentication app, they do not provide any guides on how to set up an authentication app. If asked about this, they will tell you your only option is to install their application. For users with devices that do not support Google Play Services (or Google Mobile Services (GMS)) or the Apple Store, they will not provide you with a signed APK and verified signing key upon request. The link to the article about using a 3rd Party Authenticator is the same as the IBKR Mobile one.

While no information is provided by Interactive Brokers' on their website on how to set up a 3rd Party TOTP Authenticator, it is possible to obtain a secret key by navigating through Settings > Security: Secure Login System > Mobile Authenticator and copying the secret key above the QR code into your Authenticator such as KeepassXC or the Authenticator Browser Extension

Third Party Biometrics with Au10tix

During initial signup, or as an alternative to secure verification without a MFA Challenge Code, SMS Token or denial of alternative Security Authentication such as Security Questions, you will be asked for ID Verification through the third party biometrics service provider Au10tix. As apart of their privacy policy, Aut10tix may retain client data indefinitely, and at a minimum of 3 years even upon request. You can state that you do not consent to third party biometric collection and they will be able to direct you to a manual verification process whereby you can email your ID.