Closeup of woman hand holding a fuel pump at a station.
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When global oil prices went negative in response to the economic turmoil created by Covid-19, the trading systems at U.S. brokerage firm Interactive Brokers LLC weren’t ready. On Tuesday, the firm settled charges from the U.S. Commodity Futures Trading Commission (CFTC) over the episode.

The CFTC filed, and simultaneously settled, charges against Interactive Brokers for supervisory failures that arose when benchmark oil prices traded negative on April 20, 2020 — a development that the firm’s systems weren’t prepared for, resulting in trading losses for certain clients.

According to the regulator’s order, the firm was aware the possibility that oil prices could go negative and had taken steps to prepare, but it “did not adequately prepare and configure its electronic trading system to recognize negative prices.” This resulted in two significant issues: it prevented clients from placing orders with negative-priced limit orders, and it meant that internal margin requirements were not correctly enforced.

As a result of those systems issues, customers that held long positions in certain futures contracts on April 20 “experienced trading losses on those positions,” the order said.

In settling the regulator’s allegations, the firm agreed to pay a US$1.75-million penalty in addition to the US$82.57 million in restitution that it has already paid to customers who suffered losses.

The CFTC noted that the firm qualified for a reduced penalty based on its “substantial co-operation” and its efforts to resolve its systems issues.

“This enforcement action demonstrates that the CFTC will hold registrants responsible for their handling of customer accounts and ensuring the integrity of trades on their trading platforms and electronic systems, including during instances of market volatility,” said Vincent McGonagle, the CFTC’s acting director of enforcement, in a release.