Interactive Brokers Group, Inc. IBKR was asked by Australia’s financial regulator – Australian Securities and Investments Commission (“ASIC”) – to withdraw its over-the-counter foreign exchange (“FX”) services from the country. The news was first reported by Bloomberg.
ASIC will also investigate Interactive Brokers over an alleged breach of the Corporations Act.
Why?
According to the nation’s major organization that supervises firms operating in the areas of financial services, banking and insurance, Interactive Brokers did not hold the correct license to provide such services in Australia. The US-based online trading firm was, therefore, requested to shut down all disallowed currency trades.
The Story Behind
Since Oct 2013, Interactive Brokers has been under the ASIC radar for its financial services business in Australia, which comprises market making in FX products. However, no action was taken against the company as ASIC expected Interactive Brokers to acquire the required license for its FX trades.
Interactive Brokers, however, did not receive the mandatory authorization, which compelled ASIC to withdraw the “no action position” last week and ban the firm’s FX business in Australia.
The email statement revealed that the Australian regulator requested “the provision of further information to enable ASIC to decide on an acceptable orderly exit mechanism from that business in Australia.”
Prior Issues with ASIC
Last year, Interactive Brokers agreed to reimburse $1.5 million in fees and commissions to around 3,000 Australian clients for making margin loans between 2010 and 2013 without holding an Australian financial services (AFS) license.
Besides the settlement with ASIC, the firm also had to shell out $100,000 to the Financial Rights Legal Centre for the purposes of consumer education concerning financial services and consumer rights in Australia.
Our Take
Interactive Brokers will have to wind up its Australian FX trades, which will further deteriorate its profitability already burdened with intensifying competition and heightened sensitivity to fluctuating volatility.
Currently, Interactive Brokers carries a Zacks Rank #3 (Hold). Some better-ranked investment brokerage firms include Cowen Group, Inc. COWN, JMP Group LLC JMP and Arlington Asset Investment Corp. AI. While Cowen Group sports a Zacks Rank #1 (Strong Buy), JMP Group and Arlington Asset Investment hold a Zacks Rank #2 (Buy).
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