Electronic trading major Interactive Brokers Group, Inc. (NASDAQ:IBKR) today filed its annual report for 2020 with the Securities and Exchange Commission (SEC). The report somewhat surprisingly offers little to no information on Brexit and the latest spike in stock market volatility, as well as the impact of the latter on the business. Typically, such important developments are included in a chapter called “Events after the reporting period”. And yet, there is no such information in Interactive Brokers’ 10-K filing.
Nevertheless, Interactive Brokers provided some information on the legal action it faces as a result of the restrictions it introduced during the period of heightened market volatility at the end of January 2021.
Interactive Brokers says that, since late January 2021, more than three dozen federal class action lawsuits have been filed in different jurisdictions against various brokers and other market participants claiming that the defendants acted improperly in restricting trading in the shares of and options on GameStop Corp. and other companies that were subject to unusual trading in January 2021 in what has been referred to as the ‘‘Reddit-related short-squeeze’’.
Most of these cases assert federal antitrust claims, including alleging an illegal antitrust conspiracy among the defendants, and various state law claims. Interactive Brokeers LLC and its affiliates have been named as defendants in seven of these class action lawsuits.
Let’s recall that, on January 28, 2021, Interactive Brokers placed certain stock option trading into liquidation only. The reason – the market volatility. The company put AMC, BB, EXPR, GME, and KOSS option trading into liquidation only due to the extraordinary volatility in the markets. In addition, long stock positions required 100% margin and short stock positions required 300% margin. A couple of days later, the broker abandoned the restrictions.
These restrictions, however, led to the inclusion of the company among the defendants in several lawsuits. One of these targets 35 online trading firms, hedge funds and clearinghouses.
In its annual report, Interactive Brokers explains that, on February 4, 2021, plaintiffs in one of the class actions filed a motion with the Judicial Panel on Multidistrict Litigation (JPML) to transfer all existing short-squeeze related class actions to the United States District Court for the Northern District of California for coordinated and consolidated pre-trial proceedings.
The time for Interactive Brokers LLC and its affiliates to respond to the allegations will likely be stayed during the pendency of the JPML proceedings. The company believes that the claims asserted against Interactive Brokers LLC and its affiliates lack merit on their face.
The broker intends to file, at the appropriate time, a motion to dismiss any class action that might name Interactive Brokers LLC and its affiliates as defendants.