Electronic trading major Interactive Brokers has submitted its report for the third quarter of 2021 to the Securities and Exchange Commission (SEC), with the document containing an update on the short squeeze multi-district litigation targeting a number of brokers, clearinghouses and hedge funds.

Beginning in late January 2021, more than three dozen federal class-action lawsuits were 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, as well as various state and federal securities-related claims. Interactive Brokers LLC and its affiliates have been named as defendants in several of these class action lawsuits.

The cases were consolidated into a multi-district litigation (MDL) and were transferred to the Southern District of Florida on April 1, 2021 for pre-trial proceedings. By an order dated May 18, 2021, the Court divided the cases into four tranches: (1) antitrust claims (“Antitrust Tranche”); (2) state-law claims against Robinhood entities (“Robinhood Tranche”); (3) state-law claims against other defendants (“Other Broker Tranche”); and (4) federal securities law claims (“Federal Securities Tranche”).

Master complaints for the Antitrust and Other Broker Tranche cases were filed on July 26, 2021. Interactive Brokers LLC was named as a defendant in the antitrust complaint and in two of the initial Federal Securities Tranche complaints, but not in the Other Broker Tranche complaint. Interactive Brokers LLC and the other defendants named in the antitrust consolidated complaint have filed a motion to dismiss the case.

The defendants argue that the plaintiffs have utterly failed to plead a cognizable antitrust claim that can survive a motion to dismiss. According to the defendants, what is missing from the complaint are, inter alia,

• sufficient factual allegations of any agreement between any Defendants (let alone among all of them) to restrict trading in any security;
• any attempt to identify any benefit that any of the brokers (self-clearing or otherwise) received from allegedly restricting trading to help Citadel Securities; or
• any plausible explanation for how a conspiracy arose that resulted in the members imposing disparate restrictions on disparate sets of stocks, while at the same time other brokers not alleged to be part of the conspiracy and/or now voluntarily dismissed from the case took similar steps.

According to the defendants, the facts alleged in the CCAC give rise to only one plausible explanation:

“in the face of unprecedented market volatility spurred on by internet speculation, various brokers, including non-Defendants, acted independently to protect the integrity of the marketplace and their customers’ ability to trade broadly in securities by implementing a variety of temporary trading restrictions that differed in duration and scope, tailored to each of their circumstances”.

A date for oral argument has not been set. Lead plaintiffs’ counsel in the Federal Securities Tranche has proposed filing a consolidated complaint by November 30, 2021 but has not identified who will be named as defendants in that complaint.

Interactive Brokers believes that the antitrust claims asserted against it lack merit. The broker further believes that the securities claims asserted to date against the company also lack merit and intends to file, at the appropriate time if needed, a motion to dismiss any consolidated class action securities complaint that might name IB LLC or its affiliates as defendants.

Let’s recall that, on January 28, 2021, Interactive Brokers placed certain stock option trading into liquidation only. The reason named by the company for these restrictions was 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.