Office of Proceedings 

JIANKE, 

Complainant, 

v. 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

www.cftc.gov 

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CFTC Docket No. ll-R034 

INTERACTIVE BROKERS LLC, 

Respondent. 

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INITIAL DECISION 

This dispute arises from Interactive Brokers determination, near the close on the 

If 

expiration date, to liquidate seven short, deep in the money, September 2011 S&P 500 E-mini 

put options on futures. Had these short puts not been liquidated and rather been assigned, Jian 

Ke's account would have received seven long September S&P 500 E-mini futures contracts at the 

strike price of$1,275. Jian Ke assetis that the liquidation was improper and seeks $40,162.50 in 

damages. 

In reply, Interactive Brokers Interactive Brokers admits that the liquidation was 

erroneous, but argues that Ke's calculation of damages is speculative and mathematically 

erroneous, and that the award for damages should be capped between $1,750 and $3,150. 1 As 

explained below, after carefully reviewing the evidentiary record, I have concluded that Ke is 

entitled to an award of $40,162.50. 2 

1 See pp. 8-14, Interactive Brokers' Closing Statement. 2 The evidentiary record includes: Ke's Complaint, Reply to Respondents' Request for Documents and Information, 

and Response to Judge's December 13,2012 E-mail Request; Interactive Brokers' Answer, Closing Statement, and 

Responses to December 13, 20 12 Information Request; an audio recording of an August 23, 20 II phone call 
Factual Findings 

The parties 

1. Jian Ke, a resident of White Plains, New York, is a sophisticated derivatives 

speculator. Ke is employed as a senior software engineer at Bloomberg, L.P., specializing in 

order and trade management. Prior to his employment at Bloomberg, Ke was employed at 

Citadel Investment Group as a fixed income software developer. Ke earned degrees in Physics 

and Computer Science from the University of China and Cornell University, respectively. Ke 

has authored several publications relating to computer science and programming. 

Ke stated on his account application that he had annual income between $150,000 and 

$250,000, that he had between six to ten years' experience trading stocks, options and 

commodities, and that his knowledge of stocks, options and commodities was "extensive." 

2. Interactive Brokers, LLC, a discount, online broker headquartered in Greenwich, 

Connecticut, is a registered futures commission merchant. All trades executed by Interactive 

Brokers are entered by the customer on the customer's personal computer and transmitted over 

the internet to Interactive Brokers for execution. 

3. The Interactive Brokers Customer Agreement stated that Ke was solely responsible for 

monitoring his account so that at all times the account maintained sufficient equity to meet 

margin requirements. In this connection, at all relevant times, Ke did in fact diligently monitor 

the status of his account. 

between Ke and an agent for Interactive Brokers (produced by Interactive Brokers); web-ticket messages between 

Ke and Interactive Brokers, from August 19, to September 29,2011 (collectively produced by Ke and Interactive 

Brokers); Ke's resume and account application (Exhibits I and 2 to Interactive Brokers' Closing Statement); screen 

shots (Figures 1-5, attached to Complaint); Ke's compilation ofCME price data (Table I, attached to Complaint); 

the August 19, 20 II Liquidation Notice, attached to Complaint); and August 18, 19 and 31, 2011 Activity 

Statements and August 2011 Monthly Activity Statement (collectively produced by Ke and Interactive Brokers). In 

addition, official notice has been taken of CME price data for the September 20 II S&P e-mini future contract from 

August 19, to September 9, 2011, provided by the CFTC Office of the Chief Economist. 

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The Erroneous Liquidation 

4. In August 2011, Ke had been actively trading S&P 500 E-mini puts and calls on 

futures at various strike prices. In this connection, on August 18, 2011, Ke held ten short 

August S&P 500 E-mini puts, with a strike price of$1,275. Seven ofthese puts would be the 

erroneously liquidated by Interactive Brokers.3 

In August 2011, weekly equity index trading on the CME Globex began at 3:30p.m. 

CDT, on Sundays, and open outcry trading for equity index futures and options began at 8:30 

a.m. CDT, on Mondays. Weekly trading in CME equity futures and options ended at 3:15p.m. 

CDT, 4 on Fridays. The expiration date for Ke's August puts was Friday, August 19, 2011. 

At the close on Thursday, August 18, 2011, Ke's August puts were deep in the money, 

and thus were on track for assignment, which would have resulted in ten long September S&P 

500 E-mini futures contracts being placed in Le's account, at $1,275 per contract, prior to the 

open of the next trading day after the expiration date. Both sides agree that Ke's account had 

more than adequate equity to meet additional margin requirement associated with the potential 

assignment ofKe's 10 long S&P 500 E-mini September futures. 

5. Prior to the close on Friday, August 19, 2011, Interactive Brokers conducted a routine 

forward-looking review of the effect an assigm11ent ofKe's ten shmi August puts would have on 

the margin requirements for his account. According to Interactive Brokers, during this review 

Interactive Brokers "inadvertently miscalculated that [Ke] would have insufficient equity in his 

account to meet the additional margin requirement associated with being assigned a long position 

3 On July 12, 20 II, Ke had sold five puts at $20, and collected $5,000 in premiums. On July 15, 20 II, Ke had sold 

two puts at $19.50, and collected $1,950 in premiums. 4 The erroneously liquidated options were traded on the Chicago Mercantile Exchange, which repmis trades in 

Central Time using 12-hour clock notation. In contrast, Ke's and Interactive Brokers' electronic communications 

were recorded in Eastern Time using 24-hour clock notation. In order to accord with the pmiies' documentary 

submissions, time references in this decision to trading hours and trade executions on the CME are in Central Time 

and 12-hour clock notation, and references to communications between Ke and Interactive Brokers are in Eastern 

Time and 24-hour clock notation. 

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in all 10 [S&P 500 E-mini] September futures in this account."5 Interactive Brokers has not 

offered any explanation for the cause of its enor. 6 

As a result of its error, about fifteen minutes before the close, at 2:59p.m. CDT, 

Interactive Brokers liquidated, i.e., bought, seven, out of the ten, short September S&P 500 emini puts, at $160, in order to prevent Ke's account from falling into a margin deficiency 

mistakenly anticipated by Introducing Brokers. Interactive Brokers liquidated the seven puts at 

$160, and debited Ke's account $56,000 for the total premiums paid.7 At 3:15p.m. CDT, the 

Friday trading session closed. 

At 17:05 (4:05p.m. CDT), Interactive Brokers electronically delivered the liquidation 

notice. 

At 17:42, Ke entered a web ticket message assetiing that his account was more than 

adequately margined. 8 At 18:37 and 18:51, Ke followed up with two more messages explaining 

and documenting in detail his calculations supporting his assertion that his account had been 

adequately margined to support the assignment. 

Interactive Brokers did not respond to any ofl(e' s August 19111 messages. 

6. On Sunday, August 21, 2011, Ke sent a message to Interactive Brokers in which he set 

out more detailed calculations substantiating his assertion that his account had been adequately 

margined to support the assignment, and demanded that Interactive Brokers reimburse him for 

the loss caused by the wrongful liquidation: 

I got the liquidation notice email which claims "Interactive Brokers has liquidated cetiain option 

positions in your account U----- as the current level of equity is insufficient to suppmi the 

5 ~ 2, page 7 of Interactive Brokers' Closing Statement. 6 In his August 21, 20 II, 12:02 (EDT) web ticket message, Ke asserted that that his account was adequately 

margined, and set out a plausible and detailed explanation for what he asserted was Interactive Broker's apparent 

error. See finding 4, below. 7 $160 (trade price) x 50 (contract size) x 7 (number of contracts)= $56,000. 8 With the exception of the August 23'd phone conversation discussed below, communications between Ke and 

Interactive Brokers were exclusively electronic via web ticket messages. 

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projected margin requirement were these expiring options to be exercised/assigned." This 

projected margin requirement IS INCORRECT. Prior to the liquidation, I had -10 ES August 

1275P and -6 ES August 1300P and -12 underlying ES [i.e., twelve short futures]. The projected 

ES- position should be 4 ES, a net of 16 assigned ES and -12 existing ES contracts. The correct 

projected position should just have 4 more ES comparing to my current position (see attached an 

updated post-expiration position in post_exp_positi_on and margin.jpg). You can see the margin 

fi·om that picture as well, there is plenty left for 4 ES. This can be confirmed by using IB's "Check 

Margin" to see the impact of adding 4 ES (see attached post_exp_ad_ 4E S_marginjpg), In fact, 

my margin can allow 18 ES contracts when I "check margin" with 28 ES (see attached 

post_ exp _add 28 ES margin.jpg). So I believe IB projection software have mistakenly used 28 

ES contracts (16 + 12) instead of using 16 -12 = 4 as post-expiration position and hence 

liquidated -7 ES Aug 1275P, which is close to 28-18=6, quite possible given a possible small netliq-value change in my account. Hence I demand IB to reimburse my account for loss suffered 

due to this wrong liquidation. 

[Capitalization in original.] Interactive Brokers did not respond toKe's August 21st message. 

7. On Wednesday, August 23,2011, Ke called Interactive Brokers and spoke to customer 

service representative James McGovern, who effectively advised Keto defer taking any action. 

Set out below is a transcription of a recording of the conversation: 

JM: Interactive Brokers. This is Jim. May I have your account number, 

please? 

Ke: Hi this is Jian Ke, and my account is U-----. 

JM: U-----? 

Ke: Yes. 

JM: OK, hold on one second. [27-second pause.] OK. And who am I 

speaking with today? 

Ke: Jian Ke. 

JM: How can I help you Mr. Ke? 

Ke: Hi. I [undecipherable] with the web ticket to-- uh --options liquidated 

and the serial number 9-----. 

JM: I'm sorry. Could you repeat the ticket number please? 

Ke: 9-----. 

JM: OK. 

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Ke: That's it. 

JM: And what's your question? 

Ke: This involves some positions that liquidated-- [interrupted by JM]. 

JM: You want to know ifthere's been any response so far. Is that your 

question? 

Ke: Basically yes. I just want know if anyone, someone is looking ofthis, or --

[interrupted by JM]. 

JM: OK, let me take a look. OK, hold on one second. I'm going to put you on 

hold for one second Mr. Ke, and I'll take a look at what was going on. OK? 

Ke: OK. 

JM: Hold on one second [29-second pause]. Mr. Ke? 

Ke: Yes. 

JM: OK. Your request has been sent to the trade problems, to a trade desk. 

There's no resolution to it yet. So it's still pending. 

Ke: OK 

JM: OK. So it sometimes takes some time to do this now. But the fact that, 

you know, I do see it, I do see that it's been submitted. There just hasn't been 

any, they haven't been any decision on you know what are their going to do with 

this yet. And sometimes it takes a little bit of time for them to address these 

situations. But it has been received. So it will be addressed at some point. 

Ke: So, I just wait to see how you guys want to offset those puts? 

JM: Right. 

Ke: OK. 

JM: OK? 

Ke: And, OK. 

JM: 0 K Mr. Ke, have a good day. 

Ke: You too. Bye bye. 

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[Underlining added for emphasis.] 

8. On Wednesday, August 24, Interactive Brokers acknowledged receipt ofKe's 

complaint, stated that it was "reviewing the facts and circumstances surrounding the matter," 

stated that Ke should allow Interactive Brokers three to five business days for the investigation, 

and offered the following advice: 

If there is a question about a trade or order that impacts your market exposure, IB 

requests that you manage all orders, trades and positions in your account in order 

to ensure that your account is not subjected to unnecessary risk or fluctuations 

during the investigation period. 

[Underlining added for emphasis.] As can be seen, the message appeared geared toward 

managing the risk associated with open positions, rather than mitigating lost opp01iunity 

associated with closed positions. 

In this connection, about an hour later, Ke sought clarification: 

Should I manage my risk assuming the questioned trade [i.e., the liquidation] will 

be undone or the trade will NOT be undone? Otherwise, it is not possible to 

manage the risk of the questioned trade. 

Interactive Brokers would not respond to this question. In the meantime, Ke chose not to open a 

new long September S&P 500 E-mini futures position. 

9. A week later, on Wednesday, August 31, Ke asked Interactive Brokers: "Hello, more 

than ten [calendar] days have passed, any updates on this?" Interactive Brokers replied 

succinctly: "Risk management is still in the process of reviewing this." 

10. Finally, thilieen days after the erroneous liquidation, on September 1, Interactive 

Brokers informed Ke that it would settle the matter by crediting his account $1,750: 

In response to the issues you have raised regarding the liquidations posted to your 

account on trade date August 19, 2011, Interactive Brokers hereby offers to credit your 

account in the amount of $1,750. This represents the extra premium paid ($5) vs. the 

intrinsic value on the 7 ES Aug 1275 puts. Please note that the proposed credit must be 

approved by IB Management and therefore the credit is not a guarantee. 

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Please be aware that under the IB customer agreement, IB is not liable for system or 

technical errors, or for the unavailability of the IB system or for temporary inability to 

transmit orders to market centers. Thus, this credit to your account is not an admission of 

liability under the IB customer agreement, nor does it indicate that we would necessarily 

credit your account for similar instances in the future. 

Nonetheless, because you are a valued customer, in this instance we thought a credit was 

appropriate in the interest of customer .service. 

If this is an acceptable resolution ofyour complaint, please respond to this ticket and type 

"I AGREE" and we will escalate the request to Senior Management to process the credit 

of$1,750.00. By accepting the credit, you agree not to seek fmiher compensation 

arising from the orders/trades described above. 

Later that day, Ke replied: 

How about as a good customer service, IB absorbs this incorrect liquidation by removing 

the trade from my account and adds 7 ES underlying as these 7 put-option shotis would 

have been assigned post August expiration? I had always trusted IB up till this 

liquidation. It's unacceptable to rush out this important change of liquidating customer 

positions without testing a very basic scenario of selling covered put, without informing 

customers ofthe change. 

The next day, September 2, Interactive Brokers replied that it would not increase its offer: 

The Interactive Brokers Risk Management team reviewed this issue and made the 

offering in good faith. IB believes this is a fair settlement for this issue and as such, this is 

the only offer IB will extend to you. 

11. The next communication between Ke and Interactive Brokers was on September 12, 

when Interactive Brokers reiterated that it would not increase its offer: 

The Interactive Brokers Risk Management team reviewed this issue and made the 

offering in good faith. IB believes this is a fair settlement for this issue and as 

such, this is the only offer IB will extend to you. 

Please respond to the offer made you regarding this issue. As previously stated to 

you, IB will offer to credit your account $1,750.00 upon an agreement from you. 

Later that day, Ke rejected the offer: 

No. $1,750 is NOT a fair offer at all. Without this offer, IB liquidated my position at a 

discount price. With this offer, IB liquidated my position at a fair market price at the time 

ofliquidation. But IB offered nothing for liquidating my position at one of the lowest 

point of trading. Since IBis not willing to offer a fair settlement, I'm forced to take this 

matter to the CFTC for consumer protection today. 

[Capitalization in original.] 

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The following day, September 13, Interactive Brokers withdrew its offer: 

Again IB has reviewed the offer made to you regarding the events posted to your account 

on trade date August 19, 2011, and feel that it is a fair settlement to you. At this time, IB 

is withdrawing its offer to you and is closing this issue. Please feel free to contact the 

regulatory body of your choice, should you wish to escalate this issue. 

12. Set out below is the price data for the September 2011 S&P 500 e-mini future 

contract from the date of the enoneous options liquidation to the expiration date for the 

September S&P 500 e-mini futures contrace 

Date Lml' Price High Price 

19-Aug-11 1117.50 1153.30 

22-Aug-11 1111.25 1146.50 

23-Aug-11 1118.50 1160.80 

24-Aug-11 1142.50 1176.80 

25-Aug-11 1153.00 1188.50 

26-Aug-11 1132.75 1179.80 

29-Aug-11 1172.25 1208.80 

30-Aug-11 1193.50 1218.80 

31-Aug-11 1201.25 1229.80 

01-Sep-11 1200.75 1228.50 

02-Sep-11 1168.50 1203.30 

06-Sep-11 1136.00 1166.80 

07-Sep-11 1163.75 1199.80 

08-Sep-11 1182.00 1203.80 

09-Sep-11 1146.75 1194.00 

As can be seen, from August 22, to September 9, 2011, the September S&P 500 e-mini future 

contract traded between $1,111.25 and $1,229.80, that is, below the $1,275 strike price ofi(e's 

9 The CME price data has been provided by the CFTC Office of the Chief Economist. 

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erroneously liquidated puts. Therefore, had Interactive Brokers not erroneously liquidated the 

seven shmi puts near the close on August 19, and had the seven long futures thus been placed in 

Ke's account, Ke would have realized a loss on the futures trade, with the smallest loss being 

$15,837.50, based on the difference between an assignment (buy) price of$1,275 and a 

liquidation (sell) price of$1,229.80, based on the interim high price on August 31,2011. 

Conclusions 

In alleging an unauthorized or erroneous liquidation, a customer may rely on the general 

rule that, under the Commodity Exchange Act, a futures commission merchant has a duty to 

follow a customer's instructions regarding his money and propetiy. Slone v. Dean Witter 

Reynolds, Inc., Comm. Fut. L. Rep. ~26,283 at 42,433 (CFTC 1994). Here, Interactive Brokers 

has conceded that its liquidation ofKe's seven put options was erroneous and wrongful, without 

offering any detailed explanation beyond a general reference to an inadvetient calculation error. 

Interactive Brokers' unauthorized liquidation may have been inadvetient, but was at best a 

presumably reckless breach, in violation of Commission rule 166.2, Section 4d( a) of the Act, and 

Commission rule 33.10(a) and Section 4c(b) of the Act. 

Consistent with the proposition that the proper measure of damages is to return a 

customer to as good a position as he would have been had the violation not occurred, the proper 

measure of damages for a wrongful liquidation is: either (1) the value of the position at the time 

of liquidation, or (2) its highest intermediate value between notice of the liquidation and a 

reasonable time thereafter during which the position could have been replaced had that been 

desired, whichever is higher. See Ahlstedt v. Capital Commodity Services, Inc., et al., Comm. 

Fut. L. Rep. ~27, 131 (CFTC Jan. 4, 1997), and citations therein. Under the Ahlstedt rule, while a 

customer is under no duty to re-institute the improperly liquidated position, the possibility of the 

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customer's re-entry into the market "establish[ es] the outer limit of a reasonable period during 

which the highest intermediate value of the lost [position] could be asce1iained." ld. The 

"reasonable period" represents the time during which the trader-- having learned that his or her 

position has been involuntarily liquidated -- might reasonably be expected to enter the market at 

the broker's expense. The determination of a reasonable time period varies from case to case and 

is based on the facts and circumstances of the particular case; and the time needed to re-enter the 

market depends on several factors including the trader's experience, capabilities and resources, 

the conduct of the broker, and the nature ofthe market involved. ld. 

Given the patiicular circumstances oflnteractive Brokers' wrongful liquidation ofKe's 

seven put options- one, Interactive Brokers improperly liquidating Ke's put options near the 

close on the expiration date, two, Ke promptly protesting the liquidation and clearly showing that 

his account had been adequately margined to suppmi assignment of the puts, three, Interactive 

Brokers not responding toKe's multiple communications until the fourth trading day after the 

liquidation, four, Interactive Brokers then advising Ke to wait an indefinite period, five, 

Interactive Brokers next not responding toKe's request to explain how he was supposed to 

"manage the risk" of a closed-out position, as Interactive Brokers had advised him in what 

appeared to be a form response, and six, Interactive Brokers not acknowledging its error and 

making a settlement offer until thirteen days after the liquidation, on September 1, 2011-- it is 

reasonable to select August 31, 2011 as the outer limit of a reasonable period during which the 

highest intermediate value ofKe's lost futures position could be asce1iained. The fact that Ke 

did not buy any September S&P futures from August 22 to 31, 2011 is irrelevant to this 

conclusion, since his decision not to buy September S&P futures during that time was 

presumably influenced by Interactive Brokers' wrongful liquidation on August 19, 2011, by 

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Interactive Brokers' delays in responding to his multiple queries, and by Interactive Brokers' 

advice to him to defer action. 

Had Interactive Brokers not erroneously liquidated the seven short puts on August 19, 

2011, Ke's account would not have been debited $56,000 in premiums, and seven long futures 

would have been assigned toKe's account. However, the best that Ke could have done after 

such assignment would have been a loss of$15,837.50, based on the difference between the 

assignment (buy) price, $1,275, and the interim high (sell) price on August 31,2011, $1,229.80. 

Thus, the proper measure of damages is the difference between $56,000 and $15,837.50: 

$40,162.50. 

ORDER 

Jian Ke has established by a preponderance of the evidence that Interactive Brokers 

recklessly liquidated seven options on futures on August 19, 2011, in violation of Commission 

rule 166.2, Section 4d(a) ofthe Act, and Commission rule 33.10(a) and Section 4c(b) ofthe Act, 

and that this violation proximately caused damages totaling $40,162.50. Accordingly, 

Interactive Brokers is ordered to pay to Jian Ke reparations of $40,162.50, plus prejudgment and 

post-judgment interest on that amount at 0.15% compounded annually from August 19,2011, to 

the date of payment, plus $250 in costs for the filing fee. 

Dated March 22, 2013. 

Philip V. McGuire, 

Judgment Officer 

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