Interactive Brokers accepts $48 million loss tied to NYSE glitch

By Joseph Adinolfi

The loss stems from customers who saw orders for Berkshire Hathaway Class A shares submitted during the glitch filled at full price

Some investors who tried to buy shares of Berkshire Hathaway Class A stock during a New York Stock Exchange Trading glitch earlier this month were horrified to learn that their orders had been filled at full price - not the more than 99% discount they had been expecting.

A few took to Reddit to complain about the steep losses and large negative margin balances they had incurred as a result. One later told MarketWatch that the troubling trade had been reversed by their broker, and two others shared updates on Reddit saying something similar.

At least one broker did so at its own expense. On Wednesday morning, Interactive Brokers issued a press release saying it would incur a $48 million realized loss related to customers' trades for Berkshire shares that were filled shortly after normal trading resumed on June 3.

A representative from another popular electronic brokerage who asked not to be named told MarketWatch that their firm, along with several competitors, is also working with NYSE to remediate customer losses stemming from the glitch.

See: Some Berkshire Hathaway investors tried buying the dip during Monday's glitch - but ended up with shares at full price instead

Interactive Brokers said it had petitioned the NYSE and other exchanges to reverse the trades under a rule allowing rollbacks of trades deemed to be clearly erroneous, but the exchanges declined.

Interactive Brokers then decided to take on these positions as an accommodation to customers, according to the press release. A later request for compensation from the exchanges was also denied, IBKR said.

The broker said it is evaluating possible avenues to recover the money, including potentially legal action. A representative from the company declined further comment.

Trading in Berkshire Hathaway Class A (BRK.A) shares was relatively chaotic after normal trading resumed on June 3 following the glitch, which was reportedly caused by a software update, according to Bloomberg News.

The update caused the industry-wide price bands published by the Consolidated Tape Association's Securities Information Processor to display abnormal data, leading to inaccurate prices that triggered a series of limit up-limit down trading halts. Roughly 40 securities were affected by the disruption, according to NYSE.

Among other issues, the glitch caused the exchange to display prices for Berkshire shares at $185.10, in what would have been a drop of 99.97%. The NYSE later announced that it had busted trades that were filled at the erroneous price.

IBKR said some of its clients' orders placed during the halt were filled shortly after trading resumed, as prices of Berkshire Hathaway's Class A shares saw a short-lived bump. Shares traded as high as $741,971.39 during a 98-second period beginning at around 11:36 a.m. Eastern Time. By comparison, the company's Class A shares had opened at just under $626,000 earlier that day, according to FactSet data.

These gains quickly reversed, leaving those traders who had seen their orders executed with large losses. According to posts on social media, many didn't have enough capital in their brokerage accounts to cover the cost of the shares, leaving them mired in margin debt, at least on paper.

A representative from NYSE also declined to comment.

A representative from Charles Schwab Corp. (SCHW) previously told MarketWatch that some of their customers had also been affected by the glitch, and that the firm had decided to work with impacted clients "to resolve the issue."

-Joseph Adinolfi

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06-26-24 1246ET

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