Interactive Brokers Grapples with $48 Million Loss Following Unprecedented BRK A Share Price Drop

Interactive Brokers Group experienced an unprecedented trading event when Berkshire Hathaway Class A shares plummeted in price due to a NYSE technical issue. After trading was halted, the NYSE resumed trading without addressing the order imbalance, resulting in a rapid price increase. The company filed a "clearly erroneous execution" petition and later took over a portion of the trades as a customer accommodation. Despite claiming compensation, NYSE denied the claims, causing Interactive Brokers to incur approximately $48 million in losses. While the impact on the company's financial condition is deemed not material, Interactive Brokers is exploring options for recovery.

Introduction:
Interactive Brokers Group, a well-established online brokerage firm, experienced an unprecedented trading event on June 3, 2024. A technical glitch at the New York Stock Exchange (NYSE) resulted in erroneous trading, causing Berkshire Hathaway Class A shares to plummet and eventually surge. Although the impact on Interactive Brokers' financial condition is deemed not material, the company is exploring options for recovery.

Technical Glitch and Its Impact:
The NYSE technical glitch occurred during a software update, causing trading to halt on approximately 40 stocks, including Berkshire Hathaway [1]. The erroneous trading led to a temporary 99% drop in Berkshire Hathaway's stock price [2]. Although the disruption was resolved within 45 minutes, Interactive Brokers incurred approximately $48 million in losses due to the order imbalance and the subsequent rapid price increase.

Background on Berkshire Hathaway:
Berkshire Hathaway, led by the legendary investor Warren Buffett, is a publicly-traded conglomerate with a diverse portfolio of businesses. Buffett, who is the largest shareholder of Berkshire Hathaway, has never split the stock, preferring to attract long-term, investment-oriented shareholders [1]. Berkshire Hathaway's Class A shares closed at $627,400 on June 2, 2024 [2].

NYSE's Response and Review:
NYSE stated that it would cancel the bad trades in Berkshire Hathaway and review the erroneous halts to determine whether to cancel any of those [2]. However, Interactive Brokers filed a "clearly erroneous execution" petition, seeking compensation for its losses. Despite NYSE's initial denial of the claims, Interactive Brokers took over a portion of the trades as a customer accommodation.

Implications and Next Steps:
This incident serves as a reminder of the importance of robust trading infrastructure and effective communication between exchanges and brokerage firms. Although Interactive Brokers' financial losses are not deemed material, the company is exploring options for recovery. The event also highlights the potential consequences of one-day settlements from two, known as T+1, which the market is currently adapting to.

References:
[1] CNBC. (2024, June 3). NYSE technical issue impacting some stock prices incorrectly showing Berkshire Hathaway down 99%. https://www.cnbc.com/2024/06/03/nyse-technical-issue-impacting-some-stock-prices-incorrectly-showing-berkshire-hathaway-down-99percent.html
[2] Fortune. (2024, June 3). Berkshire stock drop due to NYSE glitch; malfunction causes shares to plummet 99%. https://fortune.com/2024/06/03/berkshire-stock-drop-nyse-glitch-malfunction/