A Disturbing Development: Interactive Brokers Implements Price Caps

In a rather stunning development, moments ago Interactive Brokers unveiled a previously unseen warning, one called a "Mandatory Cap Price", which warns traders that the brokerage may set a cap, a floor or outright cancel any order that would otherwise be marketable, due to a "price that is not consistent with a fair and orderly market.

Needless to say, for traders agreeing that they are willing to "trade" only based on what some arcane algorithm decides is a "fair and orderly market", or otherwise get kicked out, leads to numerous questions, chief among which is: just what does IB know about what may be about to happen, and why is the most basic function of a marketplace - the exchange between a willing buyer and seller - suddenly compromised?

Ultimately, price caps should only impact market orders, which means HFTs will have a harder time to frontrun "liquidity providers", however the fact that the interference here is the result of exchange mediation based on some unknown protocol is mildly disturbing.

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