SEC Investigating Chicago Board Options Exchange On Compliance
March 02 2012 - 2:54PM
Dow Jones News
U.S. regulators are investigating the parent of the Chicago
Board Options Exchange, examining the company's oversight of its
markets and traders.
CBOE Holdings Inc. (CBOE) officials are cooperating with the
investigation and have initiated a separate internal review of
compliance with U.S. securities laws, the Chicago firm disclosed in
a regulatory filing.
Representatives of CBOE and the Securities & Exchange
Commission declined to comment on whether the investigation was
related to a specific issue or if it represented a more routine
review of compliance functions. CBOE hasn't been accused of any
wrongdoing.
The investigation comes as U.S. market regulators more closely
scrutinize exchanges and market participants, following market-wide
events such as the May 2010 "flash crash" and the collapse of
broker-dealer MF Global Holdings Ltd. (MFGLQ), alongside trading
matters tied to specific venues.
The Chicago Board Options Exchange is the biggest of the nine
U.S. options markets, with 27.7% of the overall market in February,
according to figures from industry clearinghouse OCC. Its parent,
CBOE Holdings, also runs the all-electronic C2 options market and a
futures platform, while maintaining an ownership stake in the CBOE
Stock Exchange.
Shares of CBOE were recently 1% lower at $27.61.
CBOE reported the SEC investigation in its annual report filed
with regulators this week. The company's markets, like other
exchanges, operate as so-called self-regulatory organizations,
which carry oversight and enforcement authority over their own
platforms.
"The SEC is investigating CBOE's compliance with its obligations
as a self-regulatory organization under the federal securities
laws," officials for the exchange wrote in the report. "The company
is cooperating with the investigation, which is ongoing, and is
conducting its own review of its compliance."
The CBOE investigation was disclosed as U.S. securities markets'
model of self-oversight has come under increased scrutiny from
lawmakers and investors following the late-October bankruptcy of MF
Global. A shortfall in client funds at that firm, as well as its
messy bookkeeping cited by regulators, have raised questions around
the audits carried out by MF Global's primary regulator, CME Group
Inc. (CME).
Securities market regulators have launched other recent probes
focused on exchanges, including one disclosed last week by BATS
Global Markets Inc. That inquiry is focused on ties between stock
exchanges and some electronic trading firms, The Wall Street
Journal reported.
The SEC last fall sanctioned electronic stock market operator
Direct Edge for rule violations and system errors that cost its
customers millions in trading losses during two separate occasions
over the past year and a half. Use of untested computer code and
employee mistakes prompted the SEC to censure the firm, which moved
to remedy its operations.
The CBOE introduced options trading in the U.S. when it launched
in 1973 and is the sole venue for buying and selling options on
widely followed stock indexes like the Standard & Poor's 500
and the Dow Jones Industrial Average.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com
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