The Chicago Board Options Exchange (CBOE) has agreed to pay the Securities and Exchange Commission $6 million to settle charges that it failed to prevent illegal short-selling. CBOE Holdings Inc. (NASDAQ:CBOE) which operates the country’s biggest options market, was charged to have compliance breakdowns linked to billions of dollars of trades. An SEC judge found these regulatory shortcomings to be fraudulent.
The SEC said that it’s the first time CBOE has been charged for regulatory oversight violations. The regulator’s enforcement division found that CBOE Holdings Inc. (NASDAQ:CBOE) had strong ties with optionsXpress Inc., a broker which is the biggest customer of CBOE and had handled suspected trades. According to the SEC order, the officials at CBOE helped optionsXpress Inc. craft a response to the regulator’s inquiry into the trading activity.
CBOE Puts SEC Matter Behind Them
CBOE neither denied nor admitted the charges, but agreed on the settlement. The exchange said in a statement that it has put the SEC matter behind them with the settlement. CBOE said it is committed to the highest standards of compliance and regulation. Penalizing CBOE is the latest in a series of actions taken by the regulator against stock exchanges. Markets have been concerned that stock exchange operators have been doing a poor job at adhering to regulations.
For years, the Securities and Exchange Commission has relied on self-regulatory organizations like CBOE to supervise day-today market activities. CBOE is the second-biggest self-regulatory organization (SRO) after the Financial Industry Regulatory Authority. CBOE said its authority to work with the SEC and other regulatory organizations to watchdog markets ensures fairness and protects investors. It oversees regulatory compliance across all the options exchanges in the United States.
CBOE Unlikely To Give Up Regulatory Role
The shortcomings have raised questions whether CBOE should hand over its SRO responsibilities to a different authority. Investors have been concerned that SRO’s may not pursue illegal activities of clients who are also important customers to them. But CBOE Holdings Inc. CEO Ed Tilly said last week that he has no intention to give up the role, according to Scott Patterson and Jacob Bunge of the Wall Street Journal.
Over the past year, the SEC has fined $5 million to the New York Stock Exchange operator NYSE Euronext (NYSE:NYX). SEC alleged that NYSE Euronext (NYSE:NYX) has favored some of its customers by providing them trading information in advance through proprietary data feeds. Last month, Nasdaq was also fined $10 million for its poor decision making and control systems during the Facebook Inc (NASDAQ:FB) IPO, which caused investors a loss of about $500 million.
