SEC fines CBOE for short selling failures
13 June 2013 Washington DC
Image: Shutterstock
The Chicago Board Options Exchange (CBOE) will pay a $6 million penalty and implement major remedial measures for “[failing] to enforce or even fully comprehend rules to prevent abusive short selling”.
The US SEC said the fine is the first to be levied against an exchange for violations relating to its regulatory oversight.
An SEC investigation found that CBOE failed to adequately police and control a conflict for one of its member firms, online brokerage and clearing agency optionsXpress, which the commission charged with engaging in an abusive naked short selling scheme in April 2012.
In doing so, CBOE “demonstrated an overall inability to enforce” its regulatory responsibilities “with an ineffective surveillance programme that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling”, according to the SEC.
“The proper regulation of the markets relies on SROs (self-regulatory organisations) to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew Ceresney, co-director of the SEC's enforcement division. "When SROs fail to regulate responsibly the conduct of their member firms as CBOE did here, we will not hesitate to bring an enforcement action.”
The SEC did take into consideration CBOE’s attempts to rectify the situation after the investigation began. The exchange reorganised its regulatory services division, hired compliance and regulatory officers, updated written policies and procedures, and hired a consultant to review its enforcement programme.
In a statement, CBOE said: “All actions either required or recommended by the SEC, as well as those resulting from our rigourous self-review, have been or are now being implemented.”
“This settlement marks a significant step in putting the SEC matter behind us, but our commitment to maintaining the very highest standards in regulation and compliance will be carried forward throughout our organisation.”
The US SEC said the fine is the first to be levied against an exchange for violations relating to its regulatory oversight.
An SEC investigation found that CBOE failed to adequately police and control a conflict for one of its member firms, online brokerage and clearing agency optionsXpress, which the commission charged with engaging in an abusive naked short selling scheme in April 2012.
In doing so, CBOE “demonstrated an overall inability to enforce” its regulatory responsibilities “with an ineffective surveillance programme that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling”, according to the SEC.
“The proper regulation of the markets relies on SROs (self-regulatory organisations) to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew Ceresney, co-director of the SEC's enforcement division. "When SROs fail to regulate responsibly the conduct of their member firms as CBOE did here, we will not hesitate to bring an enforcement action.”
The SEC did take into consideration CBOE’s attempts to rectify the situation after the investigation began. The exchange reorganised its regulatory services division, hired compliance and regulatory officers, updated written policies and procedures, and hired a consultant to review its enforcement programme.
In a statement, CBOE said: “All actions either required or recommended by the SEC, as well as those resulting from our rigourous self-review, have been or are now being implemented.”
“This settlement marks a significant step in putting the SEC matter behind us, but our commitment to maintaining the very highest standards in regulation and compliance will be carried forward throughout our organisation.”
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