US exchange fined $6m for regulatory oversight failures

http://www.bbc.co.uk/news/business-22866140

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The Securities and Exchange Commission (SEC) has levied the first fine on a US exchange for failures of regulatory oversight.

The Chicago Board Options Exchange (CBOE) has agreed to pay $6m (£3.8m) to settle the SEC's charges that it failed in its duty to enforce trading rules.

The SEC said CBOE had "various systemic breakdowns" as a self-regulatory organisation.

CBOE said it had implemented actions required or recommended by the SEC.

CBOE is the largest US options exchange. Options offer the right, but not the obligation, to buy or sell stocks or other financial assets in the future.

'Confused'

The SEC said CBOE received a complaint in February 2009 about possible short selling violations involving a customer account at a member firm, and began investigating trading activity.

But it said the staff assigned to the case "did not know how to determine if a fail existed and were confused about whether Regulation SHO applied to a retail customer".

It went on to say that CBOE also took "misguided and unprecedented steps" to assist the firm when it became the subject of an SEC investigation later that year, even editing the firm's draft submission to the SEC.

It added that CBOE had a number of other regulatory and compliance failures between 2008 and 2012.

Inherent conflict

As a self-regulatory organisation (SRO), the exchange is charged with enforcing trading rules for its members.

The SEC has broad oversight over trading but leaves the daily monitoring to the exchanges and the Financial Industry Regulatory Authority.

"SROs... must sufficiently manage an inherent conflict that exists between self-regulatory obligations and the business interests of an SRO and its members," the SEC said in a statement.

"An SEC investigation found that CBOE failed to adequately police and control this conflict for a member firm that later became the subject of an SEC enforcement action."

CBOE said it had worked proactively with the SEC throughout its investigation, and had launched its own internal assessment of regulatory and compliance practices.

"All actions either required or recommended by the SEC, as well as those resulting from our rigorous self-review, have been or are now being implemented," it said.