"The proper regulation of the markets relies on SROs to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew J. Ceresney, Co-Director of the SEC's Division of Enforcement. "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." Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit, added, "CBOE's failures in this case were disappointing. The public depends on SROs to provide a watchful eye on their exchanges and market activities occurring through them. They must have strong compliance cultures and adequate and dedicated compliance resources to ensure that they do not stray from their bedrock obligation to provide rigorous self-regulation." The SEC order stated "With the benefits of operating an exchange come certain regulatory responsibilities. In order to exist as a registered national securities exchange or securities association, an exchange or association must fulfill certain well-established regulatory obligations as a self-regulatory organization ("SRO"). An SRO must comply with, and enforce its members' compliance with, the federal securities laws and rules, as well as its own rules. In this regard, an SRO must conduct surveillance of trading on its exchanges and examine the securities-related operations of its members."
The Commission's order charges that the CBOE also failed to equitably service member firms: "In addition, by making unauthorized "customer accommodations," rebates, and other credits to certain member firms and not others without an applicable rule in place that was consistent with the applicable statutory standards, CBOE failed to provide for the equitable allocation of fees and other charges and engaged in unfair discrimination between member firms." The CBOE has agreed to settle the charges without admitting or denying the SEC's findings. --Written by Hal. M Bundrick Follow @HalMBundrick