Reuters: Regulatory News: CBOE warns that SEC probe could result in fine

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CBOE warns that SEC probe could result in fine May 15th 2012, 18:58 CHICAGO | Tue May 15, 2012 2:58pm EDT CHICAGO May 15 (Reuters) - A U.S. Securities and Exchange Commission probe into the way the operator of the Chicago Board Options Exchange polices itself could result in censure or a fine, CBOE Holdings Inc said in a regulatory filing. "While we do not know the outcome of the SEC's investigation, should it determine to act, the SEC could, among other things, censure CBOE, impose monetary or other penalties and require CBOE to change its compliance programs and procedures," the Chicago-based exchange operator said in a little-noticed line included in a May 8 filing. In previous reports, CBOE had lumped the SEC's power to impose fines in a general description of the regulators powers in its "risk factors" section. Now the reference to possible fines is included immediately after a barebones description of the investigation. A CBOE spokeswoman said the change is not significant. The SEC's probe into CBOE's compliance with its obligations as a self-regulatory organization comes as the regulator steps up inquiries into a broad range of business practices at the nation's securities exchanges. CBOE, the biggest and oldest U.S. stock-options exchange, has not provided any details on the focus of the SEC investigation. A fine, if levied, would be unusual. SEC enforcement actions against exchanges have more typically resulted in censure and a requirement to fix whatever caused the problem in the first place. That was the case last October, when the SEC sanctioned units of Direct Edge Holdings LLC, requiring them to correct weak internal controls that led to millions of dollars in trading losses and a systems outage. Also that month SEC settled a case against self-policing brokerage industry group FINRA for allegedly doctoring internal documents before handing them over to examiners. FINRA, like Direct Edge, was not fined, but was ordered to correct the policies that led to the problem. CBOE is conducting its own review of its compliance, and has beefed up its self-policing team, appointing a new deputy chief regulatory officer in April. Two compliance officials left the exchange operator in March in the wake of CBOE's disclosure of the SEC investigation. The personnel changes underscore that the probe is "a fairly significant issue," said Ed Ditmire, a New York-based analyst for Macquarie Securities. "CBOE is trying to make changes in advance of any conclusions (of the probe) in order to move things along." Link this Share this Digg this Email Reprints

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