Options exchange settles SEC allegations

{mosads}As one of the many self-regulatory organizations that the SEC oversees, the CBOE can create and enforce its own regulations as well as federal laws.

It has to uphold those rules, however, which the SEC claims the exchange has failed to do.

An SEC investigation found that the CBOE did not have the proper oversight mechanisms in place to clamp down on a brokerage that was violating its regulations on short sales, the practice of selling securities before their value is expected to decline.

The SEC charged the brokerage last April, but it claims that the exchange’s surveillance program was ineffective and failed to find wrongdoing despite the telltale signs of short selling. The exchange also went out of its way to help the brokerage when it was investigated by the SEC, the commission says.

Daniel Hawke, chief of the market abuse unit in the SEC’s enforcement division, called the CBOE’s failures “disappointing” in a statement.

“The public depends on [self-regulatory organizations] to provide a watchful eye on their exchanges and market activities occurring through them,” he added. “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.”