The Chicago Board Options Exchange will pay a $6 million penalty and implement remedial measures to settle charges announced Tuesday by the SEC that the exchange and an affiliate experienced “systemic breakdowns” in regulatory and compliance functions, including rules to prevent abusive short selling.
According to a Securities and Exchange Commission statement, the financial penalty is the first assessed against an exchange for regulatory oversight violations rather than misconduct. The SEC order instituting the settlement stated that the CBOE “demonstrated an overall inability to enforce” Regulation SHO, which requires delivery of equity securities to a registered clearing agency shortly after the trade date, and “an ineffective surveillance program” that failed to detect short selling “despite numerous red flags.”
In a statement, CBOE said it cooperated with the SEC investigation. “We voluntarily launched our own exhaustive, internal assessment of regulatory and compliance practices across our entire organization, assisted by third-party consultants and independent outside counsel. 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,” the statement said.