CBOE Said to Consider Separation of Regulatory Unit From CompanyNina Mehta and Nikolaj Gammeltoft
CBOE Holdings Inc., owner of the largest U.S. options exchange, may separate its regulatory oversight unit from the company, according to a person familiar with the matter.
CBOE has talked to other exchange-company officials, said the person, who asked not to be named because the process is private. Gail Osten, a spokeswoman for the Chicago-based market operator, declined to comment. Dow Jones reported on April 22 that the company is considering whether to split off its oversight business.
The exchange company may instead decide to pass those responsibilities to the Financial Industry Regulatory Authority, Dow Jones said, citing people close to the discussions that it didn’t name. FINRA, as the authority is known, oversees broker-dealers and provides regulatory services to stock and options exchange operators,
CBOE, the biggest U.S. options market by volume, said a year ago that regulators were probing whether the company complied with its obligations as a self-regulatory organization. The cost to settle the U.S. Securities and Exchange Commission investigation is unlikely to exceed $10 million, according to a regulatory filing on Feb. 28. Exchanges are required to write rules for their markets, monitor trading and ensure that they and their customers aren’t breaking securities laws.
“While an agreement has not been reached with the SEC staff, we believe that any resolution of this matter would include a monetary penalty and may require CBOE to make additional changes to its compliance programs and procedures,” the company wrote in the Feb. 28 filing. It said the likelihood of a charge in excess of $10 million is “remote.”
The Options Regulatory Surveillance Authority, known as ORSA, conducts insider trading investigations for all 11 options exchanges, which are officially known as self-regulatory organizations, or SROs, according to an annual CBOE filing. CBOE operates ORSA and provides other oversight services to some SROs, which are responsible for monitoring their markets and member firms, the filing said.
Any announcement about the future of CBOE’s regulatory division is likely to come after the SEC investigation is resolved, Dow Jones reported. U.S. regulators haven’t pushed CBOE to separate the unit and have expressed reservations about the complexity of setting up a new SRO, Dow Jones said.
CBOE, which went public in 2010 and has a market value of $3.2 billion, has 605 employees. About 116 people, or 19 percent, are engaged in regulatory activities, according to the annual filing.