Bloomberg News

CBOE Compliance Executive Patrick Fay Resigns Amid SEC Probe

March 12, 2012

CBOE Holdings Inc. (CBOE), the options exchange being investigated by the Securities and Exchange Commission, said senior compliance executive Patrick Fay has resigned, spokeswoman Gail Osten said in an e-mailed statement.

Fay had been placed on leave after the SEC began investigating the options-market operator’s oversight of traders, the Wall Street Journal reported last week, citing people familiar with the matter. He will “pursue other interests,” Osten said today.

CBOE Holdings said in its annual report filed Feb. 28 that the SEC began investigating whether the company was complying with its obligations as a self-regulatory organization.

“The SEC is looking at all exchanges very carefully,” CBOE Chief Executive Officer William Brodsky said today in an interview in Bonita Springs, Florida. He declined to comment on Fay’s resignation and the details of the investigation. “We have a very good relationship with the SEC and we work with them,” he said.

Fay, a senior vice president for member and regulatory services since 2006, was among 10 “executive officers” listed on CBOE’s website. He had rejoined the company in 2004 after 19 months at NQLX LLC. Before that, he spent 18 years with CBOE, according to the website.

CBOE was founded in 1973 as the first U.S. market for equity derivatives. As self-regulatory organizations, American exchanges are required to write rules for their markets, monitor trading and ensure that they and their customers aren’t breaking securities laws.

SEC Investigation

“The SEC is investigating CBOE’s compliance with its obligations as a self-regulatory organization under the federal securities laws,” CBOE said in the Feb. 28 filing. “The company is cooperating with the investigation, which is ongoing, and is conducting its own review of its compliance.”

CBOE’s statement could refer to anything from technology glitches to monitoring trading and overseeing its member firms, James Angel, a finance professor at Georgetown University’s business school in Washington, said in a phone interview two weeks ago. It could also relate to “dodgy” activity by a floor trader or how well the exchange monitors trading on its electronic platform, he said.

“It could mean almost anything,” Angel said. “Something at the CBOE has caught the SEC’s attention.”

The SEC’s Office of Compliance Inspections and Examinations conducts “routine and special inspections” of self-regulatory organizations, the Government Accountability Office said in a November 2007 report. Most are examined every one to four years and larger ones more frequently, the report said. OCIE inspects the adequacy of the organizations’ surveillance, investigative and disciplinary programs and how well they comply with their own policies, GAO said.

If OCIE finds that an SRO hasn’t complied with its rules or federal securities laws, it may refer the matter to the SEC’s enforcement division, the GAO report said.

To contact the editor responsible for this story: Joanna Ossinger at jossinger@bloomberg.net


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