Bloomberg News

CBOE Hires Chief Compliance Officer Amid U.S. Investigation

April 13, 2012

CBOE Holdings Inc. (CBOE:US) named a former Securities and Exchange Commission lawyer to oversee compliance at its exchanges, a month after announcing a federal inquiry and the resignation of a senior executive.

Alexandra M. Albright, an attorney with Kirkland & Ellis LLP, will start April 23 as chief compliance officer, the Chicago-based company said today in a statement. Albright worked at the SEC from 2001 to 2006, most recently in the enforcement division’s office of market surveillance. The exchange operator has posted 10 job descriptions since early March for regulatory and surveillance positions it wants to fill, its website shows.

The owner of the Chicago Board Options Exchange hired Albright a month after saying Patrick Fay, a senior vice president for member and regulatory services, quit. The exchange operator disclosed in February that the SEC is investigating whether CBOE complied with its obligations as a self-regulatory organization. SROs are required to write rules for their exchanges, monitor trading and seek to ensure that they and their customers aren’t breaking securities laws.

“Hiring an outsider is probably the correct decision given the current SEC investigation into CBOE,” Howard Tai, a senior analyst at Aite Group LLC in Boston, said in a phone interview. “She has the regulatory background and the legal background to take on the new role. It will give CBOE a fresh start in the compliance area.”

Exchange Compliance

Albright, filling a newly created position, will be responsible for establishing and implementing policies that ensure the company’s exchanges comply with their own rules and those of the SEC and Commodity Futures Trading Commission, CBOE said in the statement. She will be in charge of educating exchange employees about compliance matters, it said.

CBOE Holdings runs two options venues, a stock market and a futures exchange. Timothy Thompson is the company’s chief regulatory officer.

Fay had been among 10 “executive officers” listed on CBOE’s website. He 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 options. The company’s two exchanges have the largest combined share of equity derivatives with 28.4 percent of volume, according to data compiled by Chicago-based OCC.

Website Postings

CBOE has been searching for a deputy chief regulatory officer and chief examiner. Descriptions of the former job posted on the company’s website on March 6 said the person would focus on surveillance, investigative and examination topics related to CBOE’s securities markets and the enforcement of exchange and SEC rules. The person filling the examiner role would conduct surveillance of firms authorized to trade on CBOE’s markets, according to a March 12 job description.

The company published job descriptions for an examiner and senior examiner on March 12. From March 22 through yesterday, CBOE posted profiles of another 6 regulatory jobs. They include manager for regulation related to the Options Regulatory Surveillance Authority, which is responsible for insider trading investigations across options exchanges. Jobs are also available for a manager for regulation connected with the CBOE Futures Exchange as well as an investigator focused on examinations and investigations related to the CFE.

Priority, Allocation

The CBOE website didn’t specify whether these are new jobs or positions meant to fill vacancies. The information about jobs goes back only to October.

CBOE Holdings had 596 employees at the end of 2011 including 82 involved in regulatory activities, the company said in an annual filing on Feb. 28. The firm had 261 people working on systems development and operations, 93 who supported trading and 160 in business development and areas such as finance and management, the filing said.

The company’s market regulation division contacted firms that do business on the CBOE to examine “apparent violations” of rules over three years through January, Dow Jones reported on April 5, citing a letter it reviewed. The inquiry related to the handling of stock-option orders including how they’re prioritized and allocated, the newswire said.

The SEC approved changes to CBOE’s electronic handling of stock-option orders on April 6. The exchange’s proposal altered the definition of stock-options orders and so-called complex orders, and factors related to how and when the products trade. CBOE will require the stock portion of stock-option orders to be sent to a broker instead of routing it to the exchange’s equity market itself. It will also implement price checks for the products and individual components or legs of those trades to avoid transactions far from the prevailing bid and offer levels, CBOE said.

Regulatory Indepdendence

CBOE Holdings published a notice outlining the independence of its regulatory services division from the business interests of its exchanges and the firms trading on its markets last August. Regulatory decisions would be made “without regard” to those interests, the notice said.

Exchanges’ role managing trading and overseeing their markets has been questioned in recent years as the owners of the New York Stock Exchange and Nasdaq Stock Market became for- profit companies focused on the needs of shareholders. NYSE Euronext (NYX:US), Nasdaq OMX Group Inc., CME Group Inc. (CME:US) and IntercontinentalExchange Inc. are public companies. CBOE Holdings joined them in mid-June 2010.

Joanne Moffic-Silver, general counsel at CBOE Holdings, said at a Securities and Exchange Commission Historical Society panel discussion about self-regulation earlier that month that the company was coping with conflicts that affect exchanges when they become public corporations. CBOE will succeed in balancing the competing demands it faces, she said.

“The purpose of a stock company is to serve the purposes of the shareholders, and maximize the profits of the shareholders,” Moffic-Silver said. “At the same time, as a self-regulatory organization, we have the purpose of expending lots of dollars to ensure that regulation is strong and effective.”

To contact the reporters on this story: Joanna Ossinger in New York at jossinger@bloomberg.net; Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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Companies Mentioned

  • CBOE
    (CBOE Holdings Inc)
    • $53.44 USD
    • -0.09
    • -0.16%
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