(Crain's) — Two cases that the U.S. Securities and Exchange Commission brought against OptionsXpress this week are at the root of the federal agency's investigation of CBOE Holdings Inc., according to unnamed sources involved in the situation.
CBOE Holdings, parent to the Chicago Board Options Exchange, disclosed earlier this year that the SEC has been investigating the company's “compliance with its obligations as a self-regulatory organization under the federal securities laws.”
The agency has been reviewing whether CBOE had improper contact with OptionsXpress while that firm was under SEC scrutiny on the charges brought this week.
Two CBOE regulatory officials have resigned this year, and the company has been hiring a number of new compliance officials, including announcing a new chief compliance officer, Alexandra Albright, last week.
The SEC today charged an affiliate of online brokerage OptionsXpress with violating requirements that it must be a registered dealer to engage in trading.
The administrative action came days after OptionsXpress was separately charged by the SEC with involvement in a so-called naked short-selling scheme.
David Fisher, who was CEO of OptionsXpress until it was acquired by Charles Schwab Corp. last year and led the unit until his resignation in February, also had served on the CBOE’s board of directors until giving up that post in October 2011. He has not been charged in either SEC case against OptionsXpress.
He stayed on at OptionsXpress after Schwab announced in March 2011 that it would buy the Chicago-based retail options trading company for $1 billion in stock. When he left OptionsXpress earlier this year he simply said it was the right time for him to exit. He couldn’t be reached for comment.
OX Trading LLC, a securities dealer affiliated with OptionsXpress, continued trading operations after terminating its listing with the Chicago Board Options Exchange and deregistering with the SEC, the agency said. The securities dealer delisted to avoid an audit, the SEC said.
The SEC charged OX Trading, OptionsXpress and their former chief financial officer
, Thomas Stern, and accused OX Trading of operating as an unregistered dealer between October 2009 and November 2010 and trading while not registered as a member of CBOE between March 2009 and November 2010.
"OptionsXpress, OX Trading and Stern have displayed a profound disregard for regulators, compliance obligations and the regulatory requirements that dealers must satisfy for the privilege of operating in our markets," said Daniel Hawke, who heads the SEC's market abuse unit.
A lawyer for OptionsXpress, Stephen Senderowitz, said OX Trading was formed as a proprietary trading firm to provide better pricing to OptionsXpress customers, and terminated its CBOE and SEC registrations as a broker-dealer because it had no customer accounts of its own.
A lawyer for Mr. Stern also took issue with the charges, saying, “There's no clear guidelines that suggest one way or the other that Ox Trading should have been registered as a dealer.”
In the administrative proceeding for the alleged naked short-selling scheme, the agency charged OptionsXpress, four executives of the company — including Mr. Stern — and an OptionsXpress customer. The company, Mr. Stern and the customer, Jonathan Feldman, are fighting the charges. The three other OptionsXpress officials settled the SEC charges against them.
An SEC lawyer involved in the OptionXpress cases declined to comment on whether it was related to the agency's investigation of CBOE.
CBOE didn't immediately return a call seeking comment. Lawyers for the two CBOE officials who left the firm couldn't immediately be reached.
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