OptionsXpress cases put CBOE under SEC microscope

(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.

Chicago-based OptionsXpress to be acquired by Charles Schwab

(Crain's) — OptionsXpress has agreed to sell itself to financial services giant Charles Schwab Corp. in a deal the companies value at about $1 billion.

Under the terms, shareholders in optionsXpress are to get 1.02 shares of Charles Schwab stock for each share of the Chicago-based options brokerage.

“This combination of capabilities allows optionsXpress to bring our leading-edge trading and analytical technologies to one of the largest and premier brokerages in the world,” optionsXpress CEO David Fisher said in a release.

After the deal closes, Mr. Fisher is to continue to head optionsXpress, with the title of president, and will be a senior vice-president of San Francisco-based Schwab.

Mr. Fisher has been ready to sell optionsXpress, which was founded in 2001. Last year he said, “If the right offer comes around, we absolutely would consider it — we're not entrenched here.”

Broker Review: optionsXpress

Publicly traded optionsXpress (OXPS) is one of the more mature online brokerages.

It consistently ranks highly in broker comparisons conducted by Barron's and others. However, we are not too concerned with outside ratings. We are more concerned with how optionsXpress may or may not fit with your trading objectives and style.

Let's take a look at who may benefit the most from opening an optionsXpress account and who may find better luck elsewhere.

Target Audience

The target audience for optionsXpress seems to be active investors who are looking to diversify their portfolio across a broad range of investing products.

For instance, if you are a trader who places a few options and futures trades per month while holding some longer-term investments in stocks, exchange-traded funds (ETFs) and mutual funds, you would be an ideal candidate to open and optionsXpress account, because you can manage everything within one account.

Of course, optionsXpress or any other broker will say that they would love to work with any investor, regardless of their holdings, but the product offering and commission and fee structure seem to benefit active to semi-active traders who want to invest in a broad range of products.

Products Available at optionsXpress

The product lineup at optionsXpress is one of the broker's strong points. You can trade the following products within the same account at optionsXpress:

Stocks
Options
Futures
Bonds
Exchange-traded funds (ETFs)
Mutual funds

If you are looking for product flexibility without the hassle of switching back and forth between accounts, opening an account at optionsXpress is a good option.

Commissions and Fees

optionsXpress doesn't have exorbitantly high commissions and fees, nor does it have extremely low commissions and fees. If you were to put the commission and fee schedule for optionsXpress on a price scale, it would be somewhere in the middle.

If you are strictly looking for the lowest fees possible, and are willing to give up some of the service and tools that a slightly higher priced broker usually provides, optionsXpress may not be for you.

However, if you are willing to pay slightly more for a full range of investment products and a suite of investment tools, take a look at optionsXpress, which has both.

Ease of Use

One area where optionsXpress really shines is in its ease of use.

Checking your account status, entering new stock and option orders, and monitoring your portfolio are easy with optionsXpress' simple, streamlined interface.

optionsXpress also offers a full suite of analytical tools and educational information. You can run stock searches, monitor today's market action and analyze option Greeks without ever having to leave the optionsXpress platform.

Plus, you can access your optionsXpress account from any computer with an Internet connection because it is a Web-based platform, not a client-based (software that lives on your computer) platform.

Of course, client-based platforms are typically a little faster on their fills and such, so you might experience some sluggishness in your order-entry process using the Web-based platform, but that shouldn't be much of a concern unless you are an extremely active day trader who controls huge positions.

Pros and Cons

To summarize what we've discussed above, the following are the pros of working with optionsXpress:

• Access to a broad selection of investing products within a single account.
• Access to an extensive suite of analytical tools and investment education material<.br>
• Easy-to-navigate trading platform.
• Access to your account from any computer with an Internet connection.

The following are the cons of working with optionsXpress:

• Relatively high commissions when compared to the bargain-basement brokers.
• Order entry can become tedious if you are an extremely active day trader who is placing multiple trades per day.