DEPARTMENT OF MARKET REGULATION
The Department of Market Regulation ("DMR") is responsible for monitoring CBOE and C2 Trading Permit Holder ("TPH") compliance with trading rules and procedures designed to provide a fair and equitable marketplace. CBOE and C2 surveillances are conducted as separate programs tailored to each Exchange as appropriate. DMR surveillance and investigative work concerns trading conduct both on and off the trading floor. Investigations are initiated through complaints and specialized computer programs designed to highlight particular types of abusive activity from CBOE order routing, trade match and audit trail data, OCC trade clearance data, futures and underlying stock data, and other relevant market information. Standard investigative techniques include obtaining testimony and applying tested analytical techniques to interpret various trading and market data.
DMR is responsible for reviewing broker practices to address the improper use of error accounts and abuses of the solicitation, crossing and facilitation provisions of Exchange rules. Reviews are also conducted to insure brokers comply with best execution and due diligence obligations, such as limit order display, systematizing orders and inter-positioning and trading ahead of agency orders.
Surveillance is also conducted to detect price and volume manipulation of the options markets such as activity designed to unduly influence the closing market price of an option ("marking") or activity designed to inappropriately benefit from non-public knowledge of stock blocks or programs or to inappropriately affect market volatility options expirations. These reviews, and particularly those in index option classes, require in-depth study of volatile or expiring series and the underlying securities in connection with in-depth review of member options trades, futures trading activity and stock block or program trades. DMR also investigates certain control issues, such as inappropriate use of market maker accounts by non-members and related abuses of the market maker exemption from the net capital rule.
DMR also conducts surveillance and assists in the administration of the minor rule violation program for trade reporting, Book priority, position limits, index and equity exercise advice and firm quote. Surveillance is also conducted to monitor TPH compliance with linkage and quoting obligations, detect activity in newly listed option classes that may have been effected to induce order flow or create a false or misleading appearance of volume, trading in restricted option classes, pre-arranged trading and improper position adjustments.
The DMR Trading Floor Liaison ("TFL") staff is a customer and TPH service team that maintains a continuous on-floor presence to provide real-time resolution to concerns related to specific market activity raised by market participants including, but not limited to, on-floor and remote TPHs, order flow providers and customers. Certain TFL staff also act as Floor Officials. The entire team is dedicated to fostering market quality and integrity and promptly and courteously responding to member and customer issues and concerns. DMR also has a separate floor surveillance team that monitors trading from various locations in the SPX and VIX trading crowds to identify transactions or other activities that may constitute a rule violation.