DEPARTMENT OF MARKET REGULATION
The Department of Market Regulation ("DMR" or the "Department") is responsible for monitoring CBOE member compliance with trading rules and procedures designed to provide a fair and equitable marketplace. DMR surveillance and investigative work concerns trading conduct both on and off the trading floor, including activity in CBOE stock and stock like products and related marketplaces. DMR 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. Staff members also serve as a key resource to provide regulatory assistance to members and their representatives.
DMR is responsible for reviewing floor broker practices to address the improper use of error accounts and abuses of the solicitation, crossing and facilitation provisions of CBOE rules. Reviews are also conducted to insure floor 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. Some reviews are conducted through an audit process.
The Department also conducts surveillance to detect price and volume manipulations of the options markets such as activity designed to unduly influence the closing market price of an option ("marking") as well as activity designed to inappropriately benefit from non-public knowledge of stock blocks or stock programs or to inappropriately affect market volatility, or the options and/or futures 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 addresses certain control issues, such as investigating inappropriate use of market maker accounts by non-members and related abuses of the market maker exemption from the net capital rule.
The Department conducts surveillance and administers the CBOE summary fine program for trade reporting, Book priority, position limits, index and equity exercise advice and firm quote compliance. Surveillance is also conducted to monitor member compliance with linkage and quoting obligations and to detect activity in newly listed option classes that may have been affected 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 Department includes the Trading Floor Liaison team ("TFL"). TFL staff is a customer and member 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 members, 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.
If you would like further information regarding DMR, please call (312) 786-7844.