DEPARTMENT OF MEMBER FIRM REGULATION
The Department of Member Firm Regulation (the "Department") is responsible for enforcing the financial, margin, and books and records requirements of the SEC, the FRB and the CBOE with respect to those broker-dealers for which CBOE is the financial designated examining authority ("DEA"). This is accomplished through financial monitoring, routine examinations and special investigations. CBOE is the DEA for all of its sole members, which includes the majority of floor traders, twelve (12) Designated Primary Market-Makers ("DPMs"), and sixty-three (63) other capital computing firms. The CBOE is one of only two (2) SROs (CBOE and FINRA) designated as the examining authority for the three (3) broker-dealers that clear the accounts of independent options market makers. CBOE is the DEA for one (1) of these firms. The Department also performs some of the DEA regulatory work for CBOE Stock Exchange ("CBSX"). Currently, CBSX is the DEA for twenty-five (25) broker-dealers.
The financial monitoring program includes a daily net capital computation for clearing members, to insure that the net capital is sufficient to meet SEC and CBOE minimum requirements. The Department coordinates its monitoring efforts with The Options Clearing Corporation ("OCC") to ensure the viability of CBOE clearing members. On a daily basis, staff monitors the adequacy of trading equity of CBOE market-makers. On a monthly basis, the Department also reviews the financial statements and net capital computations (the FOCUS Reports) of members subject to the SEC net capital rule. Additionally, the Department reviews the methodologies used by member firms to calculate deductions to capital, and the Department monitors the risk analysis procedures of market-maker clearing firms.
The Department conducts routine annual financial examinations that focus on the following areas: net capital, status of the books and records, customer protection, margin, financial reporting, proprietary trading, risk control, anti-money laundering compliance, electronic communications and operational efficiency for approximately 100 member firms. Additional inspections and special investigations are performed as warranted.
Regarding Credit Policy, the Department works with staff members of the SEC and the FRB to interpret and develop financial regulations and to seek regulatory relief where appropriate. The Department continues to provide leadership to its fellow SROs in the implementation of options margin changes to Regulation T and SRO rules.
To ensure that registered representatives selling options to the public are adequately qualified, the Department participates in the development of several securities industry examinations. These examinations include the Series 4, 5, 7, 9, 10 and 15 exams which cover virtually every financial instrument regulated by the SEC. Individuals qualified through these examinations must be registered with the Exchange. The Department also participates in the Securities Industry Counsel on Continuing Education.
In addition the Department provides the above referenced financial examination and surveillance services for twenty-two (22) firms that are solely members of CBSX.
If you would like further information about the Department of Member Firm Regulation please call (312) 786-7713.