The Department of Member Firm Regulation ("DMFR") is responsible for monitoring for compliance with the financial, margin, Regulation SHO, Regulation NMS and books and records requirements of the U. S. Securities and Exchange Commission ("SEC"), Federal Reserve Board ("FRB") and CBOE with respect to those broker-dealers for which CBOE is the financial designated examining authority ("DEA"). CBOE is the DEA for all of its sole Trading Permit Holders ("TPHs"), individuals and organizations with Exchange appointed trading rights and sole-CBSX TPHs. CBOE maintains sales practice responsibility for those CBOE, CBSX and C2 TPHs that are also not a member of FINRA and CBOE is the TPHs DEA. CBOE is one (1) of only two (2) self-regulatory organizations ("SROs") (CBOE and FINRA) designated as the examining authority for the broker-dealers that clear the accounts of independent options market makers.
The financial monitoring program includes a daily net capital computation for clearing TPHs and DEA net capital computing firms to insure that the net capital is sufficient to meet SEC and CBOE minimum requirements. Monitoring efforts are coordinated with The Options Clearing Corporation ("OCC") to ensure the viability of CBOE and C2 clearing TPHs. The financial statements and net capital computations (FOCUS Reports) of TPHs subject to the SEC net capital rule are reviewed on a monthly basis.
DMFR conducts routine annual financial examinations, focusing on net capital, status of books and records, customer protection, margin, financial reporting, proprietary trading, risk control, anti-money laundering compliance, electronic communications, Regulation SHO and operational efficiency. Additional inspections and special investigations are performed as warranted. DMFR also conducts trade practice examinations that focus on issues such as written supervisory procedures, business model and market-making activities on behalf of the Exchange and Regulatory Services Agreement client exchanges.
DMFR also works with the staff of the SEC and FRB to interpret and develop financial regulations and seek regulatory relief where appropriate. DMFR also provides leadership to its fellow SROs in the implementation of options margin changes to Regulation T and SRO rules.
DMFR staff participates in the development of several securities industry examinations including the Series 4, 5, 7, 9, 10 and 56 examinations which cover virtually every financial instrument regulated by the SEC and in the Securities Industry/Regulatory Council on Continuing Education, the Options Self Regulatory Council and the Intermarket Financial Surveillance Group.