The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight has announced that it issued the results of a rule enforcement review of the CBOE Futures Exchange, LLC (CFE or Exchange) on June 24, 2016. The review covered a one-year target period.
The CFTC evaluated CFE’s compliance with Designated Contract Market Core Principles: Compliance With Rules, Protection of Markets and Market Participants, and CFTC regulations related to an exchange’s trade practice surveillance program.
The CFTC found that CFE has an adequate trade practice surveillance program, subject to the recommendations for improvement and certain deficiencies that were identified.
The CFTC found that the Exchange was deficient with respect to its ability to maintain sufficient compliance department staff. The CFTC also recommended that the Exchange continue to examine the underlying reasons for the large number of staff departures. In addition, the CFTC recommended that the Exchange should evaluate the workload of the Chief Regulatory Officer and the Deputy CRO to ensure sufficient time and resources are allocated to the CFE’s regulatory program.
The CFTC found that the surveillance tools used by both the Exchange and its regulatory service provider, the National Futures Association (NFA), were adequate for detecting rule violations. However, it was recommended that NFA consider whether the parameters of its automated surveillance system should be customized for CFE’s markets.
The CFTC generally found the quality of the investigative work in the cases reviewed to be thorough and complete. However, the CFTC found that the Exchange was deficient with respect to its compliance with CFTC regulations which requires that the Exchange complete investigations in one year or less, absent mitigating circumstances. The CFTC also recommended that the Exchange should promptly take appropriate disciplinary action when it finds that a substantive rule violation occurred.
With respect to the communication that the Exchange is required to have with NFA regarding ongoing investigations and other matters of regulatory concern, the CFTC found that CFE was deficient in its compliance with CFTC regulation 38.154(b). The CFTC also recommended that CFE improves the documentation of all regulatory decisions made by the Exchange that differ in any respect from NFA’s recommendation.
The report is available on the CFTC’s website at CBOE RER.