01.02.2015
By Terry Flanagan

Finra Takes On Options Surveillance

The Financial Industry Regulatory Authority has signed an agreement with the Chicago Board Options Exchange and C2 Options Exchange to provide market surveillance, financial surveillance, examinations, investigations, and disciplinary services to CBOE and C2, in addition to other regulatory services.

Finra, the independent, non-governmental regulator for all securities firms doing business with the public in the United States, was scheduled to perform these services beginning on January 1, 2015.

“We are pleased to work with CBOE and C2 to protect the investing public,” said Finra chairman and CEO Richard Ketchum, in a statement. “With this agreement, Finra will be in a position to conduct cross-market surveillance on approximately 60 percent of the options market. Finra looks forward to working with CBOE to detect and deter manipulative and abusive trading, and ensure the integrity of our markets.”

Through comprehensive cross-market surveillance, Finra is able to identify instances where a market participant engages in potentially abusive conduct on two or more markets in an attempt to avoid detection, according to a release.

Finra’s cross-market surveillance patterns currently canvass over 99 percent of the listed equities market, and with the agreement, Finra will be positioned to detect cross-product (equity and options) manipulation.

Additionally, Finra will be taking over responsibility for the Options Regulatory Surveillance Authority industry options insider trading program, a change which was recently approved by the ORSA participants that represent all 12 options markets. Finra plans to integrate the options insider trading program with Finra’s current equity insider trading program. As a result, FInra will conduct surveillance for insider trading for all equities and options trading in the United States.

The vast majority of CBOE’s and C2’s Regulatory Services Division staff, ORSA staff, and Systems Development Department staff who support options regulation – about 125 employees in total – have accepted positions with Finra.

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