I. Overview of Regulatory Operations Division
As a registered national stock exchange, the Chicago Stock Exchange, Inc. (the "Exchange" or “CHX”) is responsible for ensuring that Participants comply with the Rules of the Exchange and applicable provisions of the Securities Exchange Act of 1934 ("Exchange Act"). A fundamental goal of the Exchange is the fair and effective discharge of these responsibilities. The adherence to the rules and regulations governing the securities industry and maintenance of the highest ethical standards serves to protect public investors, enhances confidence in the securities markets and contributes to full and fair competition among market centers. Within the organizational structure of CHX, responsibility for performing the oversight function has been delegated to the Regulatory Operations Division. One principal focus of the Regulatory Operations Division is to ensure that the trading activity on the facilities of the Exchange complies with all applicable CHX and Exchange Act Rules. The professionals within the Regulatory Operations Division are dedicated to fulfilling the Exchange's responsibilities as a self-regulatory body.
The Regulatory Operations Division is headed by the Chief Compliance Officer/Chief Regulatory Officer. The Regulatory Operations Division is composed of four separate Departments, which are the Market Regulation Department, the Member Regulation Department, the Compliance Department and the Enforcement Department. Each of these Departments has a specialized purpose and function.
The Market Regulation Department consists of the Surveillance Unit and the Market Regulation Trading Examination (“MRTE”) Unit. The Surveillance Unit reviews various trading activity and exception reports on a daily or periodic basis to identify potential violations of various regulatory provisions applicable to Exchange Participants, in particular those Participants conducting business on or through the CHX Matching System. The MRTE Unit conducts routine, cause and sweep examinations of Exchange Participant to ensure that Participants are complying with the trading Rules and reasonably supervising trading activity.
The Member Regulation Department consists of the Member Regulation Compliance Examination (“MRCE”) Unit, the Participant Services Unit and the Listings Unit. The MRCE Unit conducts annual routine and for-cause examinations of Exchange Participants, which have selected the CHX as their Designated Examination Authority (“DEA”). In addition, the Member Regulation Department is responsible for reviewing financial filings by Exchange Participants which have selected the CHX as their DEA.
The Participant Services Unit administers the application process of prospective participants; establishes trading acronyms for approved participants; and distributes notices of approved participants who have been assigned trading permits. In addition, the Participant Services Unit maintains a database of historical information on trading permits, voting designees, Participant firms, and registration of issues for CHX registered Market Maker Participants.
The Listings Unit administers the Exchange's listing program, in that it: assures the addition and deletion of issues to the Exchange’s Matching System; processes applications for companies desirous to list on CHX, as well as, applications by currently listed companies to list additional shares; and maintains a historical database of listed and UTP issues traded on CHX.
The Compliance Department is responsible for planning, directing, and managing all aspects of CHX’s Compliance Program. Responsibilities include establishing and implementing policies and procedures reasonably designed to ensure that CHX fulfills its compliance and regulatory obligations; and serving as the primary point of contact for the U.S. Securities and Exchange Commission (“SEC”) regarding CHX’s compliance and regulatory obligations.
The Enforcement Department conducts in-depth inquiries and prosecutes disciplinary matters on behalf of the Exchange, which are referred to it by the Market Regulation Department, the Member Regulation Department and other Departments. The Enforcement Department also administers the Exchange’s Arbitration Program.
II. Governance of the Regulatory Operations Division
The Regulatory Operations Division is headed by the Exchange’s Chief Compliance Officer/Chief Regulatory Officer, who in turn reports to the Chief Executive Officer. The operations of the Regulatory Operations Division are also overseen by the Regulatory Oversight Committee ("ROC"), which is a seven person sub-committee of the CHX Board of Directors. The Chairman of the ROC is a public director. The ROC is responsible for reviewing the design and implementation of CHX’s regulatory programs to promote and enforce compliance with CHX Rules of the Exchange and SEC laws and regulations promulgated thereunder. The ROC assists the Exchange’s Board of Directors in its oversight of the Exchange’s Regulatory Operations functions and compliance with its obligations as an SRO under section 19(g)(1)(A) of the Exchange Act. The ROC also coordinates its efforts with those of the Exchange’s Audit Committee; which has primary oversight of the Exchange’s Compliance function.
The ROC meets on at least a quarterly basis to review the overall effectiveness of the Exchange's oversight function. At such meetings, the ROC reviews reports prepared by the Regulatory Operations Division regarding their activities, any reports received from regulatory entities or third parties with respect to Exchange's self-regulatory responsibilities (and any responses by the Exchange thereto), and considers any other matters bearing on the effectiveness and efficiency of CHX’s surveillance, financial compliance, examinations, listings, participant services, internal compliance and enforcement programs. Where appropriate and necessary, the ROC may make recommendations to the Board of Directors with respect to staffing and other resources for operation, budget, staffing, rules relating to the Regulatory Operations Division, or any other matter bearing on the effectiveness and efficiency of the Exchange's surveillance, financial compliance, examinations listings, participant services, internal compliance and enforcement programs. The ROC regularly reviews its activities and findings with the CHX Board of Directors.
The Exchange’s Audit Committee also has primary responsibility for assisting the Board of Directors in its oversight of the Exchange’s Compliance function. This includes a broad range of activities that the Exchange’s Chief Compliance Officer is responsible for monitoring to assure that they are conducted in a manner consistent with applicable laws, regulations and Exchange policies and procedures. The Exchange’s Audit Committee coordinates its efforts with ROC, which is primarily concerned with overseeing the Exchange’s Regulatory Operations functions and its compliance with its obligations as an SRO under section 19(g)(1) of the Exchange Act. The Exchange’s Audit Committee, as part of its oversight responsibility, reviews reports prepared by the Chief Compliance Officer and meets with the Chief Compliance Officer periodically to assess the integrity and adequacy of the Exchange’s Compliance function.