The Enforcement Department (“Enforcement”) is the representative of the Chicago Stock Exchange, Inc. (the “Exchange” or “CHX”) in all disciplinary matters. Through an effective disciplinary process, Enforcement seeks to protect investors and maintain the integrity of the markets. Enforcement proceedings generally arise as a result of referrals from either the Market Regulation or the Member Regulation Departments. On some occasions, inquiries may also be initiated by Enforcement personnel themselves. Under Exchange Rules, Enforcement staff is authorized to compel the production of documents or other information from Participants and individuals associated with Participants. Additionally, the Exchange is authorized to conduct informal interviews of persons associated with Participants, or take their sworn testimony.
Before it seeks to impose a disciplinary sanction, the Enforcement staff may seek the input of Participants to ensure that no relevant facts or legal arguments have been overlooked. This procedure is commonly known as the “Wells” process.
Enforcement has the ability to seek a variety of sanctions as a result of violations of Securities and Exchange Commission and CHX Rules and regulations by Participants or individuals associated with Participants. In instances when there is an isolated violation, which is minor in nature, by a Participant which generally has a strong culture of compliance, Enforcement may issue a Warning Letter or require that the Officers of the Participant attend a Compliance Conference. Under CHX Article 12, Rule 8, violations of certain provisions of CHX Rules can be handled according to the Minor Rule Violation Plan (“MRVP”). MRVP actions are generally reserved for circumstances involving violative conduct of an isolated nature or where there is minimal or no investor or market harm. Pursuant to this Plan, violations of specified rules can be punished by fines not exceeding $2,500 per violation. In appropriate circumstances, Enforcement staff may recommend that a particular matter be disposed through the MRVP process. Under Article 12, Rule 2, the Exchange also has the authority to issue Summary Fines of up to $500 per violation for violations of any CHX Rule. If a participant elects to contest the imposition of either a MRVP action or Summary Fine, the participant can request a hearing, which will result in the issuance of a Statement of Charges and a hearing before a Hearing Officer.
For more significant violations, a widespread pattern or practice of misconduct or repeated violations, the Enforcement Staff can initiate a formal disciplinary proceeding under CHX Article 12, Rule 1.
Such actions may be settled with the agreement of the parties or may proceed to an evidentiary hearing before a Hearing Officer. Upon conclusion of the hearing, the Hearing Officer will issue an Order finding violations and imposing sanctions or dismissing the charges against the Respondent. Available sanctions include censures, monetary fines, suspensions or expulsions from membership, disgorgement of unlawfully-obtained profits, the payment of restitution to customers with identifiable harm, the imposition of various limitations on business conduct and a variety of remedial undertakings, such as the requirement to hire a consultant to improve a Participant’s internal compliance processes and systems.
The Hearing Officer’s Order can be appealed by the Respondents or Enforcement to a Judiciary Committee of the Board of Directors or, if the Judiciary Committee chooses, to the Board of Directors. Once the Exchange's action is final, an Order can be appealed to the U.S. Securities and Exchange Commission for further review and, thereafter, to the Federal Courts. Copies of recent disciplinary orders are available on this site.