(September 11 – 17:00 ET) – The Securities and Exchange Commission and the U.S. Dept. of Justice have sanctioned the four floor-based options exchanges for engaging in anticompetitive activities, ordering them to spend US$77 million in surveillance and enforcement.

The SEC says the American Stock Exchange LLC, the Chicago Board Options Exchange, Inc., the Pacific Exchange Inc. and the Philadelphia Stock Exchange Inc. engaged in anticompetitive behaviour by not listing options already listed on another exchange. The four exchanges were also hit for failing adequately to enforce compliance with their own rules. The exchanges agreed to the censure and undertakings without admitting or denying the SEC’s findings.

The Antitrust Division of the DOJ has filed a lawsuit in the U.S. District Court in Washington, D.C. against the four exchanges, alleging that their conduct violated antitrust laws. The four agreed to a consent decree in the suit that, if approved by the court, would resolve the lawsuit and provide for relief.

The SEC found that not only would the exchanges not list other options, they rebuffed proposals by their member firms to list options listed on another exchange, and, in some instances, “threatened or harassed the member firms that made such proposals”. The SEC also found the exchanges did not effectively enforce priority rules, firm quote rules, limit order display rules, trade reporting rules and policies against harassment and intimidation. These violations were uncovered as part of the commission’s routine inspection program.

The exchanges have agreed to a number of undertakings such as:

  • implementing a consolidated options audit trail system;
  • modifying the rules to facilitate competition in listings; and
  • enhancing and improving surveillance, investigative and enforcement processes.

The exchanges have committed to spend a total of US$77 million in 2000 and 2001. Amex will spend US$22 million, CBOE US$34 million, Pacex US$13 million, and Philadelphia will spend US$8 million.

“Investors rely on vibrant competition among our options markets to drive prices to fair and efficient levels, and to fuel technological innovation. The proceedings announced today underscore the commitment of the Commission and the Department of Justice to take action where impediments to competition are found, said SEC chairman Arthur Levitt.
-IE Staff