Cboe Exchange, Inc has published a notice of disciplinary action against CIBC World Markets Corp.
The matter originated from a review of CIBC’s use of the Options Clearing Corporation’s (OCC) options position adjustment process.
From in or around March 2016 through in or around December 2019, CIBC used the OCC adjustment process in 20 instances to change the prices of trades that had executed on an exchange to the held prices it had agreed to with its customers in writing. The held prices were communicated to a floor broker, who in turn was not able to execute at those prices.
In 16 of these instances, the adjustments resulted in the Firm’s customers receiving prices that were better than what executed on exchanges. In four instances, however, the adjustments resulted in its customers, including a Firm affiliate, receiving prices that were worse than what executed on an exchange.
CIBC’s OCC adjustments constituted transactions in listed option contracts off of the Exchange. These adjustments potentially harmed the Exchange, and other market participants, in that they denied other market participants the opportunity to trade the options in the open market, thereby foregoing potential price improvement. Further, the adjustments were not made to correct bona fide errors, and as such were made for a purpose other than one permitted by Exchange Rules and OCC By-Laws.
The acts, practices, and conduct described above constitute violations of Cboe Rules 4.2, 5.12, 8.1, and 8.2, and OCC By-Laws Article VI, Section 1 by the Firm.
During the relevant period, CIBC did not establish sufficient supervisory procedures regarding its use of the OCC adjustment process. The Firm had in place procedures regarding its accommodation account, which it used as part of the adjustment process. However, those procedures were not consistent with Interpretations and Policies .01(a) to OCC By-Laws Article VI, Section 1, since they permitted adjustments, after supervisory review and sign-off, for purposes other than to correct bona fide errors in trades that were previously submitted to the OCC.
These acts, practices and conduct constitute violations of Exchange Rule 8.16 by the Firm.
Cboe notes that CIBC does not have any prior relevant disciplinary history specifically related to improper use of the OCC adjustment process.
In light of the alleged rule violations, CIBC consents to the imposition of the following sanctions:
- A censure; and
- A monetary fine in the amount of $80,000.
