BEFORE THE BUSINESS CONDUCT COMMITTEE OF THE CHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED

Transcription

1 BEFORE THE BUSINESS CONDUCT COMMITTEE OF THE CHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED : In the Matter of: : : Red Cedar Trading, LLC : 520 Lake Cook Road : File No.: Suite 110 : Star No Deerfield, IL : Respondent. : : BCC HEARING PANEL: COUNSEL: For the Exchange 1 : For the Respondent: Bruce I. Andrews, Hearing Panel Chairman Edward Kelly, Hearing Panel Member Kenneth Wagner, Hearing Panel Member Andrew D. Spiwak Kerry Ann P. Adler Michael M. Zmora FINRA Dept. of Market Regulation/Legal On behalf of Chicago Board Options Exchange, Incorporated 440 South LaSalle Street 35 th Floor Chicago, Illinois Edward Keiley Red Cedar Trading, LLC 520 Lake Cook Road, Suite 110 Deerfield, IL For the Business Conduct Committee: Richard S. Klott Law Office of Richard S. Klott 1556 Gordon Terrace Deerfield, Illinois DECISION AND ORDER I. PROCEDURAL BACKGROUND. The Business Conduct Committee (the BCC or the Committee ) of the Chicago Board Options Exchange, Incorporated ( CBOE or the Exchange ) instituted this disciplinary 1 The Financial Industry Regulatory Authority ( FINRA ), a self-regulatory organization for the securities industry, is handling this matter on behalf of the Chicago Board Options Exchange, Incorporated pursuant to a Regulatory Services Agreement with the Chicago Board Options Exchange, Incorporated effective January 1, Page 1

2 proceeding against the Respondent, Red Cedar Trading, LLC ( Red Cedar or the Firm ) under Chapter 17 of the Exchange s rules ( Exchange Rules or CBOE Rules ). On July 10, 2014, pursuant to the authorization of the BCC, the CBOE Office of Enforcement ( Enforcement ) issued a Statement of Charges ( SOC or the Charges ) in File No (Star No ) against Red Cedar 2 for certain alleged violations of Exchange Rules 3.6A Qualification and Registration of Trading Permit Holders and Associated Persons and 15.1 Maintenance, Retention and Furnishing of Books, Records and Other Information. Red Cedar filed a timely Answer on July 28, Pursuant to Exchange Rule 17.6, a one-day hearing (the Hearing ) was held at the CBOE in Chicago, Illinois on May 19, 2015 before the Hearing Panel consisting of three members of the BCC. During the course of the Hearing, both the Exchange and the Respondent were given a full opportunity to present evidence pertaining to the Charges. The Hearing record consists of 58 pages of transcript, including the testimony of 2 witnesses, as well as 22 exhibits which the Hearing Panel admitted into evidence. In accordance with Exchange Rule 17.9, the Hearing Panel subsequently presented its findings, conclusions, and sanction recommendation to a majority of the Committee. II. III. STANDARD OF PROOF This Decision and Order represents the decision of a majority of the members of the Hearing Panel (after a hearing on the Charges) and the BCC and the findings and conclusions herein are based solely on the entire record established during the Hearing held in this matter. The Exchange has the burden of proof and that burden is met if the Exchange establishes its claims by a preponderance of evidence. The Hearing Panel and the BCC have applied preponderance of the evidence as the applicable standard of proof. Steadman v. SEC, 450 U.S. 91, (1981). THE CHARGES. In the Charges 3, the Exchange alleged that Red Cedar violated Exchange Rules 3.6A 4 and 15.1 in that Red Cedar failed to designate its Chief Compliance Officer on Schedule A of its Form BD in a timely manner. A. In particular, the Charges alleged the following facts and violations. During all relevant periods described in the Charges: 2 CX 1 (Statement of Charges for CBOE File No [Star No ] dated July 10, 2014). 3 4 Rule 3.6A provides, in relevant part, that each Trading Permit Holder and TPH organization that is a registered broker-dealer shall designate a Chief Compliance Officer on Schedule A of Form BD. Page 2

3 1. Red Cedar was an Exchange Trading Permit Holder registered to conduct business on the Exchange as a Market-Maker; 2. Red Cedar was acting as a registered broker-dealer 5 ; 3. Exchange Rules 3.6A Qualification and Registration of Trading Permit Holders and Associated Persons and 15.1 Maintenance, Retention and Furnishing of Books and Other Information were in full force and effect; 4. The Exchange conducted an Associated Persons Sweep Examination of Red Cedar that reviewed, among other things, Red Cedar s compliance with Exchange Rule 3.6A(c); 5. Exchange Rule 3.6A provides in relevant part, that each Trading Permit Holder and TPH organization that is a registered broker-dealer shall designate a Chief Compliance Officer on Schedule A of Form BD; 6 and 6. Red Cedar failed to designate its Chief Compliance Officer on Schedule A of its Form BD in a timely manner. 7 IV. DOCUMENTARY EVIDENCE AND TESTIMONY PRESENTED 8 AT THE HEARING. 9 A. During the Hearing, the Hearing Panel Admitted Into Evidence the Following: 1. Tabs 1 through 19 contained in CBOE s Exhibit Binder (titled Complainant s Exhibits ) as Exchange Exhibits 1 through 19; and 5 Red Cedar terminated its Exchange Trading Permit Holder status on or about February 1, See Securities Exchange Act Release No (November 12, 2010), 75 FR (November 19, 2010 (SR- CBOE ). 7 Red Cedar designated a Chief Compliance Officer on Form BD on or about March 9, SR-CBOE was approved on November 12, This Decision refers to the transcript of Hearing testimony as Tr. and cites the relevant page or pages. A reference to the Hearing transcript includes a parenthetical identifying the witness or speaker. e.g., Tr. (Smith) [page number(s)]. All transcript cites are to the transcript page numbers, not the exhibit page numbers. The Decision refers to exhibits using a prefix to identify the proponent. The Exchange s exhibit references are identified by the prefix CX-1 et seq. The Respondent s exhibit references are identified by the prefix RX-1 et seq. There were no post- Hearing briefs relating to the charges against the Respondent. 9 The facts contained herein are either undisputed or are findings based upon the documentary evidence and the credibility or believability of each witness. The credibility determinations were made after consideration of all the circumstances under which the witness testified, including: the relationship of the witness to the parties; the interest, if any the witness has in the outcome of the proceeding; the witness s appearance, demeanor, and manner while testifying; the witness s apparent candor and fairness, or lack thereof; the reasonableness or unreasonableness of the witness s testimony; the opportunity of the witness to observe or acquire knowledge concerning the facts to which he or she testified; the extent to which the witness was contradicted or supported by other credible evidence; and whether such contradiction related to an important detail at issue. When necessary, this Decision specifically addresses the credibility of a witness or the weight given to a witness s testimony. Page 3

4 2. Respondent s Exhibits 1-3. B. The Hearing Panel Also Heard Testimony at the Hearing From the Following Individuals: 1. Robert Gardner ( Mr. Gardner ) (Associate Director, FINRA, Department of Member Firm Regulation); and 2. Edward H. Keiley ( Mr. Keiley ) (Compliance Officer, Red Cedar Trading, LLC). Upon the basis of the admitted facts, documentary evidence admitted into evidence and testimony presented at the Hearing, a majority of the Hearing Panel found and a majority of the Committee finds that the Respondent, Red Cedar violated CBOE Rules 3.6A and 15.1 in that Red Cedar failed to designate its Chief Compliance Officer on Schedule A of Form BD in a timely manner. The Hearing Panel has considered and rejects without discussion any other arguments made by the Parties that are inconsistent with this Hearing Decision. V. BACKGROUND OF THE RESPONDENT. 1. The Respondent is an Illinois limited liability company. 2. During the relevant periods described in the Charges, Red Cedar was an Exchange Trading Permit Holder ( TPH ) organization that was registered to conduct business on the Exchange as a Market-Maker and was acting as a Broker-Dealer Red Cedar is registered with the Securities Exchange Commission ( SEC or Commission ) since August 13, 2003 (Exch. Ex. 7) and had been a CBOE member since March 1, and terminated its CBOE TPH on February 1, Red Cedar is also registered with multiple equity and options exchanges including; the BATS Z-Exchange and the NASDAQ OMX PHLX. 13 VI. TESTIMONY AND EVIDENCE PRESENTED. A. Robert Gardner s Testimony. Mr. Gardner, an Associate Director in FINRA s Department of Member Firm Regulation has a bachelor s degree in accounting and business administration and a Master of Business 10 CX-1 at 2 1 & 2 (Statement of Charges for CBOE File No [Star No ] dated July 10, 2014). 11 CX-3 at 1 (Red Cedar Trading, LLC Application for Member Organization and Organization Consent to Jurisdiction [3/1/2006]). 12 CX-7 (Red Cedar Trading, LLC WebCRD Organization Registration Status). 13 Page 4

5 Administration degree from Northern Illinois University and is a certified public accountant. Prior to Mr. Gardner s employment with FINRA, he was employed with the CBOE. As of June 1, 2015, Mr. Gardner will have been employed in the industry for 28 years. 14 In 1987, Mr. Gardner joined the CBOE as an examiner and then over the years, he worked his way up to the positions of senior examiner, supervisor, manager and director. 15 Mr. Gardner has acted in a supervisory capacity for approximately 20 years. 16 In his supervisory roles, both at CBOE and FINRA, Mr. Gardner typically oversees approximately 50 examinations per year which cover the SEC s new capital rule, customer protection rule, books and records rules, money laundering, insider trading, internal controls, electronic communications and storage, and registration. 17 As part of his examination oversight, Mr. Gardner has generally overseen sweep examinations. Mr. Gardner testified that in a sweep examination ( Sweep Examination or Sweep Exam ) if there s a new rule or amendment to a rule with a specific compliance date that would impact the whole membership, rather than wait until a member is scheduled for an examination that could go out as far as two years, the Exchange would initiate a Sweep Examination of all Exchange members that would have a narrow scope of the Exchange s Trading Permit Holder s compliance with the new rule or the amendment to an existing rule. 18 During the Sweep Examination, Mr. Gardner supervised the work, made sure all the request letters were sent out and that all of the requested information was received. 19 The specific purpose of the Sweep Examination was to require Associated Persons of a TPH, that either traded or supervised traders, to be registered as an Associated Person and additionally, that the TPH would identify the chief compliance officer ( CCO ) on Schedule A of Form BD. The rule filing requiring designation of a CCO on Schedule A of Form BD became effective in November, 2010 and compliance with this provision was one of the focal points of the Sweep Examination. 20 Specifically, CBOE Rule 3.6A, the Exchange s registration rule, provides that each TPH and TPH organization that is a registered broker-dealer shall designate the CCO officer on Schedule A of Form BD Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Page 5

6 Mr. Gardner testified that the SEC s approval order 22 adopted, as part of the Exchange s rule filing, the requirement to designate a CCO on Schedule A of Form BD and that as of November, 2010, a CBOE TPH was required to designate a CCO on Schedule A of Form BD. 23 Mr. Gardner further testified that Red Cedar, a broker-dealer and a CBOE TPH, was a subject in the Sweep Examination and that he supervised the Sweep Examination as it related to Red Cedar Trading. 24 Mr. Gardner explained that Red Cedar, as an Exchange TPH, had an obligation to comply with the Exchange s rules due to the fact that Red Cedar consented to the Exchange s jurisdiction when it became a CBOE member 25 and that as part of its consent to jurisdiction, Red Cedar agreed to abide by CBOE s constitution and rules. 26 Mr. Gardner testified that the Exchange s staff found that Red Cedar failed to identify a CCO on Schedule A of Form BD. The Exchange s staff also found a books and records violation by Red Cedar for failing to maintain an accurate Form BD. 27 Mr. Gardner also testified that he reviewed and agreed with these findings and that after senior Exchange regulatory staff reviewed and approved these findings, a Wells notification letter was issued to Red Cedar on April 30, The BCC ultimately determined to authorize the issuance of a Statement of Charges where there were similar violations for the failure to designate a CCO on Schedule A of Form BD. 29 Red Cedar submitted an Answer to the Statement of Charges in which it stated [t]he statement of charges fails to mention or site (sic) the instructions listed in Schedule A of Form BD and also fails to instruct that the chief compliance officer be designated using those exact words under 3.6A(c) on Schedule A of Form BD. 30 Mr. Gardner testified that on Red Cedar s Form BD dated January 13, 2010, the Title or Status on this Form BD identified Mr. Keiley as FINOP, AML, COMPLIANCE and he did not see any identification of a CCO on Schedule A of Form BD. 31 According to Mr. Gardner, the listing of Mr. Keiley as FINOP, AML or COMPLIANCE did not satisfy the obligation to 22 CX-9 (Order Approving Proposed Rule Change Regarding Registration and Qualification Requirements for Associated Persons (CBOE Rule 3.6A) [Release No ; File No. SR-CBOE ]). 23 Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at 20; CX-13 (CBOE Rule 17.2 Notification Letter dated April 30, 2012). On May 15, 2012, the Red Cedar filed its Response Letter to the Exchange s Wells notification. 29 Tr. (Gardner) at 20-21; CX-1 at 3 (Statement of Charges for CBOE File No [Star No ] dated July 10, 2014). 30 Tr. (Gardner) at 21-22; CX-2 at 1-2 (Red Cedar Trading, LLC Answer to Statement of Charges). 31 Tr. (Gardner) at 22; CX-5 at 5 (Red Cedar Trading, LLC Form BD Amendment dated January 13, 2010). Page 6

7 designate a CCO on Form BD. 32 Mr. Gardner further testified that in the Mr. Keiley s statement made in the Firm s Response to the Wells notification letter, Mr. Gardner would not understand the word compliance to mean an officer or the chief compliance officer as required by CBOE Rule 3.6A. To Mr. Gardner s knowledge and understanding, the reference to compliance could suggest other potential roles such as a compliance manager or an independent contractor doing compliance work for the firm and that those roles would not be considered a CCO. 33 In addition, to Mr. Gardner s knowledge and understanding, Mr. Keiley functions in an independent contractor capacity; that he provides various services to multiple broker-dealers; and that the type of services Mr. Keiley provides to his broker-dealer clients would be FINOP work, compliance work and AML. 34 Also, as Mr. Keiley is an independent contractor, Mr. Gardner testified that he would not automatically assume that reference to compliance would designate Mr. Keiley as a CCO of a broker-dealer. 35 Mr. Gardner also testified that Mr. Keiley s Title or Status added on Schedule C of Red Cedar s March 9, 2012 Form BD was CCO, FINOP, AML Officer, CFO. 36 During the course of the Sweep Examination while Red Cedar was a CBOE TPH, Mr. Gardner testified that Red Cedar never complied with the obligation to designate a CCO on Schedule A of Form BD 37 and that under CBOE Rule 3.6A, there is also an obligation to register and qualify a CCO as a proprietary trader compliance officer or CT which is distinct from the obligation to designate a CCO on Schedule A of Form BD. 38 Mr. Gardner also testified that under CBOE Rule 3.6A, the deadline to qualify and register an individual as a proprietary trader compliance officer or CT was November 5, while the requirement to designate a CCO went into effect in November, 2010 and that the requirement to register and qualify in the specified categories of registration went into effect when those specific categories became available in WebCRD. 40 Mr. Gardner finally testified that he did not believe that there was any relevance that Mr. Keiley was registered as a proprietary trader compliance officer Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at Tr. (Gardner) at 26; CX-12 at 6 (Red Cedar Trading, LLC Form BD Amendment dated March 9, 2012). 37 Tr. (Gardner) at Tr. (Gardner) at 37 and Tr. (Gardner) at 38-39; CX-19 (CBOE Regulatory Circular RG dated November 4, 2011 Re: Deadline to Comply with Registration and Qualification Requirements & Limited Extension). 40 Tr. (Gardner) at Page 7

8 B. Edward Keiley s Testimony. The Respondent, Red Cedar elected not to call any witnesses, 42 however, Mr. Keiley was sworn in as a witness and answered several questions from Hearing Panel and the Exchange s staff. First, one of Hearing Panel Members questioned Mr. Keiley as to why the personnel roster, on page 3 of Exchange Exhibit 11, listed him only as the FINOP and not FINOP, CCO AML or FINOP compliance AML. Mr. Keiley answered that he did not recall that document but that it looked like [that] would have been something for an exam response or a [personnel] roster of the firm and the registration and he also said that typically when an exam starts, the financials are the first component, so the FINOP is the one where they reach out and that s probably why I was listed as FINOP. 43 A Hearing Panel Member then asked Mr. Keiley about the purpose of the January 2010 amendment to Form BD and whether that amendment reflected FINOP AML compliance. Mr. Keiley responded that 2010, maybe it was with AML because AML was the designated officer and Schedule A of Form BD says officers. Even though it s not a requirement of [CBOE Rule] 3.6A up until that time, it still is an officer, so I felt it was important to disclose an officer position I m looking at [the] SEC [jurisdiction] which would supersede the CBOE jurisdiction, so I m kind of juggling both SROs when completing the form. 44 Finally, when the Hearing Panel Member asked Mr. Keiley if that is the same reason why he included FINOP on the Schedule A of Form BD even though it appears not to have been required, Mr. Keiley responded that the financial and operations principal is synonymous with CFO, so I would consider that a designated officer as well. 45 Next, the Hearing Panel Chairman asked Mr. Keiley whether Red Cedar designated him as an officer and Mr. Keiley responded that there may be a conflict between the securities registration and Red Cedar s operating agreement. Mr. Keiley testified that Red Cedar s single-member limited liability company operating agreement lists Scott Resnick, however on Schedule A of Form BD, there s a code as a control person as well as ownership. And that ownership category clearly states [on page 2 (sic) of the Exchange s] Exhibit 14 that my ownership was less than five percent, or NA [b]ut I have no ownership in the entity. And the control person for the operating 42 Tr. (Keiley) at Tr. (Keiley) at Page 8

9 agreement would be Scott Resnick. But as far as the operating agreement stating me as a compliance officer, [the answer] is no. 46 After the Hearing Panel s questions, Exchange staff questioned Mr. Keiley. Exchange Staff first pointed out to Mr. Keiley that in his April 25, 2011 letter to Mr. Tyson Wilson, Chief Examiner in the CBOE Department of Market Regulation, Mr. Keiley stated in the first bullet of the letter s second section that [t]he firm has established a supervisory chain of command which includes a Chief Compliance Officer, AML Officer, FINOP, and Trading Supervisor 47 and that nowhere in this letter or the attached personnel roster was Mr. Keiley identified as that chief compliance officer. Mr. Keiley admitted that this was correct, but that the personnel roster was a totally separate document used for other purposes as it relates to my designation for the firm or my capacity. 48 Exchange staff asked Mr. Keiley whether it was correct that he submitted to the Exchange the personnel roster listing the position within the firm for purposes of responding to an Exchange examination and Mr. Keiley responded Correct. But I m sure I could find other rosters that I ve submitted to the Exchange that do list my title as CCO. 49 Exchange staff then asked Mr. Keiley whether it was correct that his April 25, 2011 letter to Mr. Tyson Wilson, with the attached personnel roster, was his response to the Sweep Examination that he ed on April 26, 2011 and that the subject of the is Red Cedar Trading CBOE Sweep Exam Response and Mr. Keiley answered Correct. 50 Exchange staff next questioned Mr. Keiley about his earlier testimony in which he said that the obligations in Schedule A of Form BD supersede the CBOE obligation to jurisdiction; and Exchange staff asked him whether it was correct that [Red Cedar] has an obligation to comply with both SEC rules and CBOE rules as a CBOE TPH and Mr. Keiley answered Correct. 51 VII. DISCUSSION, FINDINGS AND CONCLUSIONS. This case involves the alleged failure of Red Cedar to designate its Chief Compliance Officer on Schedule A of Form BD as explicitly required by CBOE Rule 3.6A. Hence, the issue facing the Hearing Panel is whether Red Cedar complied with CBOE Rule 3.6A s explicit obligation to designate a chief compliance officer on Schedule A of Form BD. A majority of the Hearing Panel finds that Red Cedar did not comply with this obligation and as the evidence 46 Tr. (Keiley) at CX-11 at 2 ( from E. Keiley to T. Wilson encl. Response to Sweep Examination Notification Letter dated April 25, 2011). 48 Tr. (Keiley) at Tr. (Keiley) at Page 9

10 presented at the Hearing has demonstrated, a majority of the Hearing Panel finds that Red Cedar was, at the time of the Sweep Examination, both a CBOE TPH and a broker-dealer and for that reason was subject to the requirements of CBOE Rule 3.6A. Therefore, consistent with the testimony and evidence provided at the Hearing, a majority of the Hearing Panel finds that Red Cedar did not designate its CCO on Schedule A of Form BD until March 9, 2012 (which was after Red Cedar terminated as a CBOE TPH) and thus violated CBOE Rules 3.6A and 15.1 At the Hearing, Red Cedar asserted that the word compliance satisfies the obligation under CBOE Rule 3.6A. However, the Exchange argued, that if this were the case, then why didn t CBOE Rule 3.6A explicitly require this and why wasn t CBOE Rule 3.6A limited to simply requiring a TPH to designate a compliance contact. The Exchange further argued that CBOE Rule 3.6A explicitly requires the designation of a chief compliance officer and a majority of the Hearing Panel agrees with the Exchange. Additionally, a majority of the Hearing Panel disagrees with Red Cedar s argument that the word compliance should be assumed to mean a chief compliance officer. First, Mr. Keiley, as an independent contractor, provides a variety of regulatory services to multiple broker-dealers. Second, a majority of the Hearing Panel finds, as Mr. Gardner had testified, that the reference to compliance could suggest a number of different roles such as a compliance analyst or a compliance consultant and that neither of these roles would be considered a chief compliance officer. In support of this position, a majority of the Hearing Panel finds that the personnel roster provided by the Firm did not list Mr. Keiley as a chief compliance officer but only listed him as FINOP, a financial and operations principal. In conclusion, a majority of the Hearing Panel and a majority of the BCC find that the Exchange has met its burden of establishing by a preponderance of the evidence that Red Cedar Trading, LLC violated CBOE Rules 3.6A and VIII. SANCTIONS DISCUSSION. In its closing argument, the Exchange, noting that there is well established precedent for similar violations, presented to the Hearing Panel an overview of several case decisions, as relevant precedent, and discussed the recommended sanctions with the Hearing Panel. The case decisions referenced by the Exchange are included in Exchange Exhibits 15, 16 and 17. The first Decision cited by the Exchange is a Decision Accepting Offer of Settlement for In the Matter of Volant Liquidity, L.L.C. 52 The CBOE Business Conduct Committee imposed a 52 CX-15 (In the Matter of Volant Liquidity, L.L.C. Decision [CBOE File No ]). Page 10

11 $2,500 fine and a censure for Volant Liquidity s failure to designate a chief compliance officer on Schedule A of Form BD. The second Decision cited by the Exchange is a Decision Accepting a Letter of Consent for In the Matter of Green Coat Capital Trading, LLC. 53 In this case, the CBOE Business Conduct Committee also imposed a $2,500 fine and a censure for Green Coat Capital Trading s failure to designate a chief compliance officer on Schedule A of Form BD. The last Decision cited by the Exchange is a Decision Accepting a Letter of Consent for In the Matter of Macatawa Trading, LLC. 54 Similar to the Decisions in the Volant Liquidity and Green Coat Capital cases, the CBOE Business Conduct Committee imposed a $2,500 fine and a censure for Macatawa Trading s failure to designate a chief compliance officer on Schedule A of Form BD. In view of the Decisions identified above, the Exchange recommended to the Hearing Panel that if it found by a preponderance of the evidence that Red Cedar violated CBOE Rules 3.6A and 15.1, that the Hearing Panel impose sanctions of a $7,500 fine and a censure of the Respondent. Whereas the cited precedent cases were resolved without admitting or denying the allegations, the Exchange, in recommending these sanctions, considered that the Hearing Panel would be making a finding of violation of CBOE Rules 3.6A and 15.1, thus warranting a higher fine. The Exchange also asserted that the recommended sanctions take into account the time and expense involved by the Exchange staff to prepare for the Hearing. In determining a reasonable and appropriate penalty, the Hearing Panel considered the factors enumerated in Exchange Rule Judgment and Sanction and the facts, evidence and arguments presented by the parties during the Hearing. The Hearing Panel and the BCC also considered each and every case regarding the sanctions that were presented by the Exchange. Additionally, in determining a reasonable and appropriate penalty, the Hearing Panel and the BCC were mindful of the factors that the Second Circuit Court of Appeals in the McCarthy 55 case held should be taken into account and have taken into account various relevant factors in deciding whether the sanction(s) is appropriately remedial and not excessive and punitive CX-16 (In the Matter of Green Coat Capital Trading, LLC Decision [CBOE File No ]). 54 CX-17 (In the Matter of Macatawa Trading, LLC Decision [CBOE File No ]). 55 McCarthy v. SEC, 406 F.3d 179 (2d Cir.2005). 56 Page 11

12 The Hearing Panel and the BCC, by majority vote, finds that, in view of all of the foregoing relevant circumstances and the above findings, a reasonable and appropriate sanction for Red Cedar Trading, LLC s violations of CBOE Rules 3.6A and 15.1 shall be as follows: 1. A censure; and 2. A $7,500 fine. ORDER ACCORDINGLY, IT IS ORDERED THAT, the Respondent, Red Cedar Trading, LLC shall be and hereby is censured and fined in the amount of Seven Thousand Five Hundred Dollars ($7,500). SO ORDERED FOR THE BUSINESS CONDUCT COMMITTEE /s/ Bruce Andrews Dated: November 18, 2015 Bruce Andrews, Chairman Page 12