The Chicago Board Options Exchange launched an inquiry into the activities of traders on its markets, examining several years of potential rule violations in the handling of stock-options orders.  In mid-March, the SEC investigated CBOE's compliance operations - a probe that resulted in the resignations of 2 CBOE compliance executives. CBOE's Internal Investigations. Market Regulation Division last week notified each firm doing business on CBOE that it was conducting a review into "apparent violations" of rules over the 3-year period ended January 2012. CBOE, which runs the biggest U.S. stock-options exchange by volume, was itself just investigated by the SEC, which looked into how CBOE had been fulfilling its regulatory obligations to supervise registered trading firms, according to documents CBOE filed with regulators in late February. Fallout From SEC Probes. In response to that SEC inquiry, 2 high-ranking CBOE officials resigned from the exchange.  Senior compliance executive Patrick Fay resigned, spokeswoman Gail Osten said in an e-mailed statement.  Mr. Fay, an SVP for member and regulatory services since 2006, was among 10 "executive officers" listed on CBOE’s website.  He had rejoined the company in 2004 after 19 months at NQLX LLC.  Before that, he spent 18 years with CBOE, according to the website. Second to leave amid the SEC's regulatory investigation, was Linda Gerdes, who was dismissed this month from her position as head of the CBOE's market-regulation department.  Ms. Gerdes confirmed her departure, but provided no other details. CBOE Internal Review Objectives. CBOE's own inquiry is focusing on members' rules that govern the way stock-options orders are prioritized and allocated, including trades involving options on the S&P 500 stock index, according to the letter.  According to many of the CBOE members that received the inquiry letter, the probe appeared to focus on trading carried out at CBOE's Chicago-based trading pits. Brokers that carry out options orders initiated by retail traders and asset managers operate under rules for the way trades are carried out on CBOE's floor.  Generally, floor brokers representing customer orders in trading pits need to make sure all participants are aware of a potential trade and make the transaction at the best available price, giving priority to the first trader to respond. Focus on S&P 500 Options. The letter's reference to rules concerning options on the S&P 500 suggested that CBOE authorities were looking at activity carried out in the pit set up for those products, according to people familiar with the matter.  CBOE's SPX pit is home to the most heavily traded stock index option in the country, which trades at the CBOE exclusively due to a longstanding license with S&P parent McGraw-Hill Cos. Probing the behavior of floor traders deviates from federal regulators' recent focus on electronic trading practices, which has drawn in other major exchange groups.  The SEC is examining electronic order types offered by automated exchange companies - ATS's Bats Global Markets and Direct Edge. In recent months, CBOE has sought to strengthen its compliance division by filling a raft of positions, including a CCO, a deputy chief regulatory officer, and a chief examiner. For further details, go to:  [WSJ, 4/5/12],  [Reuters, 3/20/12], [Bloomberg, 3/12/12].