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Obvious Error Transactions Policy


Overview

To file an Obvious Error Transaction Request for the Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX, complete and submit the online filing form.

When filing your request, please note the toll filing deadline. A phone call is not necessary prior to filing and may cause delay in the filing process.

As announced in Options Regulatory Alert #2015-14, Nasdaq has provided guidance on its Obvious Error Rule (Options Rules, Chapter V, Sec. 6 and Rule 1092) for the Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX.

Contact Information

    If you have any questions re: Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX, please contact:

  • Nasdaq PHLX at +1 215 496 5295

Erroneous Review Guidance

For Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX:

An Options Exchange Official will have deemed a transaction to be an Obvious Error if one of the following criteria is satisfied:

Obvious Error. Definition. For purposes of this Rule, an Obvious Error will be deemed to have occurred when the Exchange receives a properly submitted filing where the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:


Theoretical price Minimum Amount
Below $2.00 $0.25
$2 - $5 $0.40
Above $5 - $10 $0.50
Above $10 - $20 $0.80
Above $20 - $50 $1.00
Above $50 - $100 $1.50
Above $100 $2.00

Trading Halts. The Exchange shall nullify any transaction that occurs during a trading halt in affected option on the Exchange pursuant to Commentary .03 of this Rule.

Erroneous Print in Underlying. A trade resulting from an erroneous print(s) disseminated by the underlying market that is later nullified by that underlying market shall be adjusted or busted as set forth in sub-paragraph (c)(4) of this Rule, provided a party notifies the Exchange’s Options Exchange Officials in a timely manner as set forth below. For purposes of this paragraph, a trade resulting from an erroneous print(s) shall mean any options trade executed during a period of time for which one or more executions in the underlying security are nullified and for one second thereafter. If a party believes that it participated in an erroneous transaction resulting from an erroneous print(s) pursuant to this paragraph must notify the Exchange’s Options Exchange Officials within the timeframes set forth in sub-paragraph (c)(2) above, with the allowed notification timeframe commencing at the time of notification by the underlying market(s) nullification of transactions in the underlying security. If multiple underlying markets nullify trades in the underlying security, the allowed notification timeframe will commence at the time of the first market’s notification.

Erroneous Quote in Underlying. A trade resulting from an erroneous quote(s) in the underlying security shall be adjusted or busted as set forth in sub-paragraph (c)(4) of this Rule, provided a party notifies the Exchange’s Options Exchange Official in a timely manner as set forth below. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security during a time period encompassing two minutes before and after the dissemination of such quote. For purposes of this paragraph, the average quote width shall be determined by adding the quote widths of sample quotations at regular 15-second intervals during the four-minute time period referenced above (excluding the quote(s) in question) and dividing by the number of quotes during such time period (excluding the quote(s) in question). If a party believes that it participated in an erroneous transaction resulting from an erroneous quote(s) pursuant to this paragraph it must notify the Exchange’s Options Exchange Officials in accordance with sub-paragraph (c)(2) above.

Linkage Trades. If the Exchange routes an order pursuant to the Plan (as defined in PHLX Rule 1083(n) and NOM/BX Chapter XII, Section 1(17)) that results in a transaction on another options exchange (a “Linkage Trade”) and such options exchange subsequently nullifies or adjusts the Linkage Trade pursuant to this rules, the Exchange will perform all actions necessary to complete the nullification or adjustment of the Linkage Trade.

For Nasdaq PHLX.

Stop (and Stop-Limit) Order Trades Triggered by Erroneous Trades. Transactions resulting from the triggering of a stop or stop-limit order by an erroneous trade in an option contract shall be nullified by the Exchange, provided a party notifies an Official in a timely manner as set forth below. If a party believes that it participated in an erroneous transaction pursuant to this paragraph it must notify an Official within the timeframes set forth in sub-paragraph (c)(2) above, with the allowed notification timeframe commencing at the time of notification of the nullification of transaction(s) that triggered the stop or stop-limit order.

Verifiable Disruptions or Malfunctions of Exchange Systems. Parties to a trade may have a trade nullified or its price adjusted if it resulted from verifiable disruptions or malfunctions of Exchange execution, dissemination, or communication systems that caused a quote/order to trade in excess of its disseminated size (e.g. a quote /order that is frozen, because of an Exchange system error, and repeatedly traded). Parties to a trade may have a trade nullified or its price adjusted if it resulted from a verifiable disruption or malfunction of an Exchange dissemination or communication system that prevented a member from updating or canceling a quote/order from which the member is responsible where there is Exchange documentation providing that the member sought to update or cancel the quote/order.

Complex Order Executions. If both parties to a trade that is one component of a complex order execution are parties to all of the trades that together comprise the execution of a complex order at a single net debit or credit, then if one of those component trades can be nullified under this Rule 1092, all component trades that were part of the same complex order shall be nullified as well.

Filing Deadline

For Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX:

  • Submissions must be received for non-customer orders (firm, B/D and Professional), Specialists, ROTs, SQTs and RSQTs within 15 minutes of the execution time.
  • Submissions must be received for Customer orders within 30 minutes of the execution time.

Documentation is Required for Filing a Complaint

A complaint for Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX must include the following information:

  • Approximate time of transaction(s)
  • Option symbol(s)
  • Number of contracts executed
  • Price(s) or range of filing
  • Reason the review is being sought

Obvious Error Rulings

For Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX Options:

Mutual Agreements. The Exchange may nullify a transaction or adjust the execution price of a transaction in accordance with this Rule. However, the determination as to whether a trade was executed at an erroneous price may be made by mutual agreement of the affected parties to a particular transaction. A trade may be nullified or adjusted on the terms that all parties to a particular transaction. A trade may be nullified or adjusted on the terms that all parties to a particular transaction agree, provided, however, that such agreement to nullify or adjust must be conveyed to the Exchange in a manner prescribed by the Exchange prior to 8:30 a.m. Eastern Time on the first trading day following the execution. It is considered a conduct inconsistent with just and equitable principles of trade for any member or member organization to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder.

Definitions.

Customer. For the purposes of this Rule, a Customer shall not include any broker-dealer or professional.

Erroneous Sell/Buy Transaction. For purposes of this Rule, an “erroneous sell transaction” is one in which the price received by the person selling the option is erroneously low, and an “erroneous buy transaction” is one in which the price paid by the person is erroneously high.

Options Exchange Official. For purposes of this Rule, the term “Options Exchange Official” shall mean an Exchange staff member or contract employee designated as such by the Chief Regulatory Officer. A list of individual Options Exchange Officials shall be displayed on the Exchange website. The Chief Regulatory Officer shall maintain the list of Options Exchange Officials and update the website each time a name is added too, or deleted from, the list of Options Exchange Officials. In the event no Options Exchange Official is available to rule on a particular matter, the Chief Regulatory Officer or his/her designee shall rule on such matter.

An Options Exchange Official will determine whether there was an Obvious Error as defined above as defined above. If it is determined that an Obvious Error has occurred, the Options Exchange Official shall take of the actions listed below. Upon taking final action, the Options Exchange Official shall promptly notify all parties to the trade by e-mail or via telephone.

Adjust or Bust. If it is determined that an Obvious Error has occurred, the Exchange shall take one of the actions listed below. Upon Taking final action, the Exchange shall promptly notify all parties to the trade by e-mail or via telephone.

Customer Transactions. Where at least one party to the Obvious Error is a Customer, the trade will be nullified, subject to the following; If any member or member organization submits requests to the Exchange for review of transactions pursuant to this rule, and in aggregate that member or member organization has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, where at least one party to the Obvious Error in a non-Customer, the Exchange will apply the non-Customer adjustment criteria set forth below.

Non-Customer Transactions. Where neither party to the transaction is a Customer, the execution price of the transaction will be adjusted by the Options Exchange Official pursuant to the table below.


Theoretical Price (TP) Buy Transaction
Adjustment – TP Plus
Sell Transaction
Adjustment – TP Minus
Below $3.00 $0.15 $0.15
At or above $3.00 $0.30 $0.30

Non-Customer Transactions. Any non-Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier table below.


Number of Contracts Adjustment – Theoretical Price (TP) Plus/Minus
1 – 50 N/A
51 – 250 2 times adjustment amount
251 – 1000 2.5 times adjustment amount
1001 – more 3 times adjustment amount

Catastrophic Error Ruling

For the Nasdaq PHLX, Nasdaq Options Market and Nasdaq BX:

Catastrophic Error Definition. For the purposes of this Rule, a Catastrophic Error will be deemed to have occurred when the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:


Theoretical Price Minimum Amount
Below $2.00 $0.50
$2.00 to $5.00 $1.00
Above $5.00 to $10.00 $1.50
Above $10.00 to $20.00 $2.00
Above $20.00 to $50.00 $2.50
Above $50.00 to $100.00 $3.00
Above $100.00 $4.00

Time Deadline. A party that believes that it participated in a transaction that was the result of a Catastrophic Error must notify the Exchange’s Options Exchange Officials in a manner specified from time to time by the Exchange on its website. Such notification must be received by the Exchange’s Options Exchange Officials by 8:30 a.m. Eastern Time on the first trading day following the execution. For transactions in an expiring option series that take place on an expiration day, a party must notify the Exchange’s Options Exchange Official within 45 minutes after the close of trading that same day.

Adjust or Bust. If it is determined that a Catastrophic Error has occurred, the Exchange shall take action as set forth below. Upon taking final action, the Exchange shall promptly notify both parties to the trade by email or via telephone. In the event of a Catastrophic Error, the execution price of the transaction will be adjusted by the Options Exchange Official pursuant to the table below. Any Customer order subject to this sub-paragraph will be nullified if the adjustment would result in an execution price higher (for buy transactions) or lower (for sell transactions) than the Customer’s limit price.


Theoretical Price (TP) Buy Transaction Adjustment – TP Plus Sell Transaction Adjustment – TP Minus
Below $2.00 $0.50 $0.50
$2.00 to $5.00 $1.00 $1.00
Above $5.00 to $10.00 $1.50 $1.50
Above $10.00 to $20.00 $2.00 $2.00
Above $20.00 to $50.00 $2.50 $2.50
Above $50.00 to $100.00 $3.00 $3.00
Above $100.00 $4.00  

The Options Exchange Official may be notified by e-mail at PHLX_Exchange_Officials@nasdaq.com.

Senior Options Exchange Official

  • Michael Blackson

Options Exchange Officials

  • Miguel Pastoriza
  • Allen Broadbent
  • Michael Skowronski
  • John Milone
  • Ashley Cuvo
  • Derrick Dean

Appeal of Clearly Erroneous Rulings

For Nasdaq PHLX:

Appeals. If a party affected by a determination made under this Rule so requests within the time permitted, the Market Operations Review Committee will review decisions made under this Rule in accordance with Exchange Rule 124(d). A request for review under this paragraph must be made within 30 minutes after a party receives verbal or email notification of a final determination by an Official under this Rule, except that if such notification is made after 3:30 p.m. Eastern Time, either party has until 9:30 a.m. Eastern Time on the next trading day to request a review. Such a request for review must be in writing or otherwise documented. The Market Operations Review Committee shall review facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made after 3:30 p.m. on the day of the transaction or where the request is properly made the next trade day.

A member or member organization seeking the Market Operations Review Committee review of an Options Exchange Officials ruling shall be assessed a fee of $500.00 for each Options Exchange Official ruling to be reviewed that is sustained and not overturned or modified by the Market Operations Review Committee.

For Nasdaq Options Market and Nasdaq BX:

Appeals. A party to a transaction affected by a decision made under this section may appeal that decision to the Nasdaq Review Council. An appeal must be made in writing, and must be received by Nasdaq within thirty (30) minutes after the person making the appeal is given the notification of the determination being appealed. The Nasdaq Review Council may review any decision appealed, including whether a complaint was timely, whether an Obvious Error or Catastrophic Error occurred, whether the correct Theoretical Price was used, and whether an adjustment was made at the correct price.

The party initiating the appeal shall be assessed a $500.00 fee if the Nasdaq Review Council upholds the decision of the Nasdaq Official. In addition, in instances where Nasdaq, on the behalf of an Options Participant, requests a determination by another market center that a transaction is clearly erroneous, Nasdaq will pass any resulting charges through to the relevant Options Participant.

 

Additional Info

Contact Info

  • MarketWatch at +1 800 211 4953 or +1 301 978 8501
  • Nasdaq PHLX at +1 215 496 5295 or +1 800 THE PHLX, #9