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Obvious Error Transactions Policy

Overview

To file an Obvious Error Transaction Request for both NASDAQ Options Market and NASDAQ OMX PHLX, 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 Trader Alert #2008-001, NASDAQ has provided guidance on its Obvious Error Rule (Options Rules, Chapter V, Sec. 6) for the NASDAQ Options Market.

As announced in Options Memorandum #0822-08 , NASDAQ OMX PHLX has provided guidance on its Obvious Error Rule (Options Rule 1092) for the NASDAQ OMX PHLX.

Contact Information

    If you have any questions, regarding the NASDAQ Options Market please contact:

  • NASDAQ MarketWatch at +1 800 211 4953 or +1 301 978 8501 and press "1" for Options.

    If you have any questions re: NASDAQ OMX PHLX, please contact:

  • NASDAQ OMX PHLX at +1 215 496 5295 or +1 800 THE PHLX, #9 , ext. #5295

Erroneous Review Guidance

NASDAQ generally considers a transaction to be an Obvious Error if one of the following is satisfied:

  1. For equity and index options trading on The NASDAQ Options Market and NASDAQ OMX PHLX, 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 PriceMinimum Amount
    Below $2.00$0.25
    $2 - $5$0.40
    Above $5 - $10$0.50
    Above $10 - $20$0.80
    Above $20$1.00
  2. For foreign currency options other than the Japanese yen trading on NASDAQ OMX PHLX, when the execution price of a transaction is higher or lower than the Theoretical Price for a series by an amount equal to at least the amount shown below:
    Theoretical priceMinimum Amount
    Below $ .02 (expressed as 2)$.0025 (expressed as .25)
    $.02 to $.05 (expressed as 2 to 5)$.004 (expressed as .40)
    Above $.05 to $.10 (expressed as 5 to 10)$.0050 (expressed as .50)
    Above $.10 to $.20 (expressed as 10 to 20)$.0080 (expressed as .80)
    Above $.20 (expressed as 20)$.0100 (expressed as 1.00)
  3. For foreign currency options on the Japanese yen trading on NASDAQ OMX PHLX, when the execution price of a transaction is higher or lower than the Theoretical Price for a series by an amount equal to at least the amount shown below:
    Theoretical priceMinimum Amount
    Below $ .0002 (expressed as 2)$.000025 (expressed as .25)
    $.0002 to $.0005 (expressed as 2 to 5)$.00004 (expressed as .40)
    Above $.0005 to $.0010 (expressed as 5 to 10)$.000050 (expressed as .50)
    Above $.0010 to $.0020 (expressed as 10 to 20)$.000080 (expressed as .80)
    Above $.0020 (expressed as 20)$.000100 (expressed as 1.00)
  4. For NASDAQ Options Market: The trade resulted in an execution price in a series that was, and for five seconds prior to the execution remained, quoted no bid and at least one strike price below (for calls) or above (for puts) in the same class were quoted no bid at the time of the erroneous execution (in which case the trade shall be nullified). For purposes of this subparagraph, bids and offers of the parties to the subject trade that are in any of the series in the same options class shall not be considered.

Filing Deadline

For NASDAQ Options Market:

  • Filings must be received electronically within 20 minutes of the execution time.

For NASDAQ OMX PHLX:

  • Submissions must be received for Specialists, ROTs, SQTs and RSQTs within 15 minutes of the execution time.
  • Submissions must be received for Customer, Firm and B/D off-floor orders within 20 minutes of the execution time.

Documentation is Required for Filing a Complaint

A complaint for both NASDAQ Options and NASDAQ OMX PHLX 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 Options Market:

A NASDAQ Official will determine whether there was an Obvious Error as defined above. If it is determined that an Obvious Error has occurred, MarketWatch shall take one of the actions listed below. Upon taking final action, MarketWatch shall promptly notify both parties to the trade electronically including system status alerts to the market or via telephone.

Where each party to the transaction is a NOM Participant, the execution price of the transaction will be adjusted by MarketWatch to the prices provided in subparagraphs (a) and (b) below unless both parties agree to adjust the transaction to a different price or agree to bust the trade within ten (10) minutes of being notified by MarketWatch of the Obvious Error.

a)  Erroneous buy transactions will be adjusted to their Theoretical Price plus $.15 if the Theoretical Price is under $3, or plus $.30 if the Theoretical Price is at or above $3.

b)  Erroneous sell transactions will be adjusted to their Theoretical Price minus $.15 if the Theoretical Price is under $3, or minus $.30 if the Theoretical Price is at or above $3.

Where at least one party to the Obvious Error is not a NOM Participant, the trade will be nullified unless both parties agree to an adjustment price for the transaction within 30 minutes of being notified by MarketWatch of the Obvious Error.

Mutual Agreement. The determination as to whether a trade was automatically 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 agree.

For NASDAQ OMX PHLX:

Absent Mutual Agreement as provided in PHLX Rule 1092(c)(iii) below, parties to a trade may have a trade nullified or its price adjusted if:

  1. any such party makes a documented request within the time specified in Rule 1092(e)(i); and
  2. one of the conditions below is met:

(A) The trade resulted from a verifiable disruption or malfunction of an Exchange execution, dissemination, or communication system 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) in which case trades in excess of the disseminated size may be nullified; or

(B) The trade 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 for which the member is responsible where there is Exchange documentation providing that the member sought to update or cancel the quote/order; or

(C) The trade resulted from an erroneous print disseminated by the underlying market which is later cancelled or corrected by the underlying market where such erroneous print resulted in a trade higher or lower than the average trade in the underlying security during the time period encompassing two minutes before and after the erroneous print, by an amount at least five times greater than the average quote width for such underlying security during the time period encompassing two minutes before and after the erroneous print. For purposes of this Rule, the average trade in the underlying security shall be determined by adding the prices of each trade during the four minute time period referenced above (excluding the trade in question) and dividing by the number of trades during such time period (excluding the trade in question); or

(D) The trade resulted from an erroneous quote in the Primary Market for the underlying security that has a width of at least $1.00 and that width is at least five times greater than the average quote width for such underlying security during the time period encompassing two minutes before and after the dissemination of such quote. For the purposes of this rule, 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 in question) and dividing by the number of quotes during such time period (excluding the quote in question); or

(E) The trade resulted in an execution price in a series quoted no bid and at least one strike price below (for calls) or above (for puts) in the same class were quoted no bid at the time of the erroneous execution (in which case the trade shall be nullified);

(F) The trade occurred at a price that is deemed to be an Obvious Error as defined in Paragraph (a) of this Rule 1092.


(iv) Trading Halts. Trades on the Exchange will be nullified when:

(A) The trade occurred during a trading halt in the affected option on the Exchange;

(B) Respecting equity options (including options overlying ETFs), the trade occurred during a trading halt on the primary market for the underlying security; or

(C) Respecting index options, the trade occurred during a trading halt on the primary market in underlying securities representing more than 10% of the current index value.


Catastrophic Error Ruling

For both the NASDAQ Options Market and NASDAQ OMX PHLX, 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 PriceMinimum Amount
Below $2$1
$2 to $5$2
Above $5 to $10$5
Above $10 to $50$10
Above $50 to $100$20
Above $100$30

For NASDAQ Options Market:

If a party believes that it participated in a transaction that qualifies as a Catastrophic Error, it must notify MarketWatch via a written or electronic complaint by 8:30 a.m., ET, on the first trading day following the execution. For transactions in an expiring options series that take place on an expiration day, a party must notify MarketWatch by 5:00 p.m., ET, that same day. NASDAQ will not grant relief under this Section unless notification is made within the prescribed periods of time. Relief will not be granted if MarketWatch has previously rendered a decision with respect to the transaction in question pursuant to this Section. A NASDAQ Official shall administer the application of this Section.

A NASDAQ Official will determine whether there was a Catastrophic Error as defined above. If it is determined that a Catastrophic Error has occurred, whether or not each party to the transaction is an Options Participant, MarketWatch shall adjust the execution price of the transaction, unless both parties agree to adjust the transaction to a different price, to the theoretical price (i) plus the adjustment value provided below for erroneous buy transactions and (ii) minus the adjustment value provided for erroneous sell transactions:

Theoretical PriceMinimum Amount
Below $2$1
$2 to $5$2
Above $5 to $10$3
Above $10 to $50$3
Above $50 to $100$7
Above $100$10

Upon taking final action, MarketWatch shall promptly notify both parties to the trade electronically or via telephone.


For NASDAQ OMX PHLX:

If an Exchange member believes that it participated in a transaction that qualifies as a Catastrophic Error, it must notify Market Surveillance by 8:30 a.m. ET, on the first trading day following the date on which the Catastrophic Error occurred. For transactions in an expiring options series that take place on an expiration day, an Exchange member must notify the Exchange by 5:00 p.m. ET that same day. Relief will not be granted under this rule:

  • Unless notification is made within the prescribed time period.
  • If an Options Exchange Official has previously rendered a decision with respect to the transaction in question pursuant to Rule 1092(e) “Obvious Errors”. 

An Options Exchange Official will determine whether the transaction(s) qualifies as a Catastrophic Error. If it is determined that a Catastrophic Error has occurred, the Options Exchange Official will adjust the execution price(s) of the transaction(s). If it is determined that a Catastrophic Error has not occurred, the member requesting the determination will be subject to a charge of $5,000.

The requestor of an APPEAL must contact the Options Exchange Official within 30 minutes after the OEO ruling is rendered. The Options Exchange Official may be notified by phone at +1 215 496 5295 or at PHLX_Exchange_Officials@nasdaqomx.com.

Appeal of Clearly Erroneous Rulings

For NASDAQ Options Market:

  • An Options Participant or person associated with an Options Participant affected by a decision made under this section may appeal that decision to the MORC. 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 MORC may review any decision appealed, including whether a complaint was timely, whether an Obvious Error occurred, whether the correct Theoretical Price was used, and whether an adjustment was made at the correct price.
  • Once a written appeal has been received, the counterparty to the trade will be notified of the appeal.
  • A MORC panel will be comprised minimally of representatives of one (1) member engaged in Market Making and two (2) industry representatives not engaged in Market Making. At no time should a review panel have more then 50% members engaged in Market Making.
  • The MORC, pursuant to the standards set forth in this rule, shall affirm or reverse the determination.
  • The decision of the MORC pursuant to an appeal, or a determination by a NASDAQ Official that is not appealed, shall be final and binding upon all parties and shall constitute final NASDAQ action on the matter in issue. Any determination by a NASDAQ Official or the MORC shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.
  • The party initiating the appeal shall be assessed a $500.00 fee if the MORC upholds the decision of the NASDAQ Official. In addition, in instances where NASDAQ, on behalf of a NOM Participant, requests a determination by another market center that a transaction is clearly erroneous, NASDAQ will pass any resulting charges through to the relevant NOM Participant.

For NASDAQ OMX PHLX:

An Exchange member may appeal the Options Exchange Official's determination to the Referee pursuant to paragraph (g) below.

(g) Request for Review. If a party affected by a determination made under this Rule so requests within the time permitted, the Referee 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 thirty minutes after a party receives verbal notification of a final determination by the Options Exchange 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 Referee shall review the 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 Referee's review of an Options Exchange Official ruling shall be assessed a fee of $250.00 for each Options Exchange Official ruling to be reviewed that is sustained and not overturned or modified by the Referee. 
 

Contact Info

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