Wednesday, January 27, 2010

Options Regulatory Alert #2010 - 4
NASDAQ OMX PHLX May Review Trades on Exchange’s Own Motion

What is changing?

Effective today, Wednesday, January 27, 2010, NASDAQ OMX PHLX^SM (PHLX®) may review PHLX transactions on its own motion if the transactions are believed to be erroneous. Previously, PHLX Options Exchange Officials (OEOs) only reviewed option transactions as requested by the parties to the transaction within specified notification times.

How will transactions be adjusted if reviewed on PHLX’s own motion?

A transaction reviewed by PHLX on its own motion may be nullified or adjusted only if it is determined by the PHLX President or an officer designated by the President that a transaction is an obvious error as provided in Rule 1092 “Obvious Errors and Catastrophic Errors.”

The PHLX OEO will act as soon as possible and no later than 9:30 a.m., Eastern Time (ET) on the next trading day following the date of the transaction in question. A party affected by a determination to nullify or adjust a transaction pursuant to this provision may appeal the determination in accordance to PHLX Rule 1092; however, a determination by a PHLX official not to review a transaction, or a determination not to nullify or adjust a transaction for which a review was requested or conducted, is not appealable.

If a transaction is reviewed and a determination is rendered pursuant to another provision of PHLX Rule 1092, no additional relief may be granted under this provision.

What has not changed?

Firms are still responsible for monitoring their trades for obvious and catastrophic errors. PHLX does not anticipate exercising this new authority in every situation in which a party fails to make a timely request for review. As such, firms must continue to monitor their trades and PHLX will continue to review transactions upon request pursuant to PHLX Rule 1092.

Parties to a trade may have a trade nullified or its price adjusted if any party makes a documented request within the time specified in Rule 1092(e)(i) “Obvious Errors” and Rule 1092(f)(i) “Catastrophic Errors.” Requests made pursuant to these provisions are appealable when the request for an appeal is made within 30 minutes of the PHLX OEO ruling pursuant to Rule 1092(g).

Decisions on appeals are still final and cannot be appealed to the Board of Governors. An appeal fee of $250.00 will continue to be assessed for each PHLX OEO ruling to be reviewed that is sustained and not overturned or modified by the Options Trade Review Committee. In addition, in instances where PHLX, on behalf of a member or member organization, requests a review by another options exchange, PHLX will continue to pass any resulting charges through to the relevant member organization.

Where can I find more information?

For more information, contact Michael Blackson, PHLX On-Floor Surveillance, at +1 215 496 5295.