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Monday, April 8, 2013

Options Regulatory Alert #2013 - 4
Limit Up/Limit Down on NOM, PHLX and BX Options

Markets Impacted:

Contact Information:

What you need to know:

  • On Monday, April 8, 2013, NASDAQ OMX, in coordination with the other primary listing markets, will begin the first Phase of the Limit Up/Limit Down Plan.
  • Certain options rules have been affected, pending SEC approval:
    • Market orders will be not be accepted during Limit and Straddle States.
    • Stop Market orders will be accepted during Limit and Straddle states, but if a Stop Market order is triggered during the State, the order will be cancelled back.
    • Market Makers will not be obligated to quote during Limit or Straddle States.
    • An option will not open if the underlying security is in a Limit or Straddle State prior to completing the opening process.
    • Obvious Error and Catastrophic Rules are impacted during Limit and Straddle States.

What is happening?

On Monday, April 8, 2013, NASDAQ OMX®, in coordination with the other primary listing markets, will begin the first Phase of the Limit Up/Limit Down Plan. This impacts order handling, quoting obligations, and obvious error rules on The NASDAQ Options MarketSM (NOM), NASDAQ OMX PHLXSM (PHLX®) and NASDAQ OMX BX OptionsSM (BX Options) as specified herein.

What will occur when a trading pause occurs in an underlying security?

NOM, BX Options and PHLX will pause trading in options when a trading pause has been initiated on an underlying security. Furthermore, an opening process will commence similar to the normal options opening when a trading resumption (Trading Action = T) message is received over the UTP data feeds. During the pause, any standing market maker quotes on the system will be purged.

During the pause, NOM, PHLX and BX Options can accept new orders, quotes and cancel/replaces. NOM, BX Options and PHLX will keep all open orders during the pause on their book. Firms have the ability to cancel open orders.

Will there be changes to the handling of options orders as a result of LULD?

Yes. Options market orders, including retail market orders, in options on underlying securities will be rejected (prior to accepting) during the Limit and Straddle States in the underlying security. On PHLX, Stop market orders will be accepted during Limit and Straddle States, but if a stop is triggered during either the order will be cancelled back (this applies to only Stop Market Orders and not Stop Limit Orders). PHLX shall also cancel any Complex Orders that are market orders residing in the System if they are about to be executed.

Will an option open if the underlying security is in a Limit or Straddle state?

An option will not open if the underlying security is in a Limit or Straddle state.

Will there be any changes to quoting obligations?

Yes, PHLX, NOM and BX Options will subtract from the total number of minutes in a trading day that specialists, Registered Options Traders (ROTs) or Market Makers are required to quote the time period when the underlying security was in a Limit or Straddle State.

Will there be any changes to Obvious and Catastrophic Error Rules?

Yes, on PHLX, electronic trades are not subject to an obvious error or catastrophic error review, nor are they subject to nullification or adjustment. Nevertheless, they are reviewable under Rule 1092(c)(ii)(A) - (D).

On NOM and BX Options, trades are not subject to an obvious error or catastrophic error review pursuant to Chapter V, Sections 6(b) or 6(f).

However, trades can be reviewed on PHLX's, NOM's and BX Options' own motion under their respective rules.

Where can I find more information?


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