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Wednesday, May 06, 2015

Options Regulatory Alert #2015 - 14
New Harmonized Obvious and Catastrophic Error Rule

Category:

  • System Impact
  • New Functionality

Markets Impacted:

Contact Information:

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Effective Friday, May 8, 2015, the PHLX, NOM, and BX Options exchanges, as approved by the Securities and Exchange Commission (SEC), have adopted a new harmonized obvious error rule in coordination with the U.S. options exchanges.

Under the new harmonized PHLX Rule 1092, NOM Chapter V, Section 6, and BX Options Chapter V, Section 6, trade review requests for customer orders must be submitted within 30 minutes after the execution, and requests for non-customer orders (including executions resulting from specialists’ and market makers’ quotations) must be submitted within 15 minutes after the execution.

PHLX, NOM, and BX members and member firms should continue to submit their requests for obvious error trade reviews via the
Nasdaq Obvious Error Online Submission form. Nasdaq has determined to consolidate the NOM and BX obvious and catastrophic error trade review process with that of PHLX. The PHLX Options Exchange Officials (OEOs) will conduct the trade reviews; render rulings and administer requests for appeals on all obvious and catastrophic error requests for the NOM and BX.

Under the new rule, if conditions are met, transactions against customer orders will be nullified and transactions between non-customer orders, including specialists and market-maker quotations, will be price-adjusted regardless of non-customer order limit prices.

Mutual agreements to nullify or price-adjust transactions must be submitted prior to 8:30 a.m. ET on the first trade day following the execution.

In addition, transactions occurring in a series quoted no bid (formally reviewed under the previous PHLX Rule 1092(c)(ii)(E), NOM Chapter V, Section 6(b)(ii), and BX Chapter V, Section 6(b)(ii) will no longer be reviewed for this criterion under the new harmonized obvious error rule.

The harmonized rules also provide a special provision for Significant Market Events, which is defined as potential erroneous transactions occurring across multiple exchanges meeting specific criteria. In the event of a suspected Significant Market Event, the PHLX, NOM, and/or BX shall initiate a coordinated review of potentially erroneous transactions with all other affected options exchanges to determine the full scope of the event and to ensure a consistent application across the options exchanges.

In order to appeal a ruling a member or member firms must notify the Exchange within 30 minutes after the ruling notification by e-mail.  Decisions on appeals are final and cannot be further appealed. Pending filing with the SEC and effectiveness, the PHLX will have a new appeal fee of $500.00 will be assessed for each ruling to be reviewed that is sustained and not overturned or modified on appeal. This will replace the current  appeal fees.

There is a significant change in the criteria of whether an obvious or catastrophic error has occurred, and we advise all participants to read the new rule carefully.

 
 
 
 
 
 
 
 

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