NOM, BX, PHLX, ISE, GEMX, and MRX (“Nasdaq Options Exchanges”) have adopted changes to the Nasdaq Options Exchanges’ Minor Rule Violation Plans (“MRVP”) to make Members’ violations of the Consolidated Audit Trail (“CAT”) compliance rules (“CAT Compliance Rules”)[1] eligible for disposition with a minor rule violation fine, when warranted.

All Nasdaq Options Exchanges CAT Compliance Rule violations became eligible for disposition under the MRVPs by August 25, 2020[2]. As outlined in a recent Regulatory Alert for all Members, dated July 6, 2020, the Nasdaq Options Exchanges, FINRA, and all CAT NMS Plan Participants have entered into an amended plan pursuant to Rule 17d-2 under the Securities Exchange Act of 1934 (the “Rule 17d-2 Plan”) and Regulatory Services Agreements (“RSAs”) to coordinate regulation of the CAT Compliance Rules[3].

The changes to the Nasdaq Options Exchanges’ MRVPs for CAT Compliance Rule violations discussed in this Regulatory Alert are consistent with coordinated regulation under the Rule 17d-2 Plan and the RSAs. A summary of the key changes is as follows.

For failures to comply with the CAT Compliance Rule requirements, the Nasdaq Options Exchanges may impose a minor rule violation fine of up to $2,500. For more serious violations, formal disciplinary action may be sought. The following factors will help guide the Nasdaq Options Exchanges and FINRA in determining the appropriate disposition:

• total number of reports that are not submitted or submitted late;
• the timeframe over which the violations occur;
• whether violations are batched;
• whether the violations are the result of the actions of one individual or the result of faulty systems or procedures;
• whether the firm has taken remedial measures to correct the violations;
• prior minor rule violations within the past 24 months;
• collateral effects that the failure has on customers; and
• collateral effects that the failure has on the Exchange’s ability to perform its regulatory function[4].

For questions relating to this Regulatory Alert, please contact Nasdaq Regulation at david.strandberg@nasdaq.com.

[1] See NOM, BX, PHLX, ISE, GEMX, and MRX General 7 (Consolidated Audit Trail Compliance Rules).

[2] See Securities Exchange Act Release Nos. 89339 (July 17, 2020) (SR-NASDAQ-2020-042); 89662 (SR-BX-2020-019) (Aug. 25, 2020); 89667 (SR-Phlx-2020-40) (Aug. 25, 2020); 89562 (Aug. 14, 2020) (SR-ISE-2020-31) (ISE Options 11, including Section 1, is incorporated by reference into the rulebooks of GEMX and MRX thus the amendments to ISE Options 11, Section 1 apply to GEMX and MRX Options 11, Section 1).

[3] See, e.g., Options Regulatory Alert #2020, available at http://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2020-25.

[4] These factors also are used to inform dispositions for violations of OATS reporting rules. See FINRA Notice to Members 04-19 (March 2004), available at https://www.finra.org/rules-guidance/notices/04-19.