Clearly Erroneous Transactions Policy

Overview

To file a Clearly Erroneous Transaction Request, 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 NASDAQ Equity Regulatory Alert #2009-19, NASDAQ OMX has provided the below guidance on its Clearly Erroneous Rule 11890.

Erroneous Review Guidance

NASDAQ OMX is providing general guidance on when transactions may be deemed erroneous under Rule 11890. This guidance is not a mandate of the rule but is information on how NASDAQ OMX generally applies the terms of the rule (at NASDAQ OMX’s discretion) to determine whether an execution is clearly erroneous.

NASDAQ OMX generally considers a transaction to be clearly erroneous when the terms of a transaction executed on NASDAQ OMX are "clearly erroneous" and when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security. A transaction made in clearly erroneous error and cancelled by both parties or determined by NASDAQ OMX to be clearly erroneous will be removed from the consolidated tape.

Filing Deadline

An erroneous complaint must be submitted in writing to NASDAQ OMX MarketWatch within 30 minutes of the alleged erroneous trade was executed.

In the case of an Outlier Transaction, a NASDAQ OMX official may at its sole discretion, and on a case-by-case basis, consider requests received pursuant to this rule after 30 minutes, but not longer than sixty minutes after the transaction in question.

Outlier Transactions

"Outlier Transaction" means a transaction where:

(A) the execution price of the security is greater than three times the current Numerical Guidelines in effect at the time of execution, or

(B) the execution price of the security in question breaches the 52-week high or 52-week low. In such cases, NASDAQ OMX may consider Additional Factors in determining if the transaction qualifies for further review or if NASDAQ OMX shall decline to act.

Counterparty Notification

NASDAQ OMX will notify the counterparty to a trade upon receipt of a timely filed request for review that satisfies the numerical guidelines set forth within the Rule. This eliminates the requirement that counterparties be notified of every request for a ruling and instead requires notice only when a request is filed in a timely manner and satisfies the Numerical Guidelines. This change alleviates the burden on NASDAQ OMX of notifying the counterparties when a request for review does not merit a ruling to break the trades at issue.

In addition, notification may be by one of several means, including press release, system status email, web posting or any other method reasonably expected to provide rapid notice to many market participants. For example, NASDAQ OMX anticipates streamlining the notification process for counterparties when receiving a high volume of clearly erroneous filings. In such circumstances it might issue an electronic system status message indicating which trades were under review.

Transactions after 8:00 p.m., ET

If you are filing for Erroneous Trade adjudication after 8:00 p.m., ET:

• Please submit your request in writing to NASDAQ OMX MarketWatch, via online submission or fax to 301-978-8511. (A phone call is not necessary prior to filing.)
• Clearly Erroneous filings received by MarketWatch after 8:00 p.m. ET will be processed on the next business day.

Documentation Required for Filing a Complaint

A complaint must include the following information:

• Time Of the Transaction(s)
• Security symbol(s)
• Number of shares executed
• Price(s) or range of filing
• Side (Buy, Sell or Both)
• The factual basis for believing that the trade is clearly erroneous

If NASDAQ OMX receives a complaint that does not contain all the required supporting information, NASDAQ OMX will notify the filer that the complaint is deficient. NASDAQ OMX encourages market participants to use the complaint filing form found on this website, which lists all the required information. While it is not mandatory, this form assists both the initiator of the complaint and NASDAQ OMX in its adjudication of the petition.

Documentation Required for Filing a Complaint

NASDAQ OMX generally uses the Numerical Threshold of a trade when determining whether a transaction is clearly erroneous. A transaction executed may be found to be clearly erroneous only if the price of the transaction to buy (sell) that is the subject of the complaint is greater than (less than) the Reference Price by an amount that equals or exceeds the Numerical Guidelines set forth below. The execution time of the transaction under review determines whether the guidance threshold is Core Session or Opening and Late Trading Session (which occurs before and after the Core Session).

NASDAQ OMX does not normally break trades that are between the Reference Price and up to but not including the Numerical Threshold. Refer to the chart below for more details:

In Unusual Circumstances, which may include periods of extreme market volatility, sustained illiquidity, or widespread system issues, NASDAQ OMX may, in its discretion and with a view toward maintaining a fair and orderly market and to protect investors and the public interest, use a Reference Price other than the consolidated last sale. Other Reference Prices may include the consolidated inside price, the consolidated opening price, the consolidated prior close, or the consolidated last sale prior to a series of executions. It may also be necessary to use a higher Numerical Guideline if, after market participants have been alerted to the existence of erroneous activity, the price of the security returns toward its prior trading range but continues to trade beyond the price at which trades would normally be broken. NASDAQ OMX also may use a different Reference Price and/or higher Numerical Guideline in events that involve other markets in an effort to coordinate a Reference Price and/or Numerical Guideline that is consistent across markets. In order to achieve consistent results across markets, when a ruling is made in conjunction with another market center it may be determined that the number of affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest.

Volatile Market Opens

NASDAQ OMX may expand the Numerical Guidelines applicable to transactions occurring between 9:30 a.m. and 10:00 a.m. based on the disseminated value of the S&P 500 Futures at 9:15 a.m.

• When the S&P 500 Futures are up or down 3% or up to but not including 5% at 9:15 a.m. the Numerical Guidelines (calculated pursuant to Rule 11890 (C)(1)) are doubled for executions occurring between 9:30 a.m. and 10:00 am.
• When the S&P 500 Futures are up or down 5% or greater at 9:15 a.m. the Numerical Guidelines are tripled for executions occurring between 9:30 a.m. and 10:00 am.

Complaints Failing to Meet Documentation Requirements

NASDAQ OMX staff will notify the complainant of any deficiencies in the filing so the complainant can revise and resubmit documentation, if possible, within the 30-minute time frame established by the rule.

In cases where a market participant’s claim is not eligible for review because the complaint does not include the required documentation, the market participant may appeal to the Market Operations Review Committee (MORC) by alleging a mistake of material fact upon which it believes the NASDAQ OMX Official’s determination was based. The MORC will not substantively review an appeal of a determination that does not allege a mistake of material fact. If the MORC finds the determination was based on a mistake of material fact, the MORC remands the matter to the NASDAQ OMX Official for adjudication. If the MORC finds the determination was not based on a mistake of material fact, the determination is final and binding.

Additional Factors Considered in Clearly Erroneous Rulings

A NASDAQ OMX official may also consider additional factors to determine whether an execution is clearly erroneous, including but not limited to, system malfunctions or disruptions, volume and volatility for the security, derivative securities products that correspond to greater than 100% in the direction of a tracking index, news released for the security, whether trading in the security was recently halted/resumed, whether the security is an IPO, whether the security was subject to a stock-split, reorganization, or other corporate action, overall market conditions, Opening and Late Session executions, validity of the consolidated tapes trades and quotes, consideration of primary market indications, and executions inconsistent with the trading pattern in the stock. Each additional factor shall be considered with a view toward maintaining a fair and orderly market and the protection of investors and the public interest.

Firms should also review NASD/FINRA Notice to Members 04-66 which reminds firms of their obligations to ensure the accuracy and integrity of information entered into order-routing and execution systems.

NASDAQ OMX reiterates this is only guidance and recognizes that there may be circumstances beyond this policy that warrant a review of transactions.

Preventing and Monitoring Erroneous Transactions

Fat Finger Checks (via Pre-Trade Risk Management)

• Fat Finger Checks allow you to compare price instructions on incoming orders against the current displayed size and price in the market. If the order is not in line with the displayed price and size, the order will be rejected before it can execute.
• Firms can set order limits at several levels to ensure that fat fingered orders never execute.

For more information, please visit our Pre-Trade Risk Management Fact Sheet.

Reg Recon

Reg Recon, available as an add-on service to the NASDAQ OMX Workstation^® and WeblinkACT 2.0, offers a Clearly Erroneous Trade Viewer that gives firms an alert for any potentially erroneous trades executed on the NASDAQ OMX Exchange. If a trade meets the guidance referenced above, an alert will appear for that trade allowing the customer to decide at a glance whether or not to send a filing request to NASDAQ OMX MarketWatch.

Later this month, users will have a fully automated way to select and send their erroneous filings to NASDAQ OMX MarketWatch.

Firms that do not have Reg Recon can subscribe by completing the NASDAQ OMX Front-End Access Order Form (PDF) and faxing it to NASDAQ OMX Subscriber Services at 212.231.5426.

Appeal of Clearly Erroneous Rulings

• An appeal must be received in writing within 30 minutes after the person making the appeal is given notification of the determination being appealed. Appeals may be faxed to 301-978-8511.
• Once a written appeal has been received, the counterparty to the trade will be notified of the appeal, and both parties can submit any additional supporting written information until the time the appeal is considered by the appropriate committee.
• The party initiating the appeal shall be assessed a $500 fee if the Market Operations Review Committee (MORC) upholds the decision of the NASDAQ OMX official who made the initial determination. The fee will be reflected in the monthly invoice.
• Either party to a disputed trade may request the written information provided by the other party during the appeal process.
• An appeal shall not operate as a stay of the determination being appealed, and the scope of the appeal shall be limited to trades to the person making the appeal.
• Once a party has appealed a determination to the appropriate committee, the determination shall be reviewed and a decision rendered, unless both parties to the transaction agree to withdraw the appeal prior to the time a decision is rendered, or the party filing the appeal withdraws its appeal prior to the notification of counterparties.
• Upon consideration of the record, the MORC shall affirm, modify, reverse or remand the determination.
• The decision of a committee pursuant to an appeal, or a determination by a NASDAQ OMX officer that is not appealed, shall be final and binding upon all parties and shall constitute final action on the matter. Any determination by a NASDAQ OMX officer or any decision by a committee shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.

Fees

Complaints

NASDAQ OMX members will be charged a $250 fee for each additional complaint filed exceeding two unsuccessful clearly erroneous complaints during a calendar month. Each security listed in a filing is treated as a separate complaint for purposes of this fee. An unsuccessful complaint is one in which NASDAQ OMX does not break any of the trades included in that complaint.

Appeals

Parties who appeal the NASDAQ OMX Official’s ruling are subject to a $500 fee for unsuccessful appeals if the Market Operations Review Committee (MORC) upholds the decision of the NASDAQ OMX official who made the initial determination. The fee will be reflected in the monthly invoice.

For complete information please refer to our pricing schedule.

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