Wednesday, June 6, 2012

Equity Trader Alert #2012 - 24
Member Accommodation Program and Data Request in Relation to the Facebook Inc. (FB) IPO Cross

What is the Member Accommodation Program?

NASDAQ is reviewing with the SEC a proposal to establish a one-time, voluntary program to expand the pool available to compensate members for qualified losses arising directly from the IPO Cross system errors in FB on May 18, 2012.

This proposed change to NASDAQ Rule 4626, which is subject to SEC review, would establish specific limited eligibility requirements for orders to qualify for inclusion in the evaluation process from which the amount of compensation to be provided from the expanded pool will be determined.

Which IPO orders will be qualified for accommodation?

In order to assess accommodation requests, NASDAQ and FINRA will analyze the loss claimed from IPO Cross orders in shares of FB that:

• were directly disadvantaged due to a clear error on the part of NASDAQ and
• the member had uncertainty regarding their IPO-cross position.

Pending SEC review, the following FB IPO cross-eligible orders qualify for accommodation under the Member Accommodation Program by this standard:

1. IPO Cross-eligible orders to sell priced at $42 or less that did not execute. Orders entered with a price more aggressive than $42 should have executed. If the IPO Cross-eligible order price was equal to or less than that of the opening print, firms could not have known if these orders executed until receiving confirmation.
2. IPO Cross-eligible orders to sell priced at $42 or less that executed at an inferior price. DAY orders entered via RASH after 11:11 a.m., ET, failed to participate in the opening cross and were re-entered at 1:50 p.m., ET, resulting in sell executions at prices below $42.
3. IPO Cross-eligible orders to buy priced at exactly $42.00 that were executed in the cross but not immediately confirmed. If the price was equal to the opening print, firms could not have known if these orders executed until receiving confirmation.

Firms should refer to the pending rule filing for more information regarding the specific eligibility requirements for orders to qualify for the Member Accommodation Program.

Other requests that do not qualify by this standard will not be considered for accommodation under the proposed Member Accommodation Program for the FB IPO. These claims, as well as other claims not related to trading in shares of FB, will be handled through NASDAQ's standard accommodation policy per NASDAQ Rule 4626.

How will accommodations under the proposed Member Accommodation Program be assessed?

FINRA will evaluate claims using the criteria in the pending rule filing to determine which orders qualify for accommodation. FINRA will base its evaluation on data provided by NASDAQ as well as the supplemental information requested below from claimants and any additional information requested from claimants by FINRA.

As described in the pending rule filing, NASDAQ proposes to establish a uniform reference price as the benchmark for determining the loss incurred by (1) qualified sell orders that failed to execute and (2) qualified buy orders that were not immediately confirmed. Qualified sell orders that received inferior executions will use their actual execution price as the benchmark for assessing accommodation value.

What information are members required to provide?

The following order detail must be provided for all IPO Cross Orders for which an accommodation is sought. Order information should be entered into an MSExcel workbook with each column appropriately identified, in the order defined below. Additionally, firms should provide information for execution(s) received, if any, on the affected IPO orders. Required data elements for orders submitted to the NASDAQ IPO Cross are:

• The number corresponding to the specific IPO cross-eligible order category that qualifies for accommodation under the Member Accommodation Program. The corresponding numbers are: (1) IPO cross-eligible orders to sell priced at $42 or less that did not execute; (2) IPO cross-eligible orders to sell priced at $42 or less that executed at an inferior price; or, (3) IPO cross-eligible orders to buy priced at exactly $42.00 that were not immediately confirmed.
• NASDAQ assigned FIX, RASH, QIX, or OUCH Account
• Order reference number assigned by NASDAQ for the last modification (e.g., cancel/replace for FIX/QIX or modify/replace for OUCH)
• MPID
• Symbol
• Date
• Order Time
• Order Cancelation Time, if applicable
• ClientOrderID or UserToken
• Limit Price or blank if no limit price
• Entered Size
• Side
• TIF Instruction
• Number of shares executed, if applicable.
• Price of execution or VWAP if multiple executions on the order occurred at different prices, if applicable.

In what format should I submit the supplemental information?

The supplemental information should be provided in an MSExcel workbook as .xls or .xlsx file. The workbook should be clearly labeled to identify the filer. Contact information should be provided on the first worksheet of the workbook. No order or execution data should be included on the first worksheet.

Supplemental information must be sent to IPOaccommodations@nasdaqomx.com.

Is there a sample workbook available?

Yes, a sample workbook may be obtained here.

Do I also need to include records of eligible offsetting trades with respect to the above orders?

Yes, records for offsetting trades that meet the requirements in the pending rule filing must be provided. On the same worksheet and in the row(s) of data that correspond to the IPO Cross order identified above, filers should also provide information on all trade executions (e.g., covering trades) that created a realized gain/loss with respect to the above IPO Cross orders to the extent that they can be identified. If there were multiple executions that caused a realized gain/loss with respect to a single IPO Cross order identified above, provide an aggregate share volume, the volume weighted average price, and the time of first and last execution in lieu of execution information for each individual transaction. Further control and reference numbers are not required for multiple executions. If a single execution that caused a realized gain/loss was related to multiple IPO cross orders identified above, provide one record for each IPO Cross order¹.

• Executing market center (for a single execution)
• NASDAQ assigned FIX, RASH, QIX, or OUCH Account if applicable
• Order reference number assigned by NASDAQ if applicable
• FINRA/NASDAQ TRF ACT Control Number, if applicable
• FINRA/NYSE TRF Control Number, if applicable
• Other applicable exchange control or reference number, if applicable
• MPID or applicable exchange identifier
• Symbol
• Date
• Time of first execution (for a single execution)
• Time of last execution (for multiple executions)
• ClientOrderID or UserToken if applicable
• Execution Price (VWAP for multiple executions)
• Shares Executed
• Side

Do I need to calculate the gain/loss for each IPO Cross Order for which an accommodation is sought?

Yes, on the same worksheet and in the row of data that corresponds to each IPO Cross order identified above, filers should calculate the gain/loss incurred using the formulas described in the pending rule filing. Additionally, firms must identify the benchmark (i.e., actual execution price or uniform reference price) used for the calculation of the gain/loss.

Executing market identifiers are:

Will any additional information be required?

FINRA reserves the right, in consultation with NASDAQ, to request additional information in processing a filer's request for accommodation under the Member Accommodation Program.

Who should I contact if I have questions?

Questions on providing supplemental data should be directed to: Thomas.obrien@nasdaqomx.com. Questions regarding the Member Accommodation Program should be directed to Transaction Services U.S. Market Sales at +1 800 846 0477

Where can I find additional information?

• Refer to the Member Accommodation Program webcast, hosted by Eric Noll, EVP NASDAQ OMX Transaction Services.
• Refer to the press release.
• NASDAQ OMX Trade Desk at +1 212 231 5100

¹For example, if there was one sell execution for 200 shares that corresponds to two IPO Cross sell orders for 100 shares, then there should be two rows of data with the offsetting sell execution data repeated in both rows.