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Wednesday, May 25, 2011

Options Trader Alert #2011 - 22
NASDAQ OMX PHLX Update on the Provisional Auction of Market Exhaust

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What you need to know:

  • NASDAQ OMX PHLXSM (PHLX®) has provided an update on the PHLX XL® system’s Provisional Auction of Market Exhaust.

What has been announced?

Following a review of the functionality of the PHLX XL system’s Market Exhaust feature, staff has determined that, in a limited number of circumstances, the Provisional Auction process of Market Exhaust does not function exactly as described in PHLX Rule 1082(a)(ii)(B)(4)(d)(iv)(E).

The PHLX System initiates a Market Exhaust Auction when there are no PHLX XL participant quotations in the Exchange's disseminated market for a particular series and an initiating order in the series is received. If executions occur at the end of the Market Exhaust Auction and there remain marketable unexecuted contracts from the initiating order, a “Provisional Auction” will ensue.

The Provisional Auction is described in PHLX Rule 1082(a)(ii)(B)(4)(d)(iv)(E). According to the rule, after executing and routing available contracts of the initiating order, the PHLX XL system should display remaining contracts of the initiating order at the PHLX Auction Price with either a bid of $0.00 with a size of zero contracts if the remaining contracts are from an order to sell, or an offer of $0.00 with a size of zero contracts on the opposite side of the market if the remaining contracts are from an order to buy.

However, instead of displaying $0.00 with a size of zero contracts during the Provisional Auction, the PHLX XL system currently displays, on the opposite side of the market from remaining contracts from the order that initiated the Market Exhaust, the next available price on the PHLX order book for the size of such order. Marketable inbound orders attempting to access the published quote, either the initiating Market Exhaust order or the unrelated order reflected on the opposite side of the market, will execute immediately upon receipt. The Exchange is taking corrective action and further guidance will be issued.

Provisional Auctions occur very rarely because many conditions must be satisfied before the system initiates such an auction. The Market Exhaust Auction process leading up to a potential Provisional Auction is unaffected.

Where can I find more information?


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