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Wednesday, June 8, 2011

Options Regulatory Alert #2011 - 10
Reminder: Updated Market Maker Requirements to be Implemented with NOM 2.0

Markets Impacted:

Contact Information:

What you need to know:

  • As announced in Options Trader Alert #2011-12, NASDAQ OMX® is planning several technological enhancements and updates for The NASDAQ Options MarketSM (NOM) in the third quarter of 2011, referred to as NOM 2.0.
  • With the transition to NOM 2.0, new market maker requirements will be implemented.
  • Market makers should prepare for the new requirements.

What is changing?

As announced in Options Trader Alert #2011-12, NASDAQ OMX is planning several technological enhancements and updates for NOM, referred to as NOM 2.0.

The NOM 2.0 enhancements will be implemented in the third quarter of 2011. A more specific date will be announced when it becomes available.

Per SR-NASDAQ-2011-036, new market maker requirements will be introduced.

What do firms need to do?

Market makers should review the NOM 2.0 Frequently Asked Questions (FAQs), specifically section II, as well as prepare for the following updated market maker requirements:

Rule Requirement
Current NOM Rule
NOM 2.0 Rule
Percentage of Series Required to be Quoted
75% of series in which registered
60% of series in an assigned underlying
Percentage of Time Each Series Must be Quoted
100% of the trading day
90% of the trading day as a percentage of total number of minutes in such trading day
Quote Width Requirement During the Trading Day
None
No wider than $5 between bid and offer
Quote Width Requirement During the Opening Auction
None
No wider than $5 between bid and offer
Systematic Wide (stub) Quotes Provided
Yes
No
Required to Participate in the Open
Yes
Yes
Exceptions to Quoting Requirements
N/A
Quarterly options, options with an expiration nine months or more from trade date, adjusted options series
Market Maker Registration
By Individual Series
By Underlying
Percentage of Volume a Market Maker can Execute Outside Assignment
25%
25%

What new functionality will be available to market makers on NOM 2.0?

The following functionality will be available to market makers on NOM 2.0:

  • SQF Bulk Quoting Interface - NOM 2.0 will introduce the SQF Bulk quoting interface that is currently offered on PHLX. This interface allows market makers to submit blocks of up to 200 quotes in one message.
  • Rapid Fire Risk Protection - NOM 2.0 will improve its risk management functionality by offering the Rapid Fire Risk Protection currently offered on PHLX. This risk protection removes market maker quotes and orders when certain firm-set thresholds are met. Once the threshold is triggered, no further executions will occur for that market maker in that underlying.
  • OTTO - NOM 2.0 will continue to support the OTTO interface for market makers which provides the ability to make markets using orders.

Where can I find more information?


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