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Tuesday, July 20, 2021

Options Regulatory Alert #2021 - 41
Nasdaq Reminds Members of Prohibitions against Acting on Non-Public Order Information and the Need for Order Exposure


  • Regulatory

Markets Impacted:

Contact Information:


Nasdaq PHLX LLC (“Phlx”), The Nasdaq Options Market LLC (“NOM”), Nasdaq BX, Inc. (“BX”), Nasdaq ISE, LLC (“ISE”), Nasdaq GEMX, LLC (“GEMX”), and Nasdaq MRX, LLC (“MRX”) (collectively, the “Exchanges”) are issuing this reminder to its members, member organizations and Participants of certain activity that would be considered, among other possible rule violations, conduct inconsistent with just and equitable principles of trade and conduct constituting the misuse of material, non-public information.

In particular, it would be a violation of Exchange Rules: Options 3, Section 22 (Limitations on Order Entry); Phlx General 9, Section 1(c) (Conduct Inconsistent with Just and Equitable Principles of Trade), NOM and BX General 9, Section 1(a) Standards of Commercial Honor and Principles of Trade) and ISE, GEMX and MRX Options 9, Section 1 (Just and Equitable Principles of Trade); Phlx General 9, Section 21(d) (Supervisory Procedures Relating to ITSFEA and to Prevention of Misuse of Material Nonpublic Information) and NOM, BX, ISE, GEMX and MRX Options 9, Section 9 (Prevention of the Misuse of Material Nonpublic Information) among other possible rules, for a member, member organization, Participant or person associated with a member, member organization or Participant who is in possession of the material terms of an order to update its bid and/or offer (e.g., to trade or fade, add or modify or cancel an order or quote, increase or decrease price, tighten or widen width, increase or decrease size) based on that knowledge prior the order’s public disclosure and/or exposure.

Example of Prohibited Activity:

Participant, member or member organization ABC is made aware of the material terms and conditions of an order (for example, ABC is a solicited party) and based on that knowledge but prior to that order becoming publicly disclosed and/or exposed, a person associated with Participant, member or member organization ABC changes the firm’s volatility calculation which in turn updates ABC’s electronic quotes. This conduct could potentially be in violation of the aforementioned rules, among others, because the associated person, based on knowledge of the material terms and conditions of the order, changed the firm’s quotes prior to the order being publicly disclosed/exposed as required.

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