Obvious Error Transactions Policy

Overview

To file an Obvious Error Transaction Request for Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) (collectively “Nasdaq”), a member/participant must complete and submit an online filing form.

When filing your request, please note the filing deadline. A phone call is not necessary prior to filing and may cause delay in the filing process.

Contact Information

If you have any questions regarding obvious errors on PHLX, NOM, BX, ISE, GEMX and MRX please contact:

• Nasdaq U.S. Options Exchange Officials at +1 215 496 5295

Erroneous Review Guidance

For PHLX, NOM, BX, ISE, GEMX and MRX:

An Options Exchange Official will have deemed a transaction to be an Obvious Error if one of the following criteria is satisfied:

Obvious Error. An Obvious Error will be deemed to have occurred when the exchange receives a properly submitted filing where the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:

Trading Halts. The exchange shall nullify any transaction that occurs during a trading halt in an affected option on the exchange pursuant to the specific rules of the exchange.

Erroneous Print in Underlying. A trade resulting from an erroneous print(s) disseminated by the underlying market that is later nullified by that underlying market shall be adjusted or busted, provided a party notifies the exchange’s Options Exchange Officials in a timely manner. A trade resulting from an erroneous print(s) shall mean any options trade executed during a period of time for which one or more executions in the underlying security are nullified and for one second thereafter. If a party believes that it participated in an erroneous transaction resulting from an erroneous print(s), the party must notify the Exchange’s Options Exchange Officials within the timeframes set forth below, with the allowed notification timeframe commencing at the time of notification by the underlying market(s) nullification of transactions in the underlying security. If multiple underlying markets nullify trades in the underlying security, the allowed notification timeframe will commence at the time of the first market’s notification.

Erroneous Quote in Underlying. A trade resulting from an erroneous quote(s) in the underlying security shall be adjusted or busted as set forth below, provided a party notifies the exchange’s Options Exchange Official in a timely manner. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security during a time period encompassing two minutes before and after the dissemination of such quote. The average quote width shall be determined by adding the quote widths of sample quotations at regular 15-second intervals during the four-minute time period referenced above (excluding the quote(s) in question) and dividing by the number of quotes during such time period (excluding the quote(s) in question). If a party believes that it participated in an erroneous transaction resulting from an erroneous quote(s) it must notify the exchange’s Options Exchange Officials as described above.

Adjust or Bust. If it is determined that an Obvious Error has occurred, the exchange shall take one of the actions listed below. Upon taking final action, the exchange shall promptly notify both parties to the trade electronically or via telephone.

Non-Customer Transactions. Where neither party to the transaction is a Customer, the execution price of the transaction will be adjusted by the Official pursuant to the table below.

Any Non-Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier applied to individual transactions as follows:

Customer Transactions. Where at least one party to the Obvious Error is a Customer, the execution price of the transaction will be adjusted by the Official pursuant to the table below rather than nullified. However, if such adjustment(s) would result in an execution price violating a Customer’s limit price, then the trade will instead be nullified.

Any Customer Obvious Error exceeding 50 contracts will be subject to the Size Adjustment Modifier applied to individual transactions as follows:

If any member or participant submits requests to the exchange for review of transactions pursuant to this rule, and in aggregate that member or participant has 200 or more Customer transactions under review concurrently and the orders resulting in such transactions were submitted during the course of 2 minutes or less, where at least one party to the Obvious Error is a non-Customer, the exchange will apply the non-Customer adjustment criteria set forth above.

Linkage Trades. If the exchange routes an order pursuant to the Plan that results in a transaction on another options exchange (a “Linkage Trade”) and such options exchange subsequently nullifies or adjusts the Linkage Trade pursuant to this rules, the exchange will perform all actions necessary to complete the nullification or adjustment of the Linkage Trade.

For PHLX, ISE, GEMX and MRX:

Stop (and Stop-Limit) Order Trades Triggered by Erroneous Trades. Transactions resulting from the triggering of a stop or stop-limit order by an erroneous trade in an option contract shall be nullified by the exchange, provided a party notifies an Official in a timely manner as set forth below. If a party believes that it participated in an erroneous transaction it must notify an Official within the timeframes set forth herein, with the allowed notification timeframe commencing at the time of notification of the nullification of transaction(s) that triggered the stop or stop-limit order.

For PHLX, NOM and BX:

Verifiable Disruptions or Malfunctions of Exchange Systems. Parties to a trade may have a trade nullified or its price adjusted if it resulted from verifiable disruptions or malfunctions of exchange execution, dissemination, or communication systems that caused a quote/order to trade in excess of its disseminated size (e.g. a quote /order that is frozen, because of an exchange system error, and repeatedly traded). Parties to a trade may have a trade nullified or its price adjusted if it resulted from a verifiable disruption or malfunction of an exchange dissemination or communication system that prevented a member from updating or canceling a quote/order from which the member/participant is responsible where there is exchange documentation providing that the member/participant sought to update or cancel the quote/order.

For ISE, GEMX and MRX:

Verifiable Disruptions or Malfunctions of Systems. Transactions arising out of a "verifiable disruption or malfunction" in the use or operation of any exchange automated quotation, dissemination, execution, or communication system may either be nullified or adjusted by Market Control. Transactions that qualify for price adjustment will be adjusted in accordance with the guidelines contained in Options 3, Section 20(b)(2)(i)(A) and (B).

For PHLX and ISE:

Complex Order Executions. If both parties to a trade that is one component of a complex order execution are parties to all of the trades that together comprise the execution of a complex order at a single net debit or credit, then if one of those component trades can be nullified, all component trades that were part of the same complex order shall be nullified as well.

Complex Orders and Stock Option Orders.

(a) If a complex order executes against individual legs and at least one of the legs qualifies as an Obvious Error or a Catastrophic Error, then the leg(s) that is an Obvious or Catastrophic Error will be adjusted in accordance with the adjust or bust rule explained above for Non-Customer Transactions or adjust or bust rule applicable to Catastrophic Errors, respectively, regardless of whether one of the parties is a Customer. However, any Customer order will be nullified if the adjustment would result in an execution price higher (for buy transactions) or lower (for sell transactions) than the Customer's limit price on the complex order or individual leg(s). If any leg of a complex order is nullified, the entire transaction is nullified.

(b) If a complex order executes against another complex order and at least one of the legs qualifies as an Obvious Error or a Catastrophic Error, then the leg(s) that is an Obvious or Catastrophic Error will be adjusted or busted in accordance with the adjust or bust rule explained above for Non-Customer Transactions or adjust or bust rule applicable to Catastrophic Errors, respectively, so long as either: (i) the width of the National Spread Market for the complex order strategy just prior to the erroneous transaction was equal to or greater than the amount set forth in the wide quote table in PHLX/ISE/MRX Options 3, Section 2(b)(3) or (ii) the net execution price of the complex order is higher (lower) than the offer (bid) of the National Spread Market for the complex order strategy just prior to the erroneous transaction by an amount equal to at least the amount shown in the beginning table for Obvious Error above. If any leg of a complex order is nullified, the entire transaction is nullified. The National Spread Market for a complex order strategy is determined by the National Best Bid/Offer of the individual legs of the strategy.

(c) If the option leg of a stock-option order qualifies as an Obvious Error or a Catastrophic Error, then the option leg that is an Obvious or Catastrophic Error will be adjusted in accordance with the adjust or bust rule explained above for Non-Customer Transactions or adjust or bust rule applicable to Catastrophic Errors, respectively, regardless of whether one of the parties is a Customer. However, the option leg of any Customer order will be nullified if the adjustment would result in an execution price higher (for buy transactions) or lower (for sell transactions) than the Customer's limit price on the stock-option order, and the exchange will attempt to nullify the stock leg. Whenever a stock trading venue nullifies the stock leg of a stock option order or whenever the stock leg cannot be executed, the exchange will nullify the option leg upon request of one of the parties to the transaction or on its own motion.

Filing Deadline

For PHLX, NOM, BX, ISE, GEMX and MRX:

• Submissions must be received for Non-Customer orders (including Professional Customer), within 15 minutes of the execution time.
• Submissions must be received for Customer orders within 30 minutes of the execution time.
• Both Customer and Non-Customer Orders are subject to the rules concerning linkage trades. Any other options exchange will have a total of forty-five (45) minutes for Customer orders and thirty (30) minutes for non-Customer orders, measured from the time of execution on the exchange, to file with the exchange for review of transactions routed to the Exchange from that options exchange and executed on the Exchange ("linkage trades"). This includes filings on behalf of another options exchange filed by a third-party routing broker if such third-party broker identifies the affected transactions as linkage trades. In order to facilitate timely reviews of linkage trades the exchange will accept filings from either the other options exchange or, if applicable, the third-party routing broker that routed the applicable order(s). The additional fifteen (15) minutes provided with respect to linkage trades shall only apply to the extent the options exchange that originally received and routed the order to the exchange itself received a timely filing from the entering participant (i.e., within 30 minutes if a Customer order or 15 minutes if a non- Customer order).

Documentation is Required for Filing a Complaint

A complaint for PHLX, NOM, BX, ISE, GEMX and MRX must include the following information:

• Approximate time of transaction(s)
• Option symbol(s)
• Number of contracts executed
• Price(s) or range of filing
• Reason the review is being sought

Obvious Error Rulings

For PHLX, NOM, BX, ISE, GEMX and MRX:

Mutual Agreements. The exchange may nullify a transaction or adjust the execution price of a transaction. However, the determination as to whether a trade was executed at an erroneous price may be made by mutual agreement of the affected parties to a particular transaction. A trade may be nullified or adjusted on the terms that all parties to a particular transaction. A trade may be nullified or adjusted on the terms that all parties to a particular transaction agree, provided, however, that such agreement to nullify or adjust must be conveyed to the exchange in a manner prescribed by the exchange prior to 8:30 a.m. Eastern Time on the first trading day following the execution. It is considered a conduct inconsistent with just and equitable principles of trade for any member, member organization or participant to use the mutual adjustment process to circumvent any applicable exchange rule, the Act or any of the rules and regulations thereunder.

Definitions.

Customer. For the purposes of this Rule, a Customer shall not include any broker-dealer or professional.

Erroneous Sell/Buy Transaction. For purposes of this Rule, an “erroneous sell transaction” is one in which the price received by the person selling the option is erroneously low, and an “erroneous buy transaction” is one in which the price paid by the person is erroneously high.

Options Exchange Official. For purposes of this Rule, the term “Options Exchange Official” shall mean an exchange staff member or contract employee designated as such by the Chief Regulatory Officer. A list of individual Options exchange Officials shall be displayed on the exchange’s website. The Chief Regulatory Officer shall maintain the list of Options Exchange Officials and update the website each time a name is added too, or deleted from, the list of Options Exchange Officials. In the event no Options Exchange Official is available to rule on a particular matter, the Chief Regulatory Officer or his/her designee shall rule on such matter.

An Options Exchange Official will determine whether there was an Obvious Error as defined above as defined above. If it is determined that an Obvious Error has occurred, the Options Exchange Official shall take of the actions listed below. Upon taking final action, the Options Exchange Official shall promptly notify all parties to the trade by e-mail or via telephone.

Adjust or Bust. If it is determined that an Obvious Error has occurred, the exchange shall take one of the actions relative to Customer or Non-Customer transactions, as set forth above in the Erroneous Review Guidance above for Customer and Non-Customer transactions. Upon taking final action, the exchange shall promptly notify all parties to the trade by e-mail or via telephone.

Catastrophic Error Ruling

For the PHLX, NOM, BX, ISE, GEMX and MRX:

Catastrophic Error Definition. For the purposes of this Rule, a Catastrophic Error will be deemed to have occurred when the execution price of a transaction is higher or lower than the Theoretical Price for the series by an amount equal to at least the amount shown below:

Time Deadline. A party that believes that it participated in a transaction that was the result of a Catastrophic Error must notify the exchange’s Options Exchange Officials in a manner specified from time to time by the Exchange on its website. Such notification must be received by the exchange’s Options Exchange Officials by 8:30 a.m. Eastern Time on the first trading day following the execution. For transactions in an expiring option series that take place on an expiration day, a party must notify the exchange’s Options Exchange Official within 45 minutes after the close of trading that same day.

Adjust or Bust. If it is determined that a Catastrophic Error has occurred, the exchange shall take action as set forth below. Upon taking final action, the exchange shall promptly notify both parties to the trade by email or via telephone. In the event of a Catastrophic Error, the execution price of the transaction will be adjusted by the Options Exchange Official pursuant to the table below. Any Customer order subject to this sub-paragraph will be nullified if the adjustment would result in an execution price higher (for buy transactions) or lower (for sell transactions) than the Customer’s limit price.

The Options Exchange Official may be notified by e-mail at NasdaqUSOptions.ExchangeOfficials@nasdaq.com.

Senior Options Exchange Official

• Michael Blackson

Options Exchange Officials

• Miguel Pastoriza
• Allen Broadbent
• Edward Stutz
• Derrick Dean
• Ralph Bamonte

Appeal of Obvious and Catastrophic Error Rulings

For PHLX:

Appeals. If a party affected by a determination made under this Rule so requests within the time permitted, the Exchange Review Council will review decisions made under this Rule. A request for review under this paragraph must be made within 30 minutes after a party receives verbal notification of a final determination by an Official under this Rule, except that if such notification is made after 3:30 p.m. Eastern Time, either party has until 9:30 a.m. Eastern Time on the next trading day to request a review. Such a request for review must be in writing or otherwise documented. The Exchange Review Council shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made after 3:30 p.m. on the day of the transaction or where the request is properly made the next trade day. Any determination by an Official or the Exchange Review Council shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.

The party initiating the appeal shall be assessed a $500.00 fee if the Exchange Review Council upholds the decision of the Official. In addition, in instances where the Exchange, on behalf of a member or member organization, requests a determination by another market center that a transaction is clearly erroneous, the Exchange will pass any resulting charges through to the relevant member or member organization.

For NOM and BX:

Appeals. A party to a transaction affected by a decision made under this section may appeal that decision to the Nasdaq Review Council. An appeal must be made in writing, and must be received by Nasdaq within thirty (30) minutes after the person making the appeal is given the notification of the determination being appealed, except that if such notification is made after 3:30 p.m. Eastern Time, either party has until 9:30 a.m. Eastern Time on the next trading day to request a review. The Nasdaq Review Council panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made after 3:30 p.m. on the day of the transaction or where the request is properly made the next trade day. The Nasdaq Review Council may review any decision appealed, including whether a complaint was timely, whether an Obvious Error or Catastrophic Error occurred, whether the correct Theoretical Price was used, and whether an adjustment was made at the correct price. The Nasdaq Review Council, pursuant to the standards set forth in this rule, shall affirm, modify, or reverse the determination. The decision of the Nasdaq Review Council pursuant to an appeal, or a determination by a Nasdaq Official that is not appealed, shall be final and binding upon all parties and shall constitute final Nasdaq action on the matter in issue. Any determination by a Nasdaq Official or the Nasdaq Review Council shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.

The party initiating the appeal shall be assessed a $500.00 fee if the Nasdaq Review Council upholds the decision of the Nasdaq Official. In addition, in instances where Nasdaq, on behalf of an Options Participant, requests a determination by another market center that a transaction is clearly erroneous, Nasdaq will pass any resulting charges through to the relevant Options Participant.

For ISE, GEMX and MRX

Appeals. If a Member affected by a determination made under this Rule so requests within the time permitted below, the Obvious Error Panel ("Obvious Error Panel") will review decisions made by the Official under this Rule, including whether an obvious error occurred and whether the correct determination was made. A request for review on appeal must be made in writing via e-mail or other electronic means specified from time to time by the Exchange in a circular distributed to Members within thirty (30) minutes after the party making the appeal is given notification of the initial determination being appealed, except that if such notification is made after 3:30 p.m. Eastern Time, either party has until 9:30 a.m. Eastern Time on the next trading day to request a review. The Exchange Review Council panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made after 3:30 p.m. on the day of the transaction or where the request is properly made the next trade day. The Obvious Error Panel may overturn or modify an action taken by the Official under this Rule. All determinations by the Obvious Error Panel shall constitute final action by the Exchange on the matter at issue.

If the Obvious Error Panel votes to uphold the decision made pursuant to this Rule, the Exchange will assess a $500.00 fee against the Member(s) who initiated the request for appeal. In addition, in instances where the Exchange, on behalf of a Member, requests a determination by another market center that a transaction is clearly erroneous, the Exchange will pass any resulting charges through to the relevant Member. Any determination by an Official or by the Obvious Error Panel shall be rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.

 

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