Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment Nos. 1, 2, 3, and 4 Thereto by the American Stock Exchange LLC To Adopt Obvious Error Rules for Options Transactions, 10425-10436 [E5-844]
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
Printing Costs .............................
$75,000 18, 2005, the American Stock Exchange
Transfer Agent and Brokerage
LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with
1 450,000
Fees and Expenses .................
the Securities and Exchange
Estimated Commission Filing
Commission (‘‘Commission’’) the
Fee Related to 1933 Act Registration ...................................
80,000 proposed rule change as described in
items I and II below, which items have
Total ....................................
$605,000 been prepared by the Exchange. The
1 This represents the total amount of exproposed rule change has been filed by
penses that AEP estimates it will incur in Amex as a ‘‘non-controversial’’ rule
connection with the solicitation of proxies
for the 2005 annual meeting, including with change pursuant to section 19(b)(3)(A)
respect to the Plan. AEP states that it does of the Act 3 and Rule 19b–4(f)(6)
not have enough data to make a reasonable thereunder.4 On January 24, 2005, Amex
estimate of the incremental costs associated
with the solicitation of proxies in regard to submitted Amendment No. 1 to the
the Plan, but believes that the incremental proposed rule change.5 On January 26,
costs would not represent more than ap- 2005, Amex submitted Amendment No.
proximately 10% of the estimated amounts 2 to the proposed rule change.6 On
indicated.
February 3, 2005, Amex submitted
Other expenses for legal, financial,
Amendment No. 3 to the proposed rule
accounting, and clerical services will be change.7 On February 24, 2005, Amex
billed at cost by the American Electric
submitted Amendment No. 4 to the
Power Service Corporation. These
proposed rule change.8 The Commission
expenses are estimated not to exceed
is publishing this notice to solicit
$5,000. In addition, if AEP considers it
comments on the proposed rule change,
desirable to do so it may employ
as amended, from interested persons.
professional proxy solicitors for
I. Self-Regulatory Organization’s
additional fees estimated not to exceed
Statement of the Terms of Substance of
$92,000.
the Proposed Rule Change
It appears to the Commission that
AEP’s Declaration regarding the
Amex proposes to adopt new Amex
proposed solicitation of proxies should
Rules 936, 936C, 936–ANTE, and 936C–
be permitted to become effective
ANTE to provide for the cancellation
immediately under rule 62(d).
and adjustment of options transactions
It is ordered, under rule 62 of the Act, resulting from obvious errors. The
that the Declaration regarding the
proposed rule text is set forth below.9
proposed solicitation of proxies from
Additions are italicized. Deletions are
the holders of outstanding shares of AEP bracketed.
Common Stock become effective
*
*
*
*
*
immediately, subject to the terms and
conditions of rule 24 under the Act.
1 15
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–853 Filed 3–2–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51246; File No. SR–Amex–
2005–11]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change and
Amendment Nos. 1, 2, 3, and 4 Thereto
by the American Stock Exchange LLC
To Adopt Obvious Error Rules for
Options Transactions
February 24, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
5 Amendment No. 1 superseded and replaced the
original proposed rule change in its entirety.
6 Amendment No. 2 superseded and replaced the
original proposed rule change and Amendment No.
1 in their entirety.
7 Amendment No. 3 superseded and replaced the
original proposed rule change, Amendment No. 1,
and Amendment No. 2 in their entirety.
8 In Amendment No. 4, Amex replaced the term
‘‘control room’’ with ‘‘Exchange’s Service Desk’’ in
paragraph (b)(2) of proposed Amex Rule 936C and
paragraph (b)(2) of Amex Rule 936C—ANTE.
9 The proposed rule text below contains technical
corrections as follows: (1) capitalize the word
‘‘Official’’ in proposed Amex Rule 936,
Commentary .03; (2) change the abbreviation ‘‘EST’’
to ‘‘ET’’ in proposed Amex Rule 936C—ANTE (a)(6)
and (b)(1), and the purpose section; and (3) make
typographical corrections to proposed Amex Rules
936, 936—ANTE, 936C, and 936C—ANTE.
Telephone conversations between Claire P.
McGrath, Senior Vice President and General
Counsel, Amex, and Frank N. Genco, Special
Counsel, Division of Market Regulation,
Commission, on February 9, 2005; and Jeffrey
Burns, Associate General Counsel, Amex, and Frank
N. Genco, Special Counsel, Division of Market
Regulation, Commission, on February 9, 2005.
2 17
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10425
Rule 950. Rules of General
Applicability
(a) The following Floor Rules shall
apply to Exchange option transactions
and other transactions on the Exchange
in options contracts: 100, 101, 104, 105,
106, 110, 112, 117, 123, 129, 130, [135,]
150, 151, 152, 153, 155, 157, 172, 173,
174, 175, 176, 177, 180, 181, 183, 184,
185, 192 and 193. Unless the context
otherwise requires, the term ‘‘stock’’
wherever used in the foregoing Rules
shall be deemed to include option
contracts. Except as otherwise provided
in this Rule, all other Floor Rules (series
100 et seq.) shall not be applicable to
Exchange option transactions.
(b)–(n). No Change
Rule 936. Cancellation and Adjustment
of Equity Options Transactions
This Rule governs the cancellation
and adjustment of transactions
involving equity options. Rules 936C
and 936C–ANTE govern the
cancellation and adjustment of
transactions involving options on
indexes, exchange-traded funds
(‘‘ETFs’’) and trust issued receipts
(‘‘TIRs’’). Paragraphs (a)(1) and (2) of
this Rule have no applicability to trades
executed in open outcry. (a) Trades
Subject to Review. A member or person
associated with a member may have a
trade cancelled or adjusted if, in
addition to satisfying the procedural
requirements of paragraph (b) below,
one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious
pricing error occurs when the execution
price of an electronic transaction is
above or below the Theoretical Price for
the series by an amount equal to at least
the amount shown below:
Theoretical price
Below $2 ...................................
$2 to $5 ....................................
Above $5 to $10 .......................
Above $10 to $20 .....................
Above $20 ................................
Minimum
amount
$0.25
0.40
0.50
0.80
1.00
Definition of Theoretical Price. For
purposes of this Rule only, the
Theoretical Price of an option series is,
for series traded on at least one other
options exchange, the last bid price with
respect to an erroneous sell transaction
and the last offer price with respect to
an erroneous buy transaction, just prior
to the trade, disseminated by the
competing options exchange that has
the most liquidity in that option class in
the previous two calendar months. If
there are no quotes for comparison,
designated Trading Officials will
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
determine the Theoretical Price. For
transactions occurring as part of an
opening, the Theoretical Price shall be
the first quote after the transaction(s) in
question that does not reflect the
erroneous transaction(s).
(i) Cancellation or Price Adjustment.
Obvious Pricing Errors will be cancelled
or adjusted as follows.
• Transactions Between Amex
specialists/registered options traders
(ROTs): Where both parties to the
transaction are Amex specialists/ROTs,
the execution price of the transaction
will be adjusted by Trading Officials to
the prices provided in Paragraphs (A)
and (B) below, minus (plus) an
adjustment penalty (‘‘adjustment
penalty’’), unless both parties agree to
adjust the transaction to a different
price or agree to cancel the trade within
fifteen (15) minutes of being notified by
Trading Officials of the Obvious Error.
(A) Erroneous buy transactions will be
adjusted to their Theoretical Price plus
an adjustment penalty of either $.15 if
the Theoretical Price is under $3 or $.30
if the Theoretical Price is at or above $3.
(B) Erroneous sell transactions will be
adjusted to their Theoretical Price
minus an adjustment penalty of either
$.15 if the Theoretical Price is under $3
or $.30 if the Theoretical Price is at or
above $3.
• Transactions Involving at least one
non-Amex specialist/ROT: Where one of
the parties to the transaction is not an
Amex specialist/ROT, the transactions
will be cancelled by Trading Officials
unless both parties agree to an
adjustment price for the transaction
within thirty (30) minutes of being
notified by Trading Officials of the
Obvious Error.
(2) No Bid Series. Electronic
transactions in series quoted no bid at
a nickel (i.e., $0.05 offer) will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid at a nickel at the time of execution.
(3) Verifiable Disruptions or
Malfunctions of Exchange Systems.
Electronic or open outcry transactions
arising out of a ‘‘verifiable disruption or
malfunction’’ in the use or operation of
any Exchange (a) automated quotation,
dissemination, execution, or
communication system 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 is repeatedly traded) in
which case trades in excess of the
disseminated size may be nullified; or
(b) automated quotation, dissemination
or communication system that
prevented a member from updating or
canceling a quote/order for which the
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member is responsible, provided there is
Exchange documentation reflecting that
the member sought to update or cancel
the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Transactions
that qualify for price adjustment will be
adjusted to the Theoretical Price, as
defined in paragraph (a)(1) above.
(4) Erroneous Print in Underlying. A
trade resulting from an erroneous print
disseminated by the underlying market
which is later cancelled or corrected by
that underlying market may be
cancelled. In order to be cancelled,
however, the trade must be the result of
an erroneous print that is higher or
lower than the average trade in the
underlying security during a two minute
period before and after the erroneous
print by an amount at least five times
greater than the average quote width for
such underlying security during the
same period. For purposes of this Rule,
the average trade in the underlying
security shall be determined by adding
the prices of each trade during the four
minute time period referenced above
(excluding the trade in question) and
dividing by the number of trades during
such time period (excluding the trade in
question). For purposes of this Rule, the
average quote width shall be determined
by adding the quote widths of each
separate quote during the four minute
time period referenced above (excluding
the quote in question) and dividing by
the number of quotes during such time
period (excluding the quote in question).
(5) Erroneous Quote in Underlying.
Electronic trades (this provision does
not apply to trades executed in open
outcry) resulting from an erroneous
quote in the underlying security may be
adjusted or canceled as set forth in
paragraph (a)(1) above. 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 on the primary
market (as defined in Rule 900 (b)(26))
during the time period encompassing
two minutes before and after the
dissemination of such quote. For
purposes of this Rule, the average quote
width shall be determined by adding the
quote widths of each separate quote
during the four minute time period
referenced above (excluding the quote in
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question) and dividing the number of
quotes during such time period
(excluding the quote in question).
(b) Procedures for Reviewing
Transactions
(1) Notification. Any member or
person associated with a member that
believes it participated in a transaction
that may be cancelled or adjusted in
accordance with paragraph (a) must
notify any Trading Official promptly but
not later than fifteen (15) minutes after
the execution in question. Absent
unusual circumstances, Trading
Officials shall not grant relief under this
Rule unless notification is made within
the prescribed time periods. In the
absence of unusual circumstances,
Trading Officials (either on their own
motion or upon request of a member)
must initiate action pursuant to
paragraph (a)(3) above within sixty (60)
minutes of the occurrence of the
verifiable disruption or malfunction.
When Trading Officials take action
pursuant to paragraph (a)(3), the
members involved in the transaction(s)
shall receive verbal notification as soon
as is practicable.
(2) Review and Determination. Once a
party to a transaction has applied to a
Trading Official for review, the
transaction shall be reviewed and a
determination rendered, unless both
parties to the transaction agree to
withdraw the application for review
prior to the time a decision is rendered.
Absent unusual circumstances (e.g., a
large number of disputed transactions
arising out of the same incident),
Trading Officials must render a
determination within sixty (60) minutes
of receiving notification pursuant to
paragraph (b)(1) above. Trading
Officials shall promptly provide verbal
notification of a determination to the
members involved in the disputed
transaction and to the Exchange’s
Service Desk.
(c) Obvious Error Panel
(1) Composition. An Obvious Error
Panel will be comprised of at least one
(1) member of the Regulatory staff and
four (4) Floor Officials. Fifty percent of
the number of Floor Officials on the
Obvious Error Panel must be directly
engaged in market making activity and
fifty percent of the number of Floor
Officials on the Obvious Error Panel
must act in the capacity of a nonspecialist floor broker.
(2) Scope of Review. If a party affected
by a determination made under this
Rule so requests within the time
permitted in paragraph (b), an Obvious
Error Panel will review decisions made
by the Trading Officials under this Rule,
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including whether an obvious error
occurred, whether the correct
Theoretical Price was used, and whether
the correct adjustment was made at the
correct price. A party may also request
that the Obvious Error Panel provide
relief as required in this Rule in cases
where the party failed to provide the
notification required in paragraph (b)
and the Trading Officials declined to
grant an extension, but unusual
circumstances must merit special
consideration.
(3) Procedure for Requesting Review.
A request for review must be made in
writing within (30) minutes after a party
receives verbal notification of a final
determination by the Trading Officials
under this Rule, except that if
notification is made after 3:30 p.m.
Eastern Time (‘‘ET’’), either party has
until 9:30 a.m. ET the next trading day
to request review. The Obvious Error
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 the next
trade day.
(4) Panel Decision. The Obvious Error
Panel may overturn or modify an action
taken by the Trading Officials under
this Rule upon agreement by a majority
of the Panel representatives. All
determinations by the Obvious Error
Panel may be appealed in accordance
with paragraph (d) of this rule.
(d) Review of Rulings. A member
affected by a determination made under
this rule may appeal such
determination to a Review Panel of at
least three (3) Exchange Officials who
have not already ruled on the matter. A
request for review must be made in
writing (in a form and manner
prescribed by the Exchange) no later
than the close of trading on the next
trade date after the member receives
verbal notification of such
determination by Trading Officials.
Notwithstanding other Exchange rules
to the contrary (e.g., Rule 22(d)),
decisions of the Review Panel are
binding on members, subject to any
right of appeal pursuant to Article II,
Section 3 of the Constitution. The
parties may also elect to submit the
matter to arbitration pursuant to Article
VIII of the Constitution.
(e) Negotiated Trade Cancellation. A
trade may be cancelled if the parties to
the trade agree to the cancellation.
When all parties to a trade have agreed
to a trade cancellation one party must
promptly disseminate cancellation
information in OPRA format.
Commentary
.01 The term ‘‘Trading Officials’’
means two Exchange members
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designated as Floor Officials and one
member of the Regulatory staff.
.02 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 purchasing the option is
erroneously high.
.03 Applicability: Trading Officials
may also allow for the execution of
opening trades that were not executed
on the opening but that should have
been executed had the specialist opened
the series at the non-erroneous price.
The Exchange will endeavor to notify its
members as soon as practicable after the
correction of an erroneous print and will
indicate that this may result in the
adjustment of trades executed during
the opening rotation. The only trades
that will be adjusted are those that were
executed on the opening or those that
should have executed on the opening.
All adjustments will be made during the
day when the correction of the
erroneous print occurred.
*
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*
*
*
Rule 936C. Cancellation and
Adjustment of Index Option
Transactions This Rule only governs the
cancellation and adjustment of
transactions involving options on
indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule
936 governs the cancellation and
adjustment of transactions involving
equity options. Paragraphs (a)(1), (2), (6)
and (7) of this Rule have no
applicability to trades executed in open
outcry.
(a) Trades Subject To Review
A member or person associated with
a member may have a trade cancelled
or adjusted if, in addition to satisfying
the procedural requirements of
paragraph (b) below, one of the
following conditions is satisfied:
(1) Obvious Price Error. An obvious
pricing error will be deemed to have
occurred when the execution price of a
transaction is above or below the fair
market value of the option by at least a
prescribed amount. For series trading
with normal bid-ask differentials as
established in Rule 958(c), the
prescribed amount shall be: (a) the
greater of $0.10 or 10% for options
trading under $2.50; (b) 10% for options
trading at or above $2.50 and under $5;
or (c) $0.50 for options trading at $5 or
higher. For series trading with bid-ask
differentials that are greater than the
widths established in Rule 958(c), the
prescribed error amount shall be: (a) the
greater of $0.20 or 20% for options
trading under $2.50; (b) 20% for options
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10427
trading at or above $2.50 and under $5;
or (c) $1.00 for options trading at $5 or
higher.
(i) Definition of Fair Market Value:
For purposes of this Rule only, the fair
market value of an option is the
midpoint of the national best bid and
national best offer for the series (across
all exchanges trading the option). In
multiply listed issues, if there are no
quotes for comparison purposes, fair
market value shall be determined by
Trading Officials. For singly-listed
issues, fair market value shall be the
first quote after the transaction(s) in
question that does not reflect the
erroneous transaction(s). For
transactions occurring as part of an
opening, the Fair Market Value shall
also be the first quote after the
transaction(s) in question that does not
reflect the erroneous transaction(s).
(2) Obvious Quantity Error. An
obvious error in the quantity term will
be deemed to occur when the
transaction size exceeds the responsible
broker or dealer’s average disseminated
size over the previous four hours by a
factor of five (5) times. The quantity to
which a transaction shall be adjusted
from an obvious quantity error shall be
the responsible broker or dealer’s
average disseminated size over the
previous four trading hours (which may
include the previous trading day).
(3) Verifiable Disruptions or
Malfunctions of Exchange Systems.
Trades arising out of a ‘‘verifiable
disruption or malfunction’’ in the use or
operation of any Exchange (a)
automated quotation, dissemination,
execution, or communication system
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 is repeatedly
traded) in which case trades in excess
of the disseminated size may be
nullified; or (b) automated quotation,
dissemination or communication system
that prevented a member from updating
or canceling a quote/order for which the
member is responsible, provided there is
Exchange documentation reflecting that
the member sought to update or cancel
the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Transactions
that qualify for price adjustment will be
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
adjusted to the Fair Market Value, as
defined in paragraph (a)(1)(i) above.
(4) Erroneous Print in Underlying. A
trade resulting from an erroneous print
disseminated by the underlying market
which is later cancelled or corrected by
that underlying market may be
cancelled or adjusted. In order to be
cancelled or adjusted, however, the
trade must be the result of an erroneous
print that is higher or lower than the
average trade in the underlying security
during a two minute period before and
after the erroneous print by an amount
at least five times greater than the
average quote width for such underlying
security during the same period.
For purposes of this Rule, the average
trade in the underlying security shall be
determined by adding the prices of each
trade during the four minute time
period referenced above (excluding the
trade in question) and dividing by the
number of trades during such time
period (excluding the trade in question).
For purposes of this Rule, the average
quote width shall be determined by
adding the quote widths of each
separate quote during the four minute
time period referenced above (excluding
the quote in question) and dividing by
the number of quotes during such time
period (excluding the quote in question).
(5) Erroneous Quote in Underlying. A
trade resulting from an erroneous quote
in the underlying security may be
cancelled or adjusted. 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 on the primary
market (as defined in Rule 900(b)(26))
during the time period encompassing
two minutes before and after the
dissemination of such quote.
(6) Trades Below Intrinsic Value. An
obvious pricing error will be deemed to
occur when the transaction price of an
equity option is more than $0.10 below
the intrinsic value of the same option
(an option that trades at its intrinsic
value is sometimes said to trade at
‘‘parity’’). Paragraph (6) shall not apply
to transactions occurring during the last
two minutes of the trading day (which
is typically 4:00:01 p.m. (ET) to 4:02
p.m. (ET)) on days with regular trading
hours).
(i) Definition of Intrinsic Value: For
purposes of this Rule, the intrinsic value
of an equity call option equals the value
of the underlying stock (measured from
the bid or offer as described below)
minus the strike price, and the intrinsic
value of an equity put option equals the
strike price minus the value of the
underlying stock (measured from the bid
or offer as described below), provided
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that in no case is the intrinsic value of
an option less than zero. In the case of
purchasing call options and selling put
options, intrinsic value is measured by
reference to the bid in the underlying
security, and in the case of purchasing
put options and selling call options,
intrinsic value is measured by reference
to the offer in the underlying security.
(7) No Bid Series. Electronic
transactions in series quoted no bid at
a nickel (i.e., $0.05 offer) will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid at a nickel at the time of execution.
(b) Procedures for Reviewing
Transactions.
(1) Notification. Any member or
person associated with a member that
believes it participated in a transaction
that may be cancelled or adjusted in
accordance with paragraph (a) must
notify any Trading Official promptly but
not later than fifteen (15) minutes after
the execution in question. For
transactions occurring after 3:45 p.m.
(ET), notification must be provided
promptly but not later than fifteen (15)
minutes after the close of trading of that
security on the Exchange. Absent
unusual circumstances, Trading
Officials shall not grant relief under this
Rule unless notification is made within
the prescribed time periods. In the
absence of unusual circumstances,
Trading Officials (either on their own
motion or upon request of a member)
must initiate action pursuant to
paragraph (a)(3) above within sixty (60)
minutes of the occurrence of the
verifiable disruption or malfunction.
When Trading Officials take action
pursuant to paragraph (a)(3), the
members involved in the transaction(s)
shall receive verbal notification as soon
as is practicable.
(2) Review and Determination. Once a
party to a transaction has applied to a
Trading Official for review, the
transaction shall be reviewed and a
determination rendered, unless both
parties to the transaction agree to
withdraw the application for review
prior to the time a decision is rendered.
Absent unusual circumstances (e.g., a
large number of disputed transactions
arising out of the same incident),
Trading Officials must render a
determination within sixty (60) minutes
of receiving notification pursuant to
paragraph (b)(1) above. If the
transaction(s) in question occurred after
3:30 p.m. (ET), Trading Officials shall
have until 10:30 a.m. (ET) the following
morning to render a determination.
Trading Officials shall promptly provide
verbal notification of a determination to
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the members involved in the disputed
transaction and to the Exchange’s
Service Desk.
(c) Adjustments. Unless otherwise
specified in Rule 936C(a)(1)–(6),
transactions will be adjusted provided
the adjusted price does not violate the
customer’s limit price. Otherwise, the
transaction will be cancelled. With
respect to 936C(a)(1)–(5), the price to
which a transaction shall be adjusted
shall be the national best bid or offer
(NBBO) immediately following the
erroneous transaction with respect to a
sell (buy) order entered on the
Exchange. For opening transactions, the
price to which a transaction shall be
adjusted shall be based on the first nonerroneous quote after the erroneous
transaction on the Exchange. With
respect to Rule 936C(a)(6), the
transaction shall be adjusted to a price
that is $0.10 under parity.
(d) Review of Rulings. A member
affected by a determination made under
this rule may appeal such
determination to a Review Panel of at
least three (3) Exchange Officials who
have not already ruled on the matter. A
request for review must be made in
writing (in a form and manner
prescribed by the Exchange) no later
than the close of trading on the next
trade date after the member receives
verbal notification of such
determination by Trading Officials.
Notwithstanding other Exchange rules
to the contrary (e.g., Rule 22(d)),
decisions of the Review Panel are
binding on members, subject to any
right of appeal pursuant to Article II,
Section 3 of the Constitution. The
parties may also elect to submit the
matter to arbitration pursuant to Article
VIII of the Constitution.
(e) Negotiated Trade Cancellation. A
trade may be cancelled if the parties to
the trade agree to the cancellation.
When all parties to a trade have agreed
to a trade cancellation one party must
promptly disseminate cancellation
information in OPRA format.
Commentary
.01 The term ‘‘Trading Officials’’
means two Exchange members
designated as Floor Officials and one
member of the Regulatory staff.
.02 Applicability: Trading Officials
may also allow for the execution of
opening trades that were not executed
on the opening but that should have
been executed had the specialist opened
the series at the non-erroneous price.
The Exchange will endeavor to notify its
members as soon as practicable after the
correction of an erroneous print and will
indicate that this may result in the
adjustment of trades executed during
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(ROTs): Where both parties to the
transaction are Amex specialists/ROTs,
the execution price of the transaction
will be adjusted by Trading Officials to
the prices provided in Paragraphs (A)
and (B) below, minus (plus) an
adjustment penalty (‘‘adjustment
penalty’’), unless both parties agree to
adjust the transaction to a different
price or agree to cancel the trade within
fifteen (15) minutes of being notified by
Trading Officials of the Obvious Error.
(A) Erroneous buy transactions will be
adjusted to their Theoretical Price plus
an adjustment penalty of either $.15 if
the Theoretical Price is under $3 or $.30
if the Theoretical Price is at or above $3.
(B) Erroneous sell transactions will be
adjusted to their Theoretical Price
minus an adjustment penalty of either
$.15 if the Theoretical Price is under $3
or $.30 if the Theoretical Price is at or
above $3.
• Transactions Involving at least one
non-Amex specialist/ROT: Where one of
the parties to the transaction is not an
Amex specialist/ROT, the transactions
will be cancelled by Trading Officials
unless both parties agree to an
adjustment price for the transaction
within thirty (30) minutes of being
notified by Trading Officials of the
Obvious Error.
(2) No Bid Series. Electronic
transactions in series quoted no bid at
a nickel (i.e., $0.05 offer) will be
Minimum
cancelled provided at least one strike
Theoretical price
amount
price below (for calls) or above (for puts)
Below ........................................
$0.25 in the same options class was quoted no
$2 to $5 ....................................
0.40 bid at a nickel at the time of execution.
(3) Verifiable Disruptions or
Above $5 to $10 .......................
0.50
Above $10 to $20 .....................
0.80 Malfunctions of Exchange Systems.
Above $20 ................................
1.00 Electronic or open outcry transactions
arising out of a ‘‘verifiable disruption or
Definition of Theoretical Price. For
malfunction’’ in the use or operation of
purposes of this Rule only, the
any Exchange (a) automated quotation,
Theoretical Price of an option series is,
dissemination, execution, or
for series traded on at least one other
communication system that caused a
options exchange, the last bid price with quote/order to trade in excess of its
respect to an erroneous sell transaction
disseminated size (e.g., a quote/order
and the last offer price with respect to
that is frozen because of an Exchange
an erroneous buy transaction, just prior system error and is repeatedly traded) in
to the trade, disseminated by the
which case trades in excess of the
competing options exchange that has
disseminated size may be nullified; or
the most liquidity in that option class in (b) automated quotation, dissemination
the previous two calendar months. If
or communication system that
there are no quotes for comparison,
prevented a member from updating or
designated Trading Officials will
canceling a quote/order for which the
determine the Theoretical Price. For
member is responsible, provided there is
transactions occurring as part of an
Exchange documentation reflecting that
opening, the Theoretical Price shall be
the member sought to update or cancel
the first quote after the transaction(s) in the quote/order. With respect to
question that does not reflect the
verifiable disruptions or malfunctions of
erroneous transaction(s).
the Exchange’s automated quotation
(i) Cancellation or Price Adjustment.
system, documentation of the existence
Obvious Pricing Errors will be cancelled of the disruption or malfunction will be
or adjusted as follows.
sufficient provided the automated
• Transactions Between Amex
quotation system was programmed to
specialists/registered options traders
update or cancel a quote based upon
the opening rotation. The only trades
that will be adjusted are those that were
executed on the opening or those that
should have executed on the opening.
All adjustments will be made during the
day when the correction of the
erroneous print occurred.
*
*
*
*
*
Rule 936—ANTE. Cancellation and
Adjustment of Equity Options
Transactions This Rule governs the
nullification and adjustment of
transactions involving equity options.
Rule 936C and 936C—ANTE governs
the nullification and adjustment of
transactions involving options on
indexes, exchange-traded funds
(‘‘ETFs’’) and trust issued receipts
(‘‘TIRs’’). Paragraphs (a)(1) and (2) of
this Rule have no applicability to trades
executed in open outcry. (a) Trades
Subject to Review. A member or person
associated with a member may have a
trade cancelled or adjusted if, in
addition to satisfying the procedural
requirements of paragraph (b) below,
one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious
pricing error occurs when the execution
price of an electronic transaction is
above or below the Theoretical Price for
the series by an amount equal to at least
the amount shown below:
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10429
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Transactions
that qualify for price adjustment will be
adjusted to the Theoretical Price, as
defined in paragraph (a)(1) above.
(4) Erroneous Print in Underlying. A
trade resulting from an erroneous print
disseminated by the underlying market
which is later cancelled or corrected by
that underlying market may be
cancelled. In order to be cancelled,
however, the trade must be the result of
an erroneous print that is higher or
lower than the average trade in the
underlying security during a two minute
period before and after the erroneous
print by an amount at least five times
greater than the average quote width for
such underlying security during the
same period. For purposes of this Rule,
the average trade in the underlying
security shall be determined by adding
the prices of each trade during the four
minute time period referenced above
(excluding the trade in question) and
dividing by the number of trades during
such time period (excluding the trade in
question). For purposes of this Rule, the
average quote width shall be determined
by adding the quote widths of each
separate quote during the four minute
time period referenced above (excluding
the quote in question) and dividing by
the number of quotes during such time
period (excluding the quote in question).
(5) Erroneous Quote in Underlying.
Electronic trades (this provision does
not apply to trades executed in open
outcry) resulting from an erroneous
quote in the underlying security may be
adjusted or canceled as set forth in
paragraph (a)(1) above. 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 on the primary
market (as defined in Rule 900(b)(26)—
ANTE) during the time period
encompassing two minutes before and
after the dissemination of such quote.
For purposes of this Rule, the average
quote width shall be determined by
adding the quote widths of each
separate quote during the four minute
time period referenced above (excluding
the quote in question) and dividing the
number of quotes during such time
period (excluding the quote in question).
(b) Procedures for Reviewing
Transactions
(1) Notification. Any member or
person associated with a member that
believes it participated in a transaction
that may be cancelled or adjusted in
accordance with paragraph (a) must
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notify any Trading Official promptly but
not later than fifteen (15) minutes after
the execution in question. Absent
unusual circumstances, Trading
Officials shall not grant relief under this
Rule unless notification is made within
the prescribed time periods. In the
absence of unusual circumstances,
Trading Officials (either on their own
motion or upon request of a member)
must initiate action pursuant to
paragraph (a)(3) above within sixty (60)
minutes of the occurrence of the
verifiable disruption or malfunction.
When Trading Officials take action
pursuant to paragraph (a)(3), the
members involved in the transaction(s)
shall receive verbal notification as soon
as is practicable.
(2) Review and Determination. Once a
party to a transaction has applied to a
Trading Official for review, the
transaction shall be reviewed and a
determination rendered, unless both
parties to the transaction agree to
withdraw the application for review
prior to the time a decision is rendered.
Absent unusual circumstances (e.g., a
large number of disputed transactions
arising out of the same incident),
Trading Officials must render a
determination within sixty (60) minutes
of receiving notification pursuant to
paragraph (b)(1) above. Trading
Officials shall promptly provide verbal
notification of a determination to the
members involved in the disputed
transaction and to the Exchange’s
Service Desk.
(c) Obvious Error Panel
(1) Composition. An Obvious Error
Panel will be comprised of at least one
(1) one member of the regulatory staff
and four (4) Floor Officials. Fifty percent
of the number of Floor Officials on the
Obvious Error Panel must be directly
engaged in market making activity and
fifty percent of the number of Floor
Officials on the Obvious Error Panel
must act in the capacity of a nonspecialist floor broker.
(2) Scope of Review. If a party affected
by a determination made under this
Rule so requests within the time
permitted in paragraph (b), an Obvious
Error Panel will review decisions made
by the Trading Officials under this Rule,
including whether an obvious error
occurred, whether the correct
Theoretical Price was used, and whether
the correct adjustment was made at the
correct price. A party may also request
that the Obvious Error Panel provide
relief as required in this Rule in cases
where the party failed to provide the
notification required in paragraph (b)
and the Trading Officials declined to
grant an extension, but unusual
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circumstances must merit special
consideration.
(3) Procedure for Requesting Review.
A request for review must be made in
writing within (30) minutes after a party
receives verbal notification of a final
determination by the Trading Officials
under this Rule, except that if
notification is made after 3:30 p.m.
Eastern Time (‘‘ET’’), either party has
until 9:30 a.m. ET the next trading day
to request review. The Obvious Error
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 the next
trade day.
(4) Panel Decision. The Obvious Error
Panel may overturn or modify an action
taken by the Trading Officials under
this Rule upon agreement by a majority
of the Panel representatives. All
determinations by the Obvious Error
Panel may be appealed in accordance
with paragraph (d) of this rule.
(d) Review of Rulings. A member
affected by a determination made under
this rule may appeal such
determination to a Review Panel of at
least three (3) Exchange Officials who
have not already ruled on the matter. A
request for review must be made in
writing (in a form and manner
prescribed by the Exchange) no later
than the close of trading on the next
trade date after the member receives
verbal notification of such
determination by Trading Officials.
Notwithstanding other Exchange rules
to the contrary (e.g., Rule 22(d)),
decisions of the Review Panel are
binding on members, subject to any
right of appeal pursuant to Article II,
Section 3 of the Constitution. The
parties may also elect to submit the
matter to arbitration pursuant to Article
VIII of the Constitution.
(e) Negotiated Trade Cancellation. A
trade may be cancelled if the parties to
the trade agree to the cancellation.
When all parties to a trade have agreed
to a trade cancellation one party must
promptly disseminate cancellation
information in OPRA format.
Commentary
.01 The term ‘‘Trading Officials’’
means two Exchange members
designated as Floor Officials and one
member of the Regulatory staff.
.02 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 purchasing the option is
erroneously high.
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.03 Applicability: Trading Officials
may also allow for the execution of
opening trades that were not executed
on the opening but that should have
been executed had the specialist opened
the series at the non-erroneous price.
The Exchange will endeavor to notify its
members as soon as practicable after the
correction of an erroneous print and will
indicate that this may result in the
adjustment of trades executed during
the opening rotation. The only trades
that will be adjusted are those that were
executed on the opening or those that
should have executed on the opening.
All adjustments will be made during the
day when the correction of the
erroneous print occurred.
*
*
*
*
*
Rule 936C—ANTE. Cancellation and
Adjustment of Index Option
Transactions
This Rule only governs the
cancellation and adjustment of
transactions involving options on
indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule
936 and 936—ANTE governs the
cancellation and adjustment of
transactions involving equity options.
Paragraphs (a)(1), (2), (6) and (7) of this
Rule have no applicability to trades
executed in open outcry.
(a) Trades Subject To Review
A member or person associated with
a member may have a trade cancelled
or adjusted if, in addition to satisfying
the procedural requirements of
paragraph (b) below, one of the
following conditions is satisfied:
(1) Obvious Price Error. An obvious
pricing error will be deemed to have
occurred when the execution price of a
transaction is above or below the fair
market value of the option by at least a
prescribed amount. For series trading
with normal bid-ask differentials as
established in Rule 958(c)—ANTE, the
prescribed amount shall be: (a) The
greater of $0.10 or 10% for options
trading under $2.50; (b) 10% for options
trading at or above $2.50 and under $5;
or (c) $0.50 for options trading at $5 or
higher. For series trading with bid-ask
differentials that are greater than the
widths established in Rule 958(c)—
ANTE, the prescribed error amount
shall be: (a) the greater of $0.20 or 20%
for options trading under $2.50; (b) 20%
for options trading at or above $2.50
and under $5; or (c) $1.00 for options
trading at $5 or higher.
(i) Definition of Fair Market Value:
For purposes of this Rule only, the fair
market value of an option is the
midpoint of the national best bid and
national best offer for the series (across
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all exchanges trading the option). In
multiply listed issues, if there are no
quotes for comparison purposes, fair
market value shall be determined by
Trading Officials. For singly-listed
issues, fair market value shall be the
first quote after the transaction(s) in
question that does not reflect the
erroneous transaction(s). For
transactions occurring as part of an
opening, the Fair Market Value shall
also be the first quote after the
transaction(s) in question that does not
reflect the erroneous transaction(s).
(2) Obvious Quantity Error. An
obvious error in the quantity term will
be deemed to occur when the
transaction size exceeds the responsible
broker or dealer’s average disseminated
size over the previous four hours by a
factor of five (5) times. The quantity to
which a transaction shall be adjusted
from an obvious quantity error shall be
the responsible broker or dealer’s
average disseminated size over the
previous four trading hours (which may
include the previous trading day).
(3) Verifiable Disruptions or
Malfunctions of Exchange Systems.
Trades arising out of a ‘‘verifiable
disruption or malfunction’’ in the use or
operation of any Exchange (a)
automated quotation, dissemination,
execution, or communication system
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 is repeatedly
traded) in which case trades in excess
of the disseminated size may be
nullified; or (b) automated quotation,
dissemination or communication system
that prevented a member from updating
or canceling a quote/order for which the
member is responsible, provided there
is Exchange documentation reflecting
that the member sought to update or
cancel the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Transactions
that qualify for price adjustment will be
adjusted to the Fair Market Value, as
defined in paragraph (a)(1)(i) above.
(4) Erroneous Print in Underlying. A
trade resulting from an erroneous print
disseminated by the underlying market
which is later cancelled or corrected by
that underlying market may be
cancelled or adjusted. In order to be
cancelled or adjusted, however, the
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trade must be the result of an erroneous
print that is higher or lower than the
average trade in the underlying security
during a two minute period before and
after the erroneous print by an amount
at least five times greater than the
average quote width for such underlying
security during the same period.
For purposes of this Rule, the average
trade in the underlying security shall be
determined by adding the prices of each
trade during the four minute time
period referenced above (excluding the
trade in question) and dividing by the
number of trades during such time
period (excluding the trade in question).
For purposes of this Rule, the average
quote width shall be determined by
adding the quote widths of each
separate quote during the four minute
time period referenced above (excluding
the quote in question) and dividing by
the number of quotes during such time
period (excluding the quote in question).
(5) Erroneous Quote in Underlying. A
trade resulting from an erroneous quote
in the underlying security may be
cancelled or adjusted. 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 on the primary
market (as defined in Rule 900 (b)(26)—
ANTE) during the time period
encompassing two minutes before and
after the dissemination of such quote.
(6) Trades Below Intrinsic Value. An
obvious pricing error will be deemed to
occur when the transaction price of an
equity option is more than $0.10 below
the intrinsic value of the same option
(an option that trades at its intrinsic
value is sometimes said to trade at
‘‘parity’’). Paragraph (6) shall not apply
to transactions occurring during the last
two minutes of the trading day (which
is typically 4:00:01 p.m. (ET) to 4:02
p.m. (ET)) on days with regular trading
hours). (i) Definition of Intrinsic Value:
For purposes of this Rule, the intrinsic
value of an equity call option equals the
value of the underlying stock (measured
from the bid or offer as described below)
minus the strike price, and the intrinsic
value of an equity put option equals the
strike price minus the value of the
underlying stock (measured from the bid
or offer as described below), provided
that in no case is the intrinsic value of
an option less than zero. In the case of
purchasing call options and selling put
options, intrinsic value is measured by
reference to the bid in the underlying
security, and in the case of purchasing
put options and selling call options,
intrinsic value is measured by reference
to the offer in the underlying security.
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10431
(7) No Bid Series. Electronic
transactions in series quoted no bid at
a nickel (i.e., $0.05 offer) will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid at a nickel at the time of execution.
(b) Procedures for Reviewing
Transactions
(1) Notification. Any member or
person associated with a member that
believes it participated in a transaction
that may be cancelled or adjusted in
accordance with paragraph (a) must
notify any Trading Official promptly but
not later than fifteen (15) minutes after
the execution in question. For
transactions occurring after 3:45 p.m.
(ET), notification must be provided
promptly but not later than fifteen (15)
minutes after the close of trading of that
security on the Exchange. Absent
unusual circumstances, Trading
Officials shall not grant relief under this
Rule unless notification is made within
the prescribed time periods. In the
absence of unusual circumstances,
Trading Officials (either on their own
motion or upon request of a member)
must initiate action pursuant to
paragraph (a)(3) above within sixty (60)
minutes of the occurrence of the
verifiable disruption or malfunction.
When Trading Officials take action
pursuant to paragraph (a)(3), the
members involved in the transaction(s)
shall receive verbal notification as soon
as is practicable.
(2) Review and Determination. Once a
party to a transaction has applied to a
Trading Official for review, the
transaction shall be reviewed and a
determination rendered, unless both
parties to the transaction agree to
withdraw the application for review
prior to the time a decision is rendered.
Absent unusual circumstances (e.g., a
large number of disputed transactions
arising out of the same incident),
Trading Officials must render a
determination within sixty (60) minutes
of receiving notification pursuant to
paragraph (b)(1) above. If the
transaction(s) in question occurred after
3:30 p.m. (ET), Trading Officials shall
have until 10:30 a.m. (ET) the following
morning to render a determination.
Trading Officials shall promptly provide
verbal notification of a determination to
the members involved in the disputed
transaction and to the Exchange’s
Service Desk.
(c) Adjustments. Unless otherwise
specified in Rule 936C—ANTE (a)(1)–
(6), transactions will be adjusted
provided the adjusted price does not
violate the customer’s limit price.
Otherwise, the transaction will be
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cancelled. With respect to Rule 936C—
ANTE (a)(1)–(5), the price to which a
transaction shall be adjusted shall be
the national best bid or offer (NBBO)
immediately following the erroneous
transaction with respect to a sell (buy)
order entered on the Exchange. For
opening transactions, the price to which
a transaction shall be adjusted shall be
based on the first non-erroneous quote
after the erroneous transaction on the
Exchange. With respect to Rule 936C—
ANTE (a)(6), the transaction shall be
adjusted to a price that is $0.10 under
parity.
(d) Review of Rulings. A member
affected by a determination made under
this rule may appeal such
determination to a Review Panel of at
least three (3) Exchange Officials who
have not already ruled on the matter. A
request for review must be made in
writing (in a form and manner
prescribed by the Exchange) no later
than the close of trading on the next
trade date after the member receives
verbal notification of such
determination by Trading Officials.
Notwithstanding other Exchange rules
to the contrary e.g., Rule 22(d)),
decisions of the Review Panel are
binding on members, subject to any
right of appeal pursuant to Article II,
Section 3 of the Constitution. The
parties may also elect to submit the
matter to arbitration pursuant to Article
VIII of the Constitution.
(e) Negotiated Trade Cancellation. A
trade may be cancelled if the parties to
the trade agree to the cancellation.
When all parties to a trade have agreed
to a trade cancellation one party must
promptly disseminate cancellation
information in OPRA format.
Commentary
.01 The term ‘‘Trading Officials’’
means two Exchange members
designated as Floor Officials and one
member of the Regulatory staff.
.02 Applicability: Trading Officials
may also allow for the execution of
opening trades that were not executed
on the opening but that should have
been executed had the specialist opened
the series at the non-erroneous price.
The Exchange will endeavor to notify its
members as soon as practicable after the
correction of an erroneous print and will
indicate that this may result in the
adjustment of trades executed during
the opening rotation. The only trades
that will be adjusted are those that were
executed on the opening or those that
should have executed on the opening.
All adjustments will be made during the
day when the correction of the
erroneous print occurred.
*
*
*
*
*
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to adopt new Amex Rules 936,
936C, 936—ANTE, and 936C—ANTE to
allow the Exchange to either cancel or
adjust equity, index, exchange-traded
fund (‘‘ETF’’), and trust issued receipt
(‘‘TIR’’) options transactions, the terms
of which are obviously in error. The
proposal would apply to transactions in
both the Amex New Trading
Environment (‘‘ANTE’’)10 as well as the
existing floor-based auction market
traditionally available on the Exchange.
The proposed rule contains objective
criteria for determining when an options
transaction constitutes an ‘‘obvious
error,’’ provides an objective process
members must follow to seek relief
under the rule, and provides an appeals
process for members seeking to
challenge an initial determination.
Because of the lack of uniform obvious
error rules among the options
exchanges, customers that routinely
send orders to multiple exchanges have
indicated that a more uniform obvious
error pricing rule with respect to equity
options would be beneficial to them.
Accordingly, in response to the requests
of its customers, the Amex proposes to
adopt an obvious error pricing rule for
equity options that is similar to other
options exchanges. The Exchange is also
10 The Commission approved the ANTE system in
May 2004. See Securities Exchange Act Release No.
49747 (May 20, 2004), 69 FR 30344 (May 27, 2004)
(approving File No. SR–Amex–2003–89). Amex
represents that the rollout of ANTE is expected for
completion by the end of the third quarter 2005
with the top 300 option classes on ANTE by the end
of January 2005. Accordingly, the proposal initially
would require application to both the traditional
floor-based system as well as ANTE. Upon
completion of the rollout of ANTE, the proposed
rule would only need to apply to ANTE.
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proposing an obvious error rule for
index, ETF and TIR options.
Obvious Error Rule for Equity Options
(Amex Rules 936 and 936—ANTE).
Criteria for Determining an Erroneous
Transaction. For purposes of proposed
Amex Rules 936 and 936—ANTE, an
options transaction must satisfy one of
the following ‘‘obvious error’’ categories
in order for such transaction to be
reviewed for cancellation or adjustment
by the Exchange.
Obvious Price Error. The Exchange
proposes to adopt an obvious price error
rule that operates identically to that of
Chicago Board Options Exchange, Inc.
(‘‘CBOE’’) Rule 6.25. As such, an
obvious pricing error will be deemed to
have occurred when the execution price
of an electronic transaction (not open
outcry) varies from the Theoretical
Price 11 by a requisite amount.12 When
an obvious price error occurs, Amex
either will adjust or cancel the
transaction in the following manner.
Transactions Between Amex
Specialists/Registered Options Traders
(‘‘ROTs’’). Transactions between Amex
specialists/ROTs will be adjusted to the
Theoretical Price plus/minus an
‘‘adjustment penalty’’ of either $0.15 or
$0.30. Erroneous buy transactions will
be adjusted to the Theoretical Price plus
an adjustment penalty of either $0.15 if
the Theoretical Price is below $3 or
$0.30 if the Theoretical Price is $3 or
higher. Conversely, erroneous sell
transactions will be adjusted to the
Theoretical Price minus an adjustment
penalty of either $0.15 if the Theoretical
Price is below $3 or $0.30 if the
Theoretical Price is $3 or higher. Both
parties to the transaction may agree to
adjust to a different price or cancel the
transaction altogether provided they do
so within fifteen (15) minutes of being
notified by trading officials that an
obvious error occurred.
Transactions where One Party is not
an Amex specialist/ROT. In cases where
at least one party is not an Amex
11 The Exchange proposes to use the definition of
Theoretical Price currently employed by the CBOE
and the International Securities Exchange (‘‘ISE’’).
See CBOE Rule 6.25(a)(1) and ISE Rule 720(b). For
multiply traded options, Theoretical Price will be
the last bid (offer) price with respect to an
erroneous sell (buy) transaction just prior to the
trade that is disseminated by the competing options
exchange with the most liquidity in that class over
the preceding two calendar months. If there are no
quotes for comparison purposes, trading officials
shall determine Theoretical Price. For transactions
occurring as part of an opening, Theoretical Price
shall be the first quote after the transaction(s) in
question that does not reflect the erroneous
transaction(s).
12 The requisite amount is: $0.25 for options
below $2, $0.40 for options priced from $2 to $5,
$0.50 for options priced above $5 to $10, $0.80 for
options priced above $10 to $20, and $1.00 for
options priced above $20.
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specialist/ROT, the transaction will be
cancelled by trading officials unless
both parties agree to an adjustment price
for the transaction within thirty (30)
minutes of being notified by trading
officials of the obvious error. This is
identical to CBOE Rule 6.25.
Series Quoted No Bid. An obvious
pricing error will also be deemed to
exist for ‘‘series quoted no bid.’’
Electronic transactions in series quoted
no bid at a nickel (i.e., $0.05 offer) will
be cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same class were quoted no bid at
a nickel ($0.05) at the time of execution.
This proposed rule provision would
correct errors in out-of-the-money
options that often have no intrinsic
value.
Verifiable Disruptions or
Malfunctions of Exchange Systems.
Transactions arising out of a ‘‘verifiable
disruption or malfunction’’ in the use or
operation of any Exchange (1)
automated quotation, dissemination,
execution, or communication system
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 is repeatedly
traded) in which case trades in excess
of the disseminated size may be
nullified; or (2) automated quotation,
dissemination, or communication
system that prevented a member from
updating or canceling a quote/order for
which the member is responsible,
provided there is Exchange
documentation reflecting that the
member sought to update or cancel the
quote/order. With respect to verifiable
disruptions or malfunctions of the
Exchange’s automated quotation system,
documentation of the existence of the
disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred, and due to the
disruption or malfunction, the quote
was not updated or cancelled. This Rule
will apply to transactions occurring
both electronically and in open outcry.
Erroneous Print in Underlying Market.
A trade resulting from an erroneous
print disseminated by the underlying
market that is later cancelled or
corrected by that underlying market
may be cancelled. In order to be
cancelled, however, the trade must be
the result of an erroneous print that is
higher or lower than the average trade
in the underlying security during a two
(2) minute period before and after the
erroneous print by an amount at least
five (5) times greater than the average
quote width for such underlying
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security during the same period. This
Rule will apply to transactions
occurring both electronically and in
open outcry.
Erroneous Quote in Underlying
Security. A trade resulting from an
erroneous quote in the underlying
security may be adjusted or cancelled.
An erroneous quote occurs when the
underlying security has a width of at
least $1.00 and a width at least five
times greater than the average quote
width for such underlying security on
the primary market (as defined in Amex
Rule 900(b)(26) and Amex Rule
900(b)(26)—ANTE) during the time
period encompassing two minutes
before and after the dissemination of
such quote. For purposes of this
proposed Rule, the average quote width
shall be determined by adding the quote
widths of each separate quote during the
four-minute time period referenced
above (excluding the quote in question)
and dividing the number of quotes
during such time period (excluding the
quote in question).
Erroneous Transactions During the
Opening. A trading rotation in options
is held each business day promptly
following the opening of the underlying
security or the availability of opening
quotations in the underlying security.
Included in the opening rotation are
pre-opening market and limit orders as
well as orders on the book from the
previous trading day. As described in
Commentary .01 to Amex Rule 918 and
Commentary .01 to Amex Rule 918—
ANTE, an opening price will be
established and all market and
marketable limit orders will be
executed. Depending upon the opening
price some limit orders may not be
eligible for execution. If that opening
price is erroneous and later corrected,
Trading Officials may also allow for the
execution of trades that were not
executed on the opening but that should
have been executed had the specialist or
ANTE System opened the series at the
non-erroneous price. The Exchange will
endeavor to notify its members as soon
as practicable after the correction of an
erroneous print and will indicate that
this may result in the adjustment of
trades executed pursuant to the opening
rotation. The only trades that will be
adjusted are those that were executed on
the opening or those that should have
executed on the opening. All
adjustments will be made during the
day when the correction of the
erroneous print occurred.
Procedures for Reviewing Options
Transactions Deemed Erroneous. The
proposed Amex Rule would allow the
Exchange to cancel or adjust options
transactions that are obviously
PO 00000
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10433
erroneous where either the parties agree
or do not agree that the transaction
should be cancelled or revised. Under
the proposed Rule, a member or person
associated with a member may request
trading officials to review an option
transaction(s) claimed to be erroneous.
The Exchange proposes to require
notification within 15 minutes of the
transaction in question, regardless of the
time it occurred. Once a ruling is
requested, the trading officials must
review the trade unless both parties
agree to withdraw an application before
ruling is made. The proposed Rule
requires trading officials to render a
determination within 60 minutes of
notification, regardless of the time the
transaction occurred.13
The process for appealing
determinations regarding obvious errors
is proposed in new Amex Rules 936(d)
and 936(d)—ANTE. The Exchange
proposes to create an Obvious Error
Panel (‘‘Panel’’) that will review
decisions rendered by trading officials.
The rules creating and governing the
Panel are substantially similar to CBOE
Rule 6.25(c) and ISE Rule 720(e).
Regarding the composition of the Panel,
Amex, in addition to including one
member of the regulatory staff, will
require that the Panel be comprised of
an equal number of Amex specialists
and ROTs, and floor broker members.
Decisions of the Panel are subject to
review by a panel of three (3) Exchange
Officials who have not already ruled on
the matter presented on appeal.
Notwithstanding other Exchange rules
to the contrary (e.g., Rule 22(d)), the
decision or ruling of the three (3)
Exchange Official panel is binding on
members subject to any right of appeal
pursuant to Article II, Section 3 of the
Amex Constitution. The parties may
also submit the matter to arbitration
pursuant to Article VIII of the Amex
Constitution.
Obvious Error Rule for Index, ETF and
TIR Options (Amex Rules 936C and
936C—ANTE). Criteria for Determining
an Erroneous Transaction. For purposes
of proposed Amex Rules 936C and
936C—ANTE, an options transaction
must satisfy one of the following
‘‘obvious error’’ categories in order for
such transaction to be reviewed for
cancellation or adjustment by the
Exchange. The Exchange represents that
the proposal is identical to CBOE Rule
24.16.
Obvious Price Error. An obvious price
error will be deemed to have occurred
when the execution price of a
13 The Amex represents that trading officials will
remain at the Exchange until a determination is
rendered.
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transaction is above or below the fair
market value of the option by at least a
prescribed amount. For series trading
with normal bid-ask spreads as set forth
in Amex Rule 958(c) and Amex Rule
958(c)—ANTE, the prescribed amount
shall be: (a) The greater of $0.10 or 10%
for options trading under $2.50; (b) 10%
for options trading at or above $2.50 and
under $5; or (c) $0.50 for options trading
at $5 or higher. For series trading with
bid-ask spreads that are greater than the
bid-ask spreads established in Rule
958(c) and 958(c)—ANTE, the
prescribed error amount shall be: (a)
The greater of $0.20 or 20% for options
trading under $2.50; (b) 20% for options
trading at or above $2.50 and under $5;
or (c) $1.00 for options trading at $5 or
higher.
Fair market value for these purposes
is deemed to be the midpoint of the
national best bid and national best offer
(the ‘‘NBBO’’) for the series for multipletraded classes. If there are no quotes for
comparison purposes, fair market value
shall be determined by trading officials.
In connection with single-listed classes,
fair market value shall be the first quote
after the transaction(s) in question that
does not reflect the erroneous
transaction(s). For transactions
occurring as part of the opening, fair
market value shall also be the first quote
after the transaction(s) in question that
does not reflect the erroneous
transaction(s).
Obvious Quantity Error. An obvious
error in quantity will be deemed to
occur when the transaction size exceeds
the responsible broker or dealer’s
average disseminated size over the
previous four (4) hours by a factor of ten
(10) times. The quantity to which a
transaction shall be adjusted from an
obvious quantity error shall be the
responsible broker or dealer’s average
disseminated size over the previous four
(4) trading hours (which may include
the previous trading day).
Verifiable Disruptions or
Malfunctions of Exchange Systems.
Transactions arising out of a ‘‘verifiable
disruption or malfunction’’ in the use or
operation of any Exchange (1)
automated quotation, dissemination,
execution, or communication system
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 is repeatedly
traded) in which case trades in excess
of the disseminated size may be
nullified; or (2) automated quotation,
dissemination or communication system
that prevented a member from updating
or canceling a quote/order for which the
member is responsible, provided there
is Exchange documentation reflecting
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that the member sought to update or
cancel the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred, and due to the
disruption or malfunction, the quote
was not updated or cancelled. This Rule
will apply to transactions occurring
both electronically and in open outcry.
Erroneous Print in Underlying Market.
A trade resulting from an erroneous
print disseminated by the underlying
market that is later cancelled or
corrected by that underlying market
may be cancelled or adjusted. In order
to be cancelled or adjusted, however,
the trade must be the result of an
erroneous print that is higher or lower
than the average trade in the underlying
security during a two (2) minute period
before and after the erroneous print by
an amount at least five (5) times greater
than the average quote width for such
underlying security during the same
period. For purposes of this Rule, the
average quote width shall be determined
by adding the quote widths of each
separate quote during the four (4)
minute time period referenced above
(excluding the quote in question) and
dividing by the number of quotes during
such time period (excluding the quote
in question).
Erroneous Quote in Underlying
Security. A trade resulting from an
erroneous quote in the underlying
security may be cancelled or adjusted.
An erroneous quote occurs when the
underlying security has a width of at
least $1.00 and that width is at least five
(5) times greater than the average quote
width for such underlying security on
the primary market (as defined in Amex
Rule 900(b)(26) and Amex Rule
900(b)(26)—ANTE during the time
period encompassing two (2) minutes
before and after the dissemination of
such quote.
Trades Below Intrinsic Value. An
obvious pricing error will be deemed to
exist where a trade is automatically
executed at a price so that the specialist
or ROT sells at $0.10 or more below
intrinsic value. An option that trades at
its intrinsic value is known as trading at
‘‘parity.’’ Parity describes an option
contract’s total premium when that
premium is equal to its intrinsic value.
Parity for calls is measured by reference
to the offer price of the underlying
security at the time of the transaction
minus the strike price for the call. Parity
for puts is measured by the strike price
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
of an underlying security minus its bid
price at the time of the transaction.
Series Quoted No Bid. An obvious
pricing error will also be deemed to
exist for ‘‘series quoted no bid.’’ In this
situation, the trade resulted in an
execution price in a series quoted no bid
and at least one strike price below (for
calls) or above (for puts) in the same
class were quoted no bid immediately
before the time of the erroneous
execution, and the bid following the
execution in that series was zero. This
proposed rule provision would correct
errors in out-of-the-money options that
often have no intrinsic value.
Adjustments. If the trading officials
determine that the particular option
transaction fits within one of the
categories set forth above and the
complaining party has timely
documented a request for relief, then the
trade will be cancelled or adjusted. In
general, transactions will be adjusted
provided the adjusted price does not
violate the customer’s limit price.
Otherwise, the transaction will be
cancelled.
With respect to transactions deemed
in error as set forth in Amex Rules
936C(a)(1)–(5) and 936C(a)(1)–(5)—
ANTE, the price to which a transaction
will be adjusted is the NBBO
immediately following the erroneous
transaction order entered on the
Exchange. For opening transactions in
ANTE, the price to which a transaction
shall be adjusted is based on the first
non-erroneous quote after the erroneous
transaction on the Amex. In connection
with transactions below intrinsic value
set forth in Amex Rules 936C(a)(6) and
936C(a)(6)—ANTE, the transaction
would be adjusted to a price that is
$0.10 under parity.
Negotiated Trade Cancellation. A
trade may also be cancelled if the
parties to the trade agree to the
cancellation. When a cancellation has
been agreed to, one of the parties is
required to disseminate cancellation
information in OPRA format.
Erroneous Transactions During the
Opening. A trading rotation in options
is held each business day promptly
following the opening of the underlying
security or the availability of opening
quotations in the underlying security.
Included in the opening rotation are
pre-opening market and limit orders as
well as orders on the book from the
previous trading day. As described in
Commentary .01 to Amex Rule 918 and
Commentary .01 to Amex Rule 918—
ANTE, Commentary .01, an opening
price will be established and all market
and marketable limit orders will be
executed. Depending upon the opening
price some limit orders may not be
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eligible for execution. If that opening
price is erroneous and later corrected,
trading officials may also allow for the
execution of trades that were not
executed on the opening but that should
have been executed had the specialist or
ANTE System opened the series at the
non-erroneous price. The Exchange will
endeavor to notify its members as soon
as practicable after the correction of an
erroneous print and will indicate that
this may result in the adjustment of
trades executed pursuant to the opening
rotation. The only trades that will be
adjusted are those that were executed on
the opening or those that should have
executed on the opening. All
adjustments will be made during the
day when the correction of the
erroneous print occurred.
Procedures for Reviewing Options
Transactions Deemed Erroneous. The
proposed Rule would allow the
Exchange to cancel or adjust options
transactions that are obviously
erroneous where either the parties agree
or do not agree that the transaction
should be cancelled or revised. Under
the proposed rule change, a member or
person associated with a member may
request trading officials to review an
option transaction(s) claimed to be
erroneous. Once a ruling is requested,
the trading officials must review the
trade unless both parties agree to
withdraw an application before ruling is
made.
Notification of trading officials by a
member indicating that a transaction
should be cancelled or adjusted should
occur promptly but no later than fifteen
(15) minutes after the execution in
question. For transactions occurring
after 3:45 p.m. Eastern Time (ET),
notification may not occur later than
fifteen (15) minutes after the close of
trading. Absent unusual circumstances,
trading officials must render a
determination within sixty (60) minutes
of receiving notification. If the
transaction(s) in question occurred after
3:30 p.m. ET, trading officials have until
10:30 a.m. (ET) the following morning to
render a determination.
A member affected by a determination
made under the proposed Rule may
appeal such determination to a Review
Panel of at least three (3) Exchange
Officials. A request for review must be
made in writing no later than the close
of trading on the next trade date after a
party receives verbal notification of a
final determination by trading officials.
Notwithstanding other Exchange rules
to the contrary (e.g., Amex Rule 22(d)),
decisions of the Review Panel are
binding on members, subject to any
right of appeal pursuant to Article II,
Section 3 of the Amex Constitution. The
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Jkt 205001
parties may also submit the matter to
arbitration pursuant to Article VIII of
the Amex Constitution.
2. Statutory Basis
Amex represents that the filing
provides objective guidelines for the
nullification or adjustment of
transactions executed at clearly
erroneous prices. Moreover, the
proposed rule change provides more
uniformity regarding obvious pricing
errors, which will serve to benefit
customers. For these reasons, the
Exchange believes the proposed rule
change is consistent with the Act and
the rules and regulations under the Act
applicable to a national securities
exchange and, in particular, the
requirements of section 6(b) of the
Act.14 Specifically, the Exchange
believes the proposed rule change is
consistent with the requirements of
section 6(b)(5) of the Act 15 that the rules
of an exchange be designed to promote
just and equitable principles of trade, to
prevent fraudulent and manipulative
acts and practices, and, in general, to
protect investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Amex does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change (1) does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms, does not become
operative until 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest, and
the Exchange provided the Commission
with written notice of its intent to file
the proposed rule change at least five
business days prior to the date of filing
of the proposed rule change, or such
shorter time as designated by the
Commission, it has become effective
PO 00000
14 15
15 15
U.S.C. 78(f)(b).
U.S.C. 78(f)(b)(5).
Frm 00083
Fmt 4703
Sfmt 4703
10435
pursuant to section 19(b)(3)(A) of the
Act 16 and Rule 19b–4(f)(6)
thereunder.17
The Exchange has requested that the
Commission waive the 30-day operative
delay and designate the proposed rule
change immediately operative. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest.18 The proposed Amex
obvious error rules are substantially
similar to CBOE Rules 6.25 and 24.16.
Thus, the Commission does not believe
that the proposed rule change raises any
new regulatory issues. In addition, the
Commission believes that waiver of the
30-day operative delay would enable the
Exchange to implement the proposal as
quickly as possible, and thereby should
provide Amex members and users of
Amex facilities with greater clarity with
respect to whether a particular options
transactions involves an obvious error.
At any time within 60 days of the
filing of this proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.19
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR-Amex-2005–11 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
16 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
18 For purposes of waiving the operative delay of
this proposal, the Commission has considered the
proposed rules impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
19 For purposes of calculating the sixty-day
abrogation period, the Commission considers the
abrogation period to have begun on February 22,
2005, the date Amex submitted Amendment No. 4.
See 15 U.S.C. 78s(b)(3)(C).
17 17
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Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
All submissions should refer to File
Number SR–Amex–2005–11. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filing also will be available for
inspection and copying at the principal
office of Amex. All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Amex–
2005–11 and should be submitted on or
before March 24, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.20
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–844 Filed 3–2–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51248; File No. SR–Amex–
2004–11]
Self-Regulatory Organizations; Notice
of Filing and Order Granting
Accelerated Approval of Proposed
Rule Change and Amendment Nos. 1
and 2 Thereto by the American Stock
Exchange LLC Relating to an Obvious
Error Rule for Trades on the Exchange
in Equity Securities
February 24, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
20 17
CFR 200.30-3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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16:38 Mar 02, 2005
Jkt 205001
3, 2004, the American Stock Exchange
LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
items I and II below, which items have
been prepared by the Exchange. On May
21, 2004 and February 18, 2005, Amex
submitted Amendment Numbers 1 3 and
2,4 respectively, to the proposed rule
change. The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons and is approving the
proposal, as amended, on an accelerated
basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Amex proposes to adopt an obvious
error rule for transactions on the
Exchange in equity securities other than
Nasdaq National Market securities
admitted to dealings on an unlisted
basis.5 The text of the proposed rule
change follows. New text is italicized
and deleted text is bracketed.
Cancellations of, and Revisions in,
Transactions Where Both the Buying
and Selling Members Agree to the
Cancellation or Revision
Rule 135. (a) A member or member
organization effecting a transaction on
the Exchange shall not cancel or revise
such transaction unless it was made in
error or the cancellation or revision is
for other proper reason, and unless in
each case both buying and selling
members agree to the cancellation or
revision and prior approval of the
cancellation or revision is obtained from
a Floor Official.
(b) Rule 390 shall not preclude a
member, member organization, allied
member, registered representative, or
officer from sharing or agreeing to share
in any losses in any customer’s account
with respect to securities admitted to
3 In Amendment No. 1, the Exchange, among
other things, revised the proposed rule text to state
expressly that it would not apply to listed options
and to more closely mirror the Exchange’s existing
rule concerning clearly erroneous transactions in
Nasdaq National Market Securities. See letter from
Bill Floyd-Jones, Associate General Counsel, Amex,
to Nancy J. Sanow, Assistant Director, Division of
Market Regulation (‘‘Division’’), Commission, dated
May 20, 2004 (‘‘Amendment No. 1’’) (replacing the
original Form 19b–4 filing in its entirety).
4 In Amendment No. 2, the Exchange, among
other things, made technical corrections to its
proposed rule text and requested accelerated
approval of the proposed rule change. Amendment
No. 2 superceded and replaced Amendment No. 1
in its entirety.
5 Telephone conversation between William
Floyd-Jones, Associate General Counsel, Amex, and
Terri L. Evans, Senior Special Counsel, Division,
Commission, on February 22, 2005 (clarifying that
the proposed rule change does not apply to Nasdaq
National Market securities).
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
dealings on the Exchange after the
member organization has established
that the loss was caused in whole or in
part by the action or inaction of such
member, member organization, allied
member, registered representative or
officer, provided, however, that this
provision shall not permit a member,
member organization, allied member,
registered representative or officer to
guarantee any customer against loss in
his or her account.
* * * Commentary
.01 A change or correction in a
transaction which previously appeared
on the tape, or the cancellation of a
transaction which previously appeared
on the tape and was properly rescinded,
or the occurrence of a transaction which
had been omitted from the tape, is to be
published on the tape on the day of the
transaction after approval of such
publication is obtained from a Floor
Official. If not published on such day,
the same is to be published at a later
date in the Exchange’s Sales and Quotes
Report with the approval of a Floor
Official.
.02 Rescinded [Where a transaction
is not cancelled but the member or
member organization intends to assume
for his or its own account the contract
made for a customer, the provisions of
Rule 390 apply, and any required
consent of the Exchange under that rule
is to be obtained from the Compliance
and Surveillance Division.]
Cancellations of, and Revisions in,
Transactions Where Both the Buying
and Selling Members Do Not Agree to
the Cancellation or Revision
Rule 135A (a) A Floor Official shall,
pursuant to the procedures set forth
below, have the authority to review any
transaction in a security admitted to
dealings on the Exchange that is
claimed to be clearly erroneous arising
out of the use or operation of any
facility of the Exchange, provided,
however, that the procedures for
reviewing transactions in Nasdaq
National Market securities admitted to
dealings on the Exchange are separately
set forth in Rule 118 and provided
further that these procedures do not
apply to listed options.
In reviewing a trade that is claimed to
be clearly erroneous, a Floor Official
shall review the transaction with a view
toward maintaining a fair and orderly
market and the protection of investors
and the public interest. Based upon this
review, the Floor Official shall decline
to ‘‘break’’ a disputed transaction if the
Floor Official believes that the
transaction under dispute is not clearly
erroneous. If the Floor Official
E:\FR\FM\03MRN1.SGM
03MRN1
Agencies
[Federal Register Volume 70, Number 41 (Thursday, March 3, 2005)]
[Notices]
[Pages 10425-10436]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-844]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51246; File No. SR-Amex-2005-11]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment Nos. 1, 2, 3, and 4
Thereto by the American Stock Exchange LLC To Adopt Obvious Error Rules
for Options Transactions
February 24, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 18, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in items I and
II below, which items have been prepared by the Exchange. The proposed
rule change has been filed by Amex as a ``non-controversial'' rule
change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ On January 24, 2005, Amex submitted Amendment
No. 1 to the proposed rule change.\5\ On January 26, 2005, Amex
submitted Amendment No. 2 to the proposed rule change.\6\ On February
3, 2005, Amex submitted Amendment No. 3 to the proposed rule change.\7\
On February 24, 2005, Amex submitted Amendment No. 4 to the proposed
rule change.\8\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
\5\ Amendment No. 1 superseded and replaced the original
proposed rule change in its entirety.
\6\ Amendment No. 2 superseded and replaced the original
proposed rule change and Amendment No. 1 in their entirety.
\7\ Amendment No. 3 superseded and replaced the original
proposed rule change, Amendment No. 1, and Amendment No. 2 in their
entirety.
\8\ In Amendment No. 4, Amex replaced the term ``control room''
with ``Exchange's Service Desk'' in paragraph (b)(2) of proposed
Amex Rule 936C and paragraph (b)(2) of Amex Rule 936C--ANTE.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Amex proposes to adopt new Amex Rules 936, 936C, 936-ANTE, and
936C-ANTE to provide for the cancellation and adjustment of options
transactions resulting from obvious errors. The proposed rule text is
set forth below.\9\ Additions are italicized. Deletions are bracketed.
---------------------------------------------------------------------------
\9\ The proposed rule text below contains technical corrections
as follows: (1) capitalize the word ``Official'' in proposed Amex
Rule 936, Commentary .03; (2) change the abbreviation ``EST'' to
``ET'' in proposed Amex Rule 936C--ANTE (a)(6) and (b)(1), and the
purpose section; and (3) make typographical corrections to proposed
Amex Rules 936, 936--ANTE, 936C, and 936C--ANTE. Telephone
conversations between Claire P. McGrath, Senior Vice President and
General Counsel, Amex, and Frank N. Genco, Special Counsel, Division
of Market Regulation, Commission, on February 9, 2005; and Jeffrey
Burns, Associate General Counsel, Amex, and Frank N. Genco, Special
Counsel, Division of Market Regulation, Commission, on February 9,
2005.
---------------------------------------------------------------------------
* * * * *
Rule 950. Rules of General Applicability
(a) The following Floor Rules shall apply to Exchange option
transactions and other transactions on the Exchange in options
contracts: 100, 101, 104, 105, 106, 110, 112, 117, 123, 129, 130,
[135,] 150, 151, 152, 153, 155, 157, 172, 173, 174, 175, 176, 177, 180,
181, 183, 184, 185, 192 and 193. Unless the context otherwise requires,
the term ``stock'' wherever used in the foregoing Rules shall be deemed
to include option contracts. Except as otherwise provided in this Rule,
all other Floor Rules (series 100 et seq.) shall not be applicable to
Exchange option transactions.
(b)-(n). No Change
Rule 936. Cancellation and Adjustment of Equity Options Transactions
This Rule governs the cancellation and adjustment of transactions
involving equity options. Rules 936C and 936C-ANTE govern the
cancellation and adjustment of transactions involving options on
indexes, exchange-traded funds (``ETFs'') and trust issued receipts
(``TIRs''). Paragraphs (a)(1) and (2) of this Rule have no
applicability to trades executed in open outcry. (a) Trades Subject to
Review. A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error occurs when the
execution price of an electronic transaction is above or below the
Theoretical Price for the series by an amount equal to at least the
amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
------------------------------------------------------------------------
Below $2................................................... $0.25
$2 to $5................................................... 0.40
Above $5 to $10............................................ 0.50
Above $10 to $20........................................... 0.80
Above $20.................................................. 1.00
------------------------------------------------------------------------
Definition of Theoretical Price. For purposes of this Rule only,
the Theoretical Price of an option series is, for series traded on at
least one other options exchange, the last bid price with respect to an
erroneous sell transaction and the last offer price with respect to an
erroneous buy transaction, just prior to the trade, disseminated by the
competing options exchange that has the most liquidity in that option
class in the previous two calendar months. If there are no quotes for
comparison, designated Trading Officials will
[[Page 10426]]
determine the Theoretical Price. For transactions occurring as part of
an opening, the Theoretical Price shall be the first quote after the
transaction(s) in question that does not reflect the erroneous
transaction(s).
(i) Cancellation or Price Adjustment. Obvious Pricing Errors will
be cancelled or adjusted as follows.
Transactions Between Amex specialists/registered options
traders (ROTs): Where both parties to the transaction are Amex
specialists/ROTs, the execution price of the transaction will be
adjusted by Trading Officials to the prices provided in Paragraphs (A)
and (B) below, minus (plus) an adjustment penalty (``adjustment
penalty''), unless both parties agree to adjust the transaction to a
different price or agree to cancel the trade within fifteen (15)
minutes of being notified by Trading Officials of the Obvious Error.
(A) Erroneous buy transactions will be adjusted to their
Theoretical Price plus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
(B) Erroneous sell transactions will be adjusted to their
Theoretical Price minus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
Transactions Involving at least one non-Amex specialist/
ROT: Where one of the parties to the transaction is not an Amex
specialist/ROT, the transactions will be cancelled by Trading Officials
unless both parties agree to an adjustment price for the transaction
within thirty (30) minutes of being notified by Trading Officials of
the Obvious Error.
(2) No Bid Series. Electronic transactions in series quoted no bid
at a nickel (i.e., $0.05 offer) will be cancelled provided at least one
strike price below (for calls) or above (for puts) in the same options
class was quoted no bid at a nickel at the time of execution.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems.
Electronic or open outcry transactions arising out of a ``verifiable
disruption or malfunction'' in the use or operation of any Exchange (a)
automated quotation, dissemination, execution, or communication system
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 is repeatedly traded) in which case trades in excess of the
disseminated size may be nullified; or (b) automated quotation,
dissemination or communication system that prevented a member from
updating or canceling a quote/order for which the member is
responsible, provided there is Exchange documentation reflecting that
the member sought to update or cancel the quote/order. With respect to
verifiable disruptions or malfunctions of the Exchange's automated
quotation system, documentation of the existence of the disruption or
malfunction will be sufficient provided the automated quotation system
was programmed to update or cancel a quote based upon specific changes
in the underlying, those changes occurred and due to the disruption or
malfunction the quote was not updated or cancelled. Transactions that
qualify for price adjustment will be adjusted to the Theoretical Price,
as defined in paragraph (a)(1) above.
(4) Erroneous Print in Underlying. A trade resulting from an
erroneous print disseminated by the underlying market which is later
cancelled or corrected by that underlying market may be cancelled. In
order to be cancelled, however, the trade must be the result of an
erroneous print that is higher or lower than the average trade in the
underlying security during a two minute period before and after the
erroneous print by an amount at least five times greater than the
average quote width for such underlying security during the same
period. For purposes of this Rule, the average trade in the underlying
security shall be determined by adding the prices of each trade during
the four minute time period referenced above (excluding the trade in
question) and dividing by the number of trades during such time period
(excluding the trade in question). For purposes of this Rule, the
average quote width shall be determined by adding the quote widths of
each separate quote during the four minute time period referenced above
(excluding the quote in question) and dividing by the number of quotes
during such time period (excluding the quote in question).
(5) Erroneous Quote in Underlying. Electronic trades (this
provision does not apply to trades executed in open outcry) resulting
from an erroneous quote in the underlying security may be adjusted or
canceled as set forth in paragraph (a)(1) above. 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 on the primary market (as defined in Rule
900 (b)(26)) during the time period encompassing two minutes before and
after the dissemination of such quote. For purposes of this Rule, the
average quote width shall be determined by adding the quote widths of
each separate quote during the four minute time period referenced above
(excluding the quote in question) and dividing the number of quotes
during such time period (excluding the quote in question).
(b) Procedures for Reviewing Transactions
(1) Notification. Any member or person associated with a member
that believes it participated in a transaction that may be cancelled or
adjusted in accordance with paragraph (a) must notify any Trading
Official promptly but not later than fifteen (15) minutes after the
execution in question. Absent unusual circumstances, Trading Officials
shall not grant relief under this Rule unless notification is made
within the prescribed time periods. In the absence of unusual
circumstances, Trading Officials (either on their own motion or upon
request of a member) must initiate action pursuant to paragraph (a)(3)
above within sixty (60) minutes of the occurrence of the verifiable
disruption or malfunction. When Trading Officials take action pursuant
to paragraph (a)(3), the members involved in the transaction(s) shall
receive verbal notification as soon as is practicable.
(2) Review and Determination. Once a party to a transaction has
applied to a Trading Official for review, the transaction shall be
reviewed and a determination rendered, unless both parties to the
transaction agree to withdraw the application for review prior to the
time a decision is rendered. Absent unusual circumstances (e.g., a
large number of disputed transactions arising out of the same
incident), Trading Officials must render a determination within sixty
(60) minutes of receiving notification pursuant to paragraph (b)(1)
above. Trading Officials shall promptly provide verbal notification of
a determination to the members involved in the disputed transaction and
to the Exchange's Service Desk.
(c) Obvious Error Panel
(1) Composition. An Obvious Error Panel will be comprised of at
least one (1) member of the Regulatory staff and four (4) Floor
Officials. Fifty percent of the number of Floor Officials on the
Obvious Error Panel must be directly engaged in market making activity
and fifty percent of the number of Floor Officials on the Obvious Error
Panel must act in the capacity of a non-specialist floor broker.
(2) Scope of Review. If a party affected by a determination made
under this Rule so requests within the time permitted in paragraph (b),
an Obvious Error Panel will review decisions made by the Trading
Officials under this Rule,
[[Page 10427]]
including whether an obvious error occurred, whether the correct
Theoretical Price was used, and whether the correct adjustment was made
at the correct price. A party may also request that the Obvious Error
Panel provide relief as required in this Rule in cases where the party
failed to provide the notification required in paragraph (b) and the
Trading Officials declined to grant an extension, but unusual
circumstances must merit special consideration.
(3) Procedure for Requesting Review. A request for review must be
made in writing within (30) minutes after a party receives verbal
notification of a final determination by the Trading Officials under
this Rule, except that if notification is made after 3:30 p.m. Eastern
Time (``ET''), either party has until 9:30 a.m. ET the next trading day
to request review. The Obvious Error 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 the next trade day.
(4) Panel Decision. The Obvious Error Panel may overturn or modify
an action taken by the Trading Officials under this Rule upon agreement
by a majority of the Panel representatives. All determinations by the
Obvious Error Panel may be appealed in accordance with paragraph (d) of
this rule.
(d) Review of Rulings. A member affected by a determination made
under this rule may appeal such determination to a Review Panel of at
least three (3) Exchange Officials who have not already ruled on the
matter. A request for review must be made in writing (in a form and
manner prescribed by the Exchange) no later than the close of trading
on the next trade date after the member receives verbal notification of
such determination by Trading Officials. Notwithstanding other Exchange
rules to the contrary (e.g., Rule 22(d)), decisions of the Review Panel
are binding on members, subject to any right of appeal pursuant to
Article II, Section 3 of the Constitution. The parties may also elect
to submit the matter to arbitration pursuant to Article VIII of the
Constitution.
(e) Negotiated Trade Cancellation. A trade may be cancelled if the
parties to the trade agree to the cancellation. When all parties to a
trade have agreed to a trade cancellation one party must promptly
disseminate cancellation information in OPRA format.
Commentary
.01 The term ``Trading Officials'' means two Exchange members
designated as Floor Officials and one member of the Regulatory staff.
.02 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 purchasing the option is erroneously high.
.03 Applicability: Trading Officials may also allow for the
execution of opening trades that were not executed on the opening but
that should have been executed had the specialist opened the series at
the non-erroneous price. The Exchange will endeavor to notify its
members as soon as practicable after the correction of an erroneous
print and will indicate that this may result in the adjustment of
trades executed during the opening rotation. The only trades that will
be adjusted are those that were executed on the opening or those that
should have executed on the opening. All adjustments will be made
during the day when the correction of the erroneous print occurred.
* * * * *
Rule 936C. Cancellation and Adjustment of Index Option Transactions
This Rule only governs the cancellation and adjustment of transactions
involving options on indexes, exchange-traded funds (ETFs) and trust
issued receipts (TIRs). Rule 936 governs the cancellation and
adjustment of transactions involving equity options. Paragraphs (a)(1),
(2), (6) and (7) of this Rule have no applicability to trades executed
in open outcry.
(a) Trades Subject To Review
A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error will be deemed to
have occurred when the execution price of a transaction is above or
below the fair market value of the option by at least a prescribed
amount. For series trading with normal bid-ask differentials as
established in Rule 958(c), the prescribed amount shall be: (a) the
greater of $0.10 or 10% for options trading under $2.50; (b) 10% for
options trading at or above $2.50 and under $5; or (c) $0.50 for
options trading at $5 or higher. For series trading with bid-ask
differentials that are greater than the widths established in Rule
958(c), the prescribed error amount shall be: (a) the greater of $0.20
or 20% for options trading under $2.50; (b) 20% for options trading at
or above $2.50 and under $5; or (c) $1.00 for options trading at $5 or
higher.
(i) Definition of Fair Market Value: For purposes of this Rule
only, the fair market value of an option is the midpoint of the
national best bid and national best offer for the series (across all
exchanges trading the option). In multiply listed issues, if there are
no quotes for comparison purposes, fair market value shall be
determined by Trading Officials. For singly-listed issues, fair market
value shall be the first quote after the transaction(s) in question
that does not reflect the erroneous transaction(s). For transactions
occurring as part of an opening, the Fair Market Value shall also be
the first quote after the transaction(s) in question that does not
reflect the erroneous transaction(s).
(2) Obvious Quantity Error. An obvious error in the quantity term
will be deemed to occur when the transaction size exceeds the
responsible broker or dealer's average disseminated size over the
previous four hours by a factor of five (5) times. The quantity to
which a transaction shall be adjusted from an obvious quantity error
shall be the responsible broker or dealer's average disseminated size
over the previous four trading hours (which may include the previous
trading day).
(3) Verifiable Disruptions or Malfunctions of Exchange Systems.
Trades arising out of a ``verifiable disruption or malfunction'' in the
use or operation of any Exchange (a) automated quotation,
dissemination, execution, or communication system 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 is repeatedly
traded) in which case trades in excess of the disseminated size may be
nullified; or (b) automated quotation, dissemination or communication
system that prevented a member from updating or canceling a quote/order
for which the member is responsible, provided there is Exchange
documentation reflecting that the member sought to update or cancel the
quote/order. With respect to verifiable disruptions or malfunctions of
the Exchange's automated quotation system, documentation of the
existence of the disruption or malfunction will be sufficient provided
the automated quotation system was programmed to update or cancel a
quote based upon specific changes in the underlying, those changes
occurred and due to the disruption or malfunction the quote was not
updated or cancelled. Transactions that qualify for price adjustment
will be
[[Page 10428]]
adjusted to the Fair Market Value, as defined in paragraph (a)(1)(i)
above.
(4) Erroneous Print in Underlying. A trade resulting from an
erroneous print disseminated by the underlying market which is later
cancelled or corrected by that underlying market may be cancelled or
adjusted. In order to be cancelled or adjusted, however, the trade must
be the result of an erroneous print that is higher or lower than the
average trade in the underlying security during a two minute period
before and after the erroneous print by an amount at least five times
greater than the average quote width for such underlying security
during the same period.
For purposes of this Rule, the average trade in the underlying
security shall be determined by adding the prices of each trade during
the four minute time period referenced above (excluding the trade in
question) and dividing by the number of trades during such time period
(excluding the trade in question). For purposes of this Rule, the
average quote width shall be determined by adding the quote widths of
each separate quote during the four minute time period referenced above
(excluding the quote in question) and dividing by the number of quotes
during such time period (excluding the quote in question).
(5) Erroneous Quote in Underlying. A trade resulting from an
erroneous quote in the underlying security may be cancelled or
adjusted. 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 on the
primary market (as defined in Rule 900(b)(26)) during the time period
encompassing two minutes before and after the dissemination of such
quote.
(6) Trades Below Intrinsic Value. An obvious pricing error will be
deemed to occur when the transaction price of an equity option is more
than $0.10 below the intrinsic value of the same option (an option that
trades at its intrinsic value is sometimes said to trade at
``parity''). Paragraph (6) shall not apply to transactions occurring
during the last two minutes of the trading day (which is typically
4:00:01 p.m. (ET) to 4:02 p.m. (ET)) on days with regular trading
hours).
(i) Definition of Intrinsic Value: For purposes of this Rule, the
intrinsic value of an equity call option equals the value of the
underlying stock (measured from the bid or offer as described below)
minus the strike price, and the intrinsic value of an equity put option
equals the strike price minus the value of the underlying stock
(measured from the bid or offer as described below), provided that in
no case is the intrinsic value of an option less than zero. In the case
of purchasing call options and selling put options, intrinsic value is
measured by reference to the bid in the underlying security, and in the
case of purchasing put options and selling call options, intrinsic
value is measured by reference to the offer in the underlying security.
(7) No Bid Series. Electronic transactions in series quoted no bid
at a nickel (i.e., $0.05 offer) will be cancelled provided at least one
strike price below (for calls) or above (for puts) in the same options
class was quoted no bid at a nickel at the time of execution.
(b) Procedures for Reviewing Transactions.
(1) Notification. Any member or person associated with a member
that believes it participated in a transaction that may be cancelled or
adjusted in accordance with paragraph (a) must notify any Trading
Official promptly but not later than fifteen (15) minutes after the
execution in question. For transactions occurring after 3:45 p.m. (ET),
notification must be provided promptly but not later than fifteen (15)
minutes after the close of trading of that security on the Exchange.
Absent unusual circumstances, Trading Officials shall not grant relief
under this Rule unless notification is made within the prescribed time
periods. In the absence of unusual circumstances, Trading Officials
(either on their own motion or upon request of a member) must initiate
action pursuant to paragraph (a)(3) above within sixty (60) minutes of
the occurrence of the verifiable disruption or malfunction. When
Trading Officials take action pursuant to paragraph (a)(3), the members
involved in the transaction(s) shall receive verbal notification as
soon as is practicable.
(2) Review and Determination. Once a party to a transaction has
applied to a Trading Official for review, the transaction shall be
reviewed and a determination rendered, unless both parties to the
transaction agree to withdraw the application for review prior to the
time a decision is rendered. Absent unusual circumstances (e.g., a
large number of disputed transactions arising out of the same
incident), Trading Officials must render a determination within sixty
(60) minutes of receiving notification pursuant to paragraph (b)(1)
above. If the transaction(s) in question occurred after 3:30 p.m. (ET),
Trading Officials shall have until 10:30 a.m. (ET) the following
morning to render a determination. Trading Officials shall promptly
provide verbal notification of a determination to the members involved
in the disputed transaction and to the Exchange's Service Desk.
(c) Adjustments. Unless otherwise specified in Rule 936C(a)(1)-(6),
transactions will be adjusted provided the adjusted price does not
violate the customer's limit price. Otherwise, the transaction will be
cancelled. With respect to 936C(a)(1)-(5), the price to which a
transaction shall be adjusted shall be the national best bid or offer
(NBBO) immediately following the erroneous transaction with respect to
a sell (buy) order entered on the Exchange. For opening transactions,
the price to which a transaction shall be adjusted shall be based on
the first non-erroneous quote after the erroneous transaction on the
Exchange. With respect to Rule 936C(a)(6), the transaction shall be
adjusted to a price that is $0.10 under parity.
(d) Review of Rulings. A member affected by a determination made
under this rule may appeal such determination to a Review Panel of at
least three (3) Exchange Officials who have not already ruled on the
matter. A request for review must be made in writing (in a form and
manner prescribed by the Exchange) no later than the close of trading
on the next trade date after the member receives verbal notification of
such determination by Trading Officials. Notwithstanding other Exchange
rules to the contrary (e.g., Rule 22(d)), decisions of the Review Panel
are binding on members, subject to any right of appeal pursuant to
Article II, Section 3 of the Constitution. The parties may also elect
to submit the matter to arbitration pursuant to Article VIII of the
Constitution.
(e) Negotiated Trade Cancellation. A trade may be cancelled if the
parties to the trade agree to the cancellation. When all parties to a
trade have agreed to a trade cancellation one party must promptly
disseminate cancellation information in OPRA format.
Commentary
.01 The term ``Trading Officials'' means two Exchange members
designated as Floor Officials and one member of the Regulatory staff.
.02 Applicability: Trading Officials may also allow for the
execution of opening trades that were not executed on the opening but
that should have been executed had the specialist opened the series at
the non-erroneous price. The Exchange will endeavor to notify its
members as soon as practicable after the correction of an erroneous
print and will indicate that this may result in the adjustment of
trades executed during
[[Page 10429]]
the opening rotation. The only trades that will be adjusted are those
that were executed on the opening or those that should have executed on
the opening. All adjustments will be made during the day when the
correction of the erroneous print occurred.
* * * * *
Rule 936--ANTE. Cancellation and Adjustment of Equity Options
Transactions This Rule governs the nullification and adjustment of
transactions involving equity options. Rule 936C and 936C--ANTE governs
the nullification and adjustment of transactions involving options on
indexes, exchange-traded funds (``ETFs'') and trust issued receipts
(``TIRs''). Paragraphs (a)(1) and (2) of this Rule have no
applicability to trades executed in open outcry. (a) Trades Subject to
Review. A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error occurs when the
execution price of an electronic transaction is above or below the
Theoretical Price for the series by an amount equal to at least the
amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
------------------------------------------------------------------------
Below...................................................... $0.25
$2 to $5................................................... 0.40
Above $5 to $10............................................ 0.50
Above $10 to $20........................................... 0.80
Above $20.................................................. 1.00
------------------------------------------------------------------------
Definition of Theoretical Price. For purposes of this Rule only,
the Theoretical Price of an option series is, for series traded on at
least one other options exchange, the last bid price with respect to an
erroneous sell transaction and the last offer price with respect to an
erroneous buy transaction, just prior to the trade, disseminated by the
competing options exchange that has the most liquidity in that option
class in the previous two calendar months. If there are no quotes for
comparison, designated Trading Officials will determine the Theoretical
Price. For transactions occurring as part of an opening, the
Theoretical Price shall be the first quote after the transaction(s) in
question that does not reflect the erroneous transaction(s).
(i) Cancellation or Price Adjustment. Obvious Pricing Errors will
be cancelled or adjusted as follows.
Transactions Between Amex specialists/registered options
traders (ROTs): Where both parties to the transaction are Amex
specialists/ROTs, the execution price of the transaction will be
adjusted by Trading Officials to the prices provided in Paragraphs (A)
and (B) below, minus (plus) an adjustment penalty (``adjustment
penalty''), unless both parties agree to adjust the transaction to a
different price or agree to cancel the trade within fifteen (15)
minutes of being notified by Trading Officials of the Obvious Error.
(A) Erroneous buy transactions will be adjusted to their
Theoretical Price plus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
(B) Erroneous sell transactions will be adjusted to their
Theoretical Price minus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
Transactions Involving at least one non-Amex specialist/
ROT: Where one of the parties to the transaction is not an Amex
specialist/ROT, the transactions will be cancelled by Trading Officials
unless both parties agree to an adjustment price for the transaction
within thirty (30) minutes of being notified by Trading Officials of
the Obvious Error.
(2) No Bid Series. Electronic transactions in series quoted no bid
at a nickel (i.e., $0.05 offer) will be cancelled provided at least one
strike price below (for calls) or above (for puts) in the same options
class was quoted no bid at a nickel at the time of execution.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems.
Electronic or open outcry transactions arising out of a ``verifiable
disruption or malfunction'' in the use or operation of any Exchange (a)
automated quotation, dissemination, execution, or communication system
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 is repeatedly traded) in which case trades in excess of the
disseminated size may be nullified; or (b) automated quotation,
dissemination or communication system that prevented a member from
updating or canceling a quote/order for which the member is
responsible, provided there is Exchange documentation reflecting that
the member sought to update or cancel the quote/order. With respect to
verifiable disruptions or malfunctions of the Exchange's automated
quotation system, documentation of the existence of the disruption or
malfunction will be sufficient provided the automated quotation system
was programmed to update or cancel a quote based upon specific changes
in the underlying, those changes occurred and due to the disruption or
malfunction the quote was not updated or cancelled. Transactions that
qualify for price adjustment will be adjusted to the Theoretical Price,
as defined in paragraph (a)(1) above.
(4) Erroneous Print in Underlying. A trade resulting from an
erroneous print disseminated by the underlying market which is later
cancelled or corrected by that underlying market may be cancelled. In
order to be cancelled, however, the trade must be the result of an
erroneous print that is higher or lower than the average trade in the
underlying security during a two minute period before and after the
erroneous print by an amount at least five times greater than the
average quote width for such underlying security during the same
period. For purposes of this Rule, the average trade in the underlying
security shall be determined by adding the prices of each trade during
the four minute time period referenced above (excluding the trade in
question) and dividing by the number of trades during such time period
(excluding the trade in question). For purposes of this Rule, the
average quote width shall be determined by adding the quote widths of
each separate quote during the four minute time period referenced above
(excluding the quote in question) and dividing by the number of quotes
during such time period (excluding the quote in question).
(5) Erroneous Quote in Underlying. Electronic trades (this
provision does not apply to trades executed in open outcry) resulting
from an erroneous quote in the underlying security may be adjusted or
canceled as set forth in paragraph (a)(1) above. 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 on the primary market (as defined in Rule
900(b)(26)--ANTE) during the time period encompassing two minutes
before and after the dissemination of such quote. For purposes of this
Rule, the average quote width shall be determined by adding the quote
widths of each separate quote during the four minute time period
referenced above (excluding the quote in question) and dividing the
number of quotes during such time period (excluding the quote in
question).
(b) Procedures for Reviewing Transactions
(1) Notification. Any member or person associated with a member
that believes it participated in a transaction that may be cancelled or
adjusted in accordance with paragraph (a) must
[[Page 10430]]
notify any Trading Official promptly but not later than fifteen (15)
minutes after the execution in question. Absent unusual circumstances,
Trading Officials shall not grant relief under this Rule unless
notification is made within the prescribed time periods. In the absence
of unusual circumstances, Trading Officials (either on their own motion
or upon request of a member) must initiate action pursuant to paragraph
(a)(3) above within sixty (60) minutes of the occurrence of the
verifiable disruption or malfunction. When Trading Officials take
action pursuant to paragraph (a)(3), the members involved in the
transaction(s) shall receive verbal notification as soon as is
practicable.
(2) Review and Determination. Once a party to a transaction has
applied to a Trading Official for review, the transaction shall be
reviewed and a determination rendered, unless both parties to the
transaction agree to withdraw the application for review prior to the
time a decision is rendered. Absent unusual circumstances (e.g., a
large number of disputed transactions arising out of the same
incident), Trading Officials must render a determination within sixty
(60) minutes of receiving notification pursuant to paragraph (b)(1)
above. Trading Officials shall promptly provide verbal notification of
a determination to the members involved in the disputed transaction and
to the Exchange's Service Desk.
(c) Obvious Error Panel
(1) Composition. An Obvious Error Panel will be comprised of at
least one (1) one member of the regulatory staff and four (4) Floor
Officials. Fifty percent of the number of Floor Officials on the
Obvious Error Panel must be directly engaged in market making activity
and fifty percent of the number of Floor Officials on the Obvious Error
Panel must act in the capacity of a non-specialist floor broker.
(2) Scope of Review. If a party affected by a determination made
under this Rule so requests within the time permitted in paragraph (b),
an Obvious Error Panel will review decisions made by the Trading
Officials under this Rule, including whether an obvious error occurred,
whether the correct Theoretical Price was used, and whether the correct
adjustment was made at the correct price. A party may also request that
the Obvious Error Panel provide relief as required in this Rule in
cases where the party failed to provide the notification required in
paragraph (b) and the Trading Officials declined to grant an extension,
but unusual circumstances must merit special consideration.
(3) Procedure for Requesting Review. A request for review must be
made in writing within (30) minutes after a party receives verbal
notification of a final determination by the Trading Officials under
this Rule, except that if notification is made after 3:30 p.m. Eastern
Time (``ET''), either party has until 9:30 a.m. ET the next trading day
to request review. The Obvious Error 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 the next trade day.
(4) Panel Decision. The Obvious Error Panel may overturn or modify
an action taken by the Trading Officials under this Rule upon agreement
by a majority of the Panel representatives. All determinations by the
Obvious Error Panel may be appealed in accordance with paragraph (d) of
this rule.
(d) Review of Rulings. A member affected by a determination made
under this rule may appeal such determination to a Review Panel of at
least three (3) Exchange Officials who have not already ruled on the
matter. A request for review must be made in writing (in a form and
manner prescribed by the Exchange) no later than the close of trading
on the next trade date after the member receives verbal notification of
such determination by Trading Officials. Notwithstanding other Exchange
rules to the contrary (e.g., Rule 22(d)), decisions of the Review Panel
are binding on members, subject to any right of appeal pursuant to
Article II, Section 3 of the Constitution. The parties may also elect
to submit the matter to arbitration pursuant to Article VIII of the
Constitution.
(e) Negotiated Trade Cancellation. A trade may be cancelled if the
parties to the trade agree to the cancellation. When all parties to a
trade have agreed to a trade cancellation one party must promptly
disseminate cancellation information in OPRA format.
Commentary
.01 The term ``Trading Officials'' means two Exchange members
designated as Floor Officials and one member of the Regulatory staff.
.02 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 purchasing the option is erroneously high.
.03 Applicability: Trading Officials may also allow for the
execution of opening trades that were not executed on the opening but
that should have been executed had the specialist opened the series at
the non-erroneous price. The Exchange will endeavor to notify its
members as soon as practicable after the correction of an erroneous
print and will indicate that this may result in the adjustment of
trades executed during the opening rotation. The only trades that will
be adjusted are those that were executed on the opening or those that
should have executed on the opening. All adjustments will be made
during the day when the correction of the erroneous print occurred.
* * * * *
Rule 936C--ANTE. Cancellation and Adjustment of Index Option
Transactions
This Rule only governs the cancellation and adjustment of
transactions involving options on indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule 936 and 936--ANTE governs the
cancellation and adjustment of transactions involving equity options.
Paragraphs (a)(1), (2), (6) and (7) of this Rule have no applicability
to trades executed in open outcry.
(a) Trades Subject To Review
A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error will be deemed to
have occurred when the execution price of a transaction is above or
below the fair market value of the option by at least a prescribed
amount. For series trading with normal bid-ask differentials as
established in Rule 958(c)--ANTE, the prescribed amount shall be: (a)
The greater of $0.10 or 10% for options trading under $2.50; (b) 10%
for options trading at or above $2.50 and under $5; or (c) $0.50 for
options trading at $5 or higher. For series trading with bid-ask
differentials that are greater than the widths established in Rule
958(c)--ANTE, the prescribed error amount shall be: (a) the greater of
$0.20 or 20% for options trading under $2.50; (b) 20% for options
trading at or above $2.50 and under $5; or (c) $1.00 for options
trading at $5 or higher.
(i) Definition of Fair Market Value: For purposes of this Rule
only, the fair market value of an option is the midpoint of the
national best bid and national best offer for the series (across
[[Page 10431]]
all exchanges trading the option). In multiply listed issues, if there
are no quotes for comparison purposes, fair market value shall be
determined by Trading Officials. For singly-listed issues, fair market
value shall be the first quote after the transaction(s) in question
that does not reflect the erroneous transaction(s). For transactions
occurring as part of an opening, the Fair Market Value shall also be
the first quote after the transaction(s) in question that does not
reflect the erroneous transaction(s).
(2) Obvious Quantity Error. An obvious error in the quantity term
will be deemed to occur when the transaction size exceeds the
responsible broker or dealer's average disseminated size over the
previous four hours by a factor of five (5) times. The quantity to
which a transaction shall be adjusted from an obvious quantity error
shall be the responsible broker or dealer's average disseminated size
over the previous four trading hours (which may include the previous
trading day).
(3) Verifiable Disruptions or Malfunctions of Exchange Systems.
Trades arising out of a ``verifiable disruption or malfunction'' in the
use or operation of any Exchange (a) automated quotation,
dissemination, execution, or communication system 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 is repeatedly
traded) in which case trades in excess of the disseminated size may be
nullified; or (b) automated quotation, dissemination or communication
system that prevented a member from updating or canceling a quote/order
for which the member is responsible, provided there is Exchange
documentation reflecting that the member sought to update or cancel the
quote/order. With respect to verifiable disruptions or malfunctions of
the Exchange's automated quotation system, documentation of the
existence of the disruption or malfunction will be sufficient provided
the automated quotation system was programmed to update or cancel a
quote based upon specific changes in the underlying, those changes
occurred and due to the disruption or malfunction the quote was not
updated or cancelled. Transactions that qualify for price adjustment
will be adjusted to the Fair Market Value, as defined in paragraph
(a)(1)(i) above.
(4) Erroneous Print in Underlying. A trade resulting from an
erroneous print disseminated by the underlying market which is later
cancelled or corrected by that underlying market may be cancelled or
adjusted. In order to be cancelled or adjusted, however, the trade must
be the result of an erroneous print that is higher or lower than the
average trade in the underlying security during a two minute period
before and after the erroneous print by an amount at least five times
greater than the average quote width for such underlying security
during the same period.
For purposes of this Rule, the average trade in the underlying
security shall be determined by adding the prices of each trade during
the four minute time period referenced above (excluding the trade in
question) and dividing by the number of trades during such time period
(excluding the trade in question). For purposes of this Rule, the
average quote width shall be determined by adding the quote widths of
each separate quote during the four minute time period referenced above
(excluding the quote in question) and dividing by the number of quotes
during such time period (excluding the quote in question).
(5) Erroneous Quote in Underlying. A trade resulting from an
erroneous quote in the underlying security may be cancelled or
adjusted. 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 on the
primary market (as defined in Rule 900 (b)(26)--ANTE) during the time
period encompassing two minutes before and after the dissemination of
such quote.
(6) Trades Below Intrinsic Value. An obvious pricing error will be
deemed to occur when the transaction price of an equity option is more
than $0.10 below the intrinsic value of the same option (an option that
trades at its intrinsic value is sometimes said to trade at
``parity''). Paragraph (6) shall not apply to transactions occurring
during the last two minutes of the trading day (which is typically
4:00:01 p.m. (ET) to 4:02 p.m. (ET)) on days with regular trading
hours). (i) Definition of Intrinsic Value: For purposes of this Rule,
the intrinsic value of an equity call option equals the value of the
underlying stock (measured from the bid or offer as described below)
minus the strike price, and the intrinsic value of an equity put option
equals the strike price minus the value of the underlying stock
(measured from the bid or offer as described below), provided that in
no case is the intrinsic value of an option less than zero. In the case
of purchasing call options and selling put options, intrinsic value is
measured by reference to the bid in the underlying security, and in the
case of purchasing put options and selling call options, intrinsic
value is measured by reference to the offer in the underlying security.
(7) No Bid Series. Electronic transactions in series quoted no bid
at a nickel (i.e., $0.05 offer) will be cancelled provided at least one
strike price below (for calls) or above (for puts) in the same options
class was quoted no bid at a nickel at the time of execution.
(b) Procedures for Reviewing Transactions
(1) Notification. Any member or person associated with a member
that believes it participated in a transaction that may be cancelled or
adjusted in accordance with paragraph (a) must notify any Trading
Official promptly but not later than fifteen (15) minutes after the
execution in question. For transactions occurring after 3:45 p.m. (ET),
notification must be provided promptly but not later than fifteen (15)
minutes after the close of trading of that security on the Exchange.
Absent unusual circumstances, Trading Officials shall not grant relief
under this Rule unless notification is made within the prescribed time
periods. In the absence of unusual circumstances, Trading Officials
(either on their own motion or upon request of a member) must initiate
action pursuant to paragraph (a)(3) above within sixty (60) minutes of
the occurrence of the verifiable disruption or malfunction. When
Trading Officials take action pursuant to paragraph (a)(3), the members
involved in the transaction(s) shall receive verbal notification as
soon as is practicable.
(2) Review and Determination. Once a party to a transaction has
applied to a Trading Official for review, the transaction shall be
reviewed and a determination rendered, unless both parties to the
transaction agree to withdraw the application for review prior to the
time a decision is rendered. Absent unusual circumstances (e.g., a
large number of disputed transactions arising out of the same
incident), Trading Officials must render a determination within sixty
(60) minutes of receiving notification pursuant to paragraph (b)(1)
above. If the transaction(s) in question occurred after 3:30 p.m. (ET),
Trading Officials shall have until 10:30 a.m. (ET) the following
morning to render a determination. Trading Officials shall promptly
provide verbal notification of a determination to the members involved
in the disputed transaction and to the Exchange's Service Desk.
(c) Adjustments. Unless otherwise specified in Rule 936C--ANTE
(a)(1)-(6), transactions will be adjusted provided the adjusted price
does not violate the customer's limit price. Otherwise, the transaction
will be
[[Page 10432]]
cancelled. With respect to Rule 936C--ANTE (a)(1)-(5), the price to
which a transaction shall be adjusted shall be the national best bid or
offer (NBBO) immediately following the erroneous transaction with
respect to a sell (buy) order entered on the Exchange. For opening
transactions, the price to which a transaction shall be adjusted shall
be based on the first non-erroneous quote after the erroneous
transaction on the Exchange. With respect to Rule 936C--ANTE (a)(6),
the transaction shall be adjusted to a price that is $0.10 under
parity.
(d) Review of Rulings. A member affected by a determination made
under this rule may appeal such determination to a Review Panel of at
least three (3) Exchange Officials who have not already ruled on the
matter. A request for review must be made in writing (in a form and
manner prescribed by the Exchange) no later than the close of trading
on the next trade date after the member receives verbal notification of
such determination by Trading Officials.
Notwithstanding other Exchange rules to the contrary e.g., Rule
22(d)), decisions of the Review Panel are binding on members, subject
to any right of appeal pursuant to Article II, Section 3 of the
Constitution. The parties may also elect to submit the matter to
arbitration pursuant to Article VIII of the Constitution.
(e) Negotiated Trade Cancellation. A trade may be cancelled if the
parties to the trade agree to the cancellation. When all parties to a
trade have agreed to a trade cancellation one party must promptly
disseminate cancellation information in OPRA format.
Commentary
.01 The term ``Trading Officials'' means two Exchange members
designated as Floor Officials and one member of the Regulatory staff.
.02 Applicability: Trading Officials may also allow for the
execution of opening trades that were not executed on the opening but
that should have been executed had the specialist opened the series at
the non-erroneous price. The Exchange will endeavor to notify its
members as soon as practicable after the correction of an erroneous
print and will indicate that this may result in the adjustment of
trades executed during the opening rotation. The only trades that will
be adjusted are those that were executed on the opening or those that
should have executed on the opening. All adjustments will be made
during the day when the correction of the erroneous print occurred.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to adopt new Amex Rules
936, 936C, 936--ANTE, and 936C--ANTE to allow the Exchange to either
cancel or adjust equity, index, exchange-traded fund (``ETF''), and
trust issued receipt (``TIR'') options transactions, the terms of which
are obviously in error. The proposal would apply to transactions in
both the Amex New Trading Environment (``ANTE'')\10\ as well as the
existing floor-based auction market traditionally available on the
Exchange. The proposed rule contains objective criteria for determining
when an options transaction constitutes an ``obvious error,'' provides
an objective process members must follow to seek relief under the rule,
and provides an appeals process for members seeking to challenge an
initial determination. Because of the lack of uniform obvious error
rules among the options exchanges, customers that routinely send orders
to multiple exchanges have indicated that a more uniform obvious error
pricing rule with respect to equity options would be beneficial to
them. Accordingly, in response to the requests of its customers, the
Amex proposes to adopt an obvious error pricing rule for equity options
that is similar to other options exchanges. The Exchange is also
proposing an obvious error rule for index, ETF and TIR options.
---------------------------------------------------------------------------
\10\ The Commission approved the ANTE system in May 2004. See
Securities Exchange Act Release No. 49747 (May 20, 2004), 69 FR
30344 (May 27, 2004) (approving File No. SR-Amex-2003-89). Amex
represents that the rollout of ANTE is expected for completion by
the end of the third quarter 2005 with the top 300 option classes on
ANTE by the end of January 2005. Accordingly, the proposal initially
would require application to both the traditional floor-based system
as well as ANTE. Upon completion of the rollout of ANTE, the
proposed rule would only need to apply to ANTE.
---------------------------------------------------------------------------
Obvious Error Rule for Equity Options (Amex Rules 936 and 936--
ANTE).
Criteria for Determining an Erroneous Transaction. For purposes of
proposed Amex Rules 936 and 936--ANTE, an options transaction must
satisfy one of the following ``obvious error'' categories in order for
such transaction to be reviewed for cancellation or adjustment by the
Exchange.
Obvious Price Error. The Exchange proposes to adopt an obvious
price error rule that operates identically to that of Chicago Board
Options Exchange, Inc. (``CBOE'') Rule 6.25. As such, an obvious
pricing error will be deemed to have occurred when the execution price
of an electronic transaction (not open outcry) varies from the
Theoretical Price \11\ by a requisite amount.\12\ When an obvious price
error occurs, Amex either will adjust or cancel the transaction in the
following manner.
---------------------------------------------------------------------------
\11\ The Exchange proposes to use the definition of Theoretical
Price currently employed by the CBOE and the International
Securities Exchange (``ISE''). See CBOE Rule 6.25(a)(1) and ISE Rule
720(b). For multiply traded options, Theoretical Price will be the
last bid (offer) price with respect to an erroneous sell (buy)
transaction just prior to the trade that is disseminated by the
competing options exchange with the most liquidity in that class
over the preceding two calendar months. If there are no quotes for
comparison purposes, trading officials shall determine Theoretical
Price. For transactions occurring as part of an opening, Theoretical
Price shall be the first quote after the transaction(s) in question
that does not reflect the erroneous transaction(s).
\12\ The requisite amount is: $0.25 for options below $2, $0.40
for options priced from $2 to $5, $0.50 for options priced above $5
to $10, $0.80 for options priced above $10 to $20, and $1.00 for
options priced above $20.
---------------------------------------------------------------------------
Transactions Between Amex Specialists/Registered Options Traders
(``ROTs''). Transactions between Amex specialists/ROTs will be adjusted
to the Theoretical Price plus/minus an ``adjustment penalty'' of either
$0.15 or $0.30. Erroneous buy transactions will be adjusted to the
Theoretical Price plus an adjustment penalty of either $0.15 if the
Theoretical Price is below $3 or $0.30 if the Theoretical Price is $3
or higher. Conversely, erroneous sell transactions will be adjusted to
the Theoretical Price minus an adjustment penalty of either $0.15 if
the Theoretical Price is below $3 or $0.30 if the Theoretical Price is
$3 or higher. Both parties to the transaction may agree to adjust to a
different price or cancel the transaction altogether provided they do
so within fifteen (15) minutes of being notified by trading officials
that an obvious error occurred.
Transactions where One Party is not an Amex specialist/ROT. In
cases where at least one party is not an Amex
[[Page 10433]]
specialist/ROT, the transaction will be cancelled by trading officials
unless both parties agree to an adjustment price for the transaction
within thirty (30) minutes of being notified by trading officials of
the obvious error. This is identical to CBOE Rule 6.25.
Series Quoted No Bid. An obvious pricing error will also be deemed
to exist for ``series quoted no bid.'' Electronic transactions in
series quoted no bid at a nickel (i.e., $0.05 offer) will be cancelled
provided at least one strike price below (for calls) or above (for
puts) in the same class were quoted no bid at a nickel ($0.05) at the
time of execution. This proposed rule provision would correct errors in
out-of-the-money options that often have no intrinsic value.
Verifiable Disruptions or Malfunctions of Exchange Systems.
Transactions arising out of a ``verifiable disruption or malfunction''
in the use or operation of any Exchange (1) automated quotation,
dissemination, execution, or communication system 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 is repeatedly
traded) in which case trades in excess of the disseminated size may be
nullified; or (2) automated quotation, dissemination, or communication
system that prevented a member from updating or canceling a quote/order
for which the member is responsible, provided there is Exchange
documentation reflecting that the member sought to update or cancel the
quote/order. With respect to verifiable disruptions or malfunctions of
the Exchange's automated quotation system, documentation of the
existence of the disruption or malfunction will be sufficient provided
the automated quotation system was programmed to update or cancel a
quote based upon specific changes in the underlying, those changes
occurred, and due to the disruption or malfunction, the quote was not
updated or cancelled. This Rule will apply to transactions occurring
both electronically and in open outcry.
Erroneous Print in Underlying Market. A trade resulting from an
erroneous print disseminated by the underlying market that is later
cancelled or corrected by that underlying market may be cancelled. In
order to be cancelled, however, the trade must be the result of an
erroneous print that is higher or lower than the average trade in the
underlying security during a two (2) minute period before and after the
erroneous print by an amount at least five (5) times greater than the
average quote width for such underlying security during the same
period. This Rule will apply to transactions occurring both
electronically and in open outcry.
Erroneous Quote in Underlying Security. A trade resulting from an
erroneous quote in the underlying security may be adjusted or
cancelled. An erroneous quote occurs when the underlying security has a
width of at least $1.00 and a width at least five times greater than
the average quote width for such underlying security on the primary
market (as defined in Amex Rule 900(b)(26) and Amex Rule 900(b)(26)--
ANTE) during the time period encompassing two minutes before and after
the dissemination of such quote. For purposes of this proposed Rule,
the average quote width shall be determined by adding the quote widths
of each separate quote during the four-minute time period referenced
above (excluding the quote in question) and dividing the number of
quotes during such time period (excluding the quote in question).
Erroneous Transactions During the Opening. A trading rotation in
options is held each business day promptly following the opening of the
underlying security or the availability of opening quotations in the
underlying security. Included in the opening rotation are pre-opening
market and limit orders as well as orders on the book from the previous
trading day. As described in Commentary .01 to Amex Rule 918 and
Commentary .01 to Amex Rule 918--ANTE, an opening price will be
established and all market and marketable limit orders will be
executed. Depending upon