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Thursday, September 29, 2022

Equity Regulatory Alert #2022 - 7
Updated Clearly Erroneous Execution Rules Effective October 1, 2022

Category:

  • Regulatory

Markets Impacted:

Contact Information:

  • Nasdaq MarketWatch at 800.211.4953 or 301.978.8500

Resources:

Effective October 1, 2022, The Nasdaq Stock Market (“Nasdaq”), Nasdaq BX (“BX”), and Nasdaq PSX (“PSX”) (collectively, the “Exchanges”), in coordination with all U.S. equities exchanges, will update the existing harmonized clearly erroneous execution (“CEE”) rules as outlined below.

Under the updated CEE rules in BX/Nasdaq Equity 11, Rule 11890 and PSX Equity 4, Rule 3312, CEE reviews will be largely eliminated during Market Hours when Price Bands are in effect, except in limited circumstances. As a result, trades executed within the Price Bands will stand barring one of the below scenarios where a CEE review may still occur.

Specifically, if the execution time of the transaction(s) under review is during Market Hours, the transaction will not be reviewable as clearly erroneous unless the transaction:

  • is in an NMS Stock that is not subject to the LULD Plan. In such case, the Numerical Guidelines in BX/Nasdaq Rule 11890(a)(2)(C) and PSX Rule 3312(a)(2)(C) will be applicable to such NMS Stock;

  • was executed at a time when Price Bands under the LULD Plan were not available, or is the result of an Exchange technology or systems issue that results in the transaction occurring outside of the applicable LULD Price Bands pursuant to BX/Nasdaq Rule 11890(g) and PSX Rule 3312(g), or is executed after the primary listing market for the security declares a regulatory trading halt, suspension, or pause pursuant to BX/Nasdaq Rule 11890(i) and PSX Rule 3312(i). A transaction subject to review pursuant to this paragraph shall be found to be clearly erroneous if the price of the transaction to buy (sell) that is the subject of the complaint is greater than (less than) the Reference Price (as detailed below) by an amount that equals or exceeds the applicable Percentage Parameter defined in Appendix A to the LULD Plan (“Percentage Parameters”); or

  • involved, in the case of (1) a corporate action or new issue or (2) a security that enters a Trading Pause pursuant to the LULD Plan and resumes trading without an auction, a Reference Price that is determined to be erroneous by an Officer of the Exchange or senior level employee designee because it clearly deviated from the theoretical value of the security. In such circumstances, the Exchange may use a different Reference Price pursuant to BX/Nasdaq Rule 11890(a)(2)(D)(2) and PSX Rule 3312(a)(2)(D)(2). A transaction subject to review pursuant to this paragraph shall be found to be clearly erroneous if the price of the transaction to buy (sell) that is the subject of the complaint is greater than (less than) the new Reference Price, as described below, by an amount that equals or exceeds the Numerical Guidelines or Percentage Parameters, as applicable depending on whether the security is subject to the LULD Plan.


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