SIFMA Submits Comment In Favor of Amendment to PHLX’s Catastrophic Error Rule

SIFMA submitted a comment to the SEC in favor of NASDAQ OMX PHLX's ("PHLX") proposed amendment to Rule 1092, Obvious and Catastrophic Errors.Under the amended rule, in the event of a catastrophic error, if one of the parties to the options trade is a broker-dealer customer, the adjusted price of the trade would be compared to the limit price of the order. Whenever the limit price exceeds the adjusted price, the customer would have twenty minutes from the time notified to accept the adjusted price or else the trade would be nullified.

SIFMA supported the amendment since nullification avoids the situation in which the customer must commit more capital into a trade that he/she has no interest in and also minimizes the risk that the cost of the trade exceeds the amount of capital in the customer's account. Further, the letter supports the twenty-minute decision window as it limits the amount of time the customer may free-ride on its counterparty's error while letting market movements dictate whether to accept or nullify the trade. Finally, in acknowledging the importance of investor protection, SIFMA called for other exchanges to adopt similar amendments to their catastrophic error rules to eliminate price uncertainty for retail investors.

View letter in full here (links externally to SIFMA website).