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Rulings
December 9, 2003
Contact:  Dave Fisch - 212-306-1450

***SUPERCEDED***
See Amex Notice 2005-08 Dated January 26, 2005

"Busting" or Adjusting Trades

Download
Attachment A
Download
Attachment B
Recently, questions have come up about the appropriate circumstances to "bust" (i.e., cancel) an Amex Floor trade or to adjust its price or size. The questions involve situations where:
  • the parties agree to bust or adjust,
  • the proposal to bust or adjust is in dispute, and
  • agreement is not needed to bust or adjust a trade.
This memo presents a broad overview of Amex Rules applicable to busts and adjusts of Amex Floor trades. In addition, the memo discusses documentation requirements (see Download A and Download B above) and the affect of busts and adjusts on subsequent trades. Further, the memo clarifies the difference between reporting errors and trade errors.

Floor Officials must get involved in all situations involving the busting or adjusting of trades. Floor Officials must avoid conflict of interest and can not rule in any matter where they are either party to the trade or are associated with any party to the trade. Further, a Floor Official must never make a ruling without considering all the relevant facts.

If you have any questions on this memo, please call Dave Fisch, at (212) 306-1450.

Buyer and seller agree to bust or adjust a trade

When buying and selling members agree to bust or adjust a trade, they must:

  • complete the appropriate form (see attachment on documentation);
  • explain the circumstances to a Floor Official not involved in the matter, and
  • if, after the Floor Official agrees that the bust or adjust is for a proper reason, he or she will sign the form authorizing that bust or adjustment and authorizing Market Operations to correct the tape. (Amex Rule 135)
Buyer and seller dispute the trade

A dispute over a Floor trade does not have to be submitted to a Floor Official. Members may submit the dispute directly to formal arbitration1. However, to resolve a dispute more quickly, members may agree to submit it to a Floor Official for resolution. The Floor Official's ruling may be appealed, and a dispute submitted to a Floor Official may still be submitted to formal arbitration2.

A Floor Official's decision (and any appeals) in a dispute must be recorded on the appropriate form (see attachment on documentation). The parties to the dispute must comply with the highest decision in the matter (Floor Official ruling or decision on appeal). The Floor Official, Exchange Official, or Governor will direct Market Operations to correct the tape as appropriate. After that, either party may submit the dispute to formal arbitration.

Agreement not needed to bust or adjust a trade

Agreement is not needed for the following situations, but Floor Official approval is. In addition and unless otherwise noted, there is no appeal unless the Floor Official does not give his or her approval. Details and Floor Official approval must be recorded on the appropriate form (see attached), and the tape must be corrected by Market Operations.

Taking or Supplying the Securities Named in the Order
  • Specialists acting as broker and dealer: A specialist, as dealer, buys from or sells to an order entrusted to that specialist. If there is a prompt written complaint from the member or member organization involved to a Floor Official and the specialist, and the trade was not needed for the purpose of maintaining a fair and orderly market, then the Floor Official can approve the busting of the trade. (Rule 155, Comm.05) Either party may appeal the Floor Official's decision. The highest decision in the matter (Floor Official ruling or decision on appeal) must be followed. The Floor Official, Exchange Official, or Governor will direct Market Operations to correct the tape as appropriate. Only the customer may elect to submit the dispute to formal arbitration.
  • A member or member organization: A member or member organization that takes or supplies for its own or any related account the securities named in a sell or buy order accepted for execution by the member or member organization, must, promptly after effecting the transaction, notify the customer or member or member organization that entrusted the order to the executing member or member organization so that the party notified may accept or reject the trade. (Rule 152)
Quotation Issues
  • Quote being revised: Any order executed against a stale quote (e.g., as a matter of record, an execution, cancellation or update of the quote was in effect or in process) may be busted. (Rules 115 and 958A)
  • Fast Market: Any order inadvertently (e.g., through auto-ex or clerical error) executed against a "fast market" quote may be busted. (Rule 115 (and SEC 11Ac1-1(b)(3))
  • Rule violations from execution on published options quote: Any order executed against an options quote which results in a violation of Exchange rules or federal regulations may be busted. (Rule 958A)
  • Equipment failure: Any order executed against an options quote when equipment failure prevents the specialist from monitoring that quote may be busted. (Rule 958A)
  • Obvious price error in options quote: Any options order executed against the displayed bid (offer) which is above (below) the current bid (offer) on the Floor by (a) $.25 or more in an option trading at $3 or less or (b) $.50 or more in an option trading at more than $3 may be busted. (Rule 958A)
  • Amex or a quotation vendor error in options quote: Any order executed against a published (i.e., on the "screen") options quote that is wrong because of errors or omissions by the Amex or a quotation vendor may be busted. (Rule 958A) Rule 958A, Commentary .01, states that specialists and registered options traders (ROTs) do not have to honor published bids and offers in options that is erroneous as a result of an error or omission made by the Exchange or any quotation vendor. In addition, any order inadvertently executed against an erroneous options quote displayed by quotation vendors for less than six minutes may be busted. (Rule 958A)
Intermarket Trading System (ITS) and Options Linkage
  • ITS trade-through: The member who initiated a trade-through of an away market that results in a valid ITS trade-through complaint, may satisfy the bid or offer traded-through or correct the price of the trade to a price where there is no trade-through. The member's order must get the best price, and the member must pay for all resulting losses. In an ITS trade-through where the member who initiated the trade-through and the member on the contra side both originated their trades on Floor for their own accounts, the trade must be canceled. (Rule 236)
  • ITS erroneous commitments: The Preamble to the ITS Hard Copy Prevails Policy contains mandatory resolutions for at least 10 specific scenarios, when mutually satisfactory solutions can not be achieved to problems resulting from erroneous commitments or responses issued through ITS. (See attachment on EXCEPTIONS TO ITS "HARD COPY PREVAILS" POLICY.)
  • Options Linkage trade-through: The member who initiated an options trade-through of an away market may fill a valid Satisfaction Order as required or correct the price of the trade to a price at where there is no trade-through. The member's Public Customer order must get the best price, and the member must pay for all resulting losses. (Rule 942)
Effect on subsequent trades

When a trade is busted or adjusted in price or when a trade is added to the tape, the change by itself has no effect on subsequent trades. For example, if a stop order is elected and executed on the basis of a trade which was subsequently cancelled, the election and execution of the stop order stands if the original trade had been done in good faith.

Reporting errors

Errors relating to trades are not the same as errors relating to reports. According to Amex Rule 129:

  • The price at which an order is executed shall be binding notwithstanding the fact that an erroneous report was rendered.
  • An order which was executed, but in error reported as not executed, is binding.
  • A report shall not be binding if an order was not actually executed but was in error reported as executed.
  • However, when a member on the Floor reports in good faith the execution of an order entrusted to him or her by another member or member organization (i.e., a specialist or "$2" broker) and the trade is covered by the tape and the contra side does not know the trade, the member or member organization which got the report and the member who made it shall treat the transaction as made for the member who made the report. The member assuming the transaction must file a detailed memorandum of each such trade with the Exchange.


1Article VIII, Section 1 of the Amex Constitution states that members must arbitrate all controversies arising in connection with their business between or among themselves.

2Rule 22(d) states that any member wishing a prompt (i.e., prior to scheduled settlement) review of a Floor Official's decision, shall present the matter to an Exchange Official. An Exchange Official's decision may be appealed to a Governor. A Governor's decision may be appealed to a panel of three Governors which panel shall confirm, amend, or overrule the decision. The decision of a Floor Official, Exchange Official, Governor, or three-Governor panel is binding on members, except, at any point after establishing a loss (or profit) through clearance and complying with the highest decision made in the matter, either party may submit it to arbitration.