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Options 6E Records, Reports and Audits
Section 1. Maintenance, Retention and Furnishing of Books, Records and Other Information

(a) Every member and member organization shall make, keep current and preserve such books and records as the Exchange may prescribe and as may be prescribed by the Exchange Act and the rules and regulations thereunder. No member or member organization shall refuse to make available to the Exchange such books, records or other information as may be called for under the rules or as may be requested in connection with an investigation by the Exchange.

(b) Without limiting the general provisions of this Rule, such Rule requires Market Makers who receive electronically-delivered orders directed to them, Lead Market Makers and Lead Market Maker Units who request that payments be made to order flow providers as part of the Exchange's payment for order flow program, to make, keep current and preserve all books and records relating to payment for order flow arrangements, including but not limited to all records pertaining to the identity of the order flow providers, the rates, and the basis for the amounts they have directed the Exchange to pay to order flow providers (whether on a per contract or flat fee basis). Such books and records shall be made available as may be requested by the Exchange.

Adopted Feb. 3, 2020 (20-03).

Section 2. Reporting Of Options Positions

(a) Each member and member organization shall file with the Exchange a report with respect to each account in which the member or member organization has an interest, each account of a partner, officer, director, or employee of such member organization, and each customer account, acting alone, or in concert with others, which has established an aggregate position of 200 or more option contracts (whether long or short) of a put class and call class on the same side of the market covering the same underlying security, in the case of options on a stock or Exchange-Traded Fund Share, or an aggregate position of 2,500 or more option contracts (whether long or short) of a put class and call class on the same side of the market covering the same underlying foreign currency in the case of options on a foreign currency, or an aggregate position of 100,000 or more warrants (whether long or short) covering the same underlying security in the case of warrants on stock indexes, currency, or currency indexes, combining for purposes of this Rule (i) long positions in put options with short positions in call options, and (ii) short positions in put options with long positions in call options. The report shall be in such form as may be prescribed by the Exchange and shall be filed no later than the close of business on the next business day following the day on which the transaction or transactions requiring the filing of such report occurred. Whenever a report shall be required to be filed with respect to an account pursuant to this paragraph, the member or member organization filing the same shall file with the Exchange such additional periodic reports with respect to such account as the Exchange may from time to time prescribe.

(b) In addition to the reporting requirement described in paragraph (a) of this Rule, each member (other than an Exchange market maker) that maintains a position in excess of 10,000 non-FLEX equity option contracts on the same side of the market on behalf of its own account or for the account of a customer, shall report information as to whether such positions are hedged, and provide documentation as to how such contracts are hedged, in a manner and form prescribed by the Exchange. For the purposes of this Rule, the term market maker is a Registered Option Trader or Lead Market Maker. For the Nasdaq-100 Index Tracking Stock ("QQQ")® options, once the 10,000 contract reporting threshold of this paragraph is met, the Exchange will require members (other than an Exchange market maker) to report each increase of 2,500 contracts on the same side of the market for the account of a customer and each increase of 5,000 contracts on the same side of the market for proprietary accounts. In addition, whenever the Exchange determines, based on a report to the Regulatory staff or otherwise, that a higher margin requirement is necessary in light of the risks associated with an under-hedged Non-FLEX equity option position in excess of 10,000 contracts on the same of the market, the Exchange may consider imposing additional margin upon the account maintaining such under-hedged position, pursuant to its authority under Options 6C, Section 3. Additionally, it should be noted that the clearing firm carrying the account will be subject to capital charges under SEC Rule 15c3-1 to the extent of any margin deficiency resulting from the higher margin requirements.

(c) In addition to the reports required by paragraph (a) of this Rule, each member and member organization shall report promptly to the Exchange any instance in which such member or member organization has reason to believe that a person, acting alone or in concert with others, has exceeded or is attempting to exceed the position limits prescribed pursuant to Options 9, Section 13 or the exercise limits prescribed pursuant to Options 9, Section 15.

(d) Upon the request of the Exchange, a member and member organization shall file with the Exchange a report reflecting the aggregate uncovered short positions in each series of options dealt in on the Exchange in (i) each account in which the member or member organization has an interest, (ii) all accounts of partners, principal executive officers and directors of such member organization and (iii) all accounts of customers. Such report shall be made by the second business day following the date the request is made.

Supplementary Material to Options 6E, Section 2

.01 A clearing member organization which clears Exchange options transactions for another member organization in a single omnibus account, need not file the reports specified in this Rule with respect to positions in such account provided the member organization whose Exchange options transactions are cleared through such omnibus account files the reports required by this Rule. However, a clearing member organization which clears Exchange option transactions for a non-member in a single omnibus account must file the reports required by this Rule.

.02 A member organization shall not be required to file the reports specified in this Rule with respect to positions in the accounts of Lead Market Makers or Lead Market Maker units and registered options traders cleared by such member organization provided such positions are reported pursuant to Options 2, Section 7.

.03 All reports required by this Rule shall be filed with the Exchange, on forms prescribed by the Exchange.

Adopted Feb. 3, 2020 (20-03).

Section 3. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 4. Independent Audit

(a) Each member organization doing any business with the public shall at least once each calendar year cause to be made an audit of its affairs, conducted in accordance with applicable audit requirements of the Securities and Exchange Commission and such other requirements as deemed appropriate by the Exchange, by independent public accountants and shall have such accountants prepare an answer to the financial questionnaire of the Exchange based upon such audit.

(b) Pursuant to Rule 17a-5(d), promulgated under the Exchange Act, all broker-dealers are required to file annually audited financial statements ("Annual Audits") with their Designated Examining Authority and the SEC, no more than 60 days after the date of the year end financial statements. A member organization unable to meet the filing deadline for its Annual Audit as a result of exceptional circumstances may request an extension of time, in writing, prior to the filing due date. Annual Audits not received by the Exchange by the due date, or revised due date if an extension has been granted, will be subject to a late fee as set forth below for each week or any part thereof that the Annual Audit has not been filed, as calculated based on the due date or revised due date for filing the Annual Audit. (Implemented on a running three-year basis.)

(i) $100 per week for the first late filing in a three-year period.

(ii) $300 per week for the second late filing in a three-year period.

(iii) $1,000 per week for the third late filing in a three-year period.

••• Supplementary Material: -----

The Exchange has adopted the following directive:

Annual audit

While the new rule eliminates the requirement for a surprise audit it is still required that an audit be conducted. The annual audit may be done on a surprise basis but the rule also allows for the audit to be conducted on a calendar year basis, fiscal year basis or any other regular basis approved by the Exchange.

The agreement between the member organization and the accountant, required to be filed with the Membership Department under directive of the Exchange, shall read substantially as follows, although additional provisions, not inconsistent with the following, may also be included in the agreement:

-----

••• Supplementary Material: -----

SAMPLE COPY

(Not for filing)

To be typed on Accountants Letterhead

-----

(Name of Member Organization)

Gentlemen:

You have selected us (me) to make an audit of your affairs and to prepare an answer to the financial questionnaire required to be filed with Nasdaq PHLX LLC based upon such audit.

We (I) Agree

(1) To make an audit of the affairs of your firm in accordance with the audit regulations of the Securities and Exchange Commission and Nasdaq PHLX LLC. Such audit shall be conducted as of, 20. In the event the audit is to be conducted on a "surprise" basis, do not fill in date called for above and state that "the audit will be made without prior notice to your firm."

(2) to notify promptly the Membership Department that the audit has been commenced;

(3) to prepare an answer to the financial questionnaire required to be filed with the Membership Department, based upon such audit;

(4) to submit to the Membership Department a copy of such answer accompanied by an attestation, in the prescribed form, signed by the general partners (officers) of the member firm (corporation) and ourselves (myself);

(5) to submit to the Membership Department a copy of our (my) report in accordance with the special instructions which appear in the financial questionnaire.

Yours very truly,

-----

Signature of Independent

Public Accountant

-----

Adopted Feb. 3, 2020 (20-03).

Section 5. Automated Submission of Trading Data

A member or member organization shall submit such of the following trade data elements specified below in such automated format as may be prescribed by the Exchange from time to time, in regard to such transaction or transactions as may be subject of a particular request for information made by the Exchange:

(a) If the transaction was a proprietary transaction effected or caused to be effected by the member or member organization for any account in which such member or member organization, or any member, allied member, approved person, partner, officer, director, or employee thereof, is directly or indirectly interested, such member or member organization shall submit or cause to be submitted the following information:

(1) Clearing house number, or alpha symbol as used by the member or the member organization submitting the data;

(2) Clearing house number(s), or alpha symbol(s) as may be used from time to time, of the member(s) or member organization(s) on the opposite side of the transaction;

(3) Identifying symbol assigned to the security;

(4) Date transaction was executed;

(5) Number of shares, or quantity of bonds or options contracts for each specific transaction and whether each transaction was a purchase, sale, short sale, and if an options contract whether open long or short or close long or short;

(6) Transaction price;

(7) Account number; and

(8) Market center where transaction was executed.

(b) If the transaction was effected or caused to be effected by the member or member organization for any customer account, such member organization shall submit or cause to be submitted the following information:

(1) Data elements (1) through (8) as contained in paragraph (a) above; and

(2) Customer name, address(es), branch office number, registered representative number, whether order was solicited or unsolicited, date account opened and employer name and the tax identification number(s).

(3) If transaction was effected from a member broker-dealer customer, whether the broker-dealer was acting as principal or agent on the transaction or transactions that are the subject of the Exchange's request.

(c) In addition to the above trade data elements, a member or member organization shall submit such other information in such automated format as may be prescribed by the Exchange, as may from time to time be required.

(d) The Exchange may grant exceptions, in such cases and for such time periods as it deems appropriate, from the requirement that the data elements prescribed in paragraphs (a) and (b) above be submitted to the Exchange in an automated format.

Adopted Feb. 3, 2020 (20-03).

Section 6. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 7. Regulatory Services Agreements

The Board may authorize any officer, on behalf of the Exchange, subject to the approval of the Board, to enter into one or more agreements with another self-regulatory organization to provide regulatory services to the Exchange to assist the Exchange in discharging its obligations under Section 6 and Section 19(g) of the Exchange Act. Any action taken by another self-regulatory organization, or its employees or authorized agents, acting on behalf of the Exchange pursuant to a regulatory services agreement shall be deemed to be an action taken by the Exchange; provided, however, that nothing in this provision shall affect the oversight of such other self-regulatory organization by the Securities and Exchange Commission. Notwithstanding the fact that the Exchange may enter into one or more regulatory services agreements, the Exchange shall retain ultimate legal responsibility for, and control of, its self-regulatory responsibilities, and any such regulatory services agreement shall so provide.

Adopted Feb. 3, 2020 (20-03).

Section 8. Reserved

Adopted Feb. 3, 2020 (20-03).

Section 9. Reserved

Adopted Feb. 3, 2020 (20-03).

 
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