09/04/2002
Rule 6.17 addresses how to resolve errors, out-trades and "who trades." As is presently the case on NYMEX, all trades shall clear in accordance with the seller's recorded terms, unless floor members who disagree about the material terms of a trade they executed, both agree either to nullify or break the trade or to accept the trade in accordance with the buyer's recorded terms [Rule 6.17 (B)(1)]. If the two members agree to break the trade, or if the trade is a "who trade", Rule 6.17 allows either or both members, provided they executed the trade for a customer, to re-execute by crossing the execution for a customer order with their error account. The circumstances under which an out- or "who" trade may be corrected through the execution of an error account-to- order crosstrade are very narrow and are clearly specified in the rule. Before executing such a crosstrade, a broker must verify that:
- The broker has executed an order and entered the execution on the appropriate trading card;
- The terms of the execution as recorded on the broker's trading card have been confirmed to the customer. Note that upon confirmation, the order ticket must have been time stamped;
- The broker and the opposite trading member have an out regarding one of the terms of the trade, including price, size, month or opposite broker, or the trade is a "who" trade;
- In the case of a broker out or "who trade", the opposite party cannot be found;
- In the case of a price, size or month out, the two parties to the transaction elect to break or kill the trade.
When the criteria above has been satisfied for either errors, out-trades or "who trades", the member may elect to take the opposite side of the execution for the customer order and allocate it to a designated error account. This trade is not done at open outcry and is not recorded on the member's trading card. Instead, a multi-ply Out-Trade/Who Trade Correction Slip ("Slip"), obtained from a member of the Floor Department, must be prepared in accordance with Rule 6.17(E). Note that:
- The Slip must be prepared within 15 minutes of the discovery and resolution of the under fill, out- or "who" trade;
- The Slip must accurately reflect all required information pertaining to the original trade (the out or "who"), the opposite member's original trade terms (out-trades only), the correcting crosstrade, the error account number, and any correcting trade transacted to offset the position allocated to the member's error account.
- Rule 6.17(D) provides that a broker who elects to correct an error, out-trade or "who" trade in accordance with this new crosstrade procedure may not establish a position which would offset the position acquired for the error account until at least ten minutes after the execution of the original trade for the customer.
- All supporting trade documentation must be attached to the Slip, including copies of the applicable trading card(s) and order ticket(s).
- All trades executed pursuant to this rule will be audited by Compliance Department Staff to verify that they conform with the rule.
Information Seminars on Rule 6.17
Over the course of the next two weeks, informational seminars on Rule 6.17 will be conducted by Members and Staff. The first seminar will be held after the close on Wednesday, September 4, 2002, in the Crude Oil Ring. There will be an additional seminar after the close on Tuesday, September 10, 2002.
Amendments to NYMEX Rule 6.17
(Brackets indicate additions, strikethrough indicate deletions.)
Rule 6.17.
(B) This rule shall not be construed to contravene any instructions received from a client respecting any order prior to its execution, but shall be construed to permit execution of orders under the conditions prescribed without prior instructions from the client.
[(A) Errors. If a Floor Member has failed to execute an order placed by a customer or has made an error in handling a customer order, such as by under buying or under selling, and the order cannot be executed in the market at a price which is equal to that which the order should have received, the Floor Member may take one of the following actions:
(1) Execute the order in the market and adjust the customer if the price is worse than that which the customer should have received had the error not occurred;
(2) Execute a spread transaction in accordance with Rule 6.17A-Spread Transaction to Rectify an Error; or
(3) Take the opposite side of the order (notwithstanding any rule to the contrary), at a price which is equal to the price the order should have received had the error not occurred. If such price cannot be obtained in the market, or the Floor Member discovers the error after the close of such market, the Floor Member may assign the opposite side of the order to the Floor Member's designated error account at a price which is equal to the price which the order should have received had the error not occurred, notwithstanding any rule to the contrary. Any assignment made after the close of the market must be made promptly.
In no case may a customer receive a price which is worse than that which the customer should have received had the error not occurred. Any transaction or straddle transaction executed pursuant to Subsection (3) above shall be within such day's trading range, reported to the Compliance Department in accordance with the procedures listed in Section (E) below.
(B) Out-Trades.
(1) If two Floor Members who have executed a trade disagree about any of the material terms of the trade, including the quantity, price, option series or contract month, or if one Floor Member fails to acknowledge the trade (collectively referred to as "out-trades"), the trade shall clear in accordance with the seller's recorded terms, unless the Floor Members both agree to nullify ("break") the trade or agree to accept the trade in accordance with the buyer's recorded terms.
(2) If a trade is "broken" in accordance with Subsection (B)(1) after it has been confirmed to a customer, the Floor Member handling the customer order may take the opposite side of the order into the designated error account so that the order can be filled by the terms confirmed, provided that he does so in accordance with the procedures set forth in Section (E) of this rule by the close of trading on the business day following the day on which the trade originally was executed.
(C) "Who" Trades. If a Floor Member has executed a trade for a customer, recorded the terms of the trade on his trading card, and confirmed the trade to the customer, but is unable to determine the proper identity of the opposite Floor Member (a "Who" trade), the Floor Member shall either:
[(1)] re-execute the trade in the ring, by open outcry, and adjust the customer to the originally confirmed price; or
[(2)] substitute himself for the unknown opposite Floor Member, take the opposite side of the trade into his designated error account and assign a fill to the customer at the originally confirmed terms, provided that he does so in accordance with the procedures set forth in Section (E) of this rule by the close of trading on the business day following the day on which the trade originally was executed.
(D) Offset. A Floor Member may not establish a position that would offset the position he has acquired pursuant to Subsection (A)(3), or Sections (B) or (C) of this rule until at least ten minutes after the time of execution of the original trade for the customer.
(E) Procedures. A Floor Member may take the opposite side of a customer order to resolve an error, out- or "Who" trade [as defined in Sections (A)(3), (B) and (C) above] in accordance with the following procedures:
(1) Within 15 minutes of the resolution of an error, out- or "Who" trade, the Floor Member must prepare or cause to be prepared an Error/Out-Trade Correction Slip (hereafter "Slip") that sets forth clearly and accurately:
(a) the date of the error, out- or "Who" trade;
(b) the Floor Member's badge number;
(c) the Floor Member's error account number and the clearing firm at which the account is maintained;
(d) the badge of the opposite Floor Member, if applicable;
(e) the details of (i) the trade as recorded by the Floor Member, (ii) the trade as recorded by the opposite Floor Member, in the case of an out-trade, (iii) the cross trade by which the Floor Member has taken the opposite side of his customer's order;
(f) the date on which the Slip was prepared;
(g) the signature of the individual who prepared the Slip; and
(h) such other information as the Exchange may require.
(2) Upon completion of the Slip, the Floor Member shall staple a photocopy of his trading records to the Slip and submit the Slip and trading records to a designated representative of the Exchange, who shall review the materials to assure that they are complete, sign the Slip, and retain one copy for the Exchange.
(3) After the Exchange representative has signed the Slip, the Floor Member shall submit the remaining copies of the Slip as follows:
(a) the top copy shall be submitted to the clearing member at which time the clearing member shall time-stamp the Slip, thereby acknowledging receipt;
(b) the second copy shall be submitted to the clearing member intended to clear the customer's trade; and
(c) the third copy shall be submitted to the opposite Floor Member, in the case of an out-trade.
(4) The Floor Member shall retain a copy of the Slip for such period as required by CFTC Rule 1.31 for trading floor records.
(F) Recordation Requirements.
(1) A Floor Member shall not be required to insert on a trading card the cross trade resulting from the resolution of an error, out-or "Who" trade by having taken the opposite side of a customer's order, but any trade offsetting the cross trade must be recorded in conformity with the requirements of Rule 6.90 ("Trading Card Procedures") and, if executed after the cross trade, specially identified in such manner as the Exchange may prescribe.
(2) Trade data submitted to the Exchange shall specially identify any cross trade resulting from a Floor Member's resolution of an error, out- or "Who" trade and specify the account in which it will clear. Trade data pertaining to the offset of the cross trade shall specify the account in which the offsetting trade will clear.
(3) Any claim made by a Floor Member against another Floor Member in connection with an out-trade shall be recorded on the reverse side of the trading card of each of the Floor Members.
(G) Adjustments. If the resolution of an out-trade or a dispute involving an error requires a Floor Member to make an adjustment to another Floor Member, or to a customer, the adjustment shall be made by check or through the use of ATOM with permission of the Floor Member.
(H) Modification of Trade Terms Prohibited. Except as otherwise provided in this rule, a Floor Member shall not change the terms of a trade to correct an error or to resolve an out-trade.
(I) Arbitration. Nothing shall preclude the resolution of a dispute arising from or in connection with an error or out-trade by means of arbitration in accordance with Chapter Five of these rules.]