Fast Markets and Emergency Conditions

Two different actors appear in this rule, and they hold different powers. Floor Officials handle a market that is moving too fast to quote reliably. The exchange's most senior officers handle conditions that reach beyond one class, up to and including closing the exchange.

Who Can Declare a Fast Market, and Why?

The Cboe unusual market and emergency conditions rule opens with the fast market. Whenever in the judgment of any two Floor Officials, because of an influx of orders or other unusual conditions or circumstances, the interest of maintaining a fair and orderly market so requires, those Floor Officials may declare the market in one or more classes of option contracts to be fast.

The trigger is stated as a judgment about market conditions, not as a numeric threshold. The rule names an influx of orders as one cause and leaves other unusual conditions or circumstances open.

Exam Tip: Gotchas

• Two Floor Officials are required, and any two will do. The rule does not reserve the declaration to a named officer or committee.
• The declaration is permissive. The rule says those Floor Officials may declare the market fast, so unusual conditions do not compel a declaration.

What Can Two Floor Officials Do in a Fast Market?

If a market is declared fast, any two Floor Officials have the power to do one or more of three things with respect to the class or classes involved.

1. Direct that one or more trading rotations be employed under the Cboe opening auction rule.
2. Suspend the firm quote requirement, as the Cboe firm quote rule permits.
3. Take such other actions as are deemed necessary in the interest of maintaining a fair and orderly market.

Exam Tip: Gotchas

• The three powers are cumulative, not alternatives. The rule says one or more of the following, so Floor Officials may direct a rotation and suspend the firm quote requirement together.
• Suspending the firm quote requirement is a listed fast-market power, but it rests on a further determination. The firm quote rule lets Floor Officials who have declared a market fast determine that the level of trading activity or the unusual market conditions leave the exchange unable to collect, process and make quotation information available in a way that accurately reflects the market, and then suspend the requirement.
• A second route reaches the same suspension. The senior person then in charge of the exchange's Trade Desk may suspend the requirement on the same finding, and must then immediately seek approval by two Floor Officials, who may confirm or overrule it.

When Do Regular Trading Procedures Resume?

Regular trading procedures shall be resumed when two Floor Officials determine that the conditions supporting that declaration no longer exist.

If the conditions supporting the declaration cannot be managed using one or more of the fast-market procedures, those Floor Officials shall halt trading in the class or classes affected.

Exam Tip: Gotchas

• Both duties in the resumption paragraph use shall. Regular trading procedures shall be resumed once two Floor Officials determine the conditions no longer exist, and those Floor Officials shall halt the affected classes where the fast-market procedures cannot manage the conditions. Only the declaration itself is permissive.
• The same two-official standard governs the exit. Resumption turns on two Floor Officials determining the conditions no longer exist, not on a fixed time period.

When Can the Exchange Restrict Stop and Stop-Limit Orders?

Whenever market conditions warrant such special action, the exchange may restrict the entry of stop or stop-limit orders in one or more classes or series of options for a period not in excess of two consecutive days.

A designated senior executive officer of the exchange must approve any such restriction that is to be effective for more than two consecutive business days.

Exam Tip: Gotchas

• The rule sets the base period in days and the approval trigger in business days. The restriction runs no more than two consecutive days, while approval is needed past two consecutive business days.
• The rule expressly gives this power to the exchange, not to Floor Officials. The order-entry restriction sits outside the fast-market paragraph and its approval runs to a designated senior executive officer.

Who Holds the Emergency Powers?

In emergency conditions or extraordinary circumstances, the Chief Executive Officer or the President, or his or her senior-level designee, holds five powers.

• Halt trading in some or all securities traded on the exchange.
• Close some or all exchange facilities.
• Determine the duration of any such halt or closing.
• Take one or more of the actions any person or body of the exchange is permitted to take under exchange rules.
• Take any other action deemed necessary or appropriate for the maintenance of a fair and orderly market, the protection of investors, or otherwise in the public interest.

The rule gives three examples of the conditions that support those powers, introduced by the words such as.

Exam Tip: Gotchas

• Closing exchange facilities is an emergency power. The rule assigns it to the Chief Executive Officer or President, or a senior-level designee; the fast-market paragraph does not list it among the Floor Officials' powers.
• The three categories are examples, not a closed list. The rule introduces them with such as, so an emergency outside all three can still support the powers.
• A senior-level designee stands in the same shoes. The rule extends the powers to the designee of the Chief Executive Officer or the President by its own terms.

What Should You Check on Exam Day?

• Confirm who is acting: two Floor Officials for a fast market, a designated senior executive officer for a longer order-entry restriction, the Chief Executive Officer or President for emergencies.
• Read the verbs, because declaring a fast market is permissive while resuming regular procedures and halting a class the procedures cannot manage are both mandatory.
• On a stop-order restriction, check the two-consecutive-day base period against the more-than-two-consecutive-business-day approval trigger.
• Reject any answer that has a Floor Official closing exchange facilities, since the power to close some or all exchange facilities belongs to the Chief Executive Officer or the President, or a senior-level designee.
• Treat the three emergency examples as illustrations, because the rule introduces them with the words such as.