Clearly Erroneous Policy - Sterling Trader

STERLING ATSCLEARLY ERRONEOUS EXECUTION POLICYPurposeIt is possible that a transaction executed on the Sterling ATS may appear to be materiallyinconsistent with the market at the time of execution of the transaction. If a subscriberbelieves such an event has occurred, they may submit a request to review the transaction.A transaction executed on the Sterling ATS may be considered “cleary erroneous” when, withregards to the guidelines outlined below, there is an obvious error in any term, such as price,number of shares, or ticker symbol. A transaction deemed clearly erroneous by Sterling will becanceled, or appropriately modified (for example, if the subscriber is due a particular fill price)and all parties involved with the transaction will be notified.All transaction reviews will be made in light of maintaining a fair and orderly market andprotecting investors and the public interest.Determining a Clearly Erroneous ExecutionA subscriber that believes they have received a clearly erroneous execution must submit awritten request for review to Sterling ATS via email, through the Sterling ATS website, or otherwritten electronic means available. Designated personnel from Sterling will review the subjecttransaction to determine if is clearly erroneous. Clearly erroneous rulings will generally bebased on the criteria listed below.Subscribers must submit requests to Sterling within thirty (30) minutes of the execution timefor the execution in question. Each request must include the relevant order information,including time of transaction, security symbol, share amount, price, side, and an explanation ofthe reason subscriber believes the transaction to be clearly erroneous.Though Sterling may consider additional factors when determining if an execution is clearlyerroneous, Sterling will largely give consideration to the numerical guidelines listed below whenconsidering a request for a clearly erroneous determination. Other factors may include generalvolatility for a security, news releases, regulatory actions or corporate actions affecting asecurity, and system malfunctions.

Joint Market RulingsSterling may also use a different reference price and/or different numerical guideline in eventsthat involve other market centers. During such an event, Sterling may use a reference price inconsensus with the other markets/exchanges where transactions occurred.Volatile Market Opens:In the event of a volatile market open, Sterling may expand the numerical guidelines applicableto transactions occurring between 9:30 a.m. and 10:00 a.m. based upon the disseminated valueof the S & P 500 Futures at 9:15 a.m. as follows:(a) When the S & P 500 Futures are up or down from 3% to up to, but not including, 5%at 9:15 a.m. the numerical guidelines are doubled for executions occurring between9:30 a.m. and 10:00 a.m.(b) When the S & P 500 Futures are up or down 5% or greater at 9:15 a.m. the numericalguidelines are tripled for executions occurring between 9:30 a.m. and 10:00 a.m.Applicability of PolicySubscribers of the Sterling ATS are responsible for ensuring that orders entered into the ATSrepresent their intent. Use of the Sterling ATS constitutes Client’s agreement to be bound bythis Clearly Erroneous Execution Policy and its express acceptance of Sterling’s authority toapply the Policy.Review FindingsFollowing the conclusion of a review, Sterling will notify Subscriber of the review findings. IfSterling determines an execution was clearly erroneous, Sterling will cancel, or otherwiseappropriately modify, the transaction.In its sole discretion, Sterling may review of any transaction, regardless of whether any requestfor a determination under the Clearly Erroneous Execution policy has been made. If Sterlingpersonnel determine that such an execution was Clearly Erroneous, Sterling will modify thattransaction or cancel it.Subscribers will be advised of the results of any final determination no later than the businessday following any request, or any determination made by Sterling without a customer request.Limit Up / Limit DownIn addition to the existing clearly erroneous policy, the Firm has also adopted policies andprocedures to comply with Limit Up / Limit Down regulatory plan (the Plan) for market

volatility. Under the Plan there are additional parameters for determining executions as clearlyerroneous.The PlanThe Plan prohibits the execution of trades outside specified price bands. The price bands are acertain percentage away from a “reference price,” which is the mean price of regular way, lastsale eligible trades for the security over the immediately preceding five-minute period. Thechart below sets forth the applicable percentage parameters according to NMS stock category(or tier) and reference price:Tier Reference Price Percentage ParameterTier 1 – S&P 500, Russell1000 and selected ETPsMore than $3.00 5%$0.75 and up to andincluding $3.0020%Less than $0.75 Lesser of $0.15 or 75%Tier 2 – All other NMSstocks (provided that allrights and warrants areexcluded from the plan)More than $3.00 10%$0.75 and up to andincluding $3.0020%Less than $0.75 Lesser of $0.15 or 75%Leveraged ETPPercentage above multiplied bythe leverage ratio of the productTo account for increased volatility around market open and market close, the percentageparameters are doubled from 9:30 to 9:45 a.m. and from 3:35 to 4:00 p.m. (or in the case of anearly scheduled close, during the last 25 minutes of trading).When one side of the market for a security is outside the applicable price band (i.e., when thenational best bid (NBB) is below the lower band or the national best offer (NBO) is above theupper band), the SIP will disseminate the NBB or NBO with a flag identifying it as nonexecutable.If the other side of the market reaches the applicable price band (i.e., when theNBB is equal to the upper band or the NBO is equal to the lower band), the market will enter alimit state, and the SIP will disseminate the NBB or NBO with a flag identifying it as a limit statequotation. Trading will exit the limit state if the entire size of all limit state quotations isexecuted or cancelled within 15 seconds of entering the limit state. If the market does not exitthe limit state within 15 seconds, then the primary listing exchange for the security will declarea five-minute trading pause. The primary listing market may also declare a trading pause when

a security is in a “straddle state,” which occurs when the NBB is below the lower price band orthe NBO is above the upper price band and the stock is not in a limit state. During a tradingpause, no trades in the paused security can be executed, but all bids and offers may bedisplayed.Determining a Clearly Erroneous Execution Under Limit Up / Limit DownAs with the Clearly Erroneous guidelines set forth on page one of this document, a subscriberthat believes they have received a clearly erroneous execution must submit a written requestfor review to Sterling ATS via email, through the Sterling ATS website, or other writtenelectronic means available. Designated personnel from Sterling will review the subjecttransaction to determine if is clearly erroneous.Subscribers must submit requests to Sterling within thirty (30) minutes of the execution timefor the execution in question. Each request must include the relevant order information,including time of transaction, security symbol, share amount, price, side, and an explanation ofthe reason subscriber believes the transaction to be clearly erroneous. For example, subscribermay indicate that the execution occurred away from the limit state price when a stock hasentered a limit state. Sterling will largely give consideration to the Limit Up / Limit DownReference Price and Percentage Parameters listed above when considering a request for aclearly erroneous determination under the Limit Up / Limit Down plan.