Exception traffic refers to traffic that must be sent from the Packet Forwarding Engine (PFE) to the Routing Engine (RE) for processing, such as routing protocol updates, management traffic, and control-plane destined packets.

Option B: Correct. Exception traffic is rate-limited on the internal connection between the PFE and RE to protect the Routing Engine from denial-of-service attacks.

Option A: Incorrect. Exception traffic is not handled only on the PFE; it requires RE involvement.

Option C: Incorrect. Rejected traffic by security policies is simply dropped, not classified as exception traffic.

Option D: Incorrect. Malformed packets are dropped, not considered exception traffic.

Correct Statement: Exception traffic is rate-limited between the PFE and RE.