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11892. Clearly Erroneous Transactions in Exchange-Listed Securities

Past version: effective from Feb 15 2010 - Sep 9 2010.
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(a) Procedures for Reviewing Transactions
(1) In the event of a determination by a national securities exchange to nullify and void one or more transactions in a security traded on such national securities exchange, where a similarly situated transaction(s) in such security is also reported through a trade reporting system owned or operated by FINRA or its subsidiaries and authorized by the Commission, an Executive Vice President of FINRA's Market Regulation Department or Transparency Services Department, or any officer designated by such Executive Vice President, may, on his or her own motion, review any transaction reported through any such trade reporting system. A FINRA officer acting pursuant to this paragraph may declare any such transaction null and void if the officer determines that (A) the transaction is clearly erroneous, or (B) such actions are necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest. Absent extraordinary circumstances, the officer shall take action pursuant to this paragraph generally within 30 minutes after becoming aware of the transaction. When extraordinary circumstances exist, any such action of the officer must be taken no later than the start of trading on the day following the date of execution(s) under review.
(2) An Executive Vice President of FINRA's Market Regulation Department or Transparency Services Department, or any officer designated by such Executive Vice President, may, on his or her own motion, review any over-the-counter transaction involving an exchange-listed security arising out of or reported through a trade reporting system owned or operated by FINRA or its subsidiaries and authorized by the Commission, provided that there is no similarly situated transaction in such security on a national securities exchange and the transaction meets the thresholds set forth in paragraph (b). A FINRA officer acting pursuant to this subparagraph may declare any such transaction null and void if the officer determines that (A) the transaction is clearly erroneous, or (B) such actions are necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest. Absent extraordinary circumstances, the officer shall take action pursuant to this paragraph generally within 30 minutes after becoming aware of the transaction. When extraordinary circumstances exist, any such action of the officer must be taken no later than the start of trading on the day following the date of execution(s) under review.
(3) If a FINRA officer acting pursuant to this paragraph declares any transaction null and void, each party involved in the transaction shall be notified as soon as practicable by FINRA, and the party aggrieved by the action may appeal such action in accordance with Rule 11894, unless the officer making the determination also determines that the number of the affected transactions is such that immediate finality is necessary to maintain a fair and orderly market and to protect investors and the public interest.
(b) Thresholds
Determinations of a clearly erroneous execution pursuant to paragraph (a)(2) will be based on all relevant factors on a case by case basis including, but not limited to, the following:
(1) Numerical Guidelines
A transaction may be found to be clearly erroneous only if the price of the transaction is away from the Reference Price by an amount that equals or exceeds the Numerical Guidelines set forth below. The Reference Price will be equal to the consolidated last sale immediately prior to the execution(s) under review except for unusual circumstances as described in paragraph (b)(2) below.
Reference Price:
Consolidated Last Sale
Normal Market Hours
(9:30 a.m. Eastern Time
to 4:00 p.m. Eastern
Time) Numerical
Guidelines (Subject
transaction's %
difference from the
Consolidated Last Sale):
Outside Normal Market
Hours Numerical
Guidelines (Subject
transaction's %
difference from the
Consolidated Last Sale):
Greater than $0.00 up to
and including $25.00
10% 20%
Greater than $25.00 up to
and including $50.00
5% 10%
Greater than $50.00 3% 6%
Multi-Stock Event —
Filings involving five or
more securities by the
same member will be
aggregated into a single
filing
10% 10%
Leveraged ETF/ETN securities Normal Market Hours
Numerical Guidelines
multiplied by the leverage
multiplier (i.e. 2x)
Normal Market Hours
Numerical Guidelines
multiplied by the leverage
multiplier (i.e. 2x)
(2) Alternative Reference Prices
In unusual circumstances, which may include periods of extreme market volatility, sustained illiquidity, or widespread systems issues, FINRA may, in its discretion and with a view toward maintaining a fair and orderly market and the protection of investors and the public interest, use a Reference Price other than the consolidated last sale. Other Reference Prices may include the consolidated inside price, the consolidated opening price, the consolidated prior close, or the consolidated last sale prior to a series of executions. It may also be necessary to use a higher Numerical Guideline if, after market participants have been alerted to the existence of erroneous activity, the price of the security returns toward its prior trading range but continues to trade beyond the price at which the trades would normally be broken.
(3) Additional Factors
A FINRA Officer may also consider additional factors to determine whether a transaction is clearly erroneous, including but not limited to, system malfunctions or disruptions; volume and volatility for the security; derivative securities products that correspond to greater than 100% in the direction of a tracking index; news released for the security; whether trading in the security was recently halted/resumed; whether the security is an IPO; whether the security was subject to a stock-split, reorganization, or other corporate action; overall market conditions; Opening and Late Session executions; validity of the consolidated tapes' trades and quotes; consideration of primary market indications; and executions inconsistent with the trading pattern in the stock. Each additional factor shall be considered with a view toward maintaining a fair and orderly market and the protection of investors and the public interest.
(4) Numerical Guidelines Applicable to Volatile Market Opens
FINRA may expand the Numerical Guidelines applicable to transactions occurring between 9:30 a.m. and 10:00 a.m., Eastern Time, based on the disseminated value of the S&P 500 Futures at 9:15 a.m., Eastern Time.
(A) When the S&P 500 Futures are up or down 3% up to but not including 5% at 9:15 a.m., Eastern Time, the Numerical Guidelines (calculated pursuant to paragraph (b)(1) above) are doubled for executions occurring between 9:30 a.m., Eastern Time, and 10:00 a.m., Eastern Time.
(B) When the S&P 500 Futures are up or down 5% or greater at 9:15 a.m., Eastern Time, the Numerical Guidelines (calculated pursuant to paragraph (b)(1) above) are tripled for executions occurring between 9:30 a.m., Eastern Time, and 10:00 a.m., Eastern Time.

• • • Supplementary Material: ------------------

.01 Determinations by a National Securities Exchange to Nullify and Void the Terms of One or More Transactions in an Exchange-Listed Security When There Are Corresponding or Related Transactions Reported Through a FINRA System.

FINRA believes that coordinating with other self-regulatory organizations with the goal of having consistency and transparency regarding the clearly erroneous process is important to the marketplace and to investors. Consequently, for OTC transactions in exchange-listed securities that are reported to a FINRA system, such as a FINRA Trade Reporting Facility (“TRF”) or Alternative Display Facility (“ADF”), FINRA will generally follow the determination of a national securities exchange to break a trade(s) when that national securities exchange has broken a trade(s) at or near the price range in question at or near the time in question (in FINRA staff's sole discretion) such that FINRA breaking such trade(s) would be consistent with market integrity and investor protection. In such a case where multiple national securities exchanges have related trades, FINRA will leave a trade(s) unbroken when any of those national securities exchanges has left a trade(s) unbroken at or near the price range in question at or near the time in question (in FINRA staff's sole discretion) such that FINRA breaking such trade(s) would be inconsistent with market integrity and investor protection.
Amended by SR-FINRA-2009-068 eff. Feb. 15, 2010.
Amended by SR-FINRA-2008-037 eff. July 8, 2008.
Amended by SR-NASD-2006-104 eff. March 5, 2007.
Amended by SR-NASD-2006-121 eff. Oct. 30, 2006.
Amended by SR-NASD-2005-087 eff. Aug. 1, 2006
Amended by SR-NASD-2006-033 eff. Mar. 1, 2006.
Amended by SR-NASD-2005-089 eff. Oct. 1, 2005.
Amended by SR-NASD-2005-115 eff. Sep. 22, 2005.
Amended by SR-NASD-2004-009 eff. July 27, 2005.
Amended by SR-NASD-2003-125 eff. Aug. 8, 2003.
Amended by SR-NASD-2002-127 eff. Jan. 22, 2003.
Amended by SR-NASD-98-85 eff. October 11, 1999.
Amended by SR-NASD-98-94 eff. April 26, 1999.
Amended by SR-NASD-96-51 eff. Feb. 23, 1998.
Amended June 21, 1991; May 21, 1993.
Adopted eff. Apr. 2, 1990.

Selected Notices: 98-21, 99-29, 00-10, 03-11, 10-04.

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