Quick Answer
A transaction is clearly erroneous when any term, such as price, number of shares or security identification, carries an obvious error. For a clearly erroneous trade within the rules' scope, a FINRA officer may declare it null and void. An appeal must be written, received within 30 minutes of notification, and does not stay the determination.
Who breaks a bad print, how fast, and against which yardstick.
Which One-Liners Win Points?
- The list of erroneous terms is open, and a member's simple assertion that it made a mistake may not be sufficient.
- Account intrusion relates to allegations of fraud, so it is not within the scope of these rules.
- Review is on the officer's own motion, except that a member may ask when its own technology issue pushed a trade outside the Limit Up-Limit Down Price Bands, and it must certify that issue.
- The stated remedy is null and void, not a price adjustment.
- OTC equity breaks are rare. FINRA expects private settlement in the vast majority of situations.
Which Guideline Applies at Which Price?
Gateway one is a national market system stock not subject to the Limit Up-Limit Down Plan.
| Reference Price | Gateway one, during hours | Outside Normal Market Hours |
|---|---|---|
| Up to $25.00 | 10% | 20% |
| Over $25.00 to $50.00 | 5% | 10% |
| Over $50.00 | 3% | 6% |
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Normal Market Hours | 9:30 a.m. to 4:00 p.m. Eastern Time |
| Exchange-listed officer clock | Generally 30 minutes from awareness; extraordinary circumstances, start of trading the next day |
| OTC equity officer clock | As soon as possible, no later than the start of trading the next day |
| Appeal | Written, received within 30 minutes of notification |
Which Gotchas Trip Students Up?
- "Equals or exceeds": a trade exactly at the guideline meets the test.
- Two paragraphs say "shall" and ignore the guidelines: a multi-day Event where every transaction rests on the same fundamentally incorrect or grossly misinterpreted issuance information resulting in a severe valuation error for all such transactions, and trades that print during a halt because the halt message failed.
- Settlement closes the door. No multi-day Event action reaches a transaction that has reached settlement date or resulted from an initial public offering.
- An appeal does not stay the determination, and a ruling made with one or more other self-regulatory organizations is not appealable.
One-Breath Recap
A transaction is clearly erroneous when any term, such as price, number of shares or the security's identity, carries an obvious error. For an over-the-counter trade in an exchange-listed security that arose out of or was reported through a trade reporting system owned or operated by FINRA or FINRA Regulation and authorized by the SEC, a FINRA officer may act on his or her own motion, generally within 30 minutes of becoming aware; outside normal market hours the Numerical Guidelines apply, and inside them the trade must first fit one of three gateways. The remedy is to declare the trade null and void, and over-the-counter equity breaks are rare. An appeal must be written and received within 30 minutes of notification, and it does not stay the determination.
Need more than the recap? Read the full Identifying and Handling Clearly Erroneous Transactions unit.