Multi-day Events, Trading Halts and Exchange Coordination

The main review paragraph lets the officer act. The two paragraphs in this lesson direct the officer instead: they say "shall," and they ignore the price yardsticks entirely. Two pieces of supplementary guidance sit alongside them: how FINRA lines up with an exchange that already broke a trade, and the one route by which a member can ask for a review.

When Do Transactions on One or More Trading Days Count as One Event?

A series of transactions in a particular security on one or more trading days may be viewed as one event if all such transactions were effected based on the same fundamentally incorrect or grossly misinterpreted issuance information resulting in a severe valuation error for all such transactions. The rule calls that the Event.

A FINRA officer, acting on his or her own motion, shall take action to declare all transactions that occurred during the Event null and void not later than the start of trading on the day following the last transaction in the Event.

If trading in the security is halted before the valuation error is corrected, the officer shall take action to declare all transactions that occurred during the Event null and void prior to the resumption of trading.

Exam Tip: Gotchas

• This paragraph says "shall," not "may." Where its conditions are met the officer is directed to act, which is a different posture from the discretionary power in the main review paragraph.
• The trigger is one shared informational error, not merely a run of bad prints. Every transaction must rest on the same fundamentally incorrect or grossly misinterpreted issuance information producing a severe valuation error.
• A halt pulls the deadline forward rather than pushing it back. If trading halts before the error is corrected, the action must come before trading resumes, which can be earlier than the next day's open.

Which Transactions Can No Multi-day Action Reach, and What Follows the Break?

Notwithstanding the rest of the paragraph, no action can be taken under it with respect to any transactions that:

• Have reached settlement date, or
• Result from an initial public offering of a security

To the extent transactions related to an Event occur on one or more other self-regulatory organization (SRO), FINRA will promptly coordinate with such other SROs to ensure consistent treatment of the transactions related to the Event, if practicable.

Any action taken under this paragraph is taken without regard to the Percentage Parameters or Numerical Guidelines. FINRA will notify each member involved in a transaction subject to this paragraph as soon as practicable of a determination to declare that transaction null and void, and the party aggrieved by the action may appeal in accordance with the clearly erroneous appeal rule.

That appeal runs on the appeal rule's terms. A ruling FINRA makes in conjunction with one or more other SROs is not appealable, so an Event break produced by the cross-market coordination this paragraph requires can fall outside the appeal right.

Exam Tip: Gotchas

• Settlement closes the door. A transaction that has reached settlement date is out of reach here even where every other condition of the Event is satisfied.
• Cross-market coordination is conditional and then qualified again. It applies to the extent related transactions occur on one or more other SRO, and the duty to coordinate is stated as "if practicable."
• Notice under this paragraph goes to each member involved in a transaction subject to it, while the main review paragraph notifies each party. Both are "as soon as practicable," and both leave the aggrieved party an appeal on the appeal rule's terms, which withhold one from a ruling made with another SRO.

What Happens When a Trading Halt Message Fails?

The trigger is any disruption or malfunction in the operation of the electronic communications and trading facilities of an SRO or responsible single plan processor in connection with the transmittal or receipt of a regulatory trading halt, suspension or pause.

A FINRA officer, acting on his or her own motion, shall declare as null and void any transaction in a security that occurs after the primary listing market declares a regulatory trading halt, suspension or pause in that security and before the halt, suspension or pause has officially ended according to the primary listing market.

A second sentence covers the premature lift. Where a regulatory trading halt, suspension or pause is declared, then prematurely lifted in error, and is then re-instituted, the officer also shall declare as null and void transactions that occur before its official, final end according to the primary listing market.

Action under this paragraph shall be taken in a timely fashion, generally within thirty minutes of the detection of the erroneous transaction, and in no circumstances later than the start of normal market hours on the trading day following the date of the executions under review.

This paragraph too works without regard to the Percentage Parameters or Numerical Guidelines. FINRA will notify each member involved in a transaction subject to this paragraph as soon as practicable, and the party aggrieved by the action may appeal.

Exam Tip: Gotchas

• The clock here runs from detection, not from awareness of the transaction. The main review paragraph measures its thirty minutes from the officer becoming aware; this one measures from detection of the erroneous transaction.
• Both directions of the message failure count. A disruption in the transmittal of the halt and a disruption in its receipt each satisfy the trigger.
• The primary listing market defines when the halt ends. A halt lifted in error and then re-instituted still runs to its official, final end according to that market.

Does FINRA Follow an Exchange's Break Decision?

This guidance covers over-the-counter transactions in exchange-listed securities that are reported to a FINRA system, such as a Trade Reporting Facility (TRF) or the Alternative Display Facility (ADF). It runs in two directions that are not mirror images of each other.

Breaking a trade. FINRA will generally follow the determination of a national securities exchange to break a trade when that exchange has broken a trade 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 the trade would be consistent with market integrity and investor protection.

Leaving a trade unbroken. In such a case, where multiple national securities exchanges have related trades, FINRA will leave a trade unbroken when any of those exchanges has left a trade 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 the trade would be inconsistent with market integrity and investor protection.

Exam Tip: Gotchas

• The two halves are asymmetric. Breaking follows an exchange that broke a trade, while leaving one standing follows any single exchange among several that left a related trade unbroken.
• Both halves sit inside FINRA staff's sole discretion. Neither is automatic, and each is conditioned on whether FINRA breaking the trade would be consistent or inconsistent with market integrity and investor protection.

What Happens When a Member's Own Systems Push a Trade Outside the Price Bands?

If, as a result of a member's technology or systems issue, any transaction reported to a FINRA system occurs outside the applicable Price Bands disseminated pursuant to the Limit Up-Limit Down (LULD) Plan, a FINRA officer, acting on his or her own motion or at the request of a member, shall review and deem the transaction clearly erroneous, subject to a certification requirement.

That certification sits on the member. A member requesting review under this provision must certify, in the manner and form prescribed by FINRA, that the subject transaction occurring outside the applicable price bands disseminated pursuant to the Plan is the result of the member's bona fide technological or systems issue.

Absent extraordinary circumstances, the officer's action shall be taken in a timely fashion, generally within thirty minutes of the detection of the erroneous transaction. Where extraordinary circumstances exist, it must be taken no later than the start of normal market hours on the trading day following the date on which the executions under review occurred.

Each member involved in the transaction shall be notified as soon as practicable by FINRA, and a member aggrieved by the action may appeal.

Where a single plan processor experiences a technology or systems issue that prevents the dissemination of Price Bands, FINRA instead decides whether to deem transactions clearly erroneous under gateway two of the during-hours review.

Exam Tip: Gotchas

• This is the one place in the exchange-listed clearly erroneous rule where a member may ask for review. Everywhere else the officer acts on his or her own motion, and here the member's request pulls in the certification duty.
• A member problem and a plan processor problem take different routes. A member's technology issue runs through this provision, while a single plan processor issue that prevents Price Bands from being disseminated is decided under gateway two.
• The rulebook prints two different answers on appealing a decision made here. This provision says a member aggrieved by the action may appeal, while the main review paragraph and the clearly erroneous appeal rule both say a decision made here on transactions outside the Price Bands is not appealable.

What Should You Check on Exam Day?

• Confirm every transaction in a multi-day Event rests on the same fundamentally incorrect or grossly misinterpreted issuance information causing a severe valuation error.
• Check the two exclusions before applying a multi-day break: a transaction that has reached settlement date, and one resulting from an initial public offering.
• Confirm the halt paragraph's clock runs from detection, generally thirty minutes, with an outer limit at the next trading day's start of normal market hours.
• Read the exchange-following guidance in the right direction. Breaking follows an exchange that broke; leaving unbroken follows any exchange that left one unbroken.
• Check who asked for the review. Only the member technology-issue provision lets a member request one, and it carries a certification duty.