SEC announces proposed amendments to rules for clearly erroneous trades
The U.S. Securities and Exchange Commission (SEC) announced yesterday proposed amendments to the Financial Industry Regulatory Authority rules respecting clearly erroneous transactions in exchange-listed securities. Under the current rules, a trade may be found to be clearly erroneous where the price of a transaction deviates from the consolidated last sale price for the security beyond a specified amount. These thresholds depend on the consolidated last sale price of the security and whether trading occurs during or outside normal market hours. For example, where the price of a security is up to $25, a deviation of 10% or more during normal market hours would be considered clearly erroneous.
The amendments would, among other things, establish different thresholds and standards to handle large-scale market events and would remove FINRA's flexibility to use different thresholds in unusual circumstances. In circumstances of a multi-stock event involving 20 or more securities, FINRA may use a reference price other than the consolidated last sale and will nullify transactions at prices equal to, or greater than, 30% of the reference price.
The amendments are a further response to the market volatility that occurred on May 6 and follow the recent approval of stock-by-stock circuit breakers in the U.S. We originally discussed the circuit breaker proposals in our post of May 19.
