• SEC Announces Intent to Release Rules for Clearly Erroneous Trades
  • June 29, 2010
  • Law Firm: Alston Bird LLP - Atlanta Office
  • Today, the SEC announced that it intends to publish for public comment rule proposals submitted by the national securities exchanges and FINRA meant to “clarify the process for breaking erroneous trades."  The new rules will soon be filed by the exchanges and FINRA, according to the SEC statement, and will include a series of thresholds for breaking trades when prices diverge from a "reference price." The reference price will typically be the last sale before pricing was disrupted.

    Under the proposed rules, for stocks that are subject to the recently adopted single stock circuit breakers, trades would be broken at specified levels based on the circuit breaker trigger price:

    • Stocks priced $25 or less would have trades broken if the trades are at least 10% away from the circuit breaker trigger price.
    • Stocks priced more than $25 to $50 would have trades broken if they are 5% away from the circuit breaker trigger price.
    • Stocks priced more than $50 would have trades broken if they are 3% away from the circuit breaker trigger price.

    Those circuit breakers are currently being implemented for S&P 500 stocks at every exchange and by FINRA. 

    For those stocks not yet subject to the circuit breaker rules, the exchanges and FINRA will propose to break trades at specified levels for events involving multiple stocks, depending on how many stocks are involved.

    • For events involving between five and 20 stocks, trades would be broken that are at least 10 percent away from the reference price.
    • For events involving more than 20 stocks, trades would be broken that are at least 30 percent away from the reference price.

    As with recently approved circuit breaker rules, these new rules are proposed to be in effect on a pilot basis through December 10, 2010. When they become available, the proposed rules will be published on the SEC's website and in the Federal Register, and subject to a 21-day public comment period.