11893. Clearly Erroneous Transactions in OTC Equity Securities
(a) Procedures for Reviewing Transactions
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 involving an OTC Equity Security arising out of or reported through a trade reporting system owned or operated by FINRA or FINRA Regulation and authorized by the Commission. 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; provided, however, that the officer shall take action pursuant to this paragraph as soon as possible after becoming aware of the transaction, but in all cases by 3:00 p.m., Eastern Time, on the next trading day following the date of the transaction(s) at issue. 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) Clearly Erroneous Factors
(1) Numerical Guidelines
A transaction in an OTC Equity Security may be found to be clearly erroneous under this Rule only if the execution price of the transaction is away from the Reference Price by an amount that equals or exceeds the Numerical Guidelines set forth below. In some instances, the Numerical Guidelines set forth below are based on a range where the maximum percentage difference applies to the lower execution price in the range and the minimum percentage difference applies to the higher execution price in the range. The range is intended to smooth the percentage changes from tier to tier and allow for more gradual deviations. The Reference Price will generally be the prevailing market price just prior to the time of the trade.
| Reference Price |
Numerical Guidelines (Subject Transaction's % Difference from the Reference Price) |
| $0.9999 and under | 20% |
|
$1.0000 and up to and including $4.9999 |
Low end of range minimum 20% – High end of range minimum 10% |
|
$5.0000 and up to and including $74.9999 |
10% |
|
$75.0000 and up to and including $199.9999 |
Low end of range minimum 10% – High end of range minimum 5% |
|
$200.0000 and up to and including $499.9999 |
5% |
|
$500.0000 and up to and including $999.9999 |
Low end of range minimum 5% – High end of range minimum 3% |
| $1,000.0000 and over | 3% |
(2) Alternative Reference Prices
In unusual circumstances, which may include periods of extreme market volatility, sustained illiquidity, or widespread system 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 prevailing market price just prior to the time of the trade. 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.
(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.
(c) For purposes of this Rule, the term “OTC Equity Security” has the same meaning as defined in Rule 6420, except that the term shall not include any equity security that is traded on any national securities exchange.
• • • Supplementary Material: ------------------
.01 Limited Application of Clearly Erroneous Authority to Transactions in OTC Equity Securities. With respect to OTC Equity Securities in particular, FINRA historically has applied its clearly erroneous authority in only very limited circumstances, for example, where there is an extraordinary event that has had a material effect on the market for the OTC Equity Security and the canceling of trades is necessary to protect investors and ensure a fair and orderly marketplace. This more narrow approach is due to differences in the OTC equity and exchange-listed markets, including the lack of compulsory information flows in the OTC equity market that come as a result of the listing process and the fact that aberrant trading in the OTC equity market is often due to issues other than systems problems or extraordinary events. As a result, in the vast majority of situations relating to OTC Equity Securities, FINRA does not expect to use its clearly erroneous authority; rather, FINRA expects the parties to settle any dispute privately.
|
Amended by SR-FINRA-2015-034 eff. Dec. 20, 2015. Amended by SR-FINRA-2010-002 eff. Feb. 15, 2010. Adopted by SR-FINRA-2009-068 eff. Feb. 15, 2010. Selected Notices: 10-04, 16-04. |
- Regulatory Notice 10-04January 15, 2010