September 28, 2022

FINRA Proposes to Finalize Clearly Erroneous Transactions Rule

FINRA proposed amendments to Rule 11892 ("Clearly Erroneous Transactions in Exchange-Listed Securities") to make a pilot program permanent and "limit the circumstances where clearly erroneous review would continue to be available during regular trading hours."

As amended over a 12-year period, the pilot program "(i) provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of FINRA to deviate from the objective standards set forth in the rule." The program is set to expire on October 20, 2022.

The proposal would tighten the applicability of the Rule to ensure that reviews are not triggered in unnecessary circumstances. For example, after receiving feedback from market participants, FINRA decided to "largely eliminate" the clearly erroneous review during market hours after determining that the Limit Up-Limit Down mechanism would provide sufficient protection from clearly erroneous trades, as it would prevent execution in the first instance. The proposal also provides that all transactions that do not expressly qualify would be ineligible for the Rule's protections.