SEC approves new rules to deal with erroneous trades

SEC approves new rules to deal with erroneous trades

The Securities and Exchange Commission has approved new rules designed to limit the potential for systemic damage from fat-fingered or computer-generated erroneous trades.

In today's computer-driven markets, a botched trade on one market can rapidly trigger a wave of similarly erroneous trades on other markets.

Historically, exchanges have adopted their own policies for dealing with such deviations from the norm.

The new rules - developed by Nyse Arca in conjunction with all other US exchanges - will for the first time provide a consistent standard across stock exchanges.

The convention allows an exchange to consider breaking a trade only if the price exceeds the consolidated last sale price by more than a specified percentage amount: 10% for stocks priced under $25; 5% for stocks priced between $25 and $50; and 3% for stocks priced over $50. In addition, the review process must be resolved within an hour of the trade taking place.

SEC chairman Mary Schapiro says the rules will "strengthen the resiliency of our markets by reducing the potential for market confusion, especially during periods of high market volatility".

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