Clearly Erroneous Executions

Abstract

This study examines the cancellation of multiple erroneous executions on U.S. equity exchanges. Under FINRA Rule 11890(b), exchange members of the National Market System are able to cancel large numbers of trades that are deemed to be clearly erroneous. We explore the market response to cancellations, and analyze the relation between the cancellation of erroneous executions and the market environment, paying particular attention to the information dissemination process from exchange officials to market participants. We find detrimental effects of clearly erroneous executions on market quality.

Keywords: clearly erroneous executions, clearly erroneous trades, CEE, broken trades, cancelled trades, busted trades

JEL Classification: G10, G14