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July 1, 2010

Erroneous Trades Plan

By Peter Chapman

When should a trade be broken? Under new rules proposed by the industry's self-regulatory organizations, trades can be canceled if trading in the stock has been halted and the price is far enough away from the price at which it was halted.

The proposal by FINRA and the nation's exchanges is Part Two of a plan meant to deal with out-of-control markets. Part One dealt with circuit breakers. The initiative follows on the events of May 6. So-called "erroneous" trades would be broken if the price of the stock falls or rises some percentage away from the circuit breaker trigger price.

Stocks fall into three categories:$25.00 or less; between $25.01 and $50.00; and at $50.01 or more. Applicable percentages are 10 percent; 5 percent; and 3 percent, respectively.

 

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