FINRA Rule 11892

FINRA Rule 11892 sits within the 11890 Clearly Erroneous Transactions cluster of the 11000 Uniform Practice Code as its second rule, immediately following FINRA Rule 11891's general definitional framework and immediately preceding FINRA Rule 11893's OTC equity securities framework.

FINRA Rule 11892(a): FINRA Officer Authority, Timing, and the Appeal Framework

FINRA Rule 11892(a)(1) vests review authority in a defined official — an Executive Vice President of FINRA's Market Regulation Department or Transparency Services Department, or any officer designated by such Executive Vice President (a "FINRA officer"), may, on his or her own motion, review any over-the-counter transaction involving an exchange-listed security occurring outside of Normal Market Hours (9:30 a.m. ET to 4:00 p.m. ET) or eligible for review pursuant to paragraph (b)(1), arising out of or reported through a FINRA-owned-or-operated, Commission-authorized trade reporting system.

The FINRA officer may declare such a transaction null and void upon determining either (A) the transaction is clearly erroneous (invoking FINRA Rule 11891's core definition), or (B) such action is necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest (directly invoking the standard FINRA Rule 11891 Supplementary Material .02 established). The timing standard — absent extraordinary circumstances, generally within 30 minutes after becoming aware of the transaction; in extraordinary circumstances, no later than the start of trading on the day following the date of execution — directly parallels FINRA Rule 11892(e)'s and Supplementary Material .02's identical 30-minute/next-day-start framework, establishing this dual timing standard as the consistent baseline across the rule.

Paragraph (a)(2) establishes the notification-and-appeal framework — each party shall be notified as soon as practicable, and the aggrieved party may appeal in accordance with Rule 11894 — with two carve-outs from appealability: decisions made under Supplementary Material .02 regarding transactions outside LULD Price Bands, and rulings made by FINRA in conjunction with one or more other self-regulatory organizations.

FINRA Rule 11892(b)(1): Clearly Erroneous Review During Normal Market Hours — The LULD Plan Framework

FINRA Rule 11892(b)(1) establishes that, for transactions executed during Normal Market Hours, review for clearly erroneous status is generally unavailable — unless the transaction falls within one of three categories.

Category (A) addresses NMS Stocks not subject to the LULD Plan — for such stocks, the Numerical Guidelines of paragraph (b)(2) apply. This confirms that the LULD Plan — the Regulation NMS-based framework establishing Price Bands (upper and lower price limits within which a security must trade) for most NMS Stocks following the 2010 "Flash Crash" — has become the primary clearly-erroneous-review mechanism during Normal Market Hours for LULD-covered securities, with the older Numerical Guidelines framework serving as the residual mechanism for the (now presumably small) category of NMS Stocks the LULD Plan does not cover.

Category (B) addresses LULD-Plan-covered securities where Price Bands were unavailable, where a member's technology or systems issue caused a transaction outside applicable Price Bands (per Supplementary Material .02), or where the primary listing market has declared a regulatory trading halt, suspension, or pause under paragraph (e). For this category, a transaction is clearly erroneous if its price exceeds the Reference Price (for a buy) or falls below it (for a sell) by an amount equal to or exceeding the applicable Percentage Parameter defined in Appendix A to the LULD Plan.

Category (C) addresses corporate actions, new issues, or securities resuming trading after a Trading Pause without an auction, where the Reference Price itself is determined to be erroneous because it clearly deviated from the security's theoretical value — in which case FINRA may substitute a different Reference Price under paragraph (c)(2), with clearly-erroneous status then determined by reference to that substituted price using either the Numerical Guidelines or Percentage Parameters as applicable.

FINRA Rule 11892(b)(2): The Numerical Guidelines Table

FINRA Rule 11892(b)(2)(A) establishes the Numerical Guidelines table for transactions outside Normal Market Hours, or eligible for review under paragraph (b)(1)(A) — a transaction is clearly erroneous if its price deviates from the Reference Price by an amount equal to or exceeding the applicable percentage. The table establishes price-tiered thresholds: for reference prices up to $25.00, 10% during the Normal-Market-Hours-eligible category and 20% outside Normal Market Hours; for reference prices between $25.00 and $50.00, 5% and 10% respectively; and for reference prices above $50.00, 3% and 6% respectively — confirming an inverse relationship between a security's price level and the percentage deviation tolerated, consistent with the general market-structure principle that higher-priced securities exhibit proportionally smaller typical price movements.

The table also establishes two Multi-Stock Event categories — events involving five or more but fewer than twenty securities executed within five minutes or less use a flat 10% threshold (both inside and outside Normal Market Hours), while events involving twenty or more such securities use a 30% threshold subject to paragraph (b)(2)(B)'s additional procedures. A final row addresses leveraged ETF/ETN securities — for these, the otherwise-applicable Normal Market Hours Numerical Guideline is multiplied by the leverage multiplier (e.g., 2x for a 2x leveraged product), reflecting that a 2x leveraged ETF's price movements are mechanically amplified relative to its underlying index, such that a given percentage deviation that would be clearly erroneous for an unleveraged security might represent entirely ordinary movement for its 2x-leveraged counterpart.

FINRA Rule 11892(b)(2)(B) and (C): Large Multi-Stock Events and Additional Discretionary Factors

FINRA Rule 11892(b)(2)(B) addresses Multi-Stock Events involving twenty or more securities — recognizing that during such events, the number of affected transactions may be such that immediate finality is necessary to maintain a fair and orderly market and protect investors and the public interest. For such events, FINRA may use a Reference Price other than the consolidated last sale, will coordinate with other self-regulatory organizations to determine an appropriate review period (which may exceed the triggering five-minute window) and select reference points in time, and will nullify as clearly erroneous all transactions at prices 30% or more away from the selected Reference Price during that review period.

Paragraph (b)(2)(C) establishes an extensive list of additional factors a FINRA officer may consider for transactions outside Normal Market Hours or eligible under paragraph (b)(1)(A) (except in Multi-Stock Events involving five or more securities) — including but not limited to system malfunctions or disruptions; volume and volatility; leveraged-derivative products tracking more than 100% of an index's movement; news releases; recent trading halts/resumptions; IPO status; stock splits, reorganizations, or other corporate actions; overall market conditions; Opening and Late Session executions; consolidated tape validity; primary market indications; and executions inconsistent with the security's trading pattern — each considered with a view toward maintaining a fair and orderly market and protecting investors and the public interest, the same standard this dictionary has now encountered repeatedly throughout paragraphs (a) and (b).

FINRA Rule 11892(c): The Reference Price and Its Exceptions

FINRA Rule 11892(c) establishes the default Reference Price — the consolidated last sale immediately prior to the execution(s) under review — with three categories of exception. The first exception (paragraph (c)(1)) is the Multi-Stock Event framework of paragraph (b)(2)(B). The second exception (paragraph (c)(2)) addresses the erroneous-Reference-Price scenario of paragraph (b)(1)(C) — for corporate actions or new issues, FINRA considers factors including the new issue's offering price, the stock-split ratio applied to the prior closing price, theoretical prices derived from exchange ratios or spin-off terms, and (for an OTC up-listing) the prior day's FINRA Trade Dissemination Service final closing report; for securities resuming trading after a Trading Pause without an auction, the Reference Price becomes the last effective Price Band that was in a limit state before the Pause.

The third exception (paragraph (c)(3)) is a catch-all — other circumstances, such as relevant news, extreme market volatility, sustained illiquidity, or widespread system issues, where a different Reference Price is necessary for the maintenance of a fair and orderly market and the protection of investors and the public interest, provided the circumstances occurred outside Normal Market Hours or are eligible for review under paragraph (b)(1)(A).

FINRA Rule 11892(d): Multi-day Events and the "Severe Valuation Error" Standard

FINRA Rule 11892(d) addresses a category distinct from the single-execution or short-window Multi-Stock Event scenarios paragraphs (b) and (c) address — a series of transactions in a particular security on one or more trading days may be viewed as one event (an "Event") if all such transactions were effected based on the same fundamentally incorrect or grossly misinterpreted issuance information resulting in a severe valuation error for all such transactions.

For such an Event, a FINRA officer must declare all transactions occurring during the Event null and void not later than the start of trading on the day following the last transaction in the Event — or, if trading is halted before the valuation error is corrected, prior to the resumption of trading. Two important limitations apply — no action under paragraph (d) may address transactions that have reached settlement date (connecting directly to the settlement-finality concerns this dictionary has traced throughout its coverage, from FINRA Rule 11100(c)'s non-cancellation principle onward) or transactions resulting from an initial public offering. Cross-SRO coordination is required where practicable, and any paragraph (d) action operates without regard to the Percentage Parameters or Numerical Guidelines otherwise applicable — reflecting that a severe valuation error spanning multiple days and based on fundamentally incorrect issuance information represents a category of problem the ordinary percentage-deviation framework was not designed to address.

FINRA Rule 11892(e): Transactions During Trading Halts

FINRA Rule 11892(e) addresses transactions executed during a regulatory trading halt, suspension, or pause — specifically in the scenario of any disruption or malfunction in the electronic communications and trading facilities of a self-regulatory organization or responsible single plan processor in connection with transmittal or receipt of such a halt, suspension, or pause. In this scenario, a FINRA officer must declare null and void any transaction occurring after the primary listing market declares the halt and before it officially ends — and, where a halt is prematurely lifted in error and then re-instituted, transactions occurring before the official final end are likewise nullified. The timing standard mirrors paragraph (a)(1) — generally within 30 minutes, and in no circumstances later than the start of normal market hours the following trading day — and, like paragraph (d), operates without regard to the Percentage Parameters or Numerical Guidelines.

Supplementary Material .01: Coordination with National Securities Exchange Trade-Break Determinations

Supplementary Material .01 establishes FINRA's general policy of coordinating with other self-regulatory organizations regarding OTC transactions in exchange-listed securities reported to a FINRA system (such as a Trade Reporting Facility or Alternative Display Facility) — FINRA will generally follow a national securities exchange's determination to break a trade at or near the relevant price and time where doing so would be consistent with market integrity and investor protection, and conversely will leave a trade unbroken where any relevant exchange has left a related trade unbroken at or near the relevant price and time where breaking it would be inconsistent with those goals. This coordination policy reflects the broader theme this dictionary has observed of cross-SRO consistency — paragraphs (b)(2)(B) and (d)'s cross-SRO coordination requirements operate alongside this Supplementary Material's general coordination policy for the specific context of corresponding exchange-listed-security transactions.

Supplementary Material .02: The Member Technology/Systems Issue Framework

Supplementary Material .02 establishes the framework this dictionary encountered referenced in paragraph (b)(1)(B) — where a member's technology or systems issue causes a transaction reported to a FINRA system to occur outside applicable LULD Price Bands, a FINRA officer (on his or her own motion or at a member's request) shall review and deem such transaction clearly erroneous, subject to a certification requirement. The same 30-minute/next-day-start timing standard applies, with notification and FINRA Rule 11894 appeal rights for members — though, per paragraph (a)(2), decisions under this Supplementary Material specifically are not appealable in the sense paragraph (a)(2) otherwise contemplates (a point this dictionary notes as a textual tension between paragraph (a)(2)'s carve-out and Supplementary Material .02(a)'s own appeal-rights language, without resolving it further absent additional guidance).

The certification requirement (paragraph (b) of this Supplementary Material) requires a member requesting review to certify, in FINRA-prescribed manner and form, that the transaction's occurrence outside the applicable Price Bands resulted from the member's bona fide technological or systems issue — a self-certification mechanism ensuring this specific review pathway is invoked only for genuine technology malfunctions, not as a general mechanism for unwinding unfavorable executions.

The Amendment History: 29 Dates Spanning Three Decades and the LULD Plan's Integration

FINRA Rule 11892's amendment history — 29 effective dates from its original adoption effective April 2, 1990 through SR-FINRA-2022-027 effective October 1, 2022 — represents, by a wide margin, the most extensively amended provision this dictionary has examined throughout its entire coverage of the 11000 Uniform Practice Code, exceeding even FINRA Rule 11810's fourteen dates and FINRA Rule 11870's fourteen dates by roughly double. The clustering of amendments in 2010-2022 — SR-FINRA-2010-032, SR-FINRA-2010-065, SR-FINRA-2011-014, SR-FINRA-2011-037, SR-FINRA-2011-039, SR-FINRA-2012-005, SR-FINRA-2012-038, SR-FINRA-2013-012, SR-FINRA-2013-041, SR-FINRA-2014-013, SR-FINRA-2014-021, SR-FINRA-2015-034, SR-FINRA-2019-011, SR-FINRA-2019-025, SR-FINRA-2020-008, SR-FINRA-2020-036, SR-FINRA-2021-004, SR-FINRA-2021-026, SR-FINRA-2022-008, SR-FINRA-2022-020, and SR-FINRA-2022-027 — directly traces the LULD Plan's phased implementation and refinement following the May 2010 "Flash Crash," with Regulatory Notice 10-43 ("Amendments to FINRA Rules on Trading Pauses Due to Extraordinary Market Volatility and Clearly Erroneous Transactions in Exchange-Listed Securities," September 22, 2010) marking the pivotal early post-Flash-Crash amendment.

Connection to FINRA Rules 11110, 11220, 11740, 11810, 11890, 11891, 11893, and 11894

FINRA Rule 11892 connects directly to FINRA Rule 11891 — whose core "obvious error" definition and Supplementary Material .02 fair-and-orderly-market/investor-protection standard FINRA Rule 11892(a)(1)(B) directly incorporates, and whose absence of a 2010 SR-FINRA-2010-030 amendment FINRA Rule 11892 shares. It connects to FINRA Rule 11110 — the UPC Committee framework that FINRA Rule 11894's review process (which this dictionary anticipates examining next) operates within. It connects to FINRA Rule 11220 — whose description-of-securities and unit-of-trading concepts underlie the price-and-quantity-deviation analysis throughout paragraph (b). It connects to FINRA Rule 11740 — whose mark-to-market pricing-validity concerns represent an earlier, narrower instance of the price-deviation concept FINRA Rule 11892's Numerical Guidelines and Percentage Parameters now address comprehensively. It connects to FINRA Rule 11810(d)(1)(D) — whose price-defense documentation requirement for buy-in executions anticipates the kind of price-versus-market scrutiny FINRA Rule 11892 formalizes. It connects to FINRA Rule 11890 — sharing Notice 10-04 as a selected notice. And it connects directly to FINRA Rule 11893 — the OTC equity securities counterpart this dictionary anticipates will parallel much of FINRA Rule 11892's framework for the non-exchange-listed context, and FINRA Rule 11894 — the UPC Committee review mechanism FINRA Rule 11892(a)(2), (d), and Supplementary Material .02 all reference for appeals.

Examination Relevance and Key Takeaways

FINRA Rule 11892 is tested on the Series 7 and Series 24 examinations as the clearly erroneous transaction framework for exchange-listed securities — the most technically dense and continuously amended provision in the Uniform Practice Code, built around the post-Flash-Crash LULD Plan and Regulation NMS infrastructure.

The key points to retain are these: FINRA Rule 11892(a) vests review authority in a designated FINRA officer, who may declare a transaction null and void if clearly erroneous or necessary for fair-and-orderly-market/investor-protection purposes, generally within 30 minutes (or by the start of the next trading day in extraordinary circumstances), with FINRA Rule 11894 appeal rights subject to carve-outs for LULD-Price-Band-related and joint-SRO determinations; FINRA Rule 11892(b)(1) limits Normal-Market-Hours review to three categories — non-LULD NMS Stocks (Numerical Guidelines apply), LULD-covered securities with unavailable Price Bands, member-tech-issue-caused out-of-band trades, or post-halt trades (Percentage Parameters apply), and corporate-action/Trading-Pause scenarios with an erroneous Reference Price; FINRA Rule 11892(b)(2) establishes price-tiered Numerical Guidelines (10%/20%, 5%/10%, 3%/6% for increasing price tiers, inside/outside Normal Market Hours respectively), Multi-Stock Event thresholds (10% for 5-19 securities, 30% with special procedures for 20+), a leverage-multiplier adjustment for leveraged ETF/ETN products, and an extensive list of additional discretionary factors; FINRA Rule 11892(c) defines the Reference Price as generally the consolidated last sale immediately prior, with exceptions for large Multi-Stock Events, erroneous reference prices (using new-issue offering prices, split ratios, exchange ratios, or post-Pause limit-state Price Bands), and other fair-and-orderly-market circumstances; FINRA Rule 11892(d) addresses Multi-day "Events" involving severe valuation errors from misinterpreted issuance information, excluding settled transactions and IPOs, without regard to the usual percentage thresholds; FINRA Rule 11892(e) addresses trading-halt-period transactions under the same without-regard-to-thresholds and 30-minute/next-day standards; Supplementary Material .01 establishes FINRA's general deference to coordinated exchange trade-break determinations; and Supplementary Material .02 establishes the certified-technology-issue pathway for transactions outside LULD Price Bands. The rule was most recently amended effective October 1, 2022 through SR-FINRA-2022-027, with 28 prior amendments extending to its 1990 adoption, and seven selected notices — 98-21, 99-29, 00-10, 03-11, 10-04, 10-43, and 16-04.