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Cancelation Of High Frequency Trades: Clearly Erroneous Or Just A Mistake?, Andrew D. Getsinger

Bocconi Legal Papers

This paper focuses on an often overlooked and obscure element of the current marketplace: erroneous transactions. Historically, before the markets’ heavy reliance on automated systems, erroneous transactions were only rescindable if both parties agreed to rescind — a mutual mistake approach. Today, however, Exchanges have incorporated a dispute process to trade rescission, where members petition to the Exchange (the third-party) for cancelation of a bad-trade. A trade will then be nullified by the Exchange, if the Exchange finds that trade to be “clearly erroneous” or to have been made in “obvious error.” This dispute-process is called the “clearly erroneous execution” …