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FINRA Proposes Rule Extending the Pilot Program Related to Exchange-Listed Securities

On April 5, the Financial Industry Regulatory Authority filed with the Securities and Exchange Commission a proposed rule change to extend the pilot program related to FINRA Rule 11892 (Clearly Erroneous Transactions in Exchange-Listed Securities).

In September 2010, the SEC approved, on a pilot basis, changes to the rule that, among other things: (i) provided for the uniform treatment of clearly erroneous execution reviews in multi-stock events involving 20 or more securities, and (ii) reduced FINRA’s discretion to deviate from such standards. Since 2010, FINRA has proposed a series of additional provisions that are currently scheduled to operate for a pilot period that coincides with the pilot period for the Limit Up-Limit Down Plan (including any extensions to such pilot period).

The SEC recently published the proposed Eighteenth Amendment to the Limit UP-Limit Down Plan (Proposed Amendment) to allow the Limit Up-Limit Down Plan to operate on a permanent basis. The rule change is intended to (1) untie the pilot program’s effectiveness from that of the Limit Up-Limit Down Plan, and (2) extend the pilot program’s effectiveness to the close of business on October 18, (which is six months after the expiration of the current pilot period for the Limit Up-Limit Down Plan). FINRA noted that, in connection with the rule change, national securities exchanges also will file similar proposals to extend their respective clearly erroneous execution pilot programs, the substance of which are identical to the rule.

Extending the effectiveness of the rule for an additional six months is intended to provide FINRA and national securities exchanges additional time to consider further amendments to the clearly erroneous execution rules in light of the Proposed Amendment. Assuming the SEC approves the permanent adoption of the Limit Up-Limit Down Plan, FINRA intends to assess whether additional changes also should be made to the operation of the clearly erroneous execution rules. The rule change was effective upon filing.

The text of the rule change is available here.

©2019 Katten Muchin Rosenman LLP

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About this Author

Janet M. Angstadt, Securities, Financial Services, Chicago, Lawyer, Katten Law FIrm
Partner

Janet M. Angstadt is the head of Katten's Chicago Financial Services practice. She focuses her practice on broker-dealer and exchange compliance issues and advises companies on matters regarding compliance with the regulations of the US Securities and Exchange Commission (SEC) and self-regulatory organizations (SROs).

Janet represents clients in a wide range of legal and regulatory matters, including mergers and acquisitions, SRO investigations, compliance issues related to registrations, sales practice, short sales, Regulation NMS, market-making and...

312.902.5494
Stanley V. Polit, Katten Muchin, Financial Services lawyer, Corporate Regulatory Matters Attorney
Associate

Stanley Polit concentrates his practice in transactional, corporate and regulatory aspects of financial services matters. Stan is able to provide legal services to a wide variety of clients including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Stan served as a council member for a national crisis management firm, where he specialized in crisis communication and merged media strategies. He has lectured extensively and conducted trainings related to these topics at numerous national and international conferences, including the National Communication Association's National Convention, the International Crisis and Risk Communication Conference and the Disaster Recovery Journal's World Business Continuity Conference.

312.902.5420