Reviewed by Sep 30, 2020| Updated on
A broker sends a notice to his or her client informing them that an erroneous trade was made and is being rectified. This notice is called cancellation. Even if the technology has been evolving with time, there can be errors made due to human or software errors.
However, brokers must immediately take action to correct such mistakes immediately. All the transactions taken to lay off the cancellation is recorded and is ensured that the broker hasn't mishandled the account. Also, the notice sent to the client includes details such as all transactions done and the steps taken to rectify them.
In a trading world where technology plays a vital role and undoubtedly it has made trading a lot simpler and efficient, there are chances of an erroneous trade taking place. The broker might overbuy securities than asked to him by his client or can trade for different securities.
These types of trade generate a need for the cancellation. Despite having modern conveniences and tools, erroneous trades occur on a fairly regular basis. This can be due to human error or technological malfunction.
Before cancelling a trade, a broker has to investigate if the exchange breaks trades when the price differs by a specified percentage from the last consolidated sale price. In such cases, the erroneous report process must start within the stipulated time, say 30 minutes, from the time of the trade. Also, the resolution of the error must be completed within the stipulated time, say 30 minutes, of the review process.
Factors to be considered before cancellation: