Factbox: How canceled trades may affect other securities

NEW YORK (BestGrowthStock) – Exchanges and trading venues agreed to cancel some stock trades that took place during the worst of Thursday’s intraday meltdown in U.S. equity markets.

Nasdaq and others said trades will be canceled in shares that rose or fell more than 60 percent from the last price before the drop began at 2:40 p.m.

The unusual move to cancel trades raised questions about securities where contracts are based on underlying stocks and stock indexes, included exchange traded funds, futures and options.

The following are details of how such securities could be affected.

ETFS:

As electronically traded funds are traded in the same way company shares are, the same agreement should apply.

Like stock investors, ETF investors could have ended up with losses if they had a preset order to sell shares if they fell to a specified price.

“What’s going on here is no different than what happened with individual equities,” said Tom Lydon, president of Global Investment Trends in Newport Beach, California.

Exchange traded funds are securities that track an index, commodity or basket of assets. It is possible that trades in underlying stocks could be canceled separately. If ETF shares traded at the same time also show an unreasonable price, they could be canceled as well, said Lydon.

FUTURES:

CME Group Inc, the giant futures market, had no immediate comment on whether it would cancel or adjust trades, while two major futures trading firms said CME had given no notice that trades would be broken.

“We traded, we were open, we didn’t limit down, and as far as I know there’s been nothing whatsoever from CME Group about busting trades,” said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago.

“We think if they were going to do it, they would have told us toward (Thursday’s) close.”

OPTIONS:

It appeared few options trades would be torn up, and a source said it was likely options trades based on equities trades that were canceled would be “adjusted, not busted.”

Very few trades at the eight U.S. options exchanges met the same fate as unreasonably priced stocks.

“Busted trade volume from the exchanges was de minimis,” said an Options Clearing Corp spokesman. The clearinghouse processes and guarantees all U.S. options trades.

Options give the right to buy or sell shares by a future date at a pre-set price.

Investing Research

(Reporting by Leah Schnurr, Rodrigo Campos, Ann Saphir; Editing by Kenneth Barry)

Factbox: How canceled trades may affect other securities