Trade Errors: Cancel-and-Re-Bill Procedures and Principal Sign-Off
A registered representative mistakenly enters a buy order for 1,000 shares of stock into account #12345 (Client A) instead of account #54321 (Client B). The trade executes on the exchange. How must the representative correct this trading error under FINRA rules?
Correcting account errors requires a formal 'Cancel-and-Re-Bill' procedure documented with the reason for error and APPROVED IN WRITING by a registered principal.
Complete Analysis & Legal Rationale
When a trade is erroneously executed in the wrong customer account, the transaction cannot simply be erased. Under FINRA rules, the firm must follow a 'Cancel-and-Re-Bill' procedure: (1) A detailed written error memorandum must be created documenting why and how the mistake occurred; (2) A registered principal must review and approve the Cancel-and-Re-Bill in writing prior to moving the transaction to the correct account; (3) All error records must be retained in the firm's supervisory files under Rule 17a-4.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Correcting account errors requires a formal 'Cancel-and-Re-Bill' procedure documented with the reason for error and APPROVED IN WRITING by a registered principal.
Fails to adhere to trade execution and settlement rules regarding B.
Fails to adhere to trade execution and settlement rules regarding C.
Fails to adhere to trade execution and settlement rules regarding D.
Official Standard: When a trade is erroneously executed in the wrong customer account, the transaction cannot simply be erased. Under FINRA rules, the firm must follow a