Clearly erroneous executions

We examine the cancellation of erroneous executions on equity exchanges in the United States. Self-regulatory organizations of the National Market System are able to cancel large numbers of trades that are deemed to be clearly erroneous. We explore the market response to cancellations by comparing erroneous trades against matched trades that are eligible to be deemed erroneous, but are never reported as erroneous. We analyze the relation between the cancellation of erroneous executions and the market environment, paying particular attention to the information dissemination process from exchange officials to market participants. We find that clearly erroneous executions have detrimental effects on market quality.