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| Out Trade |
The day after the market trades, the exchange’s clearinghouse makes an attempt to match the buy and sell orders of the previous day’s trades; the clearinghouse must match the paperwork for both sides of the transaction. An out trade will occur when the paperwork for both sides of the trade disagrees on certain details of the trade.
Examples of trade discrepancies may include the following: the type of order (either buy or sell), underlying security, the execution price, or quantity. The exchange will work to resolve the information miscommunication between the various parties.
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Out trade notices are generated by the clearinghouse, which documents the details of the unmatched information between the two parties, and then out trade sessions may be held by the various exchanges to ensure the resolution of all current out trades.
If out trade discrepancies have not been resolved by the clearinghouse and the associated counterparties to the trade within a specified time period, then the trade is classified as “busted” and is not recognized as valid. Once the trade matches, the exchange guarantees those traders whose contracts have increased in value and collects money from those whose contracts have decreased in value.
